Byrd & Chen’s Canadian Tax Principles 2020–2021 Edition, Volume I
By Clarence Byrd, Ida Chen And Gary Donell
Table Of Contents (Volume 1):
CHAPTER 1
Introduction To Federal Taxation In Canada
The Canadian Tax System . . . . . . . . . 1
Alternative Tax Bases . . . . . . . . . . . . . 1
Taxable Entities In Canada . . . . . . . . . . 2
Federal Taxation And The Provinces . . . . . . 3
Tax Policy Concepts. . . . . . . . . . . . . 5
Taxation And Economic Policy . . . . . . . . 5
Taxation And Income Levels . . . . . . . . . 5
Tax Incidence . . . . . . . . . . . . . . . . . 8
Tax Expenditures . . . . . . . . . . . . . . . 8
Qualitative Characteristics Of Tax Systems . . 9
Income Tax Reference Materials . . . . . 11
Introduction . . . . . . . . . . . . . . . . . . 11
The Income Tax Act . . . . . . . . . . . . . . 11
Other Income Tax Legislation . . . . . . . . . 15
Other Sources Of Income Tax Information . . 16
Liability For Part I Income Tax . . . . . . 18
Background . . . . . . . . . . . . . . . . . . 18
Charging Provision For Canadian Residents. . 18
Charging Provision For Non-Residents . . . . 19
Residence . . . . . . . . . . . . . . . . . 21
Importance . . . . . . . . . . . . . . . . . . 21
Residence Of Individuals . . . . . . . . . . . 21
Residence Of Corporations . . . . . . . . . . 27
Residence Of Trusts. . . . . . . . . . . . . . 29
Alternative Concepts Of Income . . . . . 29
The Economist’s View. . . . . . . . . . . . . 29
The Accountant’s View . . . . . . . . . . . . 30
The Income Tax Act View . . . . . . . . . . . 30
Net Income For Tax Purposes . . . . . . 30
Structure . . . . . . . . . . . . . . . . . . . 30
Components . . . . . . . . . . . . . . . . . 31
Combining The Components – ITA Section 3 . 32
Loss Carry Overs . . . . . . . . . . . . . . . 34
Net Income For Tax Purposes – Example . . . 35
Net Income To Taxable Income . . . . . . 36
Principles Of Tax Planning . . . . . . . . 37
Introduction . . . . . . . . . . . . . . . . . . 37
Tax Avoidance Or Reduction . . . . . . . . . 37
Tax Deferral . . . . . . . . . . . . . . . . . . 37
Income Splitting. . . . . . . . . . . . . . . . 38
Abbreviations To Be Used . . . . . . . . 39
Key Terms Used In This Chapter . . . . . 40
References. . . . . . . . . . . . . . . . . 41
Problems For Self Study (Online) . . . . 41
Assignment Problems . . . . . . . . . . 42
CHAPTER 2
Procedures And Administration
Introduction . . . . . . . . . . . . . . . . . 49
Administration Of The Department . . . . 49
Returns And Payments – Individuals . . . . 50
Requirement To File – ITA 150 . . . . . . . . . . 50
Due Date For Individual Returns . . . . . . . . 51
Withholdings For Income Tax – ITA 153 . . . . . 52
Instalment Payments For Individuals – ITA 156 . 53
Interest . . . . . . . . . . . . . . . . . . . . . 57
Penalties . . . . . . . . . . . . . . . . . . . . 58
Due Date For Balance Owing – Living Individuals . 59
Deceased Taxpayers – Balance Due Dates
And Final Returns . . . . . . . . . . . . . . . . 59
Returns And Payments – Corporations. . . 59
Due Date For Corporate Returns – ITA 150 . . . 59
Filing Alternatives For Corporations . . . . . . . 60
Instalment Payments For Corporations . . . . . 60
Due Date For Balance Owing – Corporations . . 62
Interest And Penalties For Corporations . . . . 63
Returns And Payments – Trusts. . . . . . . 63
Types Of Trusts . . . . . . . . . . . . . . . . . 63
Filing Requirements. . . . . . . . . . . . . . . 63
Due Dates For Returns . . . . . . . . . . . . . 63
Payment Of Taxes . . . . . . . . . . . . . . . . 63
