Beruflich Dokumente
Kultur Dokumente
Corporations - An
Introduction
Prepared by
Kristie Dewald
University of Alberta
Electronic Presentations in Microsoft PowerPoint
Corporations An Introduction
I.
II.
III.
IV.
I.
A. Corporation Defined
A corporation, as a separate entity:
can buy, own, sell, and lease property
Not considered owned by the shareholders
can borrow funds for its own use as well as loan funds to
others.
Shareholders are liable for the corporations debts only to
the extend of capital contributions
Shareholder
Corporation
Shares
Secondary relationships:
payments such as salaries, interest, and rents are deductible and
taxable to the recipient.
10
A. Loss Carry-Overs
Loss carry-over provisions are the same as with
individuals
Net capital losses:
can be carried back three years and forward indefinitely
Used only against taxable capital gains.
Non-capital losses:
can be carried back three years and forward 20 years
Used against any other source of income.
11
Acquisition of Control
Ownership can change when shares are transferred or
sold.
The carry-forward of unabsorbed losses may be
attractive to acquiring shareholders
if they can use those losses .
12
Acquisition of Control
Non-capital losses resulting from business operations
are restricted as follows:
Must carry on business in which losses occurred
Reasonable expectation of profit
Losses can only be deducted against business
income earned by same or similar business.
13
Acquisition of Control
Purpose of restrictions is to prevent the transfer of
unabsorbed corporate losses to other parties.
Deemed year end immediately before the change in
control.
Adds any operating losses making them subject to the
restrictions.
Depreciable property, eligible capital property, and other capital
property are deemed to be sold at FMV if:
14
Corporation A
Profits $100,000
Corp A profits
Corp B loss
Corp C profit
Net loss for group
$100,000
(400,000)
50,000
$(250,000)
Corporation B
Loss ($400,000)
Corporation C
Profits $50,000
15
16
17
Public corporations
Resident in Canada
Shares are traded on a stock exchange.
2.
Private corporations
Resident in Canada
Not a public corporation or controlled by public corporations
3.
18
19
A. Federal Tax
The basic federal tax is 38% of the corporations taxable
income.
Then, reduced by the provincial abatement of 10%
Provides room for the provinces to impose tax.
20
CCPC:
Federal tax is reduced by 13% on active business income:
Above the annual small business limit and
Not eligible for the M&P reduction
21
22
23
25
Total
Business =
Mfg. Profits
Profits
Where:
MC = manufacturing capital TC = total capital
ML = manufacturing labour TL = total labour
The result of this formula may be higher or lower than the
actual manufacturing profits.
26
GRIP
A corporations GRIP is:
Increased annually by 72% of its full-rate taxable income
Meant to approximate the after tax income
Reduced by the amount of eligible dividends distributed
28
29
B. Provincial Tax
Expressed as a % of corporate taxable income.
Each province and territory imposes a primary flat rate of
tax on all corporate income.
Certain provinces apply:
a reduced rate of tax on first $500,000 (or more) of active
business profits of CCPCs, and
some reduce the rate for manufacturing profits.
30
Provincial Tax
Regular
Income
Income
Regular eligible
Income for SBD
Income
eligible
for SBD
31
Multi-Provincial Tax
A corporation incorporated or based in a particular
province will be taxed entirely in that province unless
it carries on business in another province through a permanent
establishment such as an office, branch, warehouse, or
factory.
32
Multi-Provincial Tax
an example
Wages paid in Alberta
Total wages paid by corp.
33%
Sales in Alberta
Total sales of corp.
45%
39%
Average of
a and b
=
2
33 + 45
33
34
35
$ 730
$ 474
$ 1,000
(150)
$850
$850
(349)
$501
38