Advanced Taxation

5 Weeks 6 February 13 and 27, 2018 & 7 Deemed Dispositions, Deferral Provisions, Non-Arms Length Transfers of Property, AND Income Attribution Chapter 8 – pages 369 to 381 Chapter 9 – pages 428 to 444 SS 8-10, 11 and SS 9-7, 10, 11, 12 AP 8-10, 11 and AP 9-6, 8, 9, 10 Weeks 8 March 6 and 13, 2018 & 9 Rollovers under Section 85 Chapter 16 SS 16-1, 2, 3, 4, 6, 8, 9, 10, 11 AP 16-2, 4, 6, 9, 11, 13 Weeks 10 March 20 and 27, 2018 & 11 Other Rollovers and Sale of an Incorporated Business Chapter 17 SS 17-3, 5, 6 , 7, 8 AP 17-2, 3, 5, 6, 8 Week 12 April 3, 2018 Partnerships, Returns and Payments–Individuals and Corporations Chapter 18 and Chapter 2 – pages 50 to 63 SS 18-3, 4, 5 AP 18-4, 5, 6 and SS 2-3 and AP 2-1, 3, 4 Week 13 April 10, 2018 Trusts and Estate Planning Chapter 19 SS 19-1, 3 AP 19-3, 5, 8, 9

ACCO | 440 | Advanced Taxation | lecture notes | 5 Weeks 6 February 13 and 27  

This would result in an increase in Jason Holt’s 2017 Net Income For Tax Purposes of $128,728 ($22,000 + $19,500 + $87,228). As this was a non-arm’s length transfer, ITA 13(7)(e) would be applicable. While Geena’s capital cost for the building will be $426,000, for CCA and recapture purposes, this value will be limited as follows: Jason’s Capital Cost $387,000 Jason’s Proceeds Of Disposition $426,000 Jason’s Capital Cost ( 387,000) Difference $ 39,000 Addition (= Jason’s Taxable Capital Gain) 1/2 19,500 Capital Cost For CCA Purposes $406,500 Since the acquisition of the building is a non-arm’s length transaction, it was used and continues to be used to produce income and was owned for more than one year by Jason, the half year rule does not apply to Geena. Based on this, the maximum CCA for 2017 would be $16,260 [(4%)($406,500)]. This would leave Geena with a 2017 net rental income of $7,191 ($23,451 - $16,260). Since income attribution is not applicable in this case, Geena will include the net rental income in her Net Income For Tax Purposes. The 2018 sale of the property will result in taxable capital gains, calculated as follows: Land Building Proceeds Of Disposition $175,000 $475,000 Adjusted Cost Base/Capital Cost ( 167,000) ( 426,000) Capital Gain $ 8,000 $ 49,000 Inclusion Rate 1/2 1/2 Taxable Capital Gain $ 4,000 $ 24,500 Based on the CCA that was taken in 2017, the January 1, 2018 UCC would be $390,240 ($406,500 - $16,260). The recapture resulting from the disposition would be equal to the CCA taken by Geena. It would be calculated as follows: January 1, 2018 UCC $390,240 Disposition - Lesser Of: Capital Cost For CCA Purposes = $406,500 Proceeds Of Disposition = $475,000 ( 406,500) Negative Ending Balance = Recapture ($ 16,260) Comparison (Not Required) You might wish to note that, while the allocation of the income differs in Part A and Part B, the total amount of income is the same. This is shown in the following tables: Rent + Taxable Part A Total Income Recapture Capital Gains Jason For 2017 Net Rental Income $ 11,460 $ 11,460 Jason For 2018 Taxable Capital Gains 70,000 $70,000 Recapture 99,219 99,219 Total (No Income For Geena) $180,679 $110,679 $70,000 Rent + Taxable Part B Total Income Recapture Capital Gains Jason For 2017 Taxable Capital Gains $ 41,500 $ 41,500 Recapture 87,228 $ 87,228 Geena For 2017 Net Rental Income 7,191 7,191 Geena For 2018 Taxable Capital Gains 28,500 28,500 Recapture 16,260 16,260 Total $180,679 $110,679 $70,000

ACCO | 440 | Advanced Taxation | homework | This would result in an increa

SMALL BUSINESS DEDUCTION 17.5% of the Least of: 1. Net Canadian Active Business Income 2. Taxable Income, Less:  100/28 x Non-Business Income Foreign Tax Credit (use non-business taxes paid for this calculation).  4 x Business Income Foreign Tax Credit (use business taxes paid for this calculation). 3. The Annual Business Limit FOREIGN TAX CREDITS FOR CCPCs  NON-BUSINESS FTC = Lesser of: 1) Foreign non-business taxes paid 2) Foreign non-business income x Part I taxes otherwise payable Adjusted Division B Income  BUSINESS FTC = Least of: 1) Foreign business taxes paid 2) Foreign Business Income x Part I taxes otherwise payable Adjusted Division B income 3) Part I tax otherwise payable - FTC on Non-Business income REFUNDABLE PORTION OF PART I TAXES = Least of: a) 30 2/3% x [aggregate investment income for year] less [Non-Business FTC- (8% x foreign investment income)] b) 30 2/3% x (Taxable income less amount eligible for SBD less 100 ÷ 38 2/3 x Non-Business FTC less 4 x Business FTC) c) Part I taxes

