Taxation Canada Flashcards

Under the Income Tax Act, what is the general rule for the tax treatment of capital cost allowance (CCA) on depreciable property?

Answer: CCA is a discretionary deduction up to the maximum rate prescribed for each class, calculated on the undepreciated capital cost (UCC) of the class using the declining balance method

CCA is a discretionary deduction; taxpayers may claim any amount from zero to the maximum. It is calculated on the UCC of the class using prescribed rates (usually declining balance). The half-year rule generally limits the CCA claim to half the normal amount in the year of acquisition.

When a taxpayer disposes of depreciable property and the proceeds exceed the UCC of the class but are less than the original cost, what tax consequence arises?

Answer: Recapture of CCA, included in business or property income

When proceeds exceed the UCC but are below original cost, the excess of proceeds over UCC represents recapture of previously claimed CCA. This recapture is included in income as business or property income under subsection 13(1), reflecting that too much CCA was claimed.

Under the Income Tax Act, what is the attribution rule for income from property transferred to a spouse?

Answer: Income and capital gains earned on the transferred property are attributed back to the transferor and taxed in their hands

Under sections 74.1 and 74.2, when property is transferred or loaned to a spouse (or common-law partner), both the income and capital gains earned on that property are attributed back to the transferor. Exceptions include transfers at fair market value and prescribed rate loans.

What is the tax treatment of a shareholder benefit under Section 15 of the Income Tax Act?

Answer: The value of the benefit conferred on a shareholder (other than certain corporate shareholders) is included in their income

Section 15(1) includes in income the value of a benefit conferred on a shareholder in their capacity as shareholder. This includes personal use of corporate assets, loans not repaid within one year, and appropriations of corporate property at less than fair market value.

Under the Income Tax Act, what is the General Anti-Avoidance Rule (GAAR) designed to do?

Answer: Deny tax benefits from transactions that comply with the literal words of the Act but result in a misuse or abuse of the provisions of the Act

GAAR (section 245) is a backstop provision that denies tax benefits from avoidance transactions that, while technically complying with the Act, result in a misuse or abuse of the provisions. It requires three elements: a tax benefit, an avoidance transaction, and abusive tax avoidance.

For GST/HST purposes, which of the following supplies is zero-rated in Canada?

Answer: Basic groceries (milk, bread, vegetables, fresh meat)

Basic groceries are zero-rated under the Excise Tax Act, meaning GST/HST is charged at 0% but the supplier can claim input tax credits on inputs. This distinguishes zero-rated supplies from exempt supplies (no GST but no ITCs) and taxable supplies (GST charged).