Lifelong Learning for a Brighter World

Jing Zhou, McMaster University Continuing Education Accounting graduate Jing Zhou, McMaster University Continuing Education Accounting graduate

Accounting

Cheques and balances. It all adds up.

Work towards your CPA designation!

ACC 938 - Taxation II C32

Academic Credit Value:
3 units
Course Delivery Mode:
Online Self-Study (OSS)
Hours of Study:
42 hours
Course Prerequisite(s):
ACC 937 and ACC 927 or equivalencies. Be advised: Students who do not meet the prerequisites will be required to withdraw. In such cases, CCE’s withdrawal/refund policies will apply.
Course Anti-requisite(s):
N/A
Instructor Name:
Christine Cooke, CPA CGA MBA TEP
Course Dates:
03/15/2019 - 08/17/2019



Required Course Materials:
TEXT: R.E. Introduction to Federal Income Taxation in Canada, Beam, Wolters Kluwer 39th edition STUDY GUIDE: This study guide accompanies the above text. Solutions to most of the practice questions you are directed to do will be found in this guide. INCOME TAX ACT (ITA): The Practitioner’s Income Tax Act, Sherman, Carswell, 54th edition
Optional Course Materials:
WEBSITE: Information on the Interpretation Bulletins and Information Circulars can be found on the Canada Revenue Agency website at http://www.cra-arc.gc.ca/menu-eng.html A2L: The module notes and assignments included in this package are also available on A2L. Updates and templates will also be available when applicable. CD Practice Questions: The CD that accompanies your text has many problems and M/C questions for additional practice.
Course Description:
This course continues the examination of the theory and application of the Income Tax Act particularly as it relates to corporations.
ACC 938 consists of (4) units of study. These areas will be more fully described in the Course Outline/Module Expectations section of this package. Each unit/module contains learning objectives/expectations, text readings, course notes (A2L), review activities and suggested learning strategies and resources.

It is expected that the recommended activities which include practice exercises/quizzes/problems, be completed prior to submission of formal credit assignments. Each formal credit assignment relates to the materials covered in each module and will be less difficult if the suggested review activities are completed. In addition, completing text readings, reviewing suggested resources and completing suggested review activities will enable the student to study more easily for the final exam. You can expect to see material on the final examination of similar level of difficulty to that of the formal credit assignments.
Learning Outcomes:
This is the second of two introductory courses in federal income tax law which are designed to achieve the following objectives:
  1. to calculate a corporate tax return and to explain the theoretical concepts behind the specific provisions of the Income Tax Act (ITA),
  2. to apply the ITA in practical problems and case settings,
  3. to interpret the ITA, taking into account the specific wording of the provisions, judicial decisions and the Canada Revenue’s Agency’s position, and
  4. to introduce basic tax planning concepts through problem application in specific areas, including the use of a corporation to manage earnings, the purpose of corporate rollovers, the application of non-resident tax, and tax planning on the death of a taxpayer
  5. to calculate the ACB and income distributions of partnerships
  6. to explain the purpose and use of trusts
Course Evaluation

The final grade is calculated based on the following components:

Students will demonstrate knowledge and an understanding of the accounting concepts covered in Taxation II by completing four (4) formal credit assignments and a final examination. This works out to one assignment per unit, which you will find to be a manageable workload.

The due dates are listed in your course package and assignment schedule. If you have difficulty completing these by the due dates, please contact your course instructor prior to the posted deadline to discuss an extension to avoid academic penalties.

Assignments are located at the back of the corresponding module/unit to which it applies. Assignments are also posted to A2L.

NOTE: ALL Assignments must be submitted for marking by the due date indicated before writing the Final Exam.

Distribution of course marks will be as follows:

Assignments  40%
Final Examination 60%

NOTE: A passing grade on the final examination is required to pass the course.

