1. Lesson 5 INCOME FROM PROPERTY
PASSIVE INCOME DERIVED SOLY FROM HOLDING PROPERTY.
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2. Types of Income From Property
Interest.
Dividend.
Rental.
Royalties.
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3. Reporting Requirements for Interest
12(1)(C) provides that the taxpayer must include in income interest received or receivable,depending on the method regularly followed by the taxpayer.
Individuals report on calendar year.
Corporations on a fiscal year.
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4. Recording Methods Cash Basis(report in the year it is paid).
Receivable Basis(report when the amount has become legally due and payment is enforceable).
Accrual Basis(report in the year in which it is earned).
Paragraph 12(1)(c) requires that the chosen method be consistently followed.
Subsection(12(3) demands that corporations,partnerships and trusts use the accrual method.
Subsection 12(4) an individual must bring into income,any interest accrued to each anniversary date of the investment contract.  .
EXAMPLE 1
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5. Investment Contracts
Investment contracts include any debt obligation except certain deferred compensation arrangements,an employee benefit plan and a income bond.
Acquired after 1989, annual reporting based on the anniversary date of the contract.
Acquired between November 13,1981 and January 1, 1990, if the income accrued has not been reported annually and if the the terms of the contract have remained unchanged.The interest accrued must be reported on the third anniversary date after acquisition of the investment and every three years thereafter.
AFTER 1989 THE ANNIVERSARY DATE OF THE CONTRACT IS THE DAY THAT IS ONE YEAR AFTER THE DAY IMMEDIATELY PRECEDING THE DATE OF ISSUE OF THE CONTRACT.
THE THIRD ANNIVERSAY DATE OF THE INVESTMENT CONTRACT IS DEC 31 OF THE THIRD YEAR FOLLOWING THE YEAR OF ACQUISTION OF THE INVESTMENT.
EXAMPLE 2
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6. Dividends Cash dividend Stock dividend Liquidating dividend
Capital dividend
RECEIVE CHECK IN MAIL FROM COMPANY YOU OWN SHARES IN.
SHARE CERTIFICATE GIVING YOU MORE SHARES
GETTING SHARE MONEY BACK
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7. Capital Dividends
Dividends received from a Canadian corporation in which the corporation paying the dividend has made an election under subsection 83(1) or (2).
These dividends are tax free to the individual receiving it.
Capital dividends are the distribution of the untaxed portion of corporate sourced capital gains.
SEE EXAMPLE
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8. Cash Dividends
Individuals are required to gross up all non eligible taxable Canadian dividends by 18%.
Individuals receive a tax credit of % on the grossed up amount.
Eligible are grossed up by 38% and 15% tax credit
Corporations do not follow.
Know the difference between taxable dividend and taxable amount.
Intercorporate dividends are not taxable.
In certain situations they are taxed under part 4.
Foreign dividends received have no 18 gross up and you receive no % tax credit.
Section WHERE A PERSON PAYS MORE THAN FMV,THEY ARE DEEMED TO HAVE PAID FMV.2 WHERE A PERSON RECEIVES LESS THAN FMV THEY ARE DEEMED TO HAVE RECEIVED FMV.(NOTE PURCHASURE,S COST IS STILL THE LESSER AMOUNT.GIFTS YOU ARE DEEMED TO HAVE PAID OR RECEIVED FMV.
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9. Stock Dividends Stock dividends are taxable.
The value of the stock dividend amount is based on the increase in the paid-up capital of the corporation per share issued as a stock dividend,
The gross-up and dividend tax credit rules apply to stock dividends.
Paid - up capital is the original issue price of shares or the amount originally paid to the corporation for the shares.
Stock splits are not taxable(same value just more shares).
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10. Rental Income
Rental income (losses) is from the ownership of properties which are rented/leased to another person.
Generally rental income is income from property.
Business income when it is from a corporation whose principle business is to earn rental income and which employs six or more full-time employees,a business with short –term rentals of small equipment,a motel,hotel and similar hospitality business and long/short-term business of leasing movable property.
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11. Rental Income Continued
Reported generally on the cash basis unless in a corporation
Expenses include
Property taxes
Insurance
Maintenance
Mortgage interest
Property management fees
Advertising
Utilities
CCA
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12. General Deductions From Property Income
Expenses must be incurred to earn income from property or business sec 20(1)(c).
Interest on borrowed funds.
Commodities produce capital gains or losses, interest is not deductible.
Income from capital.
Unless the gains and losses are business income.
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13. Other Income Pensions, 56(1) pensions must be included in income. CPP.
OAS(71,592).
Private and provincial pensions.
Foreign pensions.
EI(60,750).
OAS, 65 YEARS OF AGE RESIDENT OF CANADA FOR A MINUM OF 10 YEARS, SUPPLEMENT INCLUDED IN INCOME BUT 110(1)(F) ALLOWS FOR A DEDUCTION. MEANS TEST 71,592 BEGINS TO BE CLAWBACK.. THE CLAW BACK IS ADDED TO TAXEX PAYABLE BT COMPUTING 15% OF THE EXCESS
EI CLAWBACK 60,750
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14. Other Income Cont
Death benefit. Scholarships,bursaries and prizes for Achievement. Research grant. Support payments. Social assistance. Workers compensation.
