Barrett Tax Law - Blogs

Small Business Deduction

Income Tax Act subsection 125 The small business deduction is available on active business income for a Canadian Controlled Private Corporation. It provides a reduction in the corporate tax rate up to the federal limit of $500,000. What the above means is if you are earning active business income as a CCPC then your first $500,000 of net income is taxed at a reduced rate.…

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Qualified Small Business Corporation Shares

Income Tax Act Subsection 110.6(1) and 110.6(2.1) In order to claim the lifetime capital gains exemption on a share sale, the shares must meet certain conditions to qualify for the special treatment. If the shares qualify, then the seller would be able to use his or her LCGE, and receive $800,000 tax-free. The rules pertaining to the shares are two-fold. One regarding their ownership, and…

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Qualified Fishing Property

Income Tax Act Subsection 110.6(1), 110.6(1.2), and 110.6(2.2) In 2015, the amount increased that a taxpayer can claim for the lifetime capital gains exemption as it relates to qualified fishing property. The amount is now $1,000,000. The definition of qualified fishing property comes from Subsection 110.6(1) of the Income Tax Act. The fishing property must be owned by an individual, the partner (spouse or common…

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Principal Residence Exemption (PRE)

Income Tax Act s. 40(2)(b) The benefit of the principal residence exemption is obvious. The gain is not subject to tax if the property has been the individual’s principal residence for the entire time it has been owned by that individual. When you normally sell a property, you are subject to tax on the gain from the sale. The gain is typically the difference between…

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Precious Metals

Income Tax Act subsection 123(1) A "precious metal" is a bar, ingot, coin or wafer of gold, platinum or silver that is refined to a purity level of at least: 5% in the case of gold and platinum; and 9% in the case of silver. If a “precious metal” is sold, then the sale does not attract GST/HST. A major issue for the sale of…

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Personal Services Business

Income Tax Act subsections 125(7) and 123.4(1) A personal services business (PSB) is a corporation that carries on business through an individual, and that individual performs services while actually acting like an employee. This is occasionally known as the incorporated employee. The Income Tax Act provides that a PSB is found where an individual who performs services on behalf of a corporation, or a person…

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Permanent Establishment

Income Tax Act Subsections 124(1) and 124(4) Income Tax Regulations subsection 400(2) A permanent establishment is a fixed place of business, which allows a certain jurisdiction to tax the income being made at that fixed place of business. The typical types of permanent establishment are: A fixed place of business; A construction of project; An agency permanent establishment; Rental operation; and Subsidiary of a corporation. If…

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Lifetime Capital Gains Exemption

Income Tax Act subsection 110.6 The Lifetime Capital Gains Exemption (LCGE) allows a taxpayer to receive $800,000 or $1,000,000 of otherwise taxable capital gains on a tax-free basis. The difference in tax-free amounts directly relates to the property that the gain relates to. The deduction is only available where: An individual owns qualified small business corporation shares (link to article); An individual owns qualified farm…

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Income Splitting Through Loans

Income Tax Act Subsection 74.5(2) Income Tax Regulations Subsection 4301(c) Income splitting is an attempt by one taxpayer to send taxable income to another taxpayer in a lower bracket. Typically this is done by splitting income between family members. Income splitting through loans is where a taxpayer loans funds to the lower-income son, daughter, mother, father, or spouse. The funds are then used to purchase…

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Illegal Income

Taxpayers are typically surprised to learn that income from illegal activities is still subject to tax here in Canada. The scenario usually plays out that someone is convicted of a crime (drug-dealing), and following this, that same individual is then audited for unreported income. It can be extremely difficult, if not impossible to lower the amount of income assessed by the Canada Revenue Agency (“CRA”).…

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