The final exam must be written on or before your course end date/final exam date. Students who have submitted all assignments ahead of schedule may opt to write their final examination prior to the posted examination/course end date. Although students are permitted to accelerate through course material, no student will be permitted to schedule/sit the final examination earlier than two (2) months post course start date. After the final exam is written no further assignment submissions will be accepted. 

Course Format:
This course is designed to present the fundamental concepts and theories in Taxation and promote the application to the workplace and professional practice. Course activities will include instructor presentations, required readings and experiential learning activities (i.e. case studies, group discussions, projects, etc.).
Assignment Submission:
Course assignments are submitted to the appropriate A2L Assignment folder by the specified due date
Late Coursework:
Late assignments will be subject to a 2% per day late penalty (includes weekends and holidays) for up to seven (7) days. After this date, no assignments will be accepted and a grade of zero (0) will be applied.  Extensions for course work must be approved by the instructor before the due date (see Academic Regulations below), and will be granted for illness or emergencies only. Students may be asked to submit supporting documentation for an extension request.  NOTE:  This policy applies to assignments and other hand in type coursework only.  This policy does not apply to discussion board topics/postings which do not allow for late postings/contributions.

Policy & Procedures:

Academic Regulations (Attendance, Coursework, Tests/Exams):
In accordance to McMaster University’s General Academic Regulations, “it is imperative that students make every effort to meet the originally scheduled course requirements and it is a student’s responsibility to write examinations as scheduled.” Therefore, all students are expected to attend and complete the specific course requirements (i.e. attendance, assignments, and tests/exams) listed in the course outline on or by the date specified. Students who need to arrange for coursework accommodation, as a result of medical, personal or family reasons, must contact the course instructor within 48 hours of the originally scheduled due date. It is the student’s responsibility to contact the Program Manager to discuss accommodations and procedures related to deferred tests and/or examinations within 48 hours of the originally scheduled test/exam, as per policy. Failure to contact the course instructor, in the case of missed coursework, or the Program Manager, in the case of a missed test/examination, within the specified 48-hour window will result in a grade of zero (0) on the coursework/exam and no further consideration will be granted.

*Note: Supporting documentation will be required but will not ensure approval of accommodation(s).
Academic Integrity
You are expected to exhibit honesty and use ethical behaviour in all aspects of the learning process. Academic credentials you earn are rooted in principles of honesty and academic integrity. Academic dishonesty is to knowingly act or fail to act in a way that results or could result in unearned academic credit or advantage. This behaviour can result in serious consequences, e.g. the grade of zero on an assignment, loss of credit with a notation on the transcript (notation reads: “Grade of F assigned for academic dishonesty”), and/or suspension or expulsion from the university.

It is your responsibility to understand what constitutes academic dishonesty. For information on the various types of academic dishonesty please refer to the Academic Integrity Policy, located at http://www.mcmaster.ca/academicintegrity/

The following illustrates only three forms of academic dishonesty:
  1. Plagiarism, e.g. the submission of work that is not one’s own or for which other credit has been obtained.
  2. Improper collaboration in-group work.
  3. Copying or using unauthorized aids in tests and examinations.
Academic Accommodations:
Students with disabilities who require academic accommodations must contact the Student Accessibility Centre (SAS) to meet with an appropriate Disability Services Coordinator. To contact SAS, phone 905-525-9140 ext. 28652, or email sas@mcmaster.ca. For further information, consult McMaster University’s Policy for Academic Accommodation for Students with Disabilities.
On-line Elements:
In this course, we will be using on-line elements, which may include email, Avenue to Learn, WebEX, and external web sites.  Students should be aware that, when they access the electronic components of this course, private information such as first and last names, user names for the McMaster e-mail accounts, and program affiliation may become apparent to all other students in the same course. The available information is dependent on the technology used. Continuation in this course will be deemed consent to this disclosure. If you have any questions or concerns about such disclosure please discuss this with the course instructor.
Turnitin.com:
Course Changes:
The instructor reserves the right to modify elements of the course and will notify students accordingly.
Course Withdrawal Policy:
Policies related to dropping a course and course withdrawals are posted to the Centre for Continuing Education’s program webpage, FAQs & Policies (https://www.mcmastercce.ca/cce-policies#Dropping).
Storm Closure Policy:
In the event of inclement weather, the Centre for Continuing Education will abide by the University’s Storm Closure Policy: https://www.mcmaster.ca/policy/Employee/storm_emergency_policy.pdf, and will only close if the University is closed. All in-class courses, exams and room bookings by internal and external clients will be cancelled if the Centre for Continuing Education is closed. On-line courses will take place as scheduled.
Grading Scale:
Grade Equivalent
Grade Point
Equivalent Percentages
A+ 12 90-100
A 11 85-89
A- 10 80-84
B+ 9 77-79
B 8 73-76
B- 7 70-72
C+ 6 67-69
C 5 63-66
C- 4 60-62
D+ 3 57-59
D 2 53-56
D- 1 50-52
F 0 0-49
Course Schedule:
Unit 1 – Corporate Tax Review and Obligations and Rights of the Taxpayer

