Ch14 – corp- 6 mos, ind- Apr 30 or if buss jun 15, deceased- Later of 6 mos after dead and normal due

date, trusts90 days. Penalty- late file-5% of unpaid tax + 1% each mos upto 12mos. Repeat late file-10% of unpaid +2% upto 20 mos. Fail to report income-inc not report * 10%. Gross negligence=min $100 max tax liab *50%. Late instalments= int charged –grter of $1000 or 25% of int * 50%. Planner penlty=min $100 max fee charged for planning. Preparer’s = min $1000 max $100000 +fee charged. Penalty can be waived or canceled if volunteer disclosure is done. He will still have to pay taxes and intrst but the prosecution may be waived. 3 ways a penaty can be waived. A- natural disasters B-CRA mistake C-cannot paid at any cost. Criminal offences fine may go upto $1000 to $25000 or both and jail time as well. 5 reasons for criminal offences- 1-false statement 2-destroy books 3-false books 4-evade rules 5-conspiring the above 4. payment & interest balance. due/deadlines. Ind= aprl 30. corp.=2 mos after yr end. Ccpc= 3 mos ater yr end. Trust= due date for tax returns. Int is calculated daily until the final pymt. CRA may asses tax, int and pently when 1-there is a negligent.2-within four yrs of corp and three yrs or CCPC. 3-wihtin three yrs of expire of notice of assessment 4-where a person wishes to reopen the return. Ind 3 yrs, trust 3 yrs, ccpc 3 yrs and corp. 4 yrs. After 2004, there is a 10 yr limit. CRA can asses ur file 1-when u forget a credit 2when u owe more 3-when there is a fraud. If the tax payer has tax liab, then the refund chqs will offset the liab. Int computed daily the latest of:1-the day overpymt arose. 2-30 days after apr 30. 3-corp= 120 days after yr end 4-rtrn was filed after filing date. Notice of objection: Ind & trust = later of: mailing date +90 days or tax return file due date +1yr. withholding: lesss than $15000, 15th of every month and more than $15000 - $50000 25 th day and 10th day. If withholding for a non resident, 15% hold. If an employer does not hold, he will face a penaty of 10% of the tax withheld. 2nd offence leads to 20%. Deceased: After oct but before apr 30 or jun 15, 6 mos to file the return, whichever is later. Outside of this time, then its either apr 30 or jun 15. (a)prior tax yr: if died between jan 1 and due date, file within 6 mos. (b) terminal return: if died between jan 1 and oct 31, then, due apr 30 or jun 15. between nov 1 and dec 15, due 6 mos from the date of death. Between dec 16 – dec 31, 6 mos from the date of death. Rights or things: return is due later of: 1 yr after dead or 90 days after the assessment of any return. Personal tax credit can be claimed on both, terminal retrn and rights/things. They r the amts which have not been received by the date of death: matured bonds, unpaid dividends, farm crops, unpaid salary, cpp etc. beneficiary of a trust report their inc based on inc earned by the trust. GST: $500000 or less= monthly, quarterly, $500001 $6000000= monthly, $6000001 or more=monthly. 4 yr time limit for input tax credit. With sales over 6 million, they only have 2 yrs limit for ITC. If unable to reslve by CRA then the notice of objection can be filed within 90 days. They may appeal to Tax court of Canada and from there it is federal court and the highest is supreme court. Ch18Partnership: for part, reference shuld be made to partnership acts. (a) joint liability (b) allocating of profit/loss. Usually the rules are in the written agreement but if not , its all equal among the partners. Transfer of asset by a partner to the partnership at a FMV. In part, net inc at the part level and CCA is also at the part level. In joint venture the net inc is separate. Joint venture is (a) joint property int in subject manner (b) mutual control (c)limitation of object. The inc is allocated to them by the ratio. If partnership deducts an amount from tax inc or tax payable, that amt must get add back to the inc of the partnership be4 alocating to partner. The inc of the partnership will be combine on each partners tax return with the partners non partnership inc. partnership info:corp- 5 mos from the end of fiscal period. Indiv- last day of march and others- earlier of: 5 mos after the end of the fiscal or last day of march. Limit partner can only deduct the loss extend that the partners investment in the buss exceeds any amt owing to the partnership. Limted partnership are not liable for the debts of the partnership. Chrity gift are the deductions. Ind may include a pro rated share of the contribution. CG may provide the dedection for caital gains, to utilize net cap loss. Loss cary back/forward are not deduct. Loss are allocated to partners. A partner can claim a dividend tax credit in respect of partner share rec. from Canadian corp. the dividend income must be grossed up. That same goes to foreign income, political contribution and investment tax credit as well. Partnership interest shows the rights/obligation of the partner. They become by member of a partnership and disposes when withdraws from it. Interest is a capital property. So it has a ACB.CG is added on partners inc when disposed of a property. ACB is the partner net investment. Increase partner invest added to ACB, (a) partners inc (b) partner share of capital dividend (c) partner share of net proceeds (d) partner contrib. of capital. Decrease partner invest (a) partner share of any loss (b) partner share of chrty gifts or political (c) partners drawings (d) amt of invest tax credit used. Negative ACB is respect to all property other than partner intert is deemed to have CG. If thre is no disposition of his property, negative ACB will not be txed as CG. Transfer: part to corp: eligible assets transfer. Wind up the partnership and have the former partners hold the shares. This is a tax deferral scheme. 