Interest And Penalties. . . . . . . . . . . . . . 64
Income Tax Information Returns . . . . . . 64
Books And Records . . . . . . . . . . . . . 64
Assessments And The CRA
My Account Service . . . . . . . . . . . 64
CRA Website – My Account Service. . . . . . . 64
Notice Of Assessment . . . . . . . . . . . . . 65
Notice Of Reassessment . . . . . . . . . . . . 65
Refunds . . . . . . . . . . . . . . . . . . . 65
Adjustments To Income Tax Returns. . . . 66
Disputes And Appeals . . . . . . . . . . . 67
Representation By Others . . . . . . . . . . . 67
Informal Request For Adjustments . . . . . . . 67
Notice Of Objection. . . . . . . . . . . . . . . 67
Tax Court Of Canada . . . . . . . . . . . . . . 69
Federal Court And Supreme Court Of Canada . 70
Tax Evasion, Avoidance, And Planning. . . 70
Tax Evasion . . . . . . . . . . . . . . . . . . . 70
Tax Avoidance And Tax Planning. . . . . . . . . 71
General Anti-Avoidance Rule (GAAR) . . . . . . 71
Collection And Enforcement . . . . . . . . 72
Taxpayer Property . . . . . . . . . . . . . . . . 72
Collections . . . . . . . . . . . . . . . . . . . 72
Other Penalties . . . . . . . . . . . . . . . . . 73
Chapter 2 – Continued
Taxpayer Relief Provisions . . . . . . . . . 74
Fairness Package . . . . . . . . . . . . . . . . 74
Voluntary Disclosure . . . . . . . . . . . . . . 75
Key Terms Used In This Chapter . . . . . . 75
References. . . . . . . . . . . . . . . . . . 76
Problems For Self Study (Online) . . . . . 77
Assignment Problems . . . . . . . . . . . 77
CHAPTER 3
Income Or Loss From
An Office Or Employment
Employment Income Defined . . . . . 81
General Rules . . . . . . . . . . . . . . . . 81
Cash Basis And The Use Of Bonus
Arrangements. . . . . . . . . . . . . . . . 82
Net Concept. . . . . . . . . . . . . . . . . 83
Employee Versus Self-Employed. . . . 84
Introduction . . . . . . . . . . . . . . . . . 84
Employee Perspective . . . . . . . . . . . 84
Employer Perspective . . . . . . . . . . . . 86
Making The Distinction . . . . . . . . . . . 86
Inclusions – Employee Benefits. . . . . 88
Basic Concepts . . . . . . . . . . . . . . . 88
Inclusions – Salaries And Wages . . . . 88
Inclusions – Non-Salary Benefits . . . . 89
Introduction . . . . . . . . . . . . . . . . . 89
Legislative Guidance . . . . . . . . . . . . 89
Non-Legislative Guidance . . . . . . . . . . 91
Tax Planning Considerations . . . . . . . . 95
Inclusions – GST/HST/PST On Taxable
Benefits . . . . . . . . . . . . . . . . 96
Inclusions – Automobile Benefits. . . . 97
Employees And Automobiles . . . . . . . . 97
Taxable Benefits – Standby Charge . . . . . 98
Operating Cost Benefit . . . . . . . . . . .101
Payments By Employee For Automobile
Use . . . . . . . . . . . . . . . . . . . . .101
Summary Of Automobile Benefit
Calculations . . . . . . . . . . . . . . . . 102
Example – Employer Owned Automobile . 102
Example – Employer Leased Vehicle . . . . 103
Employer Provided Cars And Tax Planning . 104
Inclusions – Allowances . . . . . . . . . 105
Allowance Vs. Reimbursement . . . . . . 105
General Rules . . . . . . . . . . . . . . . 105
Taxable Vs. Non-Taxable Allowances . . . 106
Reasonable Allowances For Motor Vehicles. 107
Employer’s Perspective Of Allowances . . 108
Employee’s Perspective Of Allowances. . 108
Inclusions – Employee Insurance
Benefits . . . . . . . . . . . . . . . . 109
Life Insurance . . . . . . . . . . . . . . . 109
Disability Insurance (a.k.a. Group
Sickness Or Accident Insurance Plans) . . 109
Loans To Employees . . . . . . . . . . 110
General Rules . . . . . . . . . . . . . . . .110
Tax Planning For Interest Free Loans . . . .112
Inclusions – Stock Option Benefits. . . 114
The Economics Of Stock Option Arrangements. . . . . . . . . . . . . . . .114
Overview Of The Tax Rules . . . . . . . . .115
CCPCs Vs. Public Companies . . . . . . . .117
Rules For Public Companies . . . . . . . .117
Rules For Canadian Controlled Private
Corporations (CCPCs) . . . . . . . . . . . .118
Other Inclusions. . . . . . . . . . . . . 120
Payments By Employer To Employee . . . 120
Forgiveness Of Employee Loans . . . . . 120
Housing Loss Reimbursement . . . . . . 120
Discounts On Employer’s Merchandise. . 121
Specific Deductions. . . . . . . . . . . 121
Overview . . . . . . . . . . . . . . . . . 121
Salesperson’s Expenses Under ITA 8(1)(f) . . 122
Travel Expenses And Motor Vehicle Costs
Under ITA 8(1)(h) and 8(1)(h.1) . . . . . . 123
The Salesperson’s Dilemma. . . . . . . . 124
Other Expenses Of Performing Duties Under ITA 8(1)(i). . . . . . . . . . . . . . 125
Automobile And Aircraft Expenses Under ITA 8(1)(j) . . . . . . . . . . . . . . . . . 125
Work Space In The Home Costs For Employees . . . . . . . . . . . . . . . . 126
Key Terms Used In This Chapter . . . . 127
References. . . . . . . . . . . . . . . . 127
Problems For Self Study (Online) . . . 128
Assignment Problems . . . . . . . . . 128
CHAPTER 4
Taxable Income And Tax Payable For Individuals
Introduction . . . . . . . . . . . . . . . . . 139
Taxable Income Of Individuals . . . . . . . 140
Available Deductions . . . . . . . . . . . . . . 140
Ordering Of Deductions. . . . . . . . . . . . . 140
Chapter 4 – Continued
Deductions For Payments – ITA 110(1)(f) . . . . 140
Northern Residents Deductions – ITA 110.7. . . 141
Calculation Of Tax Payable . . . . . . . . . 141
Federal Tax Payable Before Credits . . . . . . . 141
Provincial Tax Payable Before Credits . . . . . . 142
Types Of Income . . . . . . . . . . . . . . . . 143
Taxes On Income Not Earned In A Province . . 144
Calculating Tax Credits . . . . . . . . . . . 144
Federal Amounts . . . . . . . . . . . . . . . . 144
Provincial Amounts . . . . . . . . . . . . . . . 144
Personal Tax Credits – ITA 118(1) . . . . . . 145
Basic Personal Amount (BPA) – ITA 118(1.1) . . . 145
Individuals With A Spouse Or Common-Law Partner – ITA 118(1)(a) . . . . . . . . . . . . . . 146
Individuals Supporting A Dependent Person – ITA 118(1)(b) . . . . . . . . . . . . . . 147
Canada Caregiver Amount For Child – ITA 118(1)(b.1) . . . . . . . . . . . . . . 149
Single Persons (Basic Personal Tax
Credit) – ITA 118(1)(c) . . . . . . . . . . . . . . 149
Canada Caregiver Tax Credit – ITA 118(1)(d) . . . 150
Other Tax Credits For Individuals . . . . . 152
Age Tax Credit – ITA 118(2) . . . . . . . . . . . 152
Pension Income Tax Credit – ITA 118(3) . . . . . 153
Canada Employment Tax Credit – ITA 118(10) . . 154
Adoption Expenses Tax Credit – ITA 118.01 . . . 154
Digital News Subscriptions Credit – ITA 118.02 . 155
Home Accessibility Tax Credit – ITA 118.041 . . 155
First-Time Home Buyer’s Tax Credit – ITA 118.05. . . . . . . . . . . . . . . . 157
Volunteer Firefighters And Volunteer Search And Rescue Workers Tax Credits – ITA 118.06 And 118.07. . . . . . . . . 157
Charitable Donations Tax Credit – ITA 118.1 . . . 158
Medical Expense Tax Credit – ITA 118.2 . . . . . 160
Disability Tax Credit – ITA 118.3 . . . . . . . . . 163
Education Related Tax Credits. . . . . . . . . . 165
Employment Insurance (EI) And Canada Pension Plan (CPP) Tax Credits – ITA 118.7 . . . 168
Overpayment Of EI Premiums And CPP Contributions . . . . . . . . . . . . . . . . . . 168
