Management and Organizational Studies 3362A/B Lecture Notes - Lecture 7: Property Income, Accrual, Dividend Tax

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 3362A/B
• Professor: Ann Bigelow

Document Summary

In cases were a great deal of time and effort is directed at producing interests or rents, the return is considered business income. Interest earned is included in income on an accrual basis. If cash is received in excess of the accrued amounts, then the cash amount must be included in income. Interest criteria: it must be calculated on a day-to-day accrual basis, it must be calculated on a principle sum, it must be compensated for the use of the principle sum. Borrowed to produce income common shares: the interest is typically considered deductible based on the expectation of future dividend income. If the company invested in has a policy that they do not pay dividends, then the only earnings possible on the common shares is capital gains, and the interest is not deductible. If the purpose of the purchaser of shares was to earn a capital gain on their eventual sale, the interest is not deductible.