Part iv tax


  • Part IV – Taxation of REITs in India
  • A New Era of Private Corporation Tax Rules – Part IV
  • Corporate Taxation of Dividend Income – We Scare Because We Care
  • Safe Income and Section 55(2)
  • Part IV Tax and The Refundable Dividend Tax On Hand (RTDOH)
  • Tax Aspects of Dividends Paid by Corporations
  • Part IV – Taxation of REITs in India

    These changes were first proposed in July This is the fourth article in a series of articles discussing the TOSI rules. Part II discussed the remaining exceptions to the general rule.

    The conference hosted a CRA and Finance Roundtable where senior representatives responded to general and specific questions posed by members. The interpretation of this condition is a major concern for tax professionals and business owners. The CRA also suggested that they will be publishing additional commentary soon. It is understood that the expansion of the TOSI rules is meant to capture income received by non-active family members from professional corporations.

    Finance was asked to explain the policy for including this Services Test given the large number of Canadian businesses engaged in the services industry. Finance identified that businesses that earn income substantially from the provision of services are at the highest risk of splitting income with family members that did not contribute any labour or capital, or assume any risk in relation to the business.

    They also commented that the services exclusion was intended to restrict planning by professional corporations to earn non-professional income in a side business that was not carried on by a professional corporation. However, this condition also captures a corporate structure that involves a holding corporation and a wholly-owned operating corporation. In short, the answer was no. As raised by many practitioners, there are many non-tax purposes for including a holding corporation in a corporate structure, such as creditor proofing.

    In a tax system that is supposed to be neutral such that decisions are made for business reasons not tax reasons , this position is disappointing. TOSI on income that would otherwise be taxed at top rates Finance was asked why the deeming rule for high income earners that was in the draft legislation originally released on July 18, was not preserved in Bill C According to the Technical Notes released at the time, it was not necessary to apply the TOSI rules to split income that, without the rules, would be taxed at the highest marginal income tax rate.

    This is logical. TOSI is an anti-avoidance rule. If income from a related business would be taxed at the highest marginal income tax rate in any event, no taxes are being avoided by applying TOSI. However, Bill C did not preserve this provision.

    While it may seem like a distinction without a difference, that may not be the case where the taxpayer can claim a tax credit, such as a donation tax credit. The only credits that are available are the dividend tax credit, disability tax credit, and foreign tax credit. Finance was asked whether they would be agreeable to amending the TOSI rules to deem split income nil in this circumstance.

    The answer was not encouraging. The response by Finance was that Bill C was already in the House of Commons and that there is no appetite to make further changes at this time. Although TOSI is a provision intended to restrict splitting income with family members that would otherwise be taxed at a lower rate, TOSI may also negatively impact family members that are high income earners.

    First, clarifications with respect to the many new and amended definitions were discussed. It was commented that, in general, all individuals that receive income from a related business are subject to TOSI unless one of the narrow exceptions apply. Finally, the CRA was asked to comment on a situation where a corporation has no business income because it derives income solely from property, such as rental income from real property where the activities are not sufficient to constitute business income.

    This answer was limited to this particular fact situation. From the comments made by the CRA and Finance at these Roundtables, it appears that the possible application of the TOSI rules will depend heavily on the reasonableness of the income received from a related business.

    This results in significant uncertainty for the taxpayer, who bears the burden of proof that the amount received from a related business was reasonable and that TOSI should not apply. While there is still a lot of confusion about the interpretation and application of some of the TOSI rules, we are slowly getting some guidance from the CRA and Finance, although their comments largely restrict the availability of certain exceptions.

    We suggest that taxpayers carefully review whether this exception may be applicable in their circumstances. Stay Informed Disclaimer This publication is provided as an information service and may include items reported from other sources.

    We do not warrant its accuracy. This information is not meant as legal opinion or advice. Miller Thomson LLP uses your contact information to send you information electronically on legal topics, seminars, and firm events that may be of interest to you.

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    A New Era of Private Corporation Tax Rules – Part IV

    The Business Corporations Act Saskatchewan distinguishes between a dividend which, under corporate law, means the distribution of an equal amount, per share, of money or other property to the holders of all shares of a particular class of shares and the payment of the value of a particular share by the corporation to the holder of that share upon the redemption or purchase for cancellation of the share.

    Nevertheless, the Income Tax Act Canada deems that, generally, the excess of the amount paid to the shareholder upon redemption or purchase of a share for cancellation over the paid-up capital of that share is also a dividend for income tax purposes. Any of the following references in this memo to a dividend includes a deemed dividend.

    Dividends and deemed dividends must be authorized by a resolution adopted by the directors of a corporation. Canadian-controlled private corporations are generally eligible for a low rate of corporate income tax on active business income.

