To simplify the system and avoid onerous record-keeping, the Income Tax Act deems that both proceeds of disposition and ACB are a minimum of $1,000. This is known as the de minimums rule and it applies only to personal-use property, including listed personal property. Under this rule: Proceeds of disposition are the greater of actual […]

For business involved in the leasing of equipment or any movable property, CCA is restricted to the extent of net lease income, unless the taxpayer’s principal business involves the rental or lease of property, and income is earned in a corporation or a partnership.   Concluding Concepts to Remember Property income is included in paragraph […]

In determining net rental income (which is property), capital cost allowance (CCA) cannot be used to create or increase an operating loss. This restriction applies to the total net rental income, and does not apply on a property-by-property basis where the taxpayer has more than one rental property. The Act contains rules that prevent a […]

Rental income (losses) generally refers to the income or loss earned from ownership of properties that are rented/leased to another person. Generally, rental income is income from property. There are a few exceptions where it would be considered business income, including: A corporation employing six or more full-time employees whose principal business is to earn […]

For accounting purposes, it is generally acceptable to amortize or deplete the asset and reflect the cost of the asset in the determination of net income. The objective of amortization, for financial statement accounting purposes, is to match the cost of producing the revenues to net income. Little attempt is made to compute the present […]

Act Reference Deductions Allowed Related Subsection or Deduction Paragraph 20(1)(a) Capital cost allowance Sections 18(1)(b), 13, Regulations Paragraph 20(1)(b) Cumulative eligible capital Section 14 Paragraph 20(1)(c),(d) Interest and compound interest Section 18(1)(t), 18(2), 18(11), 20.1 Paragraphs 20(1)(e), (f), (g) Financing expenses and share transfer fees Subsection 18(11) Paragraph 20(1)(e2) Life insurance premiums as collateral   […]

For non-arm’s length persons (related persons), where a deductible expense is unpaid at the end of the second taxation year following the year of accrual, the amount must be added back to income at the beginning of the third taxation year. Alternatively, a joint agreement (Form T2047) may be filed with the creditor and the […]

Prepaid amounts that relate to goods and services to be received or benefits expected to be derived in a future taxation year are deductible in the taxation year in which the goods or services are received or benefit derived. Subsection 18(9) concurs with the general rule that expenses must be incurred to earn income in […]

Section 67.1 restricts a deduction for food, beverages, and entertainment (including the amounts for food and beverages while attending a conference, convention, or similar function) to the lesser of: 50% of the amount paid or payable; or A reasonable amount. The rules provide exceptions for: Airlines, restaurants, and hotels that offer this service to their […]

Reserves that estimate an amount generally depend on a future event. The Income Tax Act is specific on the treatment of reserves. A reserve, unless otherwise specifically authorized by a provision in the Act, is disallowed as a deduction against income. Deductible reserves, such as the following, are specifically authorized in section 20 of the […]