Tributação de opções de ações de empresas privadas no canadá

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& raquo; A tributação das opções de ações.
Tributação individual Alberta 2016 Tabela 1 - Alberta (2016) Tabela 2 - Créditos tributários não reembolsáveis ​​(2016) ¹ Tabela 3 - Taxas marginais (2016) Tabela 4 - Títulos de imposto Tributação individual Colúmbia Britânica 2016 Tabela 1 - Tabela British Columbia (2016) 2 - Créditos tributários não reembolsáveis ​​(2016) ¹ Tabela 3 - Taxas marginais (2016) Tabela 4 - Tolerâncias Tributação individual Manitoba 2016 Tabela 1 - Manitoba (2016) Tabela 2 - Créditos tributários não reembolsáveis ​​(2016) ¹ Tabela 3 - Taxas marginais (2016) Tabela 4 - Títulos de imposto Imposto individual New Brunswick 2016 Tabela 1 - Nova Brunswick (2016) Tabela 2 - Créditos tributários não reembolsáveis ​​(2016) ¹ Tabela 3 - Taxas marginais (2016) Tabela 4 - Títulos de imposto Imposto individual Terra Nova e Labrador 2016 Tabela 1 - Terra Nova e Labrador (2016) Tabela 2 - Créditos tributários não reembolsáveis ​​(2016) ¹ Tabela 3 - Taxas marginais (2016) Tabela 4 - Títulos de imposto Tributação individual Nova Escócia 2016 Tabela 1 - Nova Escócia (2016 ) Tabela 2 - Imposto não reembolsável créditos (2016) ¹ Tabela 3 - Taxas marginais (2016) Tabela 4 - Títulos de imposto Imposto individual Ontário 2016 Tabela 1 - Ontário (2016) Tabela 2 - Créditos tributários não reembolsáveis ​​(2016) ¹ Tabela 3 - Tabela Taxas Marginais (2016) 4 - Títulos Impostos Imposto Individual Ilha do Príncipe Eduardo 2016 Tabela 1 - Ilha do Príncipe Eduardo (2016) Tabela 2 - Créditos tributários não reembolsáveis ​​(2016) ¹ Tabela 3 - Taxas marginais (2016) Tabela 4 - Tolerantes Tributação individual Saskatchewan 2016 Tabela 1 - Saskatchewan (2016) Tabela 2 - Créditos tributários não reembolsáveis ​​(2016) ¹ Tabela 3 - Taxas Marginais (2016) Tabela 4 - Margem tributária Tributação societária, CPP e EI 2016 Tabela 1 - Receita empresarial elegível para SBD (2016) Tabela 2 - Rendimentos empresariais não elegíveis para a SBD (2016) Tabela 3 - Rendimento dos investimentos¹ (2016) Tabela 4 - Imposto sobre vendas (2016) Tabela 5 - Créditos tributários para investimentos de longo prazo (ITC) em 2016 ¹ Tabela 6 - Canada Pension Plan (2016) Tabela 8 - Seguro de Emprego (20 16)
A tributação das opções de ações.
Como uma estratégia de incentivo, você pode fornecer a seus funcionários o direito de adquirir ações da sua empresa a um preço fixo por um período limitado. Normalmente, as ações valerão mais do que o preço de compra no momento em que o empregado exerce a opção.
Por exemplo, você oferece a um de seus principais funcionários a opção de comprar 1.000 ações da empresa por US $ 5 cada. Este é o valor estimado de mercado (FMV) por ação no momento em que a opção é concedida. Quando o preço das ações aumenta para US $ 10, seu empregado exerce sua opção de comprar as ações por US $ 5.000. Uma vez que seu valor atual é de US $ 10.000, ele tem um lucro de US $ 5.000.
Como o benefício é tributado?
As conseqüências do imposto de renda no exercício da opção dependem de a empresa conceder a opção ser uma empresa privada controlada pelo Canadá (CCPC), o período de tempo em que o empregado detém as ações antes de vendê-las e se o funcionário negocia com a empresa. a corporação.
