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 937 - Taxation I C31

Academic Credit Value:
3 units
Course Delivery Mode:
Online Self-Study (OSS)
Hours of Study:
42 hours
Course Prerequisite(s):
ACC 927 or equivalent. 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:
09/15/2019 - 02/22/2020



Required Course Materials:
TEXT: Introduction to Federal Income Taxation in Canada, Beam, Wolters Kluwer 40th 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, 56th 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:

Students are advised to retain course outlines for future use in support of applications for employment or transfer of credits.
Refer to the Policy & Procedure section for further course and Centre for Continuing Education (CCE) information. 

ACC 937 Taxation I is an introductory course that focuses on the basic concepts of taxation for  individuals and corporations. Students will gain an understanding of the Canadian tax system and be able to identify the individuals who are liable for Part I Tax according to the provisions of the Income Tax Act. Experience will be gained in the calculation of net income for tax purposes (Division B income), taxable income (Division C income) and tax payable, again for both individuals and corporations. While both public and private corporations are explored, private corporations are studied in more detail with a particular focus on the integration between a private corporation and its shareholders. An element of tax planning will be introduced when appropriate, though this topic will be explored in more depth in Taxation II.

Taxation I is a very comprehensive course, and students should have a sound understanding of Financial Accounting in order to understand the adjustments that are made to GAAP/IFRS prepared financial statements to arrive at Division B income. Sufficient time should be allocated to each module to grasp all the concepts covered. While each module explores specific concepts, many of these concepts are interrelated. Even though each assignment will focus on the concepts being covered in the related unit, there is an assumption that the student has acquired, and may need to apply, knowledge gained from previous units. The final exam will be cumulative in nature and will consist of a number of multiple choice questions and the preparation of comprehensive returns (including CCA schedules) for individuals and corporations.

ACC 937 Taxation I concentrates on six major topic areas:
1. The Income Tax System
2. Employment and Business Income
3. Capital Cost Allowance and Capital Gains
4. Property Income, Other Income, and Other Deductions
5. Taxable Income and Tax Payable – Individuals
6. Introduction to Integration for Business and Investment Income & the taxation of Corporations

The first unit explores the history of the Canadian Income Tax System and the desirable characteristics of a fair and equitable system. The rights and obligations of a taxpayer and the concept of residency as it relates to liability for tax under Part I of the ITA are introduced. The importance of Section 3 as it relates to calculating Division B and C income is introduced.

Unit 2 discusses two of the common sources of income for individuals – employment and business income. If positive, the net amount for each of employment income and business income will be calculated according to paragraph 3(a). If negative, the amount is included in 3(d). Calculations of what is included and what is deducted for these two income sources will be studied in detail, but students will also gain an understanding of the criteria that needs to be considered when determining the type of income and why this determination is important.

The concepts of capital cost allowance, terminal losses, recapture, and capital gains and losses are studied in detail. The treatment of these items for tax purposes are compared and contrasted with GAAP/IFRS concepts of amortization/depreciation and accounting gains and losses. Capital gains and losses are netted and any positive amount is calculated according to the rules of paragraph 3(b). (Note that publicly held companies need to prepare financial statements under IFRS as outlined in Part I of the CICA Handbook. The majority of Taxation 1 and II focuses on privately held companies. These private entities need to follow the provisions outlined in Part II of the CICA Handbook. While there may be some differences in the standards for publicly and privately held companies, our study of Tax will not be affected by any differences in these two standards).

Property income and other income make up the other two sources of income found in paragraph 3(a) if positive, or 3(d) if negative. Other deductions include deductions from income that can be taken but are not related to any particular income source, such as moving expenses, childcare expenses, and RRSP contributions. These deductions are calculated according to the provisions of paragraph 3(c). This unit also briefly explores some of the more common aspects of GST.

The final two units look at the calculation of taxable income and tax payable for individuals and corporations. Students will gain a sound understanding of the use of loss carryovers, as well as the tax rates, tax credits, and other deductions that can be applied. The concept of integration between shareholders and corporation is introduced, though a more thorough study of this topic will be undertaken in Taxation II.

Lecture notes are provided in each module to supplement the text reading. Read only those text pages referenced in the notes because not all topics or readings in the text are included. Examples to supplement your understanding of the concepts studied in the course are found in text or notes and you will be directed to complete specific examples in the text. The CD that accompanies your text has additional example questions you can try.

Learning Outcomes:
Upon successful completion of this course, students will have demonstrated knowledge and understanding of:
  • The history, characteristics, structure, and administration of the Income Tax Act
  • The concepts of tax evasion, tax avoidance, and tax planning
  • The importance of Section 3 in the determination of Division B and Division C income
  • The calculation of employment income and business income
  • The concepts of employee, salesperson on commission, and self-employed contractor
  • The capital cost system and the calculation and treatment of capital cost allowance, eligible capital property, capital gains, capital losses, recapture and terminal losses
  • The various sources of property income and how to calculate the inclusions and deductions for the same
  • Other income/loss sources included in 3(a) or 3 (b) and Other deductions allowed at 3(c)
  • The deductions available to individuals in the calculation of taxable (Division C) income including a sound understanding of loss carryovers
  • The calculation of tax payable for individuals, including the application of tax rates and calculation of tax credits
  • The calculation of taxable income and tax payable for corporations
  • The concept of integration between a corporation and its shareholders
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 I by completing six (6) 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 – Introduction to the Income Tax System

Unit Overview

The degree to which the study of taxation has relevance to accounting students varies, depending on
whether the student works in an accounting firm, a corporate setting, or a not-for-profit setting. Nonetheless, as most accountants work in a range of accounting disciplines over their careers, a basic understanding of the income tax system, the income tax act, rights and obligations of the taxpayer, and the concepts behind the taxation of individuals and corporations will likely be beneficial, even though the technical details will vary over time. This unit explores many of these basic issues. As we are all taxpayers, we should have a general understanding of the concepts of tax evasion, tax avoidance, and tax planning and the consequences of these activities.

