August 2017 Newsletter

If you own a building and land used for income earning purposes – such as in your business or by renting out the property – you will often deduct capital cost allowance (“CCA”) for the building. CCA is the depreciation that is allowed for income tax purposes, and it differs from financial accounting depreciation.

General rule

A Canadian corporation (“recipient”) that receives a dividend from another Canadian corporation (“payer”) must include the dividend in income. However, an offsetting deduction is allowed in computing the recipient corporation’s taxable income, so that the dividend is normally not subject to tax for the recipient (subject to the comments below regarding Part IV tax).

Under the lifetime capital gains exemption, you are allowed to earn a certain amount of capital gains on a tax-free basis. The amount of possible exempt capital gain on qualified small business corporation shares (“QSBC shares”) is $835,716 as of 2017 ($417,858 of taxable capital gains) and is indexed annually to inflation. For qualified farm and fishing property, the amount is $1 million of capital gains ($500,000 of taxable capital gains).

When you sell shares in a corporation that are capital property to you, any gain is normally considered a capital gain and only half of that gain is included in your income as a taxable capital gain. Furthermore, if the shares are QSBC shares (see discussion above), some or all of the gain may be effectively exempt from tax under the lifetime capital gains exemption.

Most withdrawals from your registered retirement savings account (“RRSP”) are included in your income. However, there are some exceptions. One of the main exceptions relates to the RRSP Home Buyers’ Plan.

Under this plan, you can withdraw up to $25,000 from your RRSP for the purpose of purchasing a home on a tax-free basis. If you are married or in a common-law partnership, your spouse or partner can also withdraw $25,000 from their RRSP tax-free. So the two of you can withdraw a total of $50,000.

Parking pass for employee was a taxable benefit

If an employer pays for an employee’s parking at or near the work place, the amount paid is normally a taxable benefit for the employee. As such, the employer must report the amount on the employee’s T4 slip.