Canadian Income Taxation 22nd Edition by Bill Buckwold, Joan Kitunen, Matthew Roman ISBN 9781260060393 126006039X

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ISBN 10: 126006039X
ISBN 13: 9781260060393
Author: Bill Buckwold, Joan Kitunen, Matthew Roman

We thank the users of our textbook, including the many instructors, faculty, and students who contributed to this edition through their comments and suggestions,

We gratefully acknowledge the Chartered Professional Accountants of Canada and the Chartered Professional Accountants of Ontario for granting permission to adapt a number of questions from previous national and provincial examinations. References to these questions are available at the end of the text.

The task of completing this manuscript was made easier by those who worked closely with us on the project. Alwynn Pinard, Senior Portfolio Manager, Veronica Saroli, Content Developer, and Stephanie Giles, Senior Product Team Associate at McGraw-Hill provided advice and encouragement, Janie Deneau, Supervising Editor, has made the transition from manuscript to finished product the smoothest part of this project. Special thanks go to Janice Dyer for her careful proofreading of the text.

Whatever merit this book may have must be attributed to those people who have most influenced us in the taxation field. Bill Buckwold acknowledges the following: Professor Brian Arnold, of Goodman, Phillips, and Vineberg, Toronto, whose challenging instructional approach sparked his interest in the dynamics of taxation; Joe Hershfield (retired), of the Tax Court of Canada, Ottawa, whose inquisitive and analytical mind stimulated long hours of debate on tax policy, interpretation, and planning; and Cy Fien, of Fillmore and Riley, Winnipeg, whose interpretive skills set a standard of excellence that he admires and seeks to attain. Joan Kitunen expresses special appreciation to Bob Beam, Professor Emeritus, University of Waterloo, who introduced her to taxation, shared his enthusiasm for Canadian tax law, and provided guidance throughout her career, Matthew Roman would like to extend thanks to his fellow co-authors Bill and Joan for the opportunity to work on this text; Deb Kraft, Direc: tor of the Master of Taxation program at the University of Waterloo; and SF Parmership, LLP, for providing him with a practical perspective to Canadian taxation,

Of course, a large part of the burden associated with the preparation of this text has been shared by our families, Their lives have been uprooted by our constant focus on this project, In spite of this, they have been ever supportive and have made many sacrifices. We are extremely grateful,

And finally, we are most proud to acknowledge the thousands of students who, over the years, have been both critical and appreciative. From them we have received our greatest reward

Canadian Income Taxation 22nd Edition Table of contents:

Part 1 A Planning and Decision-Making Approach to Taxation

Chapter 1 Taxation—Its Role in Decision Making

I. Taxation and the Financial Decision Process

A. Taxation–A Controllable Cost

B. Cash Flow after Tax

II. The Fundamental Income Tax Structure and Its Complexity

III. Conclusion

Review Questions

Chapter 2 Fundamentals of Tax Planning

I. What Is Tax Planning?

A. Tax Planning Defined

B. Tax Evasion

C. Tax Avoidance

II. Types of Tax Planning

A. Shifting Income from One Time Period to Another

B. Transferring Income to Another Entity

C. Converting Income from One Type to Another

III. Skills Required for Tax Planning

IV. Restrictions to Tax Planning

A. Specific Anti-Avoidance Rules

B. The General Anti-Avoidance Rule—GAAR

V. Summary and Conclusion

Review Questions

Key Concept Questions

Part 2 An Overview of Income Determination and Tax for the Two Primary Entities

Chapter 3 Liability for Tax, Income Determination, and Administration of the Income Tax System