Se a empresa for uma CCPC, não haverá nenhuma consequência de imposto de renda até que o funcionário disponha das ações, desde que o funcionário não esteja relacionado aos acionistas controladores da empresa. Em geral, a diferença entre o FMV das ações no momento em que a opção foi exercida e o preço da opção (ou seja, US $ 5 por ação em nosso exemplo) será tributada como receita de emprego no ano em que as ações forem vendidas. O empregado pode reivindicar uma dedução do lucro tributável igual a metade desse valor, se determinadas condições forem cumpridas. Metade da diferença entre o preço final de venda e o FMV das ações na data em que a opção foi exercida será informada como ganho de capital tributável ou perda de capital permitida.
Exemplo: Em 2013, sua empresa, uma CCPC, ofereceu a vários de seus funcionários seniores a opção de comprar 1.000 ações na empresa por US $ 10 cada. Em 2015, estima-se que o valor da ação dobrou. Vários dos funcionários decidem exercer suas opções. Em 2016, o valor das ações dobrou novamente para US $ 40 por ação, e alguns dos funcionários decidiram vender suas ações. Como a empresa era uma CCPC no momento em que a opção foi concedida, não há benefício tributável até que as ações sejam vendidas em 2016. Supõe-se que as condições para a dedução de 50% sejam cumpridas. O benefício é calculado da seguinte forma:
E se a ação cair em valor?
No exemplo numérico acima, o valor do estoque aumentou entre o momento em que o estoque foi adquirido e o momento em que foi vendido. Mas o que aconteceria se o valor das ações caísse para US $ 10 no momento da venda em 2016? Nesse caso, o funcionário relataria uma inclusão de renda líquida de US $ 5.000 e uma perda de capital de US $ 10.000 (perda de capital permitida de US $ 5.000). Infelizmente, embora a inclusão de renda receba o mesmo tratamento fiscal que um ganho de capital, na verdade não é um ganho de capital. É tributado como receita de emprego. Como resultado, a perda de capital realizada em 2016 não pode ser usada para compensar a inclusão de renda resultante do benefício tributável.
Qualquer pessoa em situação financeira difícil, como resultado dessas regras, deve entrar em contato com o escritório local de Serviços Tributários da CRA para determinar se as modalidades especiais de pagamento podem ser tomadas.
Opções de ações da empresa pública.
As regras são diferentes quando a empresa que concede a opção é uma empresa pública. A regra geral é que o empregado tem que reportar um benefício de emprego tributável no ano em que a opção é exercida. Este benefício é igual ao montante pelo qual o FMV das ações (no momento em que a opção é exercida) excede o preço da opção pago pelas ações. Quando certas condições são satisfeitas, uma dedução igual à metade do benefício tributável é permitida.
Para as opções exercidas antes das 16:00 horas EST em 4 de março de 2010, os funcionários elegíveis de empresas de capital aberto poderiam optar por adiar a tributação sobre o benefício de trabalho tributável resultante (sujeito a um limite anual de vesting de US $ 100.000). No entanto, as opções de empresa pública foram exercidas após as 16:00 horas. EST em 04 de março de 2010 não são mais elegíveis para o diferimento.
Alguns empregados que se beneficiaram da eleição de diferimento de impostos sofreram dificuldades financeiras como resultado de um declínio no valor dos títulos opcionais, a ponto de o valor dos títulos ser menor do que o passivo de imposto diferido sobre o benefício de opção de ações subjacente. Uma eleição especial estava disponível para que a responsabilidade tributária sobre o benefício da opção de ações diferida não excedesse o produto da alienação dos títulos opcionais (dois terços de tais proventos para residentes de Quebec), desde que os títulos fossem alienados após 2010 e antes 2015, e que a eleição foi arquivada até a data de vencimento da sua declaração de imposto de renda para o ano da alienação.

Tributação de opções de ações de empresas privadas no Canadá
Este artigo discute os prós e contras das opções de ações versus ações para funcionários da canadense & # 8211; privado e público & # 8211; empresas. As questões de tributação são pouco compreendidas e podem ser muito confusas. As atuais regulamentações fiscais podem dificultar para as empresas trazer novos funcionários e parceiros como acionistas.
As opções de ações são uma maneira popular de as empresas atraírem funcionários importantes. Eles são a próxima melhor coisa para compartilhar a propriedade. Os funcionários são motivados a agregar valor às suas empresas da mesma forma que os fundadores / proprietários. As opções também são parte essencial de um pacote de remuneração. Em empresas maiores, as opções contribuem substancialmente & # 8211; muitas vezes muitas vezes a parcela salarial - a renda. Em uma pesquisa recente sobre remuneração de executivos (ver vancouversun / execpay), os 100 principais executivos de empresas públicas da BC ganharam mais de US $ 1 milhão em receita em 2009. No entanto, apenas 5 deles receberam salários base acima de US $ 1 milhão. A maior parte da compensação veio de opções de ações - não é de admirar que a CRA (Agência de Receitas do Canadá) queira cobrar deles!