10,000 tax free
exemption if enrolled at a designated educational institution for which you can claim the education tax Income – expense
Otherwise 500 exempt
After 1997 not income and not deductible child support
All other support payments are deductible and taxable.
Payments must be made on a periodic basis.
Lump sum payments are not deductible must be written agreement.
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15. Retiring Allowances
Amount received on retirement for long years of service.
Can be transferred under sec 60(j) to an RRSP based on $2,000 per year of employment prior to 1996 plus 1,500 per year prior to 1989 that you were not a member of a vested RPP or DPSP.
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16. Other Deductions
Carrying charges- safety deposit box(NO LONGER DEDUCTBLE), and management or safe custody fees.
Brokerage fees incurred on the purchase of sale of securities become part of your cost or reduce your proceeds.
Accounting and legal fees are deductible as long as they are incurred for the purpose of earning income from property.
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17. Other Deductions CPP on self employed earnings.
½ Of CPP paid to the max for 2014.
RRSP 18% of earned income to a max 24,270 for 2014.
RPP reduces RRSP room.
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18. Moving Expenses
Subsection 62(1) permits a taxpayer who incurs moving expenses in connection with an eligible relocation to deduct those expenses.
248(1) defines an eligible relocation as one in which enables the taxpayer to carry on a business or be employed at a location in Canada, or be a full-time student at university,college or other educational institution.The distance between the old residence and the new work location cannot be less than 40 km greater than the distance between the new residence and the new work location.
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19. Moving Expenses Cont Two exceptions to the in Canada rule.
Expenses can not exceed the taxpayer’s income from a business or job at a new location.
Expenses do not exceed the the scholarships or research grants included in income.
Expenses cannot be reimbursed.
1 year carryover.
Still resident of Canada for tax purposes or student.
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20. Deductible Moving Expenses
Subsection 62(3).
Traveling costs, including a reasonable amount for meals and lodging to move the taxpayer and household members.
Household transportation and storage costs.
Temporary meal and lodging expenses near either location for up to 15 days.
Lease cancellation costs.
Selling costs associated with the sale of old residence.
Legal fees and tax .Fee or duty on registration of title of new residence.
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21. Deductible Moving Expenses Cont
Interest,property taxes,insurance,heating,and utilities(up to $5,000) for the old residence for the time it is not inhabited but is being sold.
Any cost of revising legal documents to the new address,replacing driver’s licenses and non-commercial vehicle permits,and connecting/disconnecting utilities.
See example.
47 per km rate. $17 per meal or 51 per day
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22. Child Care Expenses
Must be incurred to enable the taxpayer or a supporting person of the child who resides with the child to.
Earn income from an employment or a business.
Carry on research or similar work for which a grant is received.
Attend a designated educational institution,or a secondary school where the person is enrolled in a program of a least three consecutive weeks’ duration and which requires that a least 10 credit hours per week or at least 12 hours per month be spent on courses in the program.
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23. Child Care Limitations
The child must be the taxpayer’s child or a child of the taxpayer’s spouse or common-law partner,or a dependant child.
The child must be under 16 years of age at some time in the year,unless he or she is mentally or physically infirm.
The costs must be paid to a person who is a resident of Canada,and not the mother,father or other supporting person of the child,and not to anyone under age 18 and related to the taxpayer.
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24. Deductible Amounts
Must be claimed by the spouse or supporting person with the lowest income unless certain exceptions exist.
Least of.
2/3 of taxpayer’s earned income.
$10,000 for each child for whom a disability tax credit is claimed.
$7,000 for each child under age seven at the end of the year.
$4,000 for each child aged seven to sixteen at the end of the year.
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25. Child Care Expenses
Include babysitting,day nursery,boarding school or camp costs.
Boarding school and camp are limited to $175 per week for each child under seven at the end of the year. Or $250 for whom a disability tax credit can be claimed.
$100 per week for each other child.
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26. Attribution rules (related transactions)
Transfers to spouse/ income transferred back to Transferor.
Capital Gain- Transferred back to Transferor.
Sale to spouse at fair market value-Attribution rules do no apply.(Spouse must use own cash to purchase the property).
Loan to Spouse-Attribution rules do not apply if prescribed rate charged and interest is paid within 30 days of the end of the year.
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27. Property Transfers to Minors at FMV
Income transferred back to transferor(m0m or dad) or whoever until child reaches 18.
subsection 120.4(4) to extend this tax to capital gains that are included in a minor’s income resulting from a disposition of shares to a non-arm’s length person if taxable dividends on these shares would have been subject to the tax on split income.  Twice the amount of such capital gains would be deemed to be dividends and subject to “kiddie tax”. Refer to text section 6,
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