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AFM 362 (14)
Lecture 19

AFM 362 Lecture 19: 6

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University of Waterloo
Accounting & Financial Management
AFM 362
Ken Klassen

Chap. 6 If choose to get cash at end of maturity, add previous interest payments not received (ex. If semi annual and no payment in June received add to December to be prorated) for the next interest payment. ONLY ADD one number! Keep going until payment received. Assume individuals use accrual method only. Corporations must use accrual method. They must consider the interest income that they would be getting and report it even if they havent received it yet. Income for the year = Property Income + Income from PUP + Income from LPP Property Income = dividends income, bonds, equity, interest income 1. Dividend Income Dividend can be cash or dividend in kind (ie. Something other than cash like stock dividend) when calculating income from dividends include both stock dividends and cash dividends!! Cash dividend received = total shares * cashshr stock dividend received = stocks issued for stock dividend * value of paidup capital How a dividend is taxed depends on the recipient o individual shareholder (dividend gross up and tax credit) o corporate shareholder (not taxable) resident or nonresident corporation stock dividend? how much of the income amount being deemed as a dividend? Integration remove advantagesdisadvantages of one organization over another, attempt to impose the same amount of tax on income earned regardless of business structure The gross up represents an estimation of the taxes paid by the corporation. The grossup and tax credit system is designed to integrate the individual and corporate tax systems, so that an individual will be indifferent to whether they earn income personally or through a corporation. Ultimately, all income is taxed at the individuals rate, but the tax is allocated between the individual and the corporation. Reduces or eliminates double taxation. Dividend Gross Up: To restore dividends to pretax amount earned by corporation Applies when: individual gets dividend from Canadian resident corporation Reduces or eliminates double taxation
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