85-3 only have to be cash or shares. Partnership must wound within 60 days of transfer. Partner to partership: dispose of the property at FMV. Limit to capital property (inclding dep cap prop), eligible cap prop, inventory and certain prop. Upper limit = fmv of the prop. Lower limit=fmv other than partnership int. excess amt of fmv is added to the ACB. If there is a loss and hold the prop for 30 days, no loss is recognize on the transfer. Adjustment must be made when there is a transfer less than the cost. A majority int parner is who is entitled to more than one half of partnership inc from all sources. Trusts:it is a relationship whereby a person(trustee) is bound to deal with prop over which he has control for the benefit of persons(beneficiary) any of whom may enforce the obligation. It is created when a person transfers the prop to the trustee who holds for the benefit of income and cap bene. 3 criteria must be there (a) certainty of intension (b)certainty of sub matter (c) cert. of objects. Separation of the title holding and mgmt of prop. Settlers gives prop to the trustee. Trustee owns and controls the prop for the benefit of the bene. Beneficiary = inc capital. Tax: trust is considered to be a tax payer separate away from its settlor, trustee & bene. It deemed to be an individual. Residence: if it is in Canada, tax on world wide inc. if not, it will be taxed as non resident. Trust is generally considered to reside where the trustees, executors, heirs or others who manage the trust. Types: (a)inter vivos and testamentary: test aries upon of the death. Vivos is created while the settlor is alive. If someone else contribute to the trust, it looses the status of test and becomes vivos. It also losed status when borrows money frm a bene. This was resticted to prevent inc split.(b) discretionary and non discretionary trust: in dis, trustee is given

power of choice. The power to determine the date if distribution, whether the inc paid to the bene, how much and in what propotion. It is a useful tool for tax planning. non-dis whrer trustee does not have the power of choice. Trust document sets out some rules to be implelented. (c) personal and commercial trust: personal trust is either a test or vivos where no beneficial interest in the trust was acquired for consider. Paid either to trust or to a person who made a contri. To the trust. Commercial trust is used to describe a trust that is not a personal. (d) spousal: which meets certain conditions set out in the act. 2 conditions are: (1) spouse must be entitled to receive all the income that arise be4 the spouse death (2) no person except the spouse may be4 the spouse death receive or otherwise obtain the use of any income or cap of the trust. For vivos spousal trust, settlor and trust must reside in Canada at transfer. In test spousal the prop must vest in the trust within 36 mos after the death of a taxpayer. If all the conditions for a spousal trust meets, transfer at tax cost. Non dep prop @ ACB & dec cap prop @ UCC. (e) alter ego test: allows for the prop to rollover as long as (1) taxpayer was entitled to receive all the inc (2)no person except the taxpayer cud use any of inc and cap of trust. (3) the individual must be 65 yrs old (4) trust is created after 1999. this does not avoid the deemed disposition on death. (f) joint spousal or common law partner trust: allow for rollover as long as (1) to entitled receive all the inc (2) only person able to receive (3) alive and age 65 (4) trust created after 1999. inc payable: trust is allowed to deduct income that is paid or payable to a bene while determining its net income. So the trust is not taxed on such an item. That deducted amt is taxed in the hands of the bene as income from prop. 4 things are not taxed (1) tax dvd from can corp (2) non tax dvd (3) net tax cap gains (4) foreign inc and its foreign tax paid. Where an individual transfer prop to a trust for the benefit of a non arm length (niece/nephew) under age 18, to include the inc from prop of the transferor. Kiddie tax: it was started to discourage inc splitting with minors. The tax is placed at the top marginal rate and imposed of certain income of indiv under 17. types of inc: (1) tax dvd and other shrhlders benefits of unlist Canadian and foreign companies received directly or via trust/partnership. (2) inc from part or trust, where the inc is derived from the buss of providing goods/service. Not eligible for any deduction or credit other than dvd credit and foreigh tax credit. It is not for the attribution rules. Inc that is subject to kiddie rule, reduces the deemed intert benefit. A preferred beneficiary is