1. Taxation Corporate Tax
Chapter 5 - Taxes
Taxation Corporate Tax
Chapter 5

2. Corporate Tax Step 1: Calculation of Taxable Income Net Sales
Chapter 5 - Taxes
Corporate Tax
Step 1: Calculation of Taxable Income
Net Sales
- Cost of Goods Sold
- General & Admin Expenses (excluding Depr.)
+ Other Income
+ Taxable portion of Net realized Capital Gain
- CCA
- Interest expense
- Application of losses from prior or future years
= Taxable Income

3. Chapter 5 - Taxes
Notes:
There is a high degree of commonality between Taxable Income and Net Income, but the two are distinct.
CCA is depreciation for tax purposes, mandated by the government and differs from financial statement depreciation
Taxable portion of Net realized Capital Gain
= 50% (Sales Price less expenses
minus Purchase Price less expenses)

4. Sales – COGS – G&A- CCA – Interest ± other
Chapter 5 - Taxes
Notes:
There are no capital losses on depreciable assets
Capital losses can be carries forward (indefinitely) or backward (up to 3 years)
Business Losses
Sales – COGS – G&A- CCA – Interest ± other
If negative – business losses can be carried back 3 years to offset business profit
If positive – can be carried forward 20 years

5. Chapter 5 - Taxes
Notes:
Dividends from a Canadian Corporation are not taxed in the hands of a receiving Canadian Corporation.
No deduction for dividends paid by a corporation

6. Corporate Tax Step 2: Identify correct rate to apply tax reduction
Chapter 5 - Taxes
Corporate Tax
Step 2: Identify correct rate to apply tax reduction
CCPC – Canadian Controlled Private Corporation
Active Business Income – everything, but Passive
Passive Income/Investment:
Dividends from non-Canadian Corporation
Interest
Rental Income

7. Corporate Tax Step 3: Tax Liability (putting it all together)
Chapter 5 - Taxes
Corporate Tax
Step 3: Tax Liability (putting it all together)
For Public Firm (non-CCPC) for either active business income or for investment income the tax rate is 25%.
For CCPC :
13.5% on active business income ≤ $500,000
25% on active business income > $500,000
44.7% on investment income
38% on realized capital gains