I. Sources of Canadian Tax Law

A. Statute Law

B. Common Law

C. International Tax Conventions

II. Liability for Tax

A. The Entities

B. Resident Individuals and Corporations

C. Non-Resident Individuals and Corporations

D. Decision Making and the Residence Issue

III. Determination of Income

A. The Taxation Year

B. Types of Income

C. Net Income for Tax Purposes—The Aggregating Formula

D. Taxable Income

IV. Administration of the Income Tax System

A. Filing of Returns

B. Assessment

C. Objection and Appeal

D. Payment of Tax

E. Penalties and Offences

V. Tax Planning Checklist

VI. Summary and Conclusion

Demonstration Questions

Review Questions

Key Concept Questions

Problems

Cases

Chapter 4 Income from Employment

I. Scope and Structure of Employment Income

A. Definition of “Employed”

B. Employment Income—Fundamental Rules and Basic Formula

II. Cash Basis

A. Scope

B. Salary Deferrals

III. Employee Benefits

A. Taxable Benefits

B. Non-Taxable and Tax-Deferred Benefits

IV. Allowances

A. Definition

B. Exceptions

V. Deductions from Employment Income

A. Travel Expenses

B. Motor Vehicle Expenses

C. Cost of Supplies Consumed

D. Salespeople’s Expenses

E. Work Space in Home

F. Registered Pension Plan Contributions

G. Tradesperson’s Tools

H. Employee GST/HST Rebate

VI. Sample Calculation of Employment Income

VII. Efficient Management of Employee Compensation

A. Basic Objectives and General Tax Principles

B. Indirect Compensation

C. Deferred Compensation

VIII. Tax Planning Checklist

IX. Summary and Conclusion

Demonstration Questions

Review Questions

Key Concept Questions

Problems

Cases

Chapter 5 Income from Business

I. Business Income Defined

II. General Rules for Determining Business Income

A. Profit Defined

B. Generally Accepted Accounting Principles

C. General Limitations to Business Profit Determination

III. Exceptions to the General Rules

A. Specific Income and Expense Exceptions

B. Treatment of Inventories

C. Taxation Year and the Individual Taxpayer

D. Scientific Research and Experimental Development

E. Professionals

F. Treatment of Reserves

G. Unpaid Remuneration

H. Farming

I. Partnerships

J. Ceasing to Carry on Business

IV. Business Income and the GST/HST

V. Sample Calculation of Business Income

VI. Tax Planning Checklist

VII. Summary, Conclusion, and Management Perspective

A. Business Income—The Process

B. Business Income versus Employment Income

C. Business Income and the Management Process

Demonstration Questions

Review Questions

Key Concept Questions

Problems

Comprehensive Case

Chapter 6 The Acquisition, Use, and Disposal of Depreciable Property

I. A Standardized System for Depreciable Property

II. Depreciable Property and Capital Cost Allowance

A. Who Qualifies for CCA? and What Assets?

B. Rates of Capital Cost Allowance

C. Accelerated CCA in the First Year

D. The Declining Balance Method

E. Pooling Assets of the Same Class

F. Gains and Losses on Disposal of Depreciable Property—Recapture and Terminal Losses

G. Special Treatment of Passenger Vehicles

H. Special Treatment of Faxes, Photocopiers, and Telephone Equipment

I. Exceptions to the Declining Balance Method

J. Involuntary and Voluntary Dispositions

K. Change in Use

L. Depreciable Property Acquired from Non–Arm’s-Length Person

M. Terminal Loss Restriction on Sales to Affiliated Persons

N. Cost of a Business Website

III. Goodwill and Other Intangibles

A. Class 14.1 Defined

B. Goodwill Defined

C. Tax Treatment of Class 14.1 Depreciable Property

D. Transfer of Eligible Capital Property to Class 14.1

IV. Accounting Rules versus Tax Rules

V. Impact on Management Decisions

A. Influence on Accounting Amortization/Depreciation

B. Capital Expansion and Cash Flow

VI. Tax Planning Checklist

VII. Summary and Conclusion

Demonstration Questions

Review Questions

Key Concept Questions

Problems

Cases

Comprehensive Case

Chapter 7 Income from Property

I. Income from Property Defined

II. General Rules for Determining Property Income

A. Property Income and the Taxation Year

B. The Deduction of Interest Expense

III. The Unique Features of Property Income

A. Interest Income

B. Dividend Income

C. Rental Income

D. Royalty Income

IV. Impact on Investment Decisions

A. Cash Flow and Return on Investment

B. Business Organization Structure

C. Corporate Financing

D. Splitting Property Income among Family Members—Anti-Avoidance Rules

V. Tax Planning Checklist

VI. Summary and Conclusion

Demonstration Questions

Review Questions

Key Concept Questions

Problems

Case

Chapter 8 Gains and Losses on the Disposition of Capital Property—Capital Gains

I. Capital Gain and Capital Loss Defined

A. Capital versus Business Income

B. Intention

C. Categories of Capital Property

II. Determining Capital Gains and Losses—General Rules

A. General Calculation

B. Disposition and Proceeds of Disposition

C. Adjusted Cost Base

D. Expenses of Disposition

E. Deferred Proceeds

III. Unique Aspects of Capital Losses

A. Allowable Business Investment Losses

B. Deemed Disposition on Loans and Shares

C. Depreciable Property

D. Superficial Losses

E. Personal-Use Property

F. Listed Personal Property

G. Assets Transferred to an RRSP or TFSA

IV. Unique Aspects of Specific Capital Properties

A. Identical Properties

B. Mutual Funds

C. Convertible Securities

D. Options and Warrants

E. Commodities and Futures Transactions

F. Principal Residence

G. Voluntary and Involuntary Dispositions

H. Eligible Small Business Investments

I. Charitable Gifts and Capital Gains

V. The Aggregating Formula Revisited

VI. Impact on Investment and Management Decisions

A. Return on Investment

B. Downside Risk

VII. Tax Planning Checklist

VIII. Summary and Conclusion

Demonstration Questions

Review Questions

Key Concept Questions

Problems

Cases

Chapter 9 Other Income, Other Deductions, and Special Rules for Completing Net Income for Tax Purpos

