I. Calculation of Net Income For Tax Purposes and Taxable Income
- Corporations follow the applicable ordering rules of Section 3 in computing NITP
Net Income for Tax Purposes
Less: Div C deductions
Most of the Div. C deductions for corporations are DIFFERENT from the Div. C deductions for individuals.
Div C deductions for Corporations: 1. Charitable donations 2. Dividends received from taxable Canadian corporations 3. Use of loss carryovers from subsequent or prior taxation years
1) Charitable donations
- For individuals tax credit
- For corporations deduction to get to Taxable Income
- For both - limited to 75% of NITP, 5 year CF of unused amounts
2) Dividends received from taxable Canadian corporations ITA 112(1) or foreign affiliates ITA 113(1) ( foreign company where taxpayer and related parties own more than 10% of the shares).
- are deducted to get to Taxable Income
(therefore, NO IMPACT ON TAXABLE INCOME)
- Gross-up of dividends?
- Ch 7 dividend > integration
1 level of tax1 level of tax
Another level of tax as a dividend to the man
3) Loss carryovers from subsequent or prior taxation years
- Same rules as for individuals
II. Corporate Tax Rate
1) type of corporation
2) Type of income the corporation has
2 broad categories of “Taxable Canadian Corporations”
Public Corporation - ITA 89(1) Private Corporations - ITA 89(1)
-resident in Cda, listed on a prescribed stock - resident in Cda, not a public corporation, exchange in Canada not controlled by public corporations
CCPC - ITA 125(7)
-private corporation other than one controlled by non-resident persons/ public corporation
III. Components of Federal Corporate Tax Rate – 2012
The Federal corporate tax rate is composed of: Basic Federal Rate(38%) - Abatement(10%)
- General Rate Reduction (13%)
- Small Business Deduction (17%)
+ Additional Refundable Tax (6%)
Federal Tax Rate
Basic Federal Rate
less: General Rate Reduction2
less: SBD3. on ABI
add: Additonal Refundable Tax
BC Tax Rates
Note: The Feb. 19, 2013 BC Budget announced that the general corporate income tax will increase to 11% effective April 1, 2013.
1Abatement - ITA124(1) - Deduction from corporate tax
There may be deducted from the tax otherwise payable by a corporation under this Part for a taxation year an amount equal to 10% of the corporation's taxable income earned in the year in a province. - Abatement is applicable to income earned in Canada.
- Foreign business income is not earned in a province, therefore, abatement is reduced pro rata
2General Rate Reduction percentage – applied to “full rate taxable income”.
Ie) income that does not benefit from the
1) Small Business Deduction
2) Manufacturing & Processing Deduction
3) refundability of certain types of taxes on investment income of private companies
2012 and subsequent – 13%
3 Small Business Deduction (see below)
4Refundable when the CCPC pays a taxable dividend (will discuss in Ch. 13)
IV. Small Business Deduction (“SBC”)
- Deduction against taxes payable of a CCPC to provide tax relief - Calculated as follows: SBD = 17 %...