Transfers To A Spouse Or Common-Law Partner – ITA 118.8. . . . . . . . . . . . . . . . 169
Political Contributions Tax Credits – ITA 127(3) . 170
Labour Sponsored Venture Capital Corporations Credit – ITA 127.4 . . . . . . . . . 171
Dividend Tax Credit . . . . . . . . . . . . . . . 171
Foreign Tax Credits . . . . . . . . . . . . . . . 171
Investment Tax Credits . . . . . . . . . . . . . 171
Refundable Credits . . . . . . . . . . . . . 171
Introduction . . . . . . . . . . . . . . . . . . . 171
GST/HST Credit – ITA 122.5 . . . . . . . . . . . 172
Refundable Medical Expense
Supplement – ITA 122.51 . . . . . . . . . . . . 172
Canada Workers Benefit – ITA 122.7
(Formerly Working Income Tax Benefit) . . . . . 173
Refundable Teacher And Early Childhood
Educator School Supply Tax Credit – ITA 122.9 . 174
Climate Action Incentive Payments . . . . . . . 174
Canada Training Credit – ITA 122.91 . . . . . . . 175
Social Benefits Repayment (OAS And EI). . 176
Basic Concepts . . . . . . . . . . . . . . . . . 176
Employment Insurance (EI) Benefits Clawback . 177
Old Age Security (OAS) Benefits Clawback . . . 177
Comprehensive Example . . . . . . . . . . 178
Key Terms Used In This Chapter . . . . . . 180
References. . . . . . . . . . . . . . . . . . 180
Sample Tax Return And Tax Software
SS Problem . . . . . . . . . . . . . . . . 181
Problems For Self Study (Online) . . . . . 181
Assignment Problems . . . . . . . . . . . 182
Tax Software Assignment Problems. . . . 192
CHAPTER 5
Capital Cost Allowance
Note On Eligible Capital Expenditures . . 199
Capital Cost Allowance System . . . . . . 200
General Rules . . . . . . . . . . . . . . . . . .200
Tax And Accounting Procedures Compared. . .200
Additions To Capital Cost. . . . . . . . . . 202
Determination Of Amounts . . . . . . . . . . .202
Available For Use Rules . . . . . . . . . . . . .205
Segregation Into Classes . . . . . . . . . . . .205
Capital Cost Allowances . . . . . . . . . . 206
General Overview. . . . . . . . . . . . . . . .206
Rates For Commonly Used CCA Classes . . . .207
Half-Year Rules (a.k.a. First Year Rules) . . . . . 210
Accelerated Investment Incentive (AccII) . . . . 211
Zero Emission Vehicles . . . . . . . . . . . . . 215
Short Fiscal Periods . . . . . . . . . . . . . . . 216
Class 14.1 . . . . . . . . . . . . . . . . . . . . 217
Tax Planning Considerations For CCA. . . . . . 219
Dispositions Of Depreciable Assets . . . . 220
Overview Of Procedures . . . . . . . . . . . .220
Capital Gains . . . . . . . . . . . . . . . . . .222
Recapture Of Capital Cost Allowance. . . . . .222
Terminal Losses . . . . . . . . . . . . . . . . .223
Dispositions Of Class 54 Assets
(Zero Emission Vehicles) . . . . . . . . . . . .224
Dispositions Of Class 14.1 – Differences
From Other Classes. . . . . . . . . . . . . . .225
Summary Of Disposition Tax Consequences . .227
Chapter 5 – Continued
CCA Schedule . . . . . . . . . . . . . . . . 228
CCA Determination – Special Situations . 229
Separate Class Election . . . . . . . . . . . . .229
Change In Use For Automobiles . . . . . . . .230
Other Special Situations. . . . . . . . . . . . .231
Key Terms Used In This Chapter . . . . . . 232
References. . . . . . . . . . . . . . . . . . 232
Appendix – CCA Rates For Selected Assets . . 233
Problems For Self Study (Online) . . . . . 235
Assignment Problems . . . . . . . . . . . 235
CHAPTER 6
Income Or Loss From A Business
Overview . . . . . . . . . . . . . . . . . . 243
Classification Of Income . . . . . . . . . . . .244
Business Income Vs. Property Income. . . 246