    Such dividends do not require any form of designation or election by the corporation. In the hands of a recipient that is a Canadian resident individual, such dividends qualify for a dividend tax credit that reduces the combined federal and Saskatchewan marginal rate of income tax on the dividend to as little as 6.

    If a Canadian-controlled private corporation earns active business income that is in excess of the amount that is eligible for the low rate of corporate income tax, it must pay tax at a higher rate. If the corporation makes a designation which it does by informing the recipients of a dividend in writing , it can pay an eligible dividend to a maximum of the balance in its GRIP as of the end of the current taxation year.

    Eligible dividends paid by such a corporation are deducted from its GRIP and any eligible dividends received by such a corporation are also added to its GRIP. Certain sources of income are tax-free. Common examples are one-half of a capital gain and a death benefit received by the beneficiary of a life insurance policy.

    A capital dividend is tax-free to a Canadian resident recipient. A private corporation decreases its CDA in respect of any capital dividends that it pays and increases its CDA in respect of any capital dividends that it receives. The provisions of the Income Tax Act Canada related to dividends are more complicated than the simplified description set out in this memo.

    You should only pay eligible dividends or capital dividends after obtaining advice from a tax accountant or a tax lawyer. Melvin Gerspacher is a tax lawyer. You can contact him at m.

    Corporate Taxation of Dividend Income – We Scare Because We Care

    This was not without reason — progressive regulations and tax reforms have influenced the progress of REITs globally, with REIT markets witnessing sudden growth spurts in countries such as Singapore and Hong Kong almost immediately following favourable tax amendments.

    Closer home, five years and multiple amendments later, the Indian tax regime for REITs is a complex proposition and comes with a wishlist from nearly all stakeholders involved in a typical REIT. It is even significant from the perspective of sponsor and sponsor groups who may hold interests in real estate assets other than in the form of shareholding.

    However, while the REIT Regulations provide this flexibility, the current taxation framework only provides an exemption from capital gains tax and minimum alternate tax MAT in the case of transfer of shares in lieu of REIT units. Any other form of contribution to the REIT — i. Further, such forms of contribution to the REIT i.

    Safe Income and Section 55(2)

    Moreover, gains arising from such contributions to the REIT other than by individual shareholders or trusts will not be eligible for a MAT exemption, which is available in case of share transfers in lieu of units. This is in contrast with certain developed REIT jurisdictions such as Singapore, where a transfer of assets in lieu of units is tax exempt.

    The response by Finance was that Bill C was already in the House of Commons and that there is no appetite to make further changes at this time.

    Although TOSI is a provision intended to restrict splitting income with family members that would otherwise be taxed at a lower rate, TOSI may also negatively impact family members that are high income earners. First, clarifications with respect to the many new and amended definitions were discussed.

    Part IV Tax and The Refundable Dividend Tax On Hand (RTDOH)

    It was commented that, in general, all individuals that receive income from a related business are subject to TOSI unless one of the narrow exceptions apply.

    Finally, the CRA was asked to comment on a situation where a corporation has no business income because it derives income solely from property, such as rental income from real property where the activities are not sufficient to constitute business income.

    This answer was limited to this particular fact situation. From the comments made by the CRA and Finance at these Roundtables, it appears that the possible application of the TOSI rules will depend heavily on the reasonableness of the income received from a related business.

    This results in significant uncertainty for the taxpayer, who bears the burden of proof that the amount received from a related business was reasonable and that TOSI should not apply.

    While there is still a lot of confusion about the interpretation and application of some of the TOSI rules, we are slowly getting some guidance from the CRA and Finance, although their comments largely restrict the availability of certain exceptions.

    We suggest that taxpayers carefully review whether this exception may be applicable in their circumstances. Stay Informed Disclaimer This publication is provided as an information service and may include items reported from other sources.

    We do not warrant its accuracy. This information is not meant as legal opinion or advice.

    Tax Aspects of Dividends Paid by Corporations

    An additional refundable tax serves a very important purpose. You may actually wonder why you have to pay the tax when you are eligible to get a refund for the tax paid. The idea behind that is that the refundable deposit tax is a pre-payment of tax on the investment dividends. It is important because it removes the deferral advantage that one might have if he or she earned investment income.

    This could be in the form of dividends through a private corporation. How is the dividend refund calculated? There are several ways through which dividend refund is calculated. The dividend refund is a notional account produced when the Canadian private corporation earns aggregate investment income and dividends from unconnected corporations. It is also important to note that only the private Canadian corporation can actually generate a dividend account.

    Non-resident corporations as well as public corporations cannot be able to do that. The Canada Revenue Agency also publishes a guide giving further directions on how to calculate dividend funds. Are eligible dividends subject to Part IV tax?

    Eligible dividends are not subject to Part IV tax. It clearly shows where the tax applies and where it does not. There are a number of conditions that have to be met to be eligible for this deduction. Testimonial Sam Faris reduced the significant unreported income based on net worth audit to be nil.


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