CPA PEP Taxation Elective flashcards
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33 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Division B income
- The starting point for computing taxable income. It aggregates net income from office, employment, business, property, and capital gains, less allowable deductions under the Act.
- Capital cost allowance
- The discretionary deduction for capital assets. It applies to the undepreciated capital cost balance of each prescribed class, subject to the half-year rule in the acquisition year.
- Half-year rule
- A rule limiting CCA in the year an asset is acquired to one-half of the otherwise allowable rate, reflecting the assumption the asset was available for part of the year.
- Undepreciated capital cost
- The opening balance of a CCA class, increased by acquisitions and reduced by dispositions and prior CCA claims. It cannot be reduced below zero on disposition.
- Terminal loss
- A loss arising when a class is empty after all assets are disposed of. The remaining undepreciated capital cost becomes a deductible loss in that year.
- Capital gain
- The excess of proceeds of disposition over the adjusted cost base and outlays and expenses. Only the taxable portion at the inclusion rate enters income.
- Taxable capital gain
- The portion of a capital gain included in income, computed as the capital gain multiplied by the inclusion rate. It is added to Division B income for the year.
- Lifetime capital gains exemption
- A cumulative exemption for qualifying shares or property. It is indexed and subject to holding-period and ownership tests, and requires a prescribed election.
- Small business deduction
- A reduced federal rate on the first $500,000 of active business income. It is phased out based on taxable capital employed in Canada above the threshold.
- Active business income
- Income from a business carried on by the corporation other than a specified investment business or a personal services business. It qualifies for the small business deduction.
- Eligible dividend
- A dividend paid by a corporation from income taxed at the general rate. It receives a 38% gross-up and a higher dividend tax credit than non-eligible dividends.
- Non-eligible dividend
- A dividend paid from income taxed at the small business rate. It is grossed up at 15% and receives a lower dividend tax credit than eligible dividends.
- General anti-avoidance rule
- Section 245 permits the CRA to deny a tax benefit from a transaction or series that lacks bona fide purpose and results in a misuse or abuse of the Act.
- Specified investment business
- A business whose principal purpose is to earn property income. It is excluded from active business income and does not qualify for the small business deduction.
- Personal services business
- A corporation providing services to a single client where the individual would be an employee but for the corporation. It is taxed at the general rate without the small business deduction.
- Reasonable salary
- A deductible amount paid to a shareholder-employee that must be reasonable in the circumstances and supported by services actually rendered to the corporation.
- Taxable income
- Division B income less Division C deductions such as loss carryovers and the small business deduction. It is the base on which federal and provincial tax is computed.
- Residency
- Determined by common-law factors such as residential ties, a permanent home, and social connections, and by the 183-day rule. It determines worldwide taxation.
- Part XIII withholding
- A 25% tax on gross passive payments to non-residents, reduced by tax treaties. The Canada-US treaty generally imposes 15% on dividends and 10% on interest.
- Foreign tax credit
- A credit under section 126 for foreign taxes paid on foreign-source income. It is limited to the Canadian tax otherwise payable on that same income.
- Foreign accrual property income
- Income earned by a controlled foreign affiliate that is included annually in the Canadian shareholder's income, even if not distributed. It prevents deferral of passive income.
- Controlled foreign affiliate
- A non-resident corporation in which the Canadian shareholder holds more than 50% of the voting shares or has de facto control, triggering the FAPI rules.
- Transfer pricing
- Section 247 requires arm's length terms for transactions with non-residents. Contemporaneous documentation must be prepared within specified deadlines.
- Capital dividend account
- A notional account tracking the non-taxable portion of capital gains, life insurance proceeds, and certain gains. Dividends from it are tax-free when properly elected.
- Instalment threshold
- Instalments are required when net tax owing exceeds $3,000 ($1,800 in Quebec) in the current year and in one of the two preceding years.
- T2 filing deadline
- The corporate return is due six months after the fiscal year-end. The balance of tax is due two or three months after year-end depending on small business deduction eligibility.
- Taxable capital employed
- The capital used in Canada that determines the small business deduction phase-out. It is measured above $10 million and eliminates the deduction at $50 million.
- Treaty tie-breaker
- A rule in a tax treaty that resolves dual residency by applying criteria such as permanent home, centre of vital interests, habitual abode, and nationality.
- Section 116 certificate
- A required filing for non-residents disposing of taxable Canadian property. It ensures tax is paid before the property is transferred and supports compliance.
- Section 85 rollover
- A joint election allowing the transfer of property to a corporation at a specified elected amount, deferring tax. The elected amount must be within prescribed limits.
- Section 86 reorganization
- A share-for-share exchange on a reorganization where the shareholder receives new shares and possibly boot. Tax is deferred except to the extent of non-share consideration.
- Non-capital loss
- A loss from business or property that can be carried back three years and forward twenty years against other income. It is claimed as a Division C deduction.
- Net capital loss
- A loss from disposing of capital property that can only offset taxable capital gains. It is carried back three years and forward indefinitely.