Tax Consequences Of Classification . . . . . .246
Business Income Defined. . . . . . . . . . . .247
Property Income Defined . . . . . . . . . . . .248
Business Income Vs. Capital Gains . . . . 248
Tax Consequences Of Classification . . . . . .248
Capital Gains Defined . . . . . . . . . . . . . .249
Criteria For Identifying Capital Gains . . . . . .249
Business Income And GAAP . . . . . . . . 250
Business Income – Inclusions (Revenues) . .252
Inclusions In Business Income –
Income Tax Act Provisions . . . . . . . . . . .252
Amounts Received And Receivable. . . . . . .252
Reserves . . . . . . . . . . . . . . . . . . . .252
Other Inclusions. . . . . . . . . . . . . . . . .255
Limitations On Deductions From Business
And Property Income . . . . . . . . . . 257
General Approach – Restrictions In ITA 18
Through ITA 19.1 . . . . . . . . . . . . . . . .257
Specific Limiting Items Under ITA 18 . . . . . .257
Foreign Media Advertising – ITA 19 And 19.1 . .263
Limitations On Deductions From Business, Property, And Employment Income. . . 264
Introduction . . . . . . . . . . . . . . . . . . .264
Reasonableness. . . . . . . . . . . . . . . . .264
Meals And Entertainment. . . . . . . . . . . .264
“Luxury” Automobile Costs. . . . . . . . . . .265
Automobiles Owned By The Taxpayer. . . . . .266
Automobile Leasing Costs – ITA 67.3 . . . . . .266
Leasing Property . . . . . . . . . . . . . . . .268
Illegal Payments, Fines And
Penalties – ITA 67.5 And 67.6 . . . . . . . . . .269
Business Income – Specific Deductions . . 269
Inventory Valuation (Cost Of Sales) . . . . . . .269
Other Deductions . . . . . . . . . . . . . . . .271
Reconciliation Schedule . . . . . . . . . . 273
Business Income – Example . . . . . . . . 274
Example Data . . . . . . . . . . . . . . . . . . 274
Example Analysis . . . . . . . . . . . . . . . .275
Taxation Year . . . . . . . . . . . . . . . . 276
General Rules . . . . . . . . . . . . . . . . . .276
Unincorporated Businesses – Non-Calendar Fiscal Year . . . . . . . . . . . . . . . . . . . .276
Special Business Income Situations. . . . 278
Income For Farmers. . . . . . . . . . . . . . .278
Professional Income (Billed Basis Of
Recognition). . . . . . . . . . . . . . . . . . .280
Sale Of A Business . . . . . . . . . . . . . . .281
Scientific Research And Experimental
Development . . . . . . . . . . . . . . . . . .283
Key Terms Used In This Chapter . . . . . . 283
References. . . . . . . . . . . . . . . . . . 283
Problems For Self Study (Online) . . . . . 284
Assignment Problems . . . . . . . . . . . 285
CHAPTER 7
Income From Property
Introduction . . . . . . . . . . . . . . . . . 301
Property Income: General Concept . . . . 301
Interest As A Deduction. . . . . . . . . . . 302
The Problem . . . . . . . . . . . . . . . . . .302
IT Folio S3-F6-C1 “Interest Deductibility”. . . .302
What Is Interest? . . . . . . . . . . . . . . . .302
Legislation. . . . . . . . . . . . . . . . . . . .303
Borrowed To Produce Income. . . . . . . . . .303
Direct Or Indirect Use. . . . . . . . . . . . . .303
Discount And Premium On Long Term Issued Debt . . . . . . . . . . . . . . . . . . .306
Interest Income . . . . . . . . . . . . . . . 308
General Provision . . . . . . . . . . . . . . . .308
Corporations And Partnerships – Full Accrual Method . . . . . . . . . . . . . . . . . . . . .308
Individuals – Modified Accrual Method . . . . .309
Discount And Premium On Long Term Debt Holdings. . . . . . . . . . . . . . . . . . 310
Accrued Interest At Transfer. . . . . . . . . . . 310
Chapter 7 – Continued
