CORPORATE TAXPREP www.htkacademy.com www.htkacademy.com Lecture - - PowerPoint PPT Presentation

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CORPORATE TAXPREP

Lecture Component Agenda

• Acronyms and Terms
• Taxation System in Canada
• Types of business entities
• Who has to file a T2?
• What is the filing requirement for non-resident

corporation?

• Canadian resident corporation
• Types of corporations
• Tax Rate for corporations
• Taxation year & deadlines
• Overview of corporate tax

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Acronyms and Terms

i) CRA – Canada Revenue Agency ii) T1 – Canadian Personal Tax Return iii) T2 – Canadian Corporate Tax Return iv) T3 – Trust Income Tax Return v) T5013 – Partnership Information Return vi) T-Slips – Slips issued for tax purposes and are not actual tax returns (i.e. T4, T2202A etc.) vii) GIFI – Means financial statement

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Taxation System in Canada

• Like any other law in Canada, tax law is a legal

statute.

• The statute is the Income Tax Act (ITA). Requires a

lot of interpretation Sources of interpretation: ➢Canada Revenue Agency ➢Department of Finance ➢Court cases

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Types of business entities

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Type of business entity Filing requirement Sole Proprietorship Personal tax return (T1) – Form 2125 Not a separate legal entity Partnership Personal tax return – Form 2125 Or T5013 Return – If meets certain criteria Not a separate legal entity Corporation Canadian Corporate Tax Return (T2) Separate legal entity

Who has to file a T2?

All corporations including non-profit organizations, tax-exempt corporations, and inactive corporations have to file a T2 return for every tax year, even if there is no tax payable. Exception The tax-exempt Crown corporations, and corporations that were registered charities throughout the year are not required to file a T2 return.

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Who has to file a T2? Non-resident Corporations

A non-resident corporation has to file a T2 return if, at any time in the year, one of the following situations applies: ■ it carried on business in Canada; ■ it had a taxable capital gain; or ■ it disposed of certain taxable Canadian property This requirement applies even if any profits or gain(s) realized are claimed by the corporation to be exempt from Canadian income tax due to a tax treaty

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Canadian Resident Corporation? Should meet one of the two criteria's

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• Management and/or directors

reside in Canada and/or meet in Canada

• Headquarters located in Canada

Corporation's “central management and control” decisions are made in Canada Incorporated in Canada after April 26, 1965 OR

3 Types of Corporations in Tax

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• 1. Public Corporations

Toronto Stock Exchange Examples

• 1. Blackberry
• 2. Rogers
• 3. Telus
• 2. Private Corporations
• 3. Canadian Controlled

Private Corporations (CCPC)

Publically Traded

Shares are not traded

• n stock exchange

HTK Consulting Inc. Haroon

100%

Private Corporation + Controlled by a Canadian Resident **Most Common

Flat tax rate system with 2 rates for corporation (Small Business vs. General)

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ALL OTHER CORPORATIONS (GENERAL) 26.5% SMALL CORPORATIONS 13.5%

Type of income earned by corporations

• Canadian controlled private corporations
• Active business income – Taxed at 13.5% for income

upto $500,000 and the excess income is taxed at 26.5%

• Aggregate investment income – Taxed at 50.17%
• Private corporations & Public corporations
• Active business income – Taxed at 26.5%
• Aggregate investment income – Taxed at 26.5%

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Taxation year & deadlines

If Corporation is a CCPC throughout the year AND claimed the Small Business Deduction All other corporations Deadline for tax return (T2) 6 months after year end 6 months after year end Deadline for taxes owing 3 months after year end 2 months after year end

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Taxation year = Any 12 month period Late filing penalties will be discussed towards the end

• f the course.

Overview of Corporate Tax

You always start from an accounting net income and adjust for tax purposes

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Overview of Corporate Tax

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ACCOUNTING

ABC Inc Income Statement December 31, 2014 Revenue 1,000,000 Expenses Wages 200,000 General and Admin 300,000 Meals and Entertainment 20,000 Golf Fees 10,000 Amortization 15,000 Contingent Expense 55,000 Total Expense 600,000 Net Income 400,000 Accounting Net Income 400,000 Add Back 50% Meals/Entertainment 10,000 Golf Fees 10,000 Contingent Expense 55,000 Accounting Amortization 15,000 90,000 Deduct: Tax Amortization (CCA) (10,000) Taxable Income 480,000 Tax Rate 15.50% Tax Payable 74,400

TAX