Infelizmente, a legislação tributária pode transformar as opções de ações em um grande desestímulo para atrair funcionários-chave. Por exemplo, se um funcionário de uma empresa (privada ou pública) exercer opções para comprar ações, esse empregado poderá ter uma obrigação tributária, mesmo que ele venda as ações com prejuízo. Se a empresa falhar, a responsabilidade não desaparece. O tratamento fiscal não é o mesmo para as empresas privadas controladas pelo Canadá (CCPCs), como é para empresas públicas ou não-CCPC. Os CCPCs têm uma vantagem sobre outras empresas canadenses.
Para CCPCs - empresas privadas canadenses controladas.
Esta discussão é aplicável às empresas privadas controladas pelo Canadá (CCPCs). Ele aborda como uma start-up pode levar as ações às mãos dos funcionários, ao mesmo tempo em que está ciente de possíveis problemas fiscais.
Para dar aos funcionários uma participação acionária (e incentivo) na empresa, a melhor solução é dar a eles ações de fundadores da mesma forma que os fundadores assumiram quando a empresa foi formada. As empresas devem emitir ações dos fundadores da tesouraria o mais cedo possível. Algumas empresas emitem ações extras de fundadores e as mantêm em uma relação de confiança para futuros funcionários. Às vezes, os fundadores transferem parte de seus próprios fundadores para novos parceiros. Como regra geral, tente dar aos funcionários fundadores ações no início da vida da empresa. No entanto, certifique-se de que as ações se revertam ao longo do tempo (ou com base no desempenho), para que os desistentes e os não-executores não obtenham uma viagem gratuita.
Ao possuir ações em uma CCPC (Canadian Controlled Private Corporation) por pelo menos 2 anos, os acionistas recebem o benefício da isenção de ganhos de capital vitalícios de US $ 750.000 (ou seja, não pagam impostos sobre os primeiros US $ 750.000 em ganhos de capital). Este é um benefício enorme. Eles também recebem uma dedução de 50% em ganhos adicionais.
Se uma empresa está além de sua fase inicial, há uma preocupação de que se essas ações forem simplesmente dadas (gratuitamente ou por poucos centavos) a um funcionário, a CRA (Agência Canadense de Receitas) considera isso um 'benefício de emprego' # 8221; em que o imposto de renda é pago. Esse benefício é a diferença entre o que o funcionário pagou pelas ações e seu FMV (Fair Market Value).
Este benefício é tributado como renda regular de emprego. Para CCPCs, esse benefício pode ser diferido até que as ações sejam vendidas. Se mantido por mais de 2 anos, há também uma dedução de 50% disponível no benefício. Se mantida por menos de 2 anos, outra dedução de 50% poderá ser usada se as ações forem compradas na FMV.
No entanto, se as ações forem posteriormente vendidas (ou consideradas como tendo sido vendidas em virtude de uma liquidação) a um preço inferior ao do FMV no momento da aquisição, o imposto sobre o benefício diferido ainda é VENCIDO. E, embora essa perda (ou seja, a diferença entre o FMV e o preço de venda) seja uma perda de capital, ela não compensa o imposto devido. Pode ser possível reivindicar uma ABIL (Perda de Investimento Empresarial Permitida) para compensar o imposto devido sobre o benefício diferido, ou seja, se você comprar ações em um CCPC, poderá reivindicar 50% de sua perda de investimento e deduzir de outras receitas.
Além da emissão de ações fundadoras de custo zero, a melhor abordagem seguinte é vender ações aos funcionários a um preço “bom” que alguém poderia argumentar estar na FMV considerando as restrições substanciais das ações (por exemplo, reversão de vesting e risco de confisco). Isso pode funcionar bem se a empresa ainda for jovem e não tiver levantado quantias substanciais de investidores independentes.
