Corporate Tax

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Ch. 12 Taxable Income and Tax Payable for Corporations

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

Taxable Income

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)

- Why?

- Gross-up of dividends?
- Ch 7 dividend > integration

Sole proprietorCorporation
1 level of tax1 level of tax
Another level of tax as a dividend to the man

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3) Loss carryovers from subsequent or prior taxation years

- Same rules as for individuals

II. Corporate Tax Rate

Depends on:
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
Abatement1

less: General Rate Reduction2

less: SBD3. on ABI
add: Additonal Refundable Tax
FederalTax

Public Private
CCPC

BC Tax Rates
Combined Rates

Higher

Note: The Feb. 19, 2013 BC Budget announced that the general corporate income tax will increase to 11% effective April 1, 2013.

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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)

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IV. Small Business Deduction (“SBC”)

- Deduction against taxes payable of a CCPC to provide tax relief - Calculated as follows: SBD = 17 %...
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