AFM362 Chapter Notes - Chapter 11: Dividend Tax, Privately Held Company
SchoolUniversity of Waterloo
DepartmentAccounting & Financial Management
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Corporate Capital Gain Deduction: Corporations do not receive the 50% deduction for
Corporate Taxable Dividend Deduction: Certain dividend received by a corporate are
deductible in the calculation of taxable income. This deduction offsets the inclusion of
the dividend in income. These deductions are in division C and cannot be carried over ,
so they should always be deducted immediately. The dividends that qualify for the
deduction are from:
(1) Taxable Canadian corporations;
(2) Taxable subsidiary corporations resident in Canada; and
(3) Foreign affiliates which have been appropriately taxed in a foreign jurisdiction
which has a treaty with Canada
Corporate Charitable Donations Deduction: Corporations are permitted a Division C
deduction for charitable donations, to a limit of 75% of Division B income for tax
purposes. Unused donations can be carried forward for five years. Donations are
deducted in Division C rather than B because they are not a business expense (not an
expenditure of money in order to make money).
Net Capital Losses: Can be carried back three years or forward indefinitely.
Non-Capital Losses: Can be carried back three years or forward twenty years. Non -
capital losses are defined as business loss plus allowable busine ss investment loss plus
dividends minus income from property (including dividends).
Business Investment Loss: A capital loss that arises from the disposition of shares or
debt of a small business corporation.
Allowable Business Investment Loss: 50% of a business investment loss. Unlike an
allowable capital loss, an allowable business investment loss may, in the year in which it
is realized, be deducted against any source of income. To the extent that it cannot be
absorbed against these other sources of income in the year in which it is incurred, it
becomes part of the aggregate of non -capital losses available to b e carried-over, and
can be added to the net capital losses when that carried -over period (10 years) expires.
Transfer From Net Capital Loss to Non -Capital Loss: In a zero taxable income and
net capital gain scenario, any capital losses may be deducted (no effect on taxable
income) and then added to the non -capital loss balance for carry-over.
Private Corporation: A corporation that is resident in Canada and not controlled by
one or more public corporations. Has certain tax preferences or considerations, su ch as
a capital dividend account and a refundable dividend tax on hand account.
Canadian-Controlled Private Corporation (CCPC): A private corporation that is a
Canadian corporation that is not controlled, directly or indirectly, by one or more non -
residents, by one or more public corporations, or by a combination of the two. Eligible
for the tax preferences of a private corporation as well as the small business deduction.
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