(No caso de empresas de capital aberto, as outorgas de opções são a norma desde que o FMV pode ser prontamente determinado - e um benefício avaliado - e porque as regulamentações muitas vezes impedem a emissão de ações a custo zero. O imposto sobre estes benefícios não pode ser diferido, mas é pagável no ano em que a opção é exercida, o que é um problema real para empresas públicas menores de capital de risco, na medida em que esse imposto obriga a vender algumas seja o imposto! Desencoraja a propriedade.)
Algumas desvantagens da emissão de ações são:
Responsabilidade por impostos diferidos se as ações forem compradas abaixo de FMV (se você puder descobrir o que é FMV - lembre-se, essas ações são altamente restritivas e valem menos do que aquelas compradas por anjos e outros investidores). possibilidade. Pode precisar defender o FMV. Pode precisar de avaliação independente. (Eu nunca ouvi falar disso acontecendo.) Necessidade de garantir que as disposições do acordo de acionistas estão em vigor (por exemplo, vesting, votação, etc). A emissão de ações a preços muito baixos em uma tabela de limites pode parecer ruim para novos investidores (considerando que exercícios de opções são considerados normais). Mais acionistas para administrar.
Os benefícios de possuir ações são:
Pode obter até $ 750.000 em ganhos de capital isentos de impostos vitalícios. 50% de dedução sobre ganhos se as ações forem mantidas por mais de 2 anos OU se as ações emitidas em Perdas FMV em um CCPC puderem ser usadas como perdas de negócios permitidas (se o negócio falhar ) Pode participar da propriedade da empresa - voto, dividendos, etc. Menos diluição do que se as opções de ações forem emitidas.
Obter ações baratas nas mãos dos funcionários é a melhor maneira de obter um CCPC. O único risco é se a empresa falhar em menos de dois anos. (Veja Bottom Line abaixo).
[NOTA: As empresas podem emitir ações (em vez de opções) para os funcionários a qualquer preço e não desencadear um evento tributável imediato - é o mesmo que dar uma concessão de opção que é imediatamente exercida. Se as ações (em vez de opções) forem dadas a um preço muito baixo (por exemplo, zero), menos ações poderão ser emitidas do que ao conceder opções com um preço de exercício mais alto.]
Para evitar o risco de ter que pagar o imposto sobre o benefício diferido se as ações forem emitidas para um empregado abaixo do FMV, as opções são frequentemente concedidas. Isso é apenas um risco se as ações forem vendidas abaixo do FMV, como pode ser o caso de uma falência. Opções de ações, se não exercidas, evitam esse problema em potencial. Uma opção dá a um o direito de comprar um certo número de ações por um preço declarado (o preço de exercício) por um determinado período de tempo. Não há nenhuma responsabilidade no momento em que as opções são concedidas. Apenas no ano em que as opções são exercidas, existe um passivo fiscal. Para CCPCs, esse passivo pode ser diferido até que as ações sejam efetivamente vendidas. Se as ações forem detidas por mais de 2 anos, este passivo fiscal é calculado em 50% do benefício. Ou seja, tanto um adiamento quanto uma dedução de 50% estão disponíveis para aqueles que exerceram opções. (Se as ações forem detidas por menos de 2 anos, uma dedução de 50% estará disponível se as ações forem compradas no FMV.)
Algumas desvantagens com opções de ações são:
O passivo fiscal (se as opções forem exercidas) nunca é apagado - este é exatamente o mesmo cenário como se as ações fossem dadas. A isenção de ganhos de capital vitalícia não pode ser usada a menos que as ações - não as opções - sejam mantidas por 2 anos após o exercício. Ganhos de capital são calculados sobre a diferença entre o preço de venda e o FMV quando exercido. Deve manter as ações por 2 anos, após exercer a opção de obter a dedução de 50%. (Se o preço de exercício da opção = FMV na data da concessão da opção, uma dedução de 50% também está disponível). O benefício é considerado “rendimento”, não um ganho de capital e se as ações forem subsequentemente vendidas com prejuízo, o benefício de renda não pode ser reduzido por essa perda de capital. O risco fiscal aumenta com o tempo, pois é a diferença entre o FMV e o preço de exercício no momento do exercício que estabelece o passivo fiscal contingente, então quanto mais você esperar para exercer (assumindo um aumento constante do FMV), maior a responsabilidade tributária potencial. Opções não constituem propriedade; ações opcionais não podem ser votadas. Grandes grupos de opções são vistos negativamente pelos investidores porque podem causar diluição futura substancial (ao contrário das empresas públicas que geralmente estão limitