CTP13_Chapter_07

Ccpcs out of active business income taxed at general

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Unformatted text preview: Dividends Corporation Earnings $10,000 Taxes At 27.54 Percent ( 2,754) Available For Dividends $ 7,246 Dividends Paid Gross Up (38%) $ 7,246 2,754 Taxable Dividends $10,000 Tax At 45 Percent (29% + 16%) $ 4,500 Dividend Tax Credit [(6/11 + 5/11)($2,754)] ( 2,754) Total Taxes Payable $ 1,746 Cash Retained ($7,246 - $1,746) $ 5,500 Direct Receipt ($10,000)(1 - .45) $ 5,500 Copyright © 2014, Clarence Byrd Inc. 32 Canadian Tax Principles Investment Returns • For an individual in the maximum bracket of 43%, the tax For rate would be: rate – Interest = 43.0% – Capital Gains = 21.5% – Non-eligible dividends = 28.8% – Eligible dividends = 27.2% Copyright © 2014, Clarence Byrd Inc. 33 Canadian Tax Principles Income Trusts • How do they work? How – Distribute 100% of free cash flows – No tax at trust level – In general, distributions are treated as property income. • Special rules for dividends – Retain their character • Special rules for capital gains – Retain their character Copyright © 2014, Clarence Byrd Inc. 34 Canadian Tax Principles Income Trusts • Adjusted Cost Base – Starts with cost – Amounts reinvested are added – Return of capital is deducted Copyright © 2014, Clarence Byrd Inc. 35 Canadian Tax Principles Mutual Fund Dividends • Mutual fund distributions retain character – Capital gains – Interest – Dividends – eligible and non-eligible Copyright © 2014, Clarence Byrd Inc. 36 Canadian Tax Principles Mutual Fund Dividends • Mutual Funds Distribute Earnings – Subject to tax, even if reinvested – Reinvestment amount added to ACB Copyright © 2014, Clarence Byrd Inc. 37 Canadian Tax Principles Stock Dividends • Treated exactly like cash dividends for tax purposes • Treatment discourages use by public companies • Amount of dividend added to adjusted cost base of shares Copyright © 2014, Clarence Byrd Inc. 38 Canadian Tax Principles Capital Dividends • Paid from non-taxable portion of capital gains. – Received Tax Free – Does Not Reduce ACB • Will be covered in Chapter 14 Copyright © 2014, Clarence Byrd Inc. 39 Canadian Tax Principles Foreign Source Income • Non-Business Income – Include 100 percent in net income – Will receive a credit against tax payable for amounts withheld – Credit maximum is 15 percent for individuals – Excess a deduction – No carry over Copyright © 2014, Clarence Byrd Inc. 40 Canadian Tax Principles Foreign Source Income • Business Income – Include 100 Percent In Net Income – Will Receive Credit Against Canadian Tax Payable For Will Foreign Taxes Withheld (No Limit) Foreign Copyright © 2014, Clarence Byrd Inc. 41 Canadian Tax Principles Foreign Source Income (Example) • • • Earn $1,000, receive $850 $1,000 in income • Taxes @ 40% equal $400 Credit of $150 leaves $250 • Total $150 + $250 = $400 (same as if received in Canada) Copyright © 2014, Clarence Byrd Inc. 42 Canadian Tax Principles Copyright © 2014, Clarence Byrd Inc. 43...
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This note was uploaded on 09/19/2013 for the course COMM 355 taught by Professor Trancheung during the Fall '10 term at UBC.

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