ACCO | 440 | Advanced Taxation | lecture notes | SMALL BUSINESS DEDUCTION 17.5%

Solution to Assignment Problem Two – 3 Case 1 Bronson's net tax owing in each of the three years is as follows: 2015 = Nil ($7,843 - $8,946) Note that a negative number is not used here. 2016 = $3,190 ($12,862 - $9,672) 2017 = $3,851 ($14,327 - $10,476 Estimated As his net tax owing is expected to exceed $3,000 in 2017 and was more than $3,000 in 2016, the payment of instalments is required. Instalments under the three acceptable alternatives would be as follows: Alternative 1 Using the estimated net tax owing for the current year would result in quarterly instalments of $962.75 ($3,851 _ 4), for a total amount of $3,851. Alternative 2 Using the net tax owing for the previous year would result in quarterly instalments of $797.50 ($3,190 _ 4), for a total amount of $3,190. Alternative 3 Using the net tax owing for the second previous year would result in the first two instalments being nil. The remaining two instalments would be $1,595 [($3,190 - 0) _ 2], a total of $3,190. The best alternative would be Alternative 3. While the total instalments under this alternative are the same as under Alternative 2, this option offers some deferral as the first two instalments are nil. The required instalments would be due on September 15 and December 15, 2017. Case 2 Bronson's net tax owing in each of the three years is as follows: 2015 = Nil ($8,116 - $8,946) Note that a negative number is not used here. 2016 = $4,174 ($13,846 - $9,672) 2017 = $3,066 ($13,542 - $10,476) Estimated As his net tax owing is expected to exceed $3,000 in 2017 and was more than $3,000 in 2016, the payment of instalments is required. Instalments under the three acceptable alternatives would be as follows: Alternative 1 Using the estimated net tax owing for the current year would result in quarterly instalments of $766.50 ($3,066 _ 4), for a total amount of $3,066. Alternative 2 Using the net tax owing for the previous year would result in quarterly instalments of $1,043.50 ($4,174 _ 4), for a total amount of $4,174. Alternative 3 Using the net tax owing for the second previous year would result in the first two instalments being nil. The remaining two instalments would be $2,087 [($4,174 - 0) _ 2], a total of $4,174. The best choice would be Alternative 1. While the first two instalments are lower under Alternative 3, the total for the year under Alternative 3 is $1,108 ($4,174 - $3,066) higher. The required instalments would be due on March 15, June 15, September 15, and December 15, 2017.

ACCO | 440 | Advanced Taxation | homework | Solution to Assignment Problem

John Molson School of Business Acco 440: Advanced Taxation Page 1 of 177 All rights reserved © Joseph Armanious All rights reserved © Joseph Armanious No reproduction without express consent of the author ACCO 440 - ADVANCED TAXATION JMSB WINTER 2018 - LECTURE NOTES [Important Note: due to the substantial changes to the ITA, previous versions of notes no longer reflect current material] Instructor: Joseph Armanious, CPA, CGA, LL.M. Fisc. Email: jarmanious@jmsb.concordia.ca Office Hours: After the Lecture (Office or in classroom) Office: Part-Time Lecturer’s Office, 14 th Floor, MB building Disclaimers: The notes are not a substitute for the textbook nor do they purport to cover the entire material indicated in the course outline. Accordingly, the textbook along with the Income Tax (Canada) (the “Act” or “ITA”) are the primary sources of reference for the course. For any discrepancy between the notes and the textbook, the textbook has precedence. The material in the notes is intended to provide general information and is provided "as is" with no guarantee or representation of accuracy or timeliness. There will be no liability by the author to anyone for any decision made or action taken in reliance on the information contained therein or for any damages of any nature whatsoever. John Molson School of Business Acco 440: Advanced Taxation Page 2 of 177 All rights reserved © Joseph Armanious All rights reserved © Joseph Armanious No reproduction without express consent of the author LECTURES 1 and 2: Chapters 12 & 14 (Association section) Taxable Income and Tax Payable for Corporations Instructor: Joseph Armanious, CPA, CGA, LL.M. Fisc. 3(a) Total of: Subdivision a § Income from each employment [Add: ss.5,6,7,Less: ss 8 ITA] + Subdivision b § Income from each business [ss. 9 - 20, 67, 78 ITA] Refer to ACCO 340 (i.e., Chapter 6 and next slide) + Subdivision b § Income from each property [ss.12 ITA] (i.e., Gross Dividends from other corporations – no Gross-up) + Subdivision d § Other sources [ss. 56 – 59.1 ITA ] + Subdivision c 3(b) the total, if any, by which [Only Positive Balances] i) the total of: § Taxable Capital Gains (other than LPP) and + § Taxable Net Gain (Gains less losses) from LPP + Exceeds § Allowable Capital Losses xx Less: Allowable Business Investment Losses (xx) - + Subdivision e 3(c) deductions (if any) [Section 60 -66.8 ITA ] - - - + 3(d) total of [Obligatory and not Discretionary] § Loss from each employment - § Loss from each business - § Loss from each property - § Allowable business investment loss - - - Net Income – Division B income + DIVISION C: Computation of Taxable Income Less : [In the following order] Deduct (Only applicable to corporations): § Dividends received [from taxable Cdn corp or from foreign affiliates – may be PART IV Tax] 1 § Charitable Donations[limited to 75% of net income] § 111 Deductible losses of other years [No specific order required] - Non Capital Losses [ie. Employment, Business, Property] & [Oldest Losses First] - Net Capital Losses [1/2 of (Capital Losses – Capital Gains) [Oldest Losses First] - Allowable Business Investment Losses - Regular Farm Losses - Restricted Farm Losses Taxable Income for Corporations – Division C income + 1 For foreign dividends, no deduction - unless foreign affiliate - and may claim FTC [see headings in notes]

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