Unit Overview

This initial unit of the Taxation II course covers the taxation of corporations under Part I and Part IV of the Income Tax Act. Students should be familiar with many of the concepts already from their study of Taxation I, but should thoroughly review the unit to ensure a sound grasp. In addition to the mechanical calculation of corporate tax payable, it is necessary to be aware of the reasons for the additional tax on investment income, for Part IV tax on dividends, for the RDTOH account, for the capital dividend account and for the dividend refund, as this knowledge is key to understanding integration and deemed dividend concepts introduced in later Units. The obligations and rights of the taxpayer, as well as the powers and responsibilities of the CRA are also reviewed, as are other administration issues such as those dealing with deadlines for filing of returns and assessment appeals and application and calculation of interest and penalties.

Learning Outcomes

Following the completion of Unit I – Corporate Tax Review and Obligations and Rights of the Taxpayer, the student will:
- Identify and calculate deductions allowed for corporations from taxable income, including dividends, charitable donations, federal political contributions, and loss carryovers
- Use applicable tax rates, tax reductions, and tax credits to calculate Part I tax payable
- Understand how Part IV tax and the dividend refund relate to corporation/shareholder integration
- Identify and calculate deductions allowed for corporations from taxable income, including dividends, charitable donations, federal political contributions, and loss carryovers
- Use applicable tax rates, tax reductions, and tax credits to calculate Part I tax payable
- Understand how Part IV tax, the RDTOH account, and the dividend refund relate to corporation/shareholder integration
- Identify the taxpayer’s right to fair assessment and appeals and their obligations for reporting and payment
- Describe  the  obligations  of  the  CRA  for  assessments  and  reassessments  and  their  power  of enforcement

Unit 2 – Corporate Tax Planning and Other Taxpayer Issues

Unit Overview

Basic tax planning strategies available for individuals who receive dividends and shareholder benefits in addition to employment income are studied in this unit. Various factors need to be considered when determining the best mix of salary and dividends that should be paid to an owner/manager and these factors are covered in detail to determine the best mix. Another tax planning strategy explored is the use of holding companies to defer the recognition of income under bona fide circumstances. The concept of qualified small business corporation shares (QSBCS) is also reviewed with reference to the availability of the capital gains deduction. Corporate attribution rules are studied to determine circumstances where they may be applicable, for example where one of the main purposes of a loan or transfer to a corporation was to lower the income of the transferor and benefit a designated person. The general anti-avoidance rule and the concept of the so-called “kiddie tax” is also re-visited in this unit. The types, purposes, and deadlines of tax returns for a deceased taxpayer and the taxation of non-residents completes the concepts covered in this unit.

