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Chapter 12

AFM362 Chapter Notes - Chapter 12: Income Property, Property Income, Personal Services


Department
Accounting & Financial Management
Course Code
AFM362
Professor
Andy Bauer
Chapter
12

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Chapter 12
General Rate Income Pool (GRIP): Represents income taxed at the high corporate rate in
all public corporations. Private corporations may also have GRIP if they did not receive the
SBD or received a GRIP dividend from another corporation. Dividends paid from GRIP are
eligible dividends.
Low Rate Income Pool (LRIP): Represents income taxed at the low corporate rate in
CCPCs. Dividends paid from LRIP are non -eligible.
Small Business Deduction (SBD): Represents a credit against tax otherwise payable on
income from an active business carried on in Canada and is designed only for small CCPCs
in order to assist them t o retain capital to expand their business. The SBD is 18% of ABI.
Active Business Income (ABI): Income from an adventure in the nature trade (the
primary revenue generating activity of the CCPC ). Equals business income less both of
personal services business income and specified investment business income.
Specified Investment Business (SIB): A business for which the principal purpose is to
derive income from property (including interest, dividends, rents, and royalties) , unless the
corporation employs throughout the year more than five full-time employees. A SIB is not
eligible for the SBD or the GRR.
Personal Services Building (PSB): Can be thought of as an incorporated employee.
Defined as a business providing services where:
- An individual who performs services on behalf of a corporation or any person related
to the incorporated employee is a specified shareholder of 10% or more , and
- The incorporated employee would reasonably be regarded as an officer or employee of
the entity to which services are provided. Unless,
- The corporation employs throughout the year more than five full-time employees.
A PSB is not eligible for the SBD or the GRR, faces an additional 5% of tax, and the only
deductions allowed are:
- Salary/wages paid to the incorporated employee
- Cost of benefits/allowances paid to the incorporate employee
- Amount that would have been deductible under section 8 of an employee
- Legal expenses to collect the amounts ow ing for services
Ancillary Income: Property income earned on assets necessary to carry on active business
(recapture on equipment, interest on A/R, interest on surplus cash) is treated as active
business income and is eligible for the SBD .
Portfolio Dividends: Dividends received from non -connected corporations.
Refundable Part IV Tax: Part IV tax is 38.33% times portfolio dividends and is refundable
in full when those dividends are paid out to the shareholder.
Aggregate Investment Income (AII): Is broadly defined to include income property, plus
net taxable capital gains, less certain adjustments. Net losses from property are deducted
from the foregoing amounts of property income. AII equals:
Net Taxable Capital Gains
Plus: Income from Property (including dividends)
Less: Net Capital Losses Deducted under Division C
Less: Dividends deducted under Division C
Less: Losses from property
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