Computation of Taxable Income and Taxes for individuals Chapter 10

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Computation of Taxable Income and Taxes for
individualsChapter 10

• Division C Deductions and Additions

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Tax Treatment of Stock Options

• Division C Deduction
• ½ deduction of taxable benefit if either
• Option shares are of a CCPC and have been held
  for two years, or
• The exercise price was greater than the FMV at
  the time the option was granted and the share is
  like a common share

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Tax Treatment of Stock Options

• Deferral of Taxable Benefit ssec. 7(8) 7(16)
• Deferral of up to 100,000 of options annually
• On options exercised after February 28, 2000
• Must file a form to get a deferral
• Eligible Employees
• Must deal at arms length with employer
• Are not specified shareholders (own gt 10)
• Eligible Options those entitle to par 110(1)(d)
• Option to acquire common shares
• Shares traded on prescribed stock exchange
• Amount payable to acquire the shares is not less
  than the FMV of the shares at the grant date

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Division C Deductions

• Offset to income inclusions for the following
• Guaranteed Income Supplement
• Social assistance payments
• Workers Compensation
• Amounts that are exempt income by virtue of a tax
  treaty

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Division C Deductions

• Home Relocation Loan
• Loan to acquire a home which is at least 40
  kilometres closer to an employees new work
  location
• Deduction is lesser of par. 110(1)(j)
• Net imputed interest benefit on home relocation
  loan itself
• Interest on 25,000 using appropriate prescribed
  rate (restricted to a max. of 5 years)
• Total benefits from all low-interest or
  no-interest loans computed under sec. 80.4

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Division C Deductions

• Non-capital loss carryovers par. 111(1)(a) 3
  years back, 7 years forward
• Capital Loss carryovers par. 111(1)(b) 3 years
  back, indefinite forward
• Restricted Farm Losses par. 111(1)(c)
• Farm Loss carryovers par. 111(1)(d)

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Division C Deductions
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Application of Div.C Deduction

• Consider the followings
• Type of income the deduction can be applied
  against
• Number of years available in the carry-over
  period
• The likelihood that the type of income needed
  will arise in the carryover period
• Apply most restrictive losses first

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Calculation of Non-capital Loss for the year

• 3(d) losses from an office, employment, business
  or property Plus ABIL
• Add Net capital losses claimed under Division C
• Add Dividends deducted under Division C
• Deduct 3(c) income

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Calculation of Net Capital Losses

• Allowable Capital Loss for the year
• Less Taxable Capital Gain for the year
• Note Net capital losses are stated using the
  inclusion rate in the year they arose, then
  adjust to todays inclusion rate

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Net Capital Losses
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Division C Deduction

• Capital Gains Deduction
• Individuals can shelter up to 500,000 of capital
  gains on qualified small business corporation
  shares and qualified farm property.

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Division C Deductions

• Ordering of Division C Deductions sec. 111.1
• Sec. 110 Other deductions
• Sec. 110.2 Lump-sum payments
• Sec. 111 Loss carryovers
• Sec. 110.6 Capital Gains deduction
• Sec. 110.7 Residing in prescribed zone.
• For Loss carryovers, the oldest losses are
  applied first. The most restricted loss
  carryovers should be applied first.