Taxation
Question 1.
One of the important concepts in Canadian taxation is integration. Discuss the mechanisms built into the Canadian tax system for Canadian controlled private corporations to allow for integration. In your discussion, include the taxes put into the system to prevent deferral, the dividend gross-up and dividend tax credit prior to 2014 and for tax years after 2013. Discuss both investment income and business income.
Question 2.
Memo
To: Staff Accountant
From: Manager
Date: June 6, 2014
Subject: Hema Ltd. Share Issues
Hema Ltd., was incorporated in Ontario in 1991 to carry on a small manufacturing business. The corporation has been a client since its incorporation. Both of the two classes of the issued shares of Hema Ltd. are qualifying small business corporation shares. Penny has always owned all 10,000 of the Class A shares which have a PUC and an ACB of $100 and a FMV of $950,000. All 1,000 of the Class B shares are owned by Jacqui, a long-time key employee. Jacqui paid $10,000 for the Class B shares at the time of their issuance. The Class B shares now have a FMV of $50,000.
Below is a summary of my notes from a meeting that I had with Penny in connection with several transactions involving Hema Ltd. and its shares.
Penny has been talking with a business associate whose accountant has offered some advice that has attracted her attention. Penny respects her associate’s decisions and, thus, is contemplating a freeze of her shares of Hema Ltd. in favour of her children, all of whom are adults. Penny wants to transfer her Class A shares of Hema Ltd. to Brindle Holdings Ltd. (BHL) in return for fixed-value preferred shares. Common shares of BHL will be subscribed for by her children, using their own money.
Penny would like to crystallize her capital gains exemption, of which the entire $750,000 is available. At the same time, she would like to freeze the current value of her interest in the Hema Ltd. Class A shares.
One of the important concepts in Canadian taxation is integration. Discuss the mechanisms built into the Canadian tax system for Canadian controlled private corporations to allow for integration. In your discussion, include the taxes put into the system to prevent deferral, the dividend gross-up and dividend tax credit prior to 2014 and for tax years after 2013. Discuss both investment income and business income.
Question 2.
Memo
To: Staff Accountant
From: Manager
Date: June 6, 2014
Subject: Hema Ltd. Share Issues
Hema Ltd., was incorporated in Ontario in 1991 to carry on a small manufacturing business. The corporation has been a client since its incorporation. Both of the two classes of the issued shares of Hema Ltd. are qualifying small business corporation shares. Penny has always owned all 10,000 of the Class A shares which have a PUC and an ACB of $100 and a FMV of $950,000. All 1,000 of the Class B shares are owned by Jacqui, a long-time key employee. Jacqui paid $10,000 for the Class B shares at the time of their issuance. The Class B shares now have a FMV of $50,000.
Below is a summary of my notes from a meeting that I had with Penny in connection with several transactions involving Hema Ltd. and its shares.
Penny has been talking with a business associate whose accountant has offered some advice that has attracted her attention. Penny respects her associate’s decisions and, thus, is contemplating a freeze of her shares of Hema Ltd. in favour of her children, all of whom are adults. Penny wants to transfer her Class A shares of Hema Ltd. to Brindle Holdings Ltd. (BHL) in return for fixed-value preferred shares. Common shares of BHL will be subscribed for by her children, using their own money.
Penny would like to crystallize her capital gains exemption, of which the entire $750,000 is available. At the same time, she would like to freeze the current value of her interest in the Hema Ltd. Class A shares.