CPA PEP Taxation Elective cheat sheet

Division B income nets out deductions under sections 20, 18, and 60-64; Division C then applies losses, the small business deduction, and other tax credits to reach taxable income.

Capital cost allowance is discretionary: the half-year rule applies in the year of acquisition (except for accelerated investment incentive classes), and the pooling method uses the undepreciated capital cost balance.

The capital gains inclusion rate is 50% for gains realized by individuals and most corporations; the taxable capital gain equals the gain multiplied by the inclusion rate.

The lifetime capital gains exemption is indexed and limited; it applies to qualified small business corporation shares and qualified farm or fishing property, subject to holding and ownership tests.

The small business deduction reduces the federal corporate rate on the first $500,000 of active business income; it is phased out when taxable capital employed in Canada exceeds $10 million and fully eliminated at $50 million.

Taxable dividends are grossed up by the applicable percentage (38% for eligible dividends, 15% for non-eligible) and the dividend tax credit offsets the resulting tax.

The general anti-avoidance rule in section 245 applies where a transaction or series produces a tax benefit, lacks bona fide purpose, and results in a misuse or abuse of the Act.

Transfer pricing under section 247 requires arm's length terms for non-resident transactions; contemporaneous documentation must be prepared within specified deadlines.

Canadian residents are taxed on worldwide income; non-residents are taxed under Part I only on Canadian-source income and under Part XIII on gross passive payments.

Residency is determined by common-law factors (residential ties, social ties, permanent home) and the 183-day rule; treaty tie-breaker rules resolve dual-residency conflicts.

Foreign tax credits under section 126 offset foreign taxes paid on foreign-source income, limited to the Canadian tax otherwise payable on that income.

Foreign accrual property income (FAPI) is included annually in the Canadian shareholder's income for controlled foreign affiliates; non-controlled foreign affiliates generally do not generate FAPI.

Withholding tax under Part XIII applies at 25% on gross amounts paid to non-residents, reduced by tax treaties; the standard Canada-US treaty rate is 15% for dividends and 10% for interest.

The capital dividend account allows tax-free dividends from the non-taxable portion of capital gains, life insurance proceeds, and certain gains, subject to election on Form T2054.

Instalment payments are required when net tax owing exceeds $3,000 ($1,800 for Quebec) in both the current and one of the two preceding years; quarterly or monthly instalments are permitted.

The general corporate return (T2) is due six months after the fiscal year-end; the balance of tax owing is due two or three months after year-end depending on the corporation's eligibility for the small business deduction.