Taxation Canada Flashcards

Under the Income Tax Act, what is the 'stop-loss' rule regarding the transfer of property between affiliated persons?

Answer: Losses on dispositions of property to affiliated persons are denied and generally added to the cost base of the property acquired by the affiliated person

When property is transferred to an affiliated person (spouse, controlled corporation, etc.) at a loss, the loss is denied to the transferor under the stop-loss rules. The denied loss is generally added to the affiliated person's cost base of the property, preserving the loss for eventual realization.

For Canadian tax purposes, what is the tax treatment of a stock option benefit for an employee of a CCPC?

Answer: The benefit is included in employment income in the year the shares are disposed of (not when the option is exercised), and a 50% deduction may apply if certain conditions are met

For CCPC employees, the stock option benefit (FMV at exercise minus exercise price) is deferred until the shares are sold. A 50% deduction under paragraph 110(1)(d.1) applies if shares are held for at least 2 years after the grant date, effectively taxing the benefit at capital gains rates.

Under the Income Tax Act, what is the purpose of the paid-up capital (PUC) of shares?

Answer: It represents the amount that can be returned to shareholders tax-free as a return of capital and is used to calculate Part IV tax and other provisions

PUC represents the amount of capital contributed by shareholders that can be returned to them tax-free (as a return of capital rather than a dividend). It is relevant for determining deemed dividends on share redemptions, capital distributions, and certain anti-avoidance provisions.

What is the deadline for filing a T1 personal income tax return in Canada for an individual who is not self-employed?

Answer: April 30 of the following year

For individuals who are not self-employed (or whose spouse is not self-employed), the T1 return is due April 30 of the following year. Self-employed individuals have until June 15, but any balance owing is still due by April 30.

Under the Income Tax Act, how are capital losses treated when an individual dies?

Answer: In the year of death (and the preceding year), net capital losses can be applied against all sources of income, not just capital gains

In the year of death and the immediately preceding year, net capital losses can be deducted against all sources of income (after adjusting for previously claimed capital gains deductions). This is an exception to the normal rule that capital losses can only offset capital gains.

Under Canadian GST/HST rules, what is the difference between a zero-rated supply and an exempt supply?

Answer: Both are not subject to GST/HST, but registrants making zero-rated supplies can claim input tax credits while those making exempt supplies cannot

Zero-rated supplies are technically taxable at 0%, so suppliers can claim ITCs on related inputs. Exempt supplies are not subject to GST/HST at all, but suppliers cannot claim ITCs on inputs used to make exempt supplies. This distinction significantly affects the supplier's GST/HST costs.