About this video
- Video Title: Chapter 12 Taxation
- Channel: Ronald Wong
- Speakers: Ronald Wong
- Duration: 00:41:25
Overview
This video provides a comprehensive overview of corporate taxation in Canada, covering the calculation of net income for tax purposes, taxable income, and the Part 1 federal tax liability. It explains the adjustments needed to convert accounting net income to net income for tax purposes, deductions available, and the application of various tax credits and deductions, including the small business deduction and manufacturing and processing profits deduction. The video also touches upon stop-loss rules and the conversion of losses.
Key takeaways
- Calculating Net Income for Tax Purposes: The process begins with accounting net income, followed by adding back non-deductible expenses (like income tax expense, accounting amortization, and 50% of meals and entertainment) and subtracting non-taxable income (like accounting gains on capital assets, excluding the portion already taxed).
- Calculating Taxable Income: From net income for tax purposes, further deductions are made, including charitable donations (limited to 75% of net income for tax), Canadian source dividends, and loss carryovers.
- Federal Part 1 Tax: The basic federal corporate tax rate is 38%, which can be reduced by the federal tax abatement (10%) and further by the small business deduction, manufacturing and processing profits deduction, and the general rate reduction.
- Small Business Deduction (SBD): This deduction applies to Canadian-controlled private corporations (CCPCs) on their Canadian active business income. Its availability and amount can be limited by factors such as associated corporations, taxable capital employed in Canada (TCE C grind), and adjusted aggregate investment income (AAII grind).
- Stop-Loss Rules: These rules prevent corporations from creating artificial capital losses by selling shares shortly after receiving a dividend, particularly for shares held less than a year or when owning more than 5% of the paying corporation.