I. Other Sources of Income

II. Other Deductions

III. Registered Retirement Savings Plans

A. Benefits of Investing in an RRSP

B. Contribution Limits

C. RRSP Investment Opportunities

D. Retirement Options

E. Spousal RRSP

IV. Pooled Registered Pension Plans

V. Registered Education Saving Plans

A. Contributions to an RESP

B. Withdrawals from an RESP

C. Benefits of an RESP

VI. Registered Disability Savings Plans

VII. Tax-Free Savings Accounts

VIII. Special Rules for Net Income Determination

A. The Reasonableness Test

B. Allocation of Purchase Price for Multiple Assets

C. Transactions with Inadequate Consideration

D. Non–Arm’s-Length Defined

E. Property Transferred to a Spouse or Child

F. The Attribution Rules—Income Splitting

G. Mortgage Foreclosures and Default Sales

H. Gain on Settlement of Debt

I. Death of a Taxpayer

J. Amounts Not Included in Income

IX. Review of Net Income for Tax Purposes

A. The Scope of Income Tax in Canada

B. Sample Calculation of Net Income for Tax Purposes

X. Tax Planning Checklist

XI. Summary and Conclusion

Demonstration Questions

Review Questions

Key Concept Questions

Problems

Case

Chapter 10 Individuals: Determination of Taxable Income and Taxes Payable

I. Determination of Taxable Income

II. Loss Carry-Overs

A. Net Capital Losses

B. Non-Capital Losses

C. Farm Losses and Restricted Farm Losses

D. Sample Calculation of Loss Carry-Overs

III. Loss Utilization—Impact on Decision Making

A. Forms of Business Organization

B. Preserving Tax Losses

C. Future Investment Strategies

IV. The Capital Gain Deduction

V. Calculation of Tax for Individuals

A. Overall Tax Calculation

B. Federal Tax

C. Personal Federal Tax Credits

D. Dividend Tax Credit

E. Other Federal Tax Credits

F. Provincial Taxes

G. Sample Calculation of Tax

H. Tax Calculation—Impact on Decision Making

VI. Special Adjustments to the Tax Calculation

A. The Alternative Minimum Tax

B. Special Tax on Old Age Security Benefits

VII. Final Returns of Deceased Taxpayers

A. Taxable Income and Losses

B. Tax Returns and the Use of Tax Credits

C. Donations Made by Will

VIII. Tax Planning Checklist

IX. Summary and Conclusion

Demonstration Questions

Review Questions

Key Concept Questions

Problems

Chapter 11 Corporations—An Introduction

I. Relationship between the Corporation and Its Shareholders

A. Corporation Defined

B. Tax Impact of Shareholder/ Corporate Relationships

II. Determination of Taxable Income

A. Loss Carry-Overs

B. Dividends from Other Canadian Corporations

III. Calculation of Corporate Tax

A. Federal Tax

B. Provincial Tax

C. Combined Federal and Provincial Taxes

IV. The Integration of Corporate and Individual Taxation

V. Tax Planning Checklist

VI. Summary and Conclusion

VII. Conclusion to Part 2

Demonstration Questions

Review Questions

Key Concept Questions

Problems

Cases

Comprehensive Case

Part 3 The Corporate Structure

Chapter 12 Organization, Capital Structures, and Income Distributions of Corporations