Payments Based On Production Or Use (Royalties) . . . . . . . . . . . . . . 311
Rental Income. . . . . . . . . . . . . . . . 311
General Rules . . . . . . . . . . . . . . . . . . 311
Capital Cost Allowances . . . . . . . . . . . . 312
Rental Income Example. . . . . . . . . . . . . 313
Cash Dividends From Taxable Canadian Corporations . . . . . . . . . 314
The Concept Of Integration . . . . . . . . . . . 314
Implementing Integration . . . . . . . . . . . . 315
Gross Up And Tax Credit Procedures –
Eligible Dividends . . . . . . . . . . . . . . . . 317
Gross Up And Tax Credit Procedures –
Non-Eligible Dividends . . . . . . . . . . . . .320
Income Trusts . . . . . . . . . . . . . . . . 323
How Do Trusts Work? . . . . . . . . . . . . . .323
Investments In Publicly Traded Trusts . . . . . .324
Taxation Of Real Estate Investment Trusts (REITs) . 326
Mutual Funds . . . . . . . . . . . . . . . . 327
Objective . . . . . . . . . . . . . . . . . . . .327
Organization. . . . . . . . . . . . . . . . . . .327
Distributions. . . . . . . . . . . . . . . . . . .327
Adjusted Cost Base . . . . . . . . . . . . . . .328
Other Types Of Dividends. . . . . . . . . . 329
Capital Dividends . . . . . . . . . . . . . . . .329
Stock Dividends. . . . . . . . . . . . . . . . .329
Foreign Source Income . . . . . . . . . . . 330
General Rules . . . . . . . . . . . . . . . . . .330
Foreign Non-Business (Property) Income . . . .330
Foreign Business Income . . . . . . . . . . . .331
Shareholder Benefits . . . . . . . . . . . . 332
Tax Credits Revisited . . . . . . . . . . . . 332
Dividend Tax Credits. . . . . . . . . . . . . . .332
Foreign Income Tax Credits . . . . . . . . . . .332
Key Terms Used In This Chapter . . . . . . 333
References. . . . . . . . . . . . . . . . . . 333
Problems For Self Study (Online) . . . . . 334
Assignment Problems . . . . . . . . . . . 334
CHAPTER 8
Capital Gains And Capital Losses
Economic Background . . . . . . . . . . . 343
Capital Assets And Income Taxation Policy . . .343
Lifetime Capital Gains Deduction . . . . . . . .343
Changes In The Inclusion Rate . . . . . . . 344
General Rules . . . . . . . . . . . . . . . . 344
Capital Gains In The Income Tax Act . . . . . .344
Capital Gains Defined . . . . . . . . . . . . . .344
Dispositions . . . . . . . . . . . . . . . . . . .345
Proceeds Of Disposition . . . . . . . . . . . .346
Adjusted Cost Base . . . . . . . . . . . . . . .346
Calculating The Capital Gain Or Loss . . . . 348
Detailed Application Of The Rules . . . . 349
Identical Properties . . . . . . . . . . . . . . .349
Partial Dispositions . . . . . . . . . . . . . . .350
Warranties On Capital Assets . . . . . . . . . .350
Capital Gains Reserves . . . . . . . . . . . . .351
Bad Debts On Sales Of Capital Property . . . .353
Special Rule For Sales Of Real Property . . . .354
Provisions For Special Assets . . . . . . . 356
Principal Residence . . . . . . . . . . . . . . .356
Personal Use Property . . . . . . . . . . . . .358
Listed Personal Property . . . . . . . . . . . .359
Gains And Losses On Foreign Currency . . 360
Options – ITA 49. . . . . . . . . . . . . . . . .362
Deemed Dispositions – Change In Use . . 363
General Rules . . . . . . . . . . . . . . . . . .363
Business To Personal Use. . . . . . . . . . . .364
Personal To Business Use. . . . . . . . . . . .364
Example – Change In Use . . . . . . . . . . . .365
Special Rules For Principal Residences. . . 367
Special Rules For Automobiles . . . . . . . . .369
Deemed Dispositions – Departures From Canada . . . . . . . . . . . . . . . . . . 369
