Taxation

Net income from accounting

+- Adjustment for accounting issue

= adjusted net income for accounting issue

+- adjustment for obtaining net income for taxes:

 Add 50% for meals and entertainment
 Add warranty provision
 Deduct actual warranty payment
 Add bad debt provision
 Add amortization
 Remove ucc
 Remove cec (75% *intangible asset value * 7%)
 Add donation

= net income for tax purposes

+- deduction to get to taxable income
 Cpp deductions (for self-employed for amount contributed on behalf of company)
 Donations excepting donations to political parties (for corporate)
=taxable income

Apply tax rate to taxable income (remember it is by incremental for personal)

Find the non-refundable tax credit (available only for individual)

 Basic personal amount (11 474)
 Employment amount (1171 max)
 Spouse amount if eligible (11 474 – net income spouse)
 Children art (2016 last year to claim; You can claim up to a maximum of $250 per child for eligible fees
paid in 2016 relating to the cost of registration or membership for your or your spouse's or common-law
partner's child in a prescribed program of artistic, cultural, recreational, or developmental activity.)
 Children fitness (2016 last year to claim, You can claim up to a maximum of $500 per child, for eligible
fees paid in 2016 for the cost of registration or membership for your or your spouse’s or common-law
partner’s child in a prescribed program of physical activity.)
 Medical fee (eligible expense – min ( 2237; 3%*net income))
 Amount for children born after 1996
 Dependant (if no spouse)
 Cpp contribution (maximum 2737.05)

Multiplies total non-refundable by 15%

 Deduct tax credit for donations for individual taxes
You can claim eligible amounts of gifts to a limit of 75% of your net income. For gifts of certified cultural property
or ecologically sensitive land, you may be able to claim up to 100% of your net income
(For donations made after March 20, 2013, qualifying first time donors may receive an additional federal tax credit
of 25% on the first $1,000 of monetary donations, over and above the amounts indicated on this page; )
Credit is 15% for the first 200 and 29% for the amount above 200$ aka (200*15%+(x-200)*29%)
 Deduct tax credit for federal political donation
Rate (75% for up to 400$, 300+ (x-400)* 50% for up to 750$, or 475+(x-750)*33.33%)
 Dividend tax credit
For eligible dividends, the federal dividend tax credit for 2016 will be 15.0198% of your taxable amount of eligible
dividends reported on line 120 of your return. For "other than eligible dividends", the federal dividend tax credit
for 2016 is 10.5217% of your taxable amount of dividends reported on line 180 of your return.

= Taxes payable

Other way (individual)

Employment income
+ Business income
+ Investment income
+ Taxable amount dividend (foreign dividend not eligible)
You must calculate the taxable amount of "other than eligible dividends" by multiplying the actual
amount of "other than eligible dividends" you received by 117%.
You must also calculate the taxable amount of eligible dividends by multiplying the actual amount of
eligible dividends you received by 138%.

= total income (line 150)

-rpp deduction
-child care expense
-annual union
- moving expenses
=net income (line 236)
- Capital gain exemption
- Non capital losses carry forward
- Net capital losses of other years (up to deductible capital gain)
= taxable income (line 260)
Multiply line 260 by the appropriate tax rate and deduct the non-refundable tax credit = taxes payable

Other way (business)

Net income for tax purposes

- Charitable donations
- Non capital losses from previous year
- Net capital losses from previous year
= Taxable income

- Small business deduction (eligible if QSBC aka CCPC)

And all the rdtoh thing lol

A share of a corporation will be considered to be a qualified small business corporation share if all the following
conditions are met:
 at the time of sale, it was a share of the capital stock of a small business corporation, and it was owned by
you, your spouse or common-law partner, or a partnership of which you were a member;
 throughout that part of the 24 months immediately before the share was disposed of, while the share was
owned by you, a partnership of which you were a member, or a person related to you, it was a share of
a Canadian-controlled private corporation and more than 50% of the fair market value of the assets of the
corporation were:
 o used mainly in an active business carried on primarily in Canada by the Canadian-controlled
private corporation, or by a related corporation;
o certain shares or debts of connected corporations; or
o a combination of these two types of assets; and
 Throughout the 24 months immediately before the share was disposed of, no one owned the share other
than you, a partnership of which you were a member, or a person related to you.
Incorporate yourself or not
 cost of incorporation (lawyer fee, incorporation fee and more administrative requirement like separate
bank accounts)
 complexity of operations aka additional deadline, more remittances
 salary vs dividend : can pay a dividend
 capital gain exemption
 income splitting by paying dividends to family member who will have share
 Deferral (can deferred paying taxes by keeping amount in corporation)

Look at opportunities to reduce taxes payables (rrsp contribution, paying relatives reasonable salaries,)
 Pm
Structure:

Issue
Aspe/analysis
Recommendation
Impact
Put journal entries if possible

Procedure
Risk:
Assertion:
Procedure

Subject Coverage

Government Subsidy ASPE HB 3800 for Hemp co (the subsidy provided more revenue)

Handbook Section 3800, Government Assistance, paragraph 17 provides that government

assistance toward current expenses or revenues shall be included in the determination of net
income. Based on the guidelines provided in paragraph 18, the government subsidy should be
presented as additional revenue. As well, per paragraph 27, it should only be recorded when
there is reasonable assurance that the enterprise has complied and will continued to comply
with all the conditions.

Revenue rec – Hemp Co

Handbook Section 3400, Revenue, paragraph 4 states that transactions shall be recognized
when the requirements as to performance set out in paragraph 3400.05-.06 are satisfied
provided that at the time of performance ultimate collection is reasonably assured.

Paragraph 5 specifically provides the following:

In a transaction involving the sale of goods, performance shall be regarded as having
been achieved when the following conditions have been fulfilled:
(a) the seller of the goods has transferred to the buyer the significant risks and rewards
of ownership, in that all significant acts have been completed and the seller retains no
continuing involvement in, or effective control of, the goods transferred to a degree usually
associated with ownership; and
(b) reasonable assurance exists regarding the measurement of the consideration that
will be derived from the sale of goods, and the extent to which goods may be returned.

Handbook Section 3031, Inventories, paragraph 4 states that this Section does not apply to the
measurement of inventories:
(a) held by producers of agricultural and forest products, agricultural produce after
harvest, and minerals and mineral products, to the extent that they are measured at net
realizable value in accordance with well-established practices in those industries; when such
inventories are measured at net realizable value, changes in that value are recognized in net
income in the period of change.
Therefore, if there is a well-established practice in the hemp industry to measure the inventory
at net realizable value,
Bank of procedures
 Audit memo
RAMP aka risk, approach, materiality, procedures
A sales sub ledger is a detailed listing of all sales making up the total sales number on the
income statement. This sub ledger should include the date of the sale, the amount of the price
of the product sold.