Unit 1 – Introduction to the Income Tax System
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.
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”.
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
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.
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
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.
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
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.
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.
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.
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