Bus4437IncomeTaxPlanningExamReview

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Department
Business Administration
Course
Business Administration 4437Q/R/S/T
Professor
Rick Robertson
Semester
Fall

Description
Bus4437Q/R - Income Tax Planning - Final Exam Notes: 1. Determining Taxes Payable for an Individual INCOME FROM ALL SOURCES - Office, Employment, Business, and Property - Net Taxable Capital Gains (1/2 of capital gain taxable) Less: DIVISION C DEDUCTIONS - Loss carryovers, employee stock options, home relocation loan, ad capital gains exemption ($750,000 or $375,000 taxable gain on cumulative life- time on disposition of QSBC shares and family farming and fishing businesses) = TAXABLE INCOME X FEDERAL TAX RATES Income Range Taxes on Lowest Tax Rate on Amount in Range Excess $0 - $40,970 $0 15% $40,971 - $81,941 $6,146 22% $81,942 - $127,021 $15,159 26% Above $127,021 $26,880 29% For Example: Taxable Income = $135,000 Tax payable on first $127,021 is $26,880 On excess at 29% = ($135,000 - $127,021) = $7,979 x 29% = $2,314 Federal Tax Before Credits = $26,880 + $2,314 = $29,194 = FEDERAL TAX Less: TAX CREDITS: Two flavours Federal Tax Credits and Provincial Tax Credits - Most tax credits reduce basic federal tax and are non-refundable in nature - Act permits some credit transfers and carry forwards - General Rule: federal non-refundable tax credits are calculated by multiplying a base by 15 per cent - Most common tax credits See Appendix A (Casebook) = BASIC FEDERAL TAX 2. Capital Property vs. Business Income Capital Property any depreciable capital property and any other property that is disposed of would generate a capital gain or loss Business Income an adventure of concern in the nature of trade = inventory and thus business income Capital Gain Business Income Taxable of the gain is taxable 100% of it is taxable Loss loss is deductible, only 100% Deductible against any against other capital gains type of income Intent for designation Long term asset thats use is Short term asset held as an meant to generate income held adventure in the nature of in the nature of capital trade property Distinguishing Between Capital and Income: - Intention of the taxpayer at the time the property was purchased did the taxpayer intend to make a profit? Or did the taxpayer intend to hold the property as capital property? Calculation of Capital Gain of Loss = Proceeds of Disposition ACB Selling Cost 3. Tax Deferrals on Capital Gains (Gains and Losses) Capital Gain Reserve: - If taxpayer has capital gain and all PROCEEDS have NOT been received in the year of disposition, taxpayer may claim reasonable reserve for the proceeds that are NOT YET DUE - This shifts portion of capital gain and associated tax liability to future taxation years **Reserve that may be claimed in any taxation year = lesser of: i) Reasonable reserve for the amount of proceeds not yet due, and ii) 1/5 of the capital gain before the reserve, multiplied by 4, less the number of taxation years since the year of disposition Year 1: Selling Price (FMV) $700,000 Less: Adjusted Cost Base $150,000 Expenses of Disposition $20,000 $170,000 Gain: $530,000 Less Reserve: lesser of (i) Reasonable reserve (proceeds not $530,000*60% $318,000 due) $424,000(ii) 1/5 x (4-0) x Gain of $530,000 $212,000 Capital Gain to be Realized Year 1: Year 2: Reserve from Prior Year $318,000 Less Reserve: lesser of (i) Reasonable reserve (proceeds not $530,000*50% $265,000 due) $318,000 (ii) 1/5 x (4-1) x Gain of $530,000 $53,000 Capital Gain to be Realized Year 2: Year 3: Reserve from Prior Year $265,000 Less Reserve: lesser of (i) Reasonable reserve (proceeds not $530,000*40% due) $212,000 $212,000 (ii) 1/5 x (4-2) x Gain of $530,000 $53,000 Capital Gain to be Realized Year 3: Year 4: Reserve from Prior Year $212,000 Less Reserve: lesser of (i) Reasonable reserve (proceeds not $530
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