I. Corporate Capitalization—Debt or Equity

A. Corporate Capitalization by Shareholder Debt

B. Corporate Capitalization by Share Capital

II. Transferring Assets to a Corporation

A. Transfer of Assets at Fair Market Value

B. Election to Transfer Assets at Tax Values

C. Applying the Election Option

D. Sale of Accounts Receivable

E. Stop-Loss Rules

III. Corporate Distributions to Shareholders

A. Stock Dividends

B. Special Distributions of Canadian-Controlled Privat Corporations

C. Distributions Other than Cash

D. Wind-up of a Corporation

IV. Summary and Conclusion

Supplement: Technical Information on Transferring Assets to a Corporation

A. Non-Depreciable Property

B. Depreciable Property

Demonstration Questions

Review Questions

Key Concept Questions

Problems

Comprehensive Case

Chapter 13 The Canadian-Controlled Private Corporation

I. Definition and Basic Principles

II. Taxation of Income Earned by Canadian-Controlled Private Corporation

A. Active Business Income

B. Specified Investment Business Income

C. Capital Gains

D. Personal Services Business Income

E. Dividends

F. Eligible and Non-eligible RDTOH

G. Summary

III. Benefits of Incorporation

A. Benefits of Incorporating a Business

B. Benefits of Incorporating Investments

IV. Dividend Policy

A. Ordering of CCPC Dividend Distributions

B. Distributions—Dividends versus Salary

C. Capital Dividend Account and Capital Dividends

V. Loans to Shareholders

VI. Limitation of the Small Business Deduction

A. Associated Corporations

B. Specified Corporate Income

C. Excessive Income from Passive Investments

D. Large Corporations

VII. Overall Tax Calculation for a Canadian-Controlled Private Corporation

A. Small Business Deduction

B. Refundable Tax on CCPC’s Investment Income

C. Manufacturing and Processing Deduction

D. General Tax Reduction

E. Refundable Dividend Tax on Hand

F. Dividend Refund

G. General Rate Income Pool (GRIP)

H. Investment Tax Credit (SR&ED)

VIII. Tax Planning Checklist

IX. Summary and Conclusion

Demonstration Questions

Review Questions

Key Concept Questions

Problems

Cases

Comprehensive Case

Chapter 14 Multiple Corporations and Their Reorganization

I. Corporate Reorganizations

A. Basic Reorganization Techniques

B. Asset Transfers

C. Amalgamations

D. Wind-up of a Subsidiary

E. Reorganization of Share Capital

F. Reorganization Procedures and Case Analysis

II. Holding Corporations and Intercorporate Investments

A. Tax Treatment of Intercorporate Dividends

B. Dividend Reinvestment

C. Holding Companies and Corporate Acquisitions

D. Holding Companies and Corporate Divestitures

III. Summary and Conclusion

Review Questions

Key Concept Questions

Problems

Cases

Part 4 Other Forms of Business Organization

Chapter 15 Partnerships

I. The Standard Partnership—Definition and Format

A. Definition

B. Partnership Agreement

C. Partner Liability

II. Taxation of Partnership Operations

A. Partnership Income and Losses

B. The Partnership Interest

C. Transactions with Partners and Reorganizations

D. Small Business Deduction and Private Corporate Partners

E. Partnership Information Return

III. Partnership Structure—Impact on Decision Making

IV. Case Study—A New Venture Organization Structure

A. Summary of Assumed Facts

B. Basic Structures Available

C. Analysis

V. Summary and Conclusion

Demonstration Question

Review Questions

Key Concept Questions

Problems

Case

Chapter 16 Limited Partnerships and Joint Ventures

I. The Limited Partnership

A. Definition of Limited Partnership

B. Tax Treatment of Partnership Income and Losses

C. Impact on Decision Making

D. Uses of the Limited Partnership

E. Example of a Business Expansion Using a Limited Partnership

II. Joint Ventures

A. Definition of Joint Venture

B. Tax Treatment of Joint Ventures

III. Summary and Conclusion

Review Questions

Key Concept Questions

Problems

Cases

Chapter 17 Trusts

I. The Trust Entity

A. Definition of a Trust

B. Types of Trusts

II. Tax Treatment of Trusts

A. Determination of Taxable Income and Tax

B. Income Allocations and Beneficiaries

C. The 21-Year Rule

D. Transactions with Settlors and Beneficiaries

E. Spousal Trusts

F. Estates

G. Other Trusts

III. The Use of Personal Trusts

A. The Estate Freeze

B. Income Splitting

C. Administrative Benefits

IV. The Use of Commercial Trusts

A. Investment and Royalty Trusts Created after October 31, 2006

B. Real Estate Investment Trust (REIT)

V. Summary and Conclusion

Review Questions

Key Concept Questions

Problems

Part 5 Selected Topics

Chapter 18 Business Acquisitions and Divestitures—Assets versus Shares

I. Assets versus Shares

