Textbook Notes (270,000)
CA (160,000)
UTSC (20,000)
MGF (20)
Chapter

Section 3.5 Notes


Department
Finance
Course Code
MGFB10H3
Professor
Derek Chau

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Chapter 3 Financial Statements Notes
3.5 The Canadian Tax System
Canadian taxes are levied on both personal and corporate income, but the government recognizes the potential for double
taxation of income earned through a corporation and designed a partially integrated system
US operates a classical system of double taxation, while Europe, by and large, operates a fully integrated system
Corporate Taxes
undepreciated capital cost (UCC) the undepreciated cost of assets, calculated by asset class and written off on a declining
balance basis; the higher the rate, the faster the assets are depreciated
one minor adjustment associated with CCA is that because it is taken on the year-end balance, Canada Revenue Agency allows
only one-half of the CCA rate to be applied to net acquisitions to an asset class in the first year the assets are acquired
half-year rule CRA allows only one-half of CCA rate to be applied to net acquisitions to class in 1
st
year assets are acquired
one advantage of using CCA asset classes is that individual assets are not amortized separately, unless they are the only one in it
capital gain a taxable gain incurred when an asset is sold at a price greater than its original cost
capital loss a tax-deductible loss generated when a non-depreciable asset is sold at a price lower than its original cost
CCA recapture a tax on the amount by which the salvage value (sale price) of an asset exceeds the undepreciated capital cost;
occurs only if the asset class is terminated or if an asset is sold for a price that exceeds the remaining UCC for that asset class
operating loss loss generated when a firm’s tax deductions are greater than its taxable income; losses can be carried back 5
years to get a refund on taxes paid or carried forward for 10 years to reduce future taxes payable
Summary of Learning Objectives
5. Describe the Canadian tax system and explain the differences between how a corporation and an individual are taxed.
Canadian taxes are levied on both personal and corporate income, but the government recognizes the potential for double
taxation of income earned through a corporation and has designed a partially integrated system. For a corporation, amortizations
and interest payments are deducted before tax is paid, but dividends are paid after tax; for an individual, there are different
deductibles, interest payment is taxed as regular income, half of capital gains is taxed, and dividends are taxed but with a
dividend tax credit.
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