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4562 Lecture 2.doc

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Administrative Studies
ADMS 4562
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45623 114562 Lecture 3Corporate Tax for CCPCsLast updated September 11 2013This lecture discussesTaxation of Business Income andAssociated Corporations Readings ADMS 3520 Lecture 9 NotesRead sections ITA 89 1251 to 7 12511 1296 256 FIT Ch 12 exclude 12300 to 12405Recommend Ch 12 Review Questions 1 to 4 67 10 Multiple Choice 1 to 3 5 6 Exercises 3 to 5 Lecture 3 Problem Set The problem set this week will be to take up the Multiple Choice and Exercises listed above Remember to print the lecture notes read the lecture notes and do the Problem Set and ExercisesYou should also review the recommended Review Questions and Multiple Choice Questions and you may wish to bring your textbook and the Act to classIn ADMS 3520 lecture 9 you learned about the three main types of corporations and about the tax preferences given to Canadian controlled private corporations CCPCsThe most significant of these tax preferences is the small business deduction s 1251 which results in a low rate of tax for the first 500000 of Canadian active business incomeThe annual business limit increased to 500000 from 400000 as of January 1 2009You also learned aboutassociated corporations and how they must share this 500000 annual business limitsome of the basic rules that make corporations associated the three basic rules in s 2561a to c the rules that determine whether individuals are related s2512a by blood s 2516a marriage s 2516b and adoption You also learned that a person is deemed to be related to himself s 25615corporations and individuals are related s 2512b and two corporations are related 2512c the deemed ownership rule for shares owned by minors s a25613 the antiavoidance rule s 25621 Now we will learn the more complex rules CopyrightJoanne MageeJason Fleming45623 22Types of Income Earned by Canadian controlled private corporations CCPCs Note if a corporation becomes a CCPC or ceases to be a CCPC thena its taxation year will be deemed to end immediately prior to becomingceasing to be a CCPC andb a new taxation year will begin subsection 24931 of the ActDeemed yearends and their tax consequences will be discussed in lecture 8 There are three basic types of income earned by CCPCs21Canadian Active Business Income Can ABI s 1257See definition of active businessDivision B Net incomeforeign ABIspecified investment business income SIBpersonal services business income PSBABI includes an adventure in the nature of tradeSee definition of incomefrom an active business active business income includes income incidental to the business s 1257 such asinterest on accounts receivable interest on the shortterm investment of working capitalrecapture of CCA previously deducted in computing ABIshortterm rental of premises usually used in an active business22Specified investment business SIB s 1257 Investment income will be active business income only if 1 The investment business has5 fulltime employees throughout the year see definition of SIB s 1257 or 2 The investment income earned relates to a an amount paid or payable by an associated company and b the expense is deductible by the associated company in any taxation year from an active business carried on in Canada see s 1296 SIB incomeinvestment income which is not active most investment income is not activeCanadian and foreign rents royalties interest dividends and taxable capital gainsThere are two types of SIB incomeCopyrightJoanne MageeJason Fleming
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