CORPORATE TAXATION
AND COMPLIANCE
Module 11
AFM 362 Corporate Taxation
READINGS
¶11,000-11,036
¶11,100-11,125
¶11,220
¶14,000-14,123
¶14,200-14,400
¶14,520
2
TEXT PROBLEMS WITH SOLUTIONS
Exercises:
Ch11-3,5,7,11
Ch14-4
3
LEARNING GOALS
By the end of this module you will be able to:
• Understand the rights and obligations of corporate
taxpayers and the CRA.
• Calculate taxable income for a public corporation.
• Calculate tax payable for a public corporation.
• Understand corporate permanent establishment and
allocate provincial taxes.
4
WHAT IS A CORPORATION?
• They are separate from their owners
(shareholders).
• They file their own tax return.
• They pay their own taxes.
• They pay dividend to owners.
Dividend is the link between corporations and
owners.
Dividend is key to integration.
TAXPAYERS IN CANADA
• Individual taxpayers
• Corporate taxpayers
Public corporations
Private corporations
Canadian controlled private corporations
(CCPCs)
• Partnerships and trusts…
OBLIGATIONS
• Filing deadline: 6 months after fiscal year
end
• Payment deadline: 2 months after fiscal year
end
Pay based on estimation
• Installments
Monthly instalments for public corps
Quarterly instalments for eligible CCPCs
Not required if current or preceding year tax
payable < $3,000
INSTALMENTS FOR PUBLIC
CORPS
• Monthly instalments one of the three:
1/12 estimated current year tax payable
1/12 of prior year tax payable
A combination of two preceding years
o First two months: 1/12 of second preceding year
o Other ten months: 1/10 of prior year less first two
months
INSTALMENTS FOR ELIGIBLE
CCPCS
• What is an eligible CCPC?
Taxable income < $500,000 current or prior year
Taxable capital < 10,000,000 current year
• Retained earnings + share capital
Small business deduction claimed current or prior
year
AND perfect compliance history
INSTALMENTS FOR ELIGIBLE
CCPCS
• Quarterly instalments equal to one the
following three:
1/4 estimated current year tax payable
1/4 of prior year tax payable
A combination of two preceding years
o First quarter: 1/4 of second preceding year
o Other three quarters: 1/3 of prior year less first quarter
CH 14, P6
RIGHTS AND OBLIGATIONS
• Taxpayers:
Objections and appeals
Amended returns
• CRA
Reassessment
• 3 years CCPC, 4 years other corporations
Interest and penalty
OVERVIEW: TAXABLE INCOME
Individuals Corporations
Sources of Income:
Employment $XXX $ ̶
Business & Property XXX XXX
Capital gains & losses XXX XXX
Other income XXX ̶
Other deductions (XXX) ̶
Net Income for Tax $XXX $XXX
Purposes (Division B)
Division C Deductions (XXX) (XXX)
Taxable Income $XXX $XXX
13
SELECTED DIVISION C
DEDUCTIONS
Individuals Corporations
Employee Stock Option Taxable Canadian
Dividends
Capital gains deductions Donations
Loss carryovers Loss carryovers
14
TAXABLE DIVIDENDS
• Included in Division B, deducted in Division C
• This is a key element of integration in
Canadian tax system-ensures no double
taxation of corporate income
• What is Integration
Regardless how income is earned, same amount of
tax should be paid
• Earned by individuals directly
• Earned by corporations (maybe multiple) and then
distributed to individuals
15
CHARITABLE DONATIONS
• Deductible under Division C for corporations
• Limited to 75% of corporation’s net income
for tax purposes under Division B
• Carry forward 5 years
• Carry-forward is a part of 75% for the year.
16
LOSS CARRYOVERS
• Same rules for corps as for individuals
• Non-capital loss
Deductible against any type of income
Carry back 3 years, forward 20 years
• Net capital loss
Deductible against net taxable capital gains in the
current year
Carry back 3 years, forward indefinitely
Carry forward is also subject to the capital gain cap
17
LOSS CARRYOVERS
CH 11, EX5
TYPES OF CORPORATIONS
Canadian Corporation Resident in Canada
CCPC Private Public
Canadian Not controlled by Publicly listed
corporation not public company shares
controlled by non-
resident or public
company
Type of corporation determines the tax rates that
apply to different types of income
20
GENERAL CORPORATE RATE
• General federal rate of tax is 38%
• Certain adjustments can apply to all corps
Abatement from federal tax (re: provincial tax)
General rate reduction (GRR)
21
ABATEMENT FROM FEDERAL TAX
• Reduction of 10% on income earned in a
Canadian province or territory
• Allows for imposition of provincial taxes
• Will apply to all taxable income of a
corporation except foreign business income
carried on from a foreign Permanent
Establishment
Recall that Canadian corporations pay tax on
worldwide income.
22
GENERAL RATE REDUCTION(GRR)
• Reduction of 13% on “full rate taxable income”
CCPCs will use small business deduction (SBD) -
19%.
• For public corporations, federal tax is simply
38%-10%-13%=15%.
23
PROVINCIAL TAXES PAYABLE
• Rates vary across provinces.
All provinces in Canada have 2 rates of tax on
corporations
Rates in Ontario are 11.5% and 3.2%.
Textbook assumes 12% and 4%.
Taxable income is shared across provinces using
average of salary and revenue percentages
(analytical group project).
CH11, P5
CH11, P5
PERMANENT ESTABLISHMENT
• Provinces tax corporations that have a
permanent establishment (PE) in a province.
• A PE is a fixed place of business like an office,
warehouse, factory, etc.
Identifiable to the public?
• In case there is no fixed place
Employees have authority to contract? OR
Receive orders to deliver?
ALLOCATING TAXABLE INCOME
• Allocate only to provinces with PE
CH11, EX11
CH11, EX11
CH11, P2
CH11, P8
CONTENT LIST OF THE ITA
• Income Tax Act
- PART I Income tax
Division A ~ Division E…
- PART II (Repealed)
- PART III Additional Tax on Excessive Elections
- PART IV Tax on Taxable Dividends Received by
Private Corporations
…
