ADMS 3520 Lecture Notes - Lecture 9: Pension Credit, Tax Advisor, Cross Ownership
25 Jun 2018
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1 Lecture 9: Taxable Income and Tax for Corporations
▪Corporations are taxed as separate entities & are taxpayers [see definitions of taxpayer &
person in ITA 248 (1)]
▪Corporations file T2 returns (individuals file T1 returns) & include their financial statements
with their tax returns
1.1 Recommended Exercises
▪Exercise 12-1 [Review of Net Income]
▪Exercise 12-2 [Taxable Income]
▪Exercise 14-4 [Associated Companies]
▪Exercise 13-1 [Integration (Non-Eligible Dividends)]
▪Exercise 13-2 [Integration (Eligible Dividends)]
▪Exercise 12-7, 15-2 [Active Business Income]
2 Three Main Types of Corporations
▪There are three main types of corporations [ITA 89(1)]
▪Public corporations
▪resident in Canada, listed on a designated Canadian stock exchange (all Canadian
exchanges are designated)
▪Private corporations = not public
▪Canadian controlled private corporations (CCPCs) = a special type of private corporation
= a private corporation that is not controlled by public companies or non-residents
▪Income earned by a CCPC is eligible for special tax treatment
▪Canadian active business income is eligible for the Small Business Deduction
▪Investment income is eligible for other special treatment that results in lower tax
rates
▪Research & development tax incentives are more generous
3 Computation of Net Income [12-1 to 12-4]
▪Corporations use financial statement income to calculate Division B income (also called net
income for tax purposes)
▪See Fig. 12-1
▪Exercise 12-1 reviews some important items
4 Computation of Taxable Income [12-5 to 12-9]
▪Division B income minus Division C deductions = Taxable income
▪The 3 major Division C deductions for corporations earning income in Canada are:
▪Charitable donations [ITA 110.1(1)]
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find more resources at oneclass.com
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find more resources at oneclass.com
▪Dividends from taxable Canadian corporations [ITA 112]
▪Loss carryovers [ITA 111]
▪See Fig. 12-2
4.1 Charitable Donations
▪ITA 110.1(1): limited to 75% of net income
▪The rules are the same as for individuals except that donations by a corporation are eligible
for a taxable income (division C) deduction rather than a tax credit
▪This is because corporations are subject to a flat tax rate rather than progressive tax rates
▪All unclaimed donations can be carried forward 5 years
4.2 Dividends from Taxable Canadian Corporations[12-10 to 12-12]
▪ITA 112
▪This deduction means that dividends between Canadian corporations are essentially tax-free
and this prevents double taxation
4.3 Loss Carryovers [12-24 to 12-30]
▪ITA 111: the rules are the same as for individuals
▪the two most important carryovers are
▪Non capital losses
▪carry back 3 years, carry forward 20 years
▪Net capital losses
▪carry back 3 years, carry forward indefinitely. Can only be used to offset taxable
capital gains
5 Tax Payable [12-45 to 12-72]
▪The following table sets out the general corporate tax rate for business income in 2017 and
the lower rate for the first $500,000 of active business income earned by Canadian controlled
private corporations (CCPCs). The actual provincial rates vary depending on the province
▪see tables and example especially at 12-49, Figure 12-3, 12-65
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Lecture 9: taxable income and tax for corporations. Corporations are taxed as separate entities & are taxpayers [see definitions of taxpayer & person in ita 248 (1)] Corporations file t2 returns (individuals file t1 returns) & include their financial statements with their tax returns. There are three main types of corporations [ita 89(1)] Public corporations resident in canada, listed on a designated canadian stock exchange (all canadian exchanges are designated) Canadian controlled private corporations (ccpcs) = a special type of private corporation. = a private corporation that is not controlled by public companies or non-residents. Income earned by a ccpc is eligible for special tax treatment. Canadian active business income is eligible for the small business deduction. Investment income is eligible for other special treatment that results in lower tax rates. Research & development tax incentives are more generous. Corporations use financial statement income to calculate division b income (also called net income for tax purposes)