a resident of Canada who is a bene of the trust and who is either the settlor, spouse, child, grandchild of settlor and who is enttled for mental or physical impairement. Fiscal yr for vivos is dec 31. for test cannot exceed 12 mos. Vivos has 29% tax rate. Test are almost same margin to vivos. No personal credit for trusts. $40000 exemtion from the min tax for test. Ch-17: sec 85.1 allows a tax free rollover when a shrholder exchanges share to a share of a corp. conditions: (1) must be capital prop (2) CND corp (3) shares only of one class (4) vendor must not control purchaser & must not own more than 50% shares. (5)must be at arm’s length (6) cannot hve election under 85-1&2. (7) cannot recognize cap gains. If the conditions r met, shares equal to ACB. The cost of the shares lesser of FMV or PUC be4 the exchge. If not met, there will be no cap gain/loss. The exhange will be @ FMV. If PUC is less than cost, elect 85. reorganization:a class of outstanding shrs can be changed into a newly ones. Amendment to the articles. Refered to as articles of amendment or supplementary letters & patent. Can be for common to preferred. Exchged at fxed dvd rated & provision with respect to redeem amt of shares. Sec 86 defers any accrud gains on shrs as long as FMV of non shr and PUC of share do not exceed PUC of exsting shares. PUC of new shres will be equal to PUC of old shares less non share. Condition: in order to rollover to apply (1) shrs capital prop (2) all shares are exchanged (3) prop receivable by shrholder are exchged. Only one class be the subject of the exchange. Includes series of shares. Sec 86 will not apply when sec 85has been used. Sec 86 is issuance of new shares and redeem/cancel of old ones. (a) issuance=PUC of new and ACB of new (b) redeem=deem dvd of old shares (pod-puc) and CG or loss of the old ones (pod-acb). In sec 86- the loss is denied and add to the ACB. Loss occurs when PUC old shrs less then ACB and boot exceed PUC. Benefit rule: to reduce the effect of a deferral where is reorgan is used for the benefit. Benefit is excess of FMV of old over cost of non share + FMV of new shres. Pod will be deemed lesser of: (1) FMV of non shre (2) FMV of old. The loss deemed to be nil. Statutory amalgamations: rollover at corp and shrholder level. Merged with each other into one with the result being single with one charter. Sec 87-1 conditions (1) the procdser must be tax CND corp (2) property and liab of procdser must belong to the new corp (3) all shrhlder of the procder, must reciv shrs of new corp (4) transfer of prop cannot occur as a normal purchse of such prop or on a winding up. Vertical amal is where is one corp and sub are combined. The new corp can increase the cost of capital prop. This bump is to recover the cost on a tax free basis. Planning (1) utilize of prior yr loss (2) utilie current loss (3) faster utilize of CCA. Shrholder POD equals to ACB and to acquire at ACB. Conditions (1) no boot can be received (2) original shre r cap prop (3) shldnt be related person. Wind up: automatic rollover when own atleast 90% shres of each class when wind up into parent. They avoid cap gains. The diff between between wind up and amal is tlize of loss carryforards of the sub. When ACB of sub share help by parent exceed the tax value, there is a bump/increase in the ACB, but it cannot raise the FMV amt. the cost of sub shres reduced by dvd. Vert amal and windup are same for tax reasons. Covert prop: they r shares, bond, notes of a corp. can be xchge for shrs. Sec 51 does not require issue of new shares but sec 86 requires. Sec 51, defer of gain only is all r met (1) only shres r issue (2) cap prop (3) must have a conversion rights. Defer any CG, so it is ACB. Inter spousal tranf: to defer CG, automatic rollover is available. Either by sale price or gift. Spouse is the only bene to rec the benefits. Transfer @ ACB. Estate freeze: primary purpose is to freeze all or part of growing asset @ the current FMV so it accrues ro nxt generation. When you do it? (1) not likely to incur any tax cost (2) wish to maintain control of asset (3) split inc will low rate person (4) When CG are easily identified. (5) when u want future CG. Holdco: sec 85. hold comp is incrop & assets r tranf to corp to avoid immediate tax. Eg.shares, assets, portfolio. PR shars can have voting rights. Care must be taken to adverse tax. Internal freeze:cap reorgan is the basis. Payer who owns CMN shres may cause the cop to undertake. He gives up CMN shres for debt and new PR shres using sec 86 to defer CG. Debt/PR shrs can provide income. Advantages (1) avoid the cost of associated with incorping. (2) rollover sec 86 is automatic. (3) 841 is not applied, avoiding seris problms. Internal freze and sec 86 canot provide CG. Reverse/asset freeze: is to remove some or all of assets in which a payer owns CMN shrs and replace with non grwth assets. They make a new

corp and tranf to a child. Sec 85 wud be used to transfer. Payer can maintain the control over PR shres. Can also earn inc on debt and PR shres. CMN value will not grow. CMN held be child, value will grow. Advan: selected can be tranf to child. Each child can get benefit.

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