Deferral Provisions On Small Business Investments . . . . . . . . . . . . . . . 370
Basic Provision . . . . . . . . . . . . . . . . .370
Definitions. . . . . . . . . . . . . . . . . . . .370
Example. . . . . . . . . . . . . . . . . . . . .371
Deferral Provisions On Replacement Property. . . . . . . . . . . . . . . . . . 372
The Problem . . . . . . . . . . . . . . . . . .372
Voluntary And Involuntary Dispositions . . . . .373
Timing Considerations . . . . . . . . . . . . .373
Application Of ITA 44(1) To Capital Gains . . . .373
Application Of ITA 13(4) To Recapture Of CCA . . . . . . . . . . . . . . . . . . . . . 374
Combined Application Of ITA 13(4) And 44(1). .375
Capital Gains And Tax Planning. . . . . .378
Key Terms Used In This Chapter. . . . . .379
References. . . . . . . . . . . . . . . . . . 379
Problems For Self Study (Online). . . . .380
Assignment Problems . . . . . . . . . . . 381
CHAPTER 9
Other Income, Other Deductions, And Other Issues
Introduction . . . . . . . . . . . . . . . . . 391
Coverage Of Chapter 9 . . . . . . . . . . . . .391
Other Income – Subdivision d Inclusions .392
Pension Benefits – ITA 56(1)(a)(i) . . . . . . . .392
Retiring Allowances – ITA 56(1)(a)(ii) . . . . . .393
Death Benefits – ITA 56(1)(a)(iii) . . . . . . . .393
Income Inclusions From Deferred Income Plans -ITA 56(1)(h), (h.1), (h.2), (i), and (t) . . . .394
Scholarships And Prizes – ITA 56(1)(n) . . . . .394
Research Grants – ITA 56(1)(o) . . . . . . . . .394
Social Assistance And Workers’ Compensation Payments – ITA 56(1)(u) And (v) . . . . . . . . . . . . . . .395
Other Deductions – Subdivision e Deductions . . . . . . . . . . . . . . . . 395
CPP Contributions On Self-Employed Earnings – ITA 60(e) and ITA 60(e.1) . . . . . .395
Moving Expenses – ITA 62 . . . . . . . . . . .395
Child Care Expenses – ITA 63 . . . . . . . . . .399
Disability Supports Deduction – ITA 64 . . . . .402
Related Inclusions And Deductions . . . . 404
Introduction . . . . . . . . . . . . . . . . . . .404
Employment Insurance Benefits – ITA 56(1)(a)(iv) And 60(n) . . . . . . . . . . . .405
Pension Income Splitting – ITA 56(1)(a.2) And 60(c) . . . . . . . . . . . . . . . . . . . .405
Spousal And Child Support – ITA 56(1)(b) And 60(b) . . . . . . . . . . . . . . . . . . . .406
Annuity Payments Received – ITA 56(1)(d) And 60(a) . . . . . . . . . . . . . . . . . . . .408
Registered Savings Plans . . . . . . . . . 410
Introduction . . . . . . . . . . . . . . . . . . . 410
Tax Free Savings Accounts (TFSAs) . . . . . . 410
Registered Education Savings Plans (RESPs) . 412
Registered Disability Savings Plans (RDSPs) . .418
Non-Arm’s Length Transfers Of Property . 418
Introduction . . . . . . . . . . . . . . . . . . .418
Inadequate Considerations – ITA 69 . . . . . . 419
Inter Vivos Transfers To A Spouse – ITA 73(1) And 73(1.01) . . . . . . . . . . . . .422
Non-Arm’s Length Transfers Of Depreciable Assets – ITA 13(7)(e) . . . . . . . . . . . . . . .424
Inter Vivos Transfer Of Farm Or Fishing
Property To A Child . . . . . . . . . . . . . . .426
Death Of A Taxpayer . . . . . . . . . . . . 427
Income Attribution . . . . . . . . . . . . . 429
The Problem . . . . . . . . . . . . . . . . . .429
Basic Rules – ITA 74.1(1) And (2) . . . . . . . .430
Avoiding Income Attribution . . . . . . . . . .432
Income Attribution – Other Related Parties . . .434
Anti-Avoidance Provisions . . . . . . . . . . .434
Tax Planning And Income Attribution . . . . . .435
Key Terms Used In This Chapter . . . . . . 436
References. . . . . . . . . . . . . . . . . . 437
