Taxation Canada Flashcards

Under the Income Tax Act, what is the tax treatment of a winding-up of a subsidiary under Section 88(1)?

Answer: The subsidiary's assets are transferred to the parent at tax cost (UCC, ACB) and the subsidiary's tax attributes (losses, etc.) generally flow to the parent

Section 88(1) allows a 90%+ subsidiary to be wound up into its parent on a tax-deferred basis. Assets transfer at tax cost, and certain tax attributes (non-capital losses, net capital losses, CCA pools) flow to the parent. A bump in the ACB of certain non-depreciable capital property may be available.

Under the Income Tax Act, what is the tax treatment of a deemed disposition at death?

Answer: All capital property is deemed to be disposed of at fair market value immediately before death, triggering any accrued gains or losses

Under subsection 70(5), a taxpayer is deemed to have disposed of all capital property at FMV immediately before death. This triggers recognition of accrued capital gains. An exception allows tax-deferred rollover to a spouse or qualifying spousal trust under subsection 70(6).

What is the purpose of the capital dividend account (CDA) for a private corporation?

Answer: To accumulate the non-taxable portion of capital gains and certain other amounts that can be distributed to shareholders as tax-free capital dividends

The CDA is a notional account for private corporations that accumulates the non-taxable portion of capital gains (currently 50%), capital dividends received, life insurance proceeds net of ACB, and other specified amounts. The corporation can elect to pay tax-free capital dividends from this account.

Under the Income Tax Act, what are the conditions for a tax-free rollover of property to a spouse under Section 73?

Answer: The property is automatically deemed transferred at the transferor's cost/UCC, deferring tax, unless the transferor elects out of the rollover

Section 73 provides an automatic tax-free rollover for transfers of capital property to a spouse or common-law partner (or to a spousal trust). The transfer is deemed to occur at the transferor's cost amount unless the transferor elects to transfer at FMV. Attribution rules apply.

Under Canadian tax law, what is the Accelerated Investment Incentive Property (AIIP) provision?

Answer: It provides an enhanced first-year CCA deduction by applying the prescribed CCA rate to 1.5 times the net addition to the class (replacing the half-year rule with a more generous calculation)

The AIIP rules provide a first-year CCA enhancement for eligible property by applying the CCA rate to 1.5 times the net addition to the class, effectively allowing a larger deduction in the first year than the traditional half-year rule. This incentivizes business investment in Canada.

Under the Income Tax Act, how is the principal residence exemption applied when a taxpayer disposes of a home?

Answer: The gain is exempt based on the formula: gain × (1 + years designated) / years owned, with only one property per family unit designatable per year

The principal residence exemption formula exempts a portion of the gain based on the number of years the property is designated as a principal residence plus one (the '1 plus' rule) divided by the total years owned. A family unit can only designate one property per year.