II. Implications for the Vendor

A. Sale of Assets

B. Sale of Shares

III. Implications for the Purchaser

A. Purchase of Assets

B. Purchase of Shares

C. Structure after Acquisition

IV. The Relationship between Asset Price and Share Price

A. Establishing the Worst-Case Scenario

B. Equating the Asset Price with the Share Price

V. The Decision to Purchase

A. Future Rates of Tax

B. Asset Price or Share Price—Impact on Cash Flow

C. Potential Tax Liability after Share Acquisition

D. Hybrid Sales

VI. Summary and Conclusion

Demonstration Questions

Review Questions

Key Concept Questions

Problems

Case

Chapter 19 Business Acquisitions and Divestitures—Tax-Deferred Sales

I. Tax-Deferred Sales and Acquisitions

A. The Nature of and Reasons for a Tax-Deferred Sale

B. Sale of Assets

C. Sale of Shares

D. Amalgamation

E. Share Reorganization

F. Conclusion

II. Sale of a Closely Held Corporation

A. Distinguishing Features

B. Sale to Third Parties

C. Sale to Family Members

III. Summary and Conclusion

Review Questions

Key Concept Questions

Problems

Cases

Comprehensive Cases

Chapter 20 Domestic and International Business Expansion

I. Domestic Business Expansion

A. Expansion with Existing Resources

B. Expansion with New Equity Participants

II. International Business Expansion

A. Basic Issues

B. Foreign Currencies

C. Direct Export Sales

D. Foreign Branch Location

E. Foreign Subsidiary Corporation

F. Alternative Cash Flows from a Foreign Subsidiary

G. Foreign Tax Credit

H. Intercompany Transfer Pricing

I. Converting a Foreign Branch to a Foreign Subsidiary

III. Summary and Conclusion

Review Questions

Problems

Cases

Chapter 21 Tax Aspects of Corporate Financing

I. Debt versus Equity

A. Cost of Corporate Debt and Equity

B. Tax Treatment to Investors

C. Preferred Share Financing

II. Tax Treatment of Financing Charges

A. Expenses Incurred to Issue Shares or Borrow Money

B. Securities Issued at a Discount or Premium

III. Leasing—An Alternative to Debt Financing

A. Types of Leases

B. Tax Treatment of Financial Leases

IV. Summary and Conclusion

Review Questions

Problems

Chapter 22 Introduction to GST/HST

I. Rules with Respect to Carrying on a Business

A. GST/HST Basics

B. When GST/HST is Charged

C. Rates

D. Reporting Periods

E. Characterization of Supplies

F. Small Suppliers

G. Place of Supply Rules

H. Tax Collected or Paid in Error

I. Tax Not Charged in Error

II. Input Tax Credits

A. Meals, Entertainment, and Club Dues

B. Reasonableness

C. Bad Debts

D. Volume Discounts

E. Purchases and Leases of Automobiles

F. Employee Benefits and Allowances (Except Automobiles)

G. Automobile-Related Employee Benefits

H. Time Limits

I. Expenses Incurred Prior to Registration

J. Having Both Taxable and Exempt Supplies

K. Documentation Requirements

III. Streamlined Methods for Calculating Net Tax

A. Quick Method

B. Simplified ITC Calculation

IV. Employees and Employment Income

A. Employee Benefits

B. Employment Expenses—GST/HST Rebate

V. Rules With Respect to Real Property

A. Residential Property

B. Rebate on Purchase of New Residential Property

C. Commercial Property

D. Purchaser’s Requirement to Self-Assess

VI. Special Situations

A. Sale of a Business as a Going Concern

B. Intercompany and Related Party Transactions

C. Joint Ventures and Bare Trusts

D. Death of a Registrant

E. Disbursements

VII. Administrative Matters

A. Deadlines for Filing Returns and Remitting Tax

B. Deadline to File Appeals

C. Instalments

D. Interest and Penalties

E. Changing a Registration Date

F. Directors’ Liability

Review Questions

Key Concept Questions

Problems

Chapter 23 Business Valuations

I. Basic Principles and Methods o Business Valuations

A. Earnings Approach

B. Asset Approach

C. Earnings Approach and Asse Approach Combined

D. Other Valuation Methods

II. The Capitalization of Earning Method

A. Capitalization Rate or Earning Multiple

B. Determination of Expecte Profits

C. Sample Valuation

D. Appreciating Busines Assets

E. Shareholders’ Loans—Debt or Equity?

III. Contingent Business Values

A. Definition and Purpose

B. Basic Earn-Out Methods

C. Tax Treatment of Contingen Prices

IV. Summary and Conclusion

Review Questions

Cases

Appendix A Integration 2019

I. High-Rate Business Income

II. Low-Rate Business Income

III. CCPC Investment Income

IV. Corporate Tax Rates (2019)

A. General Rate

B. CCPC Small Busines Income

C. CCPC Investment Income

D. M&P Provincial Rat Reduction

V. Individuals: Top Combine (Federal + Provincial) Margina Tax Rates (2019)

Permissions

Index

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