Active Business Income (ABI)

Characterizing the different types of income that your business earns will have an impact on the rate of tax applied to the income earned. For instance, Canadian controlled private corporations (CCPCs) are granted a tax reduction on active business income, known as the small business dedution. Federally, in 2017, the first $500,000 of a CCPCs ABI is taxed at 10.5%, …

Allowable Business Investment Loss

While a capital loss can only be deducted against taxable capital gains, an allowable business investment loss (ABIL) may be deducted against all other ordinary income including capital gains – making an ABIL a very unique and favourable type of loss.   What is considered a business investment loss? A business investment loss is a specific type of loss that …

Capital Cost Allowance

It is important to understand that there is a difference between an immediate expense, which is fully deductible in the year that it is incurred, and a depreciable expense, which can only be deducted over time. Depreciation expenses are costs that, while also part of the expenses used to calculate net income (or loss), are subject to the Capital Cost …

FAPI: Foreign Accrual Property Income

Foreign Accrual Property Income, or FAPI for short, refers to a set of rules in the Income Tax Act (the “Act”) that deal with foreign (i.e. non-Canadian) corporations with Canadian-resident owners that earn passive income. Generally speaking, the passive income referred to in this article is in reference to income from property, rental/royalties/investment income, or taxable capital gains from the …

Amalgamations

An amalgamation occurs when two or more corporations merge and form a new corporation. From a legal and commercial perspective, an amalgamation has the advantage of being a relatively straightforward transaction in that if the requisite conditions are met, the assets and liabilities of the predecessor corporations automatically become the assets and liabilities of the amalgamated corporation on the effective …

Novation and Its Impact on Debt Forgiveness

What is Novation?   Novation is a concept that can be important in the context of shareholder benefits, debt forgiveness, deemed income on loans to non-residents, and exemptions from withholding tax. According to the Oxford Dictionary, novation is defined as the substitution of a new contract in place of an old one. A novation ordinarily arises when a new individual …

What Can be Done Before Your Trust Turns 21?

What is the 21-year rule?   Family trusts created during someone’s lifetime are deemed to dispose of their property every 21 years. Although the trust is deemed to have disposed of property for tax purposes, an actual disposition typically does not occur. This 21-year deemed disposition occurs at fair market value (FMV) and results in the realization of any inherent …

160 Assessments – Can CRA Take Back My Gift?

Subsection 160(1) of the Income Tax Act (the “Act”) is a powerful tool that allows the CRA to go after family members and other non-arm’s length persons who have received gifts (and other transfers where fair market value consideration is not paid) from a non-arm’s length person who has an outstanding tax debt. Subsection 160(1) of the Act applies to transfers …

The Importance of a Clearance Certificate from the CRA

An individual may deal with the business, property or estate of another person as a representative.  That business, property or estate may owe amounts to the Canada Revenue Agency (CRA).  The amounts can include federal income taxes, provincial and territorial taxes administered by the CRA and outstanding Canada Pension Plan and Employment Insurance premiums, including any interest and penalties.  If …

Foreign Reporting Requirements

Foreign Reporting Requirements   In the interest of enhancing compliance with tax laws, gathering information to verify compliance and to better target international tax evasion and aggressive avoidance, the government has established foreign reporting requirements.   The foreign reporting requirements are found in sections 233.1 to 233.7 of the Income Tax Act.  In certain conditions, the following must be reported: …