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Lecture 3

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Administrative Studies
ADMS 4562
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45622 11Lecture 2 Computation of Business Income ContinuedComputation of Net Income and Taxable IncomeComputation of Tax for CorporationsLast Updated November 27 201311Recommended Problems and ReadingsCh 8 Exercise 2Ch 11 Review Question 1 Multiple Choice Questions 5 and 6 and Exercises 8 10 For chapter 11 exercise 10 you can ignore the foreign tax credit and political contribution tax credit calculations Lecture 2 Problem SetSee separate document Remember to print the lecture notes read the lecture notes and attempt the problem setRemember to prepare for class by reading the lecture notes including relevant 3520 notes if needed and attempting the problem set You may wish to bring your textbook and the Act to classReferences ADMS 3520 Lecture 9 notes FITCh 55090 Ch8 8170 8200 FIT skim Ch 11 except for 11035 Aftertax financing11085Choice to deduct net capital losses to preserve noncapital losses11090Acquisition of Control covered later in the course11265Cases on the meaning of permanent establishment 11310MP deduction11320Foreign tax deduction you should read the first few paragraphs11340Investment tax credits some is covered next weekITA Sections 134 13211 44 1101 111 112 123127 261In this course youwill always be given Canadian MP profits if applicableyou can always assume that foreign tax paidforeign tax credit The rates and rules that you will be using in problems are the 2013 rates and rules 2Computation of Net IncomeLast week we reviewed how corporations modify financial statement income to calculate Division B net income for tax purposesA summary chart originally from ADMS 3520 is also at the end of this weeks notes CopyrightJoanne MageeJason Fleming45622 2Two additional Division B income topics for this lecture the replacement property rules in 21 below and the subsection 13211 reallocation of proceeds of disposition on real estate when there is a capital gain CG on the land and a terminal loss on the building in 22 below21Exchanges of property the Replacement Property RulesThese optional rules allow for recapture s 134 and capital gains s 44 to be deferred when capital property other than shares is disposed of and replaced in certain circumstances211Qualifying TransactionsTo qualify the disposition must either be 1 involuntary eg a theft fire or expropriation AND the property must be replaced within 2 taxation years or 24 months whichever is later after the yearend in which the proceeds of disposition are received or receivableOR 2voluntarya saleAND the property must be a former business property defined as land and buildings used in a business other than real estate rentals AND replaced within 1 taxation year or 12 months whichever is later after the yearend in which the proceeds of disposition are received or receivableSubsection 442 states that proceeds of disposition are receivable at the earliest of the day the taxpayer has agree to compensation for the property disposed the day a court or tribunal determines the taxpayers compensation if its before a court or tribunal and where a claim is not taken to court or a tribunal within 2 years of the disposition the day that is 2 years following the day of disposition Why do these rules existto allow taxpayers who replace certain properties to defer the recapture and capital gain if they meet the applicable rulesit is fair to allow taxpayers who have had properties taken away from them involuntarily to defer recapture and CGs if they replace those properties its good tax policy to allow businesses that relocate and replace their land and building to defer recapture and capital gainsits fair to have a longer 2 year time frame for involuntary dispositions than voluntary ones 1 year CopyrightJoanne MageeJason Fleming
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