Problems For Self Study (Online) . . . . . 437
Assignment Problems . . . . . . . . . . . 438
CHAPTER 10
Retirement Savings And Other Special Income Arrangements
Planning For Retirement . . . . . . . . . . 451
Introduction . . . . . . . . . . . . . . . . . . .451
Providing Consistency. . . . . . . . . . . . . .451
Tax Deferred Savings . . . . . . . . . . . . . .452
Defined Benefit Vs. Money Purchase Plans . .454
Registered Retirement Savings Plans (RRSPs) . . . . . . . . . . . . . . . . . . 455
Basic Operations . . . . . . . . . . . . . . . .455
RRSP Deduction Limit . . . . . . . . . . . . .458
Examples Of RRSP Deduction Calculations . .465
Undeducted RRSP Contributions . . . . . . . .466
RRSP And RRIF Administration Fees . . . . . .468
RRSP Withdrawals And Voluntary Conversions .468
Involuntary Termination Due To Age Limitation .469
Spousal RRSP. . . . . . . . . . . . . . . . . .470
Home Buyers’ Plan (HBP) . . . . . . . . . . . .471
Lifelong Learning Plan (LLP) . . . . . . . . . . 474
Departure From Canada. . . . . . . . . . . . .475
Death Of The RRSP Registrant . . . . . . . . .476
Registered Pension Plans (RPPs). . . . . . 477
Establishing An RPP . . . . . . . . . . . . . .477
Employer Contributions To The RPP. . . . . . .478
Employee Contributions To The RPP . . . . . .479
Options At Retirement . . . . . . . . . . . . .479
Phased Retirement . . . . . . . . . . . . . . .479
Inadequate Retirement Savings. . . . . . . . .479
Registered Retirement Income Funds (RRIFs) . . . . . . . . . . . . . . . . . . 481
Establishment. . . . . . . . . . . . . . . . . .481
RRIF Withdrawals . . . . . . . . . . . . . . . .482
Death Of The RRIF Registrant. . . . . . . . . .483
Evaluation Of RRIFs. . . . . . . . . . . . . . .483
Deferred Profit Sharing Plans . . . . . . . 484
General Rules . . . . . . . . . . . . . . . . .484
Tax Planning. . . . . . . . . . . . . . . . . . .484
Chapter 10 – Continued
Profit Sharing Plans. . . . . . . . . . . . . 484
General Rules . . . . . . . . . . . . . . . . . .484
Part XI.4 Tax On Excess PSP Contributions . . .485
Transfers Between Plans . . . . . . . . . . 485
Accumulated Benefits. . . . . . . . . . . . . .485
Retiring Allowances . . . . . . . . . . . . . . .486
Retirement Compensation Arrangements 486
The Problem . . . . . . . . . . . . . . . . . .486
Arrangements Defined . . . . . . . . . . . . .487
Part XI.3 Refundable Tax . . . . . . . . . . . .487
Salary Deferral Arrangements . . . . . . . 488
The Problem . . . . . . . . . . . . . . . . . .488
The Solution. . . . . . . . . . . . . . . . . . .488
Individual Pension Plans (IPPs). . . . . . . 489
Key Terms Used In This Chapter . . . . . . 490
References. . . . . . . . . . . . . . . . . . 490
Problems For Self Study (Online) . . . . . 491
Assignment Problems . . . . . . . . . . . 491
Index . . . . . . . . . . . . . . . . . . . . . I-1
Study Guide:
Your two volume textbook is accompanied by a separate Study Guide that is available in print and online. The chapters of this Study Guide correspond to the chapters of Byrd & Chen’s Canadian Tax Principles. Each of these Study Guide chapters contains the following:
- Detailed guidance on how to work through the text and problems in the chapter.
- Detailed solutions to the Exercises and Self Study Problems in the textbook for the chapter.
- A list of learning objectives for the material in the chapter. In addition, the Study Guide contains:
- Two sample personal tax returns and two Self Study Tax Software Problems in Chapters 4 and 11.
- A sample corporate tax return in Chapter 13.
- An extensive Glossary.