Learning Outcomes

Following the completion of Unit 2 – Corporate Tax Planning and Other Taxpayer Issues, the student will:
- Identify and calculate the tax consequences of payment of a salary/dividend mix
- Gain an understanding of the use of holding companies for tax deferral and estate planning
- Explain concepts of QSBCS, CGD, GAAR, Attribution rules, and the Kiddie Tax as they relate to tax planning
- Identify the types of tax returns and filing deadlines for a deceased taxpayer
- Gain a basic understanding of taxation for non-residents  

Unit 3 – Corporate Distributions and Rollovers

Unit Overview

The concepts studied in this unit focus on a strong understanding of the difference between the paid up capital (PUC) of shares and the adjusted cost base (ACB) of shares. The tax consequences of selling an incorporated business through either a sale of assets or a sale of shares and the resulting calculation of a deemed dividend (with reference to PUC) and capital gain (with reference to the ACB) are studied. This unit looks at the factors that need to be considered and the pros and cons of each option. When there is a transfer of assets to a corporation by its shareholders the provisions of the Income Tax Act require that the transfer be carried out at Fair Market Value (FMV). However the consequences of using FMV could result in a capital gain or other  income inclusions for the transferor, and this unit explores how Section 85 is used to allow for a transfer of assets under specific circumstances without triggering income inclusions when there has been no real change in economic position for the transferor. The final module in Unit 3 looks at a non-arm’s length transfer of shares using Section 85, and how the PUC grind in section 84.1 will apply to transfers of assets and shares. We also explore situations where Section 55 would be applied to prevent conversion of a capital gain on the disposition of shares held in another corporation into a non-taxable dividend.

Learning Outcomes

Following the completion of Unit 3 – Corporate Distributions and Rollovers, the student will:
- Be able to explain the concepts of the PUC and the ACB of shares
- Calculate the tax consequences of a deemed dividend
- Calculate the components of the capital dividend account
- Calculate the tax consequences to a corporation and its shareholders of a windup
- Explain the advantages, disadvantages, and consequences of a sale of assets and a sale of shares
- Gain an understanding of the basic principles of a Section 85 rollover and when it is used
- Illustrate the application of Section 85 and a PUC Grind on the transfer of assets or shares to a corporation
- Explain the consequences of transferring property an amount greater than or less than its FMV

Unit 4 – Estate Planning, Trusts, and Partnerships

Unit Overview

This Taxation II module explores other types of rollovers available in transactions between corporations
and their shareholders for the purpose of tax planning. Rollovers involving convertible properties and interspousal transfers are introduced as well. Our study will provide a brief introduction on how the rollover provisions provided by the Act that we have studied to date can be applied in the area of estate freezes.
The provisions of the ITA dealing with partnerships, the nature of a partnership, and the general rules in calculating and reporting partnership income are introduced. For tax purpose, a partnership interest is considered a capital asset that if sold, could give rise to a capital gain or loss. Therefore we will explore how to calculate the ACB of the partnership interest as well as the tax consequences when it is sold. The final module in this unit takes a look at trusts. A trust is a relationship whereby the trustee is bound to deal with the trust property over which he/she has control for beneficiaries any of whom may enforce the obligation. There are numerous types of trusts we will briefly explore what a trust is, how it is created, the types, specific characteristics and purposes of trusts, as well as how to compute the income of a trust,taxation of a trust, attribution rules related to trusts, and the use of trusts for both tax and non-tax advantages.

Learning Outcomes

Following the completion of Unit 4 – Estate Planning, Trusts, and Partnerships, the student will:
- Identify other rollovers available which allow deferral of income on transactions between corporations and there shareholders and illustrate the application of each
- Illustrate the use of rollovers in estate planning
- Outline the general rules in the calculation of partnership income
- Compute taxable income of a partnership
- Calculate the ACB of a partnership, initially, as well as changes over time
- Describe the options available for transfers of property to a partnership, and transfers of partnership property to a corporation
- Define a trust, how it is created, and its characteristics
- Identify and explain the purpose of the different types of trusts
- Calculate the taxable income of a trust
- Explain how attribution rules will be applied to trusts
- Describe the advantages of using trusts