Learning Outcomes

Following the completion of Unit I – Introduction to the Income Tax System, the student will:

  • Understand the origin and administration of the Canadian income tax system
  • Become familiar with the structure and wording of the Income Tax Act
  • Identify the taxpayer’s right to fair assessment and appeals and their obligations for reporting and payment
  • Have a broad understanding that the basic steps in determining tax obligations include determine liability for tax; calculate Division B income; calculate Division C income; calculate tax payable
  • Identify the various residency issues as they relate to liability for Part I tax

Unit 2 – Employment and Business Income Unit Overview

The calculation of employment income includes identifying income that qualifies as such and calculating
the value of benefits that have been received on account of employment with a particular employer. Some benefits received by an individual from an employer are not taxable, such as group health insurance premiums, grief counselling, employer RPP contributions, or a non-monetary gift under $500. The deductions allowed in arriving at net employment income are explored and calculated. Students will gain an understanding of the criteria used to distinguish an employee from a self-employed contractor. The requirements to reconcile GAAP/IFRS prepared financial statements to business income for tax purposes is studied as well as the general concept of what is considered business income with reference to “reasonable expectation of profit”.

Learning Outcomes

Following the completion of Unit 2 – Employment and Business Income, the student will:

  • Identify and calculate employment income and taxable and non-taxable employment benefits
  • Differentiate between employees and self-employed contractors
  • Calculate minimum employment income for salespersons’ on deposit
  • Understand the concept of business income and what is meant by reasonable expectation of profit
  • Reconcile GAAP/IFRS prepared financial statements with Division B net income

Unit 3 – Capital Cost Allowance and Capital Gains

Unit Overview

The Capital Cost Allowance system is commonly referred to as tax depreciation. Most CCA rates are
declining balance methods, though some, such as Class 13 and Class 14 assets are based on use. The half-year rule applies to many of the declining balance methods, but there are numerous rules and exceptions to the rules that the student will study. When reconciling accounting income to Division B income, the amortization taken for accounting purposes is added back on, and the CCA allowed under the ITA is deducted. Disposition of assets that may result in capital gains, capital losses, recapture of CCA, and terminal losses are all explored. Basic capital gain or loss calculations are not difficult; however this unit covers some of the more complex situations as well.

Learning Outcomes

Following the completion of Unit 3 – Capital Cost Allowance and Capital Gains, the student will:

  • Understand the basic rules of the capital cost allowance system, including the half-year rule, recapture, and terminal losses
  • Apply CCA to various classes of assets including those with special limits (such as Class 10.1)
  • Understand the inter-related concepts of non-arm’s length, related, control, and fair market value
  • Demonstrate the treatment given an eligible capital property when purchased, over its life, and when sold
  • Identify the properties that give rise to capital gains, including PUPs and LPPs
  • Calculate capital gains reserves and ABILs
  • Explain the finer points involving capital gains, including capital gains on leaving the country, change in use, convertible properties, principal residence, attribution rules, and deemed dispositions on death

Unit 4 – Property Income, Other Income, and Other Deductions

Unit Overview

Property income is considered passive income from investment sources such as interest, investments,
rental of real estate properties, production or use of a property, and shareholder benefits. Other income is any other type of income not capital in nature and otherwise required to be included in Division B income. Some deductions allowed by the ITA are identifiable with, and therefore deducted from, a particular source (such as RPP contributions from employment income, or office expenses from business income). However some deductions allowed by the ITA are not associated with a particular source. These specific items are found in subdivision (e) and deducted as “other deductions” at Paragraph 3(c) of the ITA. A brief introduction to GST is also covered.

Learning Outcomes

Following the completion of Unit 4 – Property Income, Other Income, and Other Deductions, the student will:

  • Define and identify property income
  • Calculate the net amount to be included as interest, dividend and rental income
  • Identify and calculate other income sources and other deductions
  • Understand and apply the concepts of attribution rules
  • Obtain a basic introductory understanding of the GST system and its application

Unit 5 – Taxable Income and Tax Payable - Individuals

Unit Overview

This unit identifies the deductions allowed for individuals in the computation of Division C taxable income, including comprehensive coverage of loss carryovers. The calculation of tax payable, and the tax credits available for deduction from tax payable, are studied.

Learning Outcomes

Following the completion of Unit 5 – Taxable Income and Tax Payable - Individuals, the student will:

  • Identify and calculate deductions allowed for individuals from taxable income, including stock option deductions, home relocation loan deductions, loss carryovers, and capital gains deduction
  • Have a general understanding of taxation of non-residents
  • Use graduated tax rates to calculate basic tax payable
  • Calculate applicable tax credits for deduction from basic tax payable to arrive at total tax payable

Unit 6 – Integration for Business and Investment Income & Introduction to the taxation of Corporations.

Unit Overview

This final unit deals with the provisions of the Act which attempt to integrate the taxation of private corporations with the taxation of the shareholders of those corporations. Following an introduction to the concept of integration, this unit will also provide an introduction to the taxation of Corporations.

Learning Outcomes

Following the completion of Unit 6 – Integration for Business and Investment Income & Introduction to the taxation of Corporations, the student will:

  • Understand how the tax system works to integrate the tax on individual shareholders with the tax on private corporations for business and investment income
  • Understand the Small Business deduction
  • Reconcile Financial Statement Income to Net Income for Tax purposes
  • Have a general understanding of taxation of Corporations including the key components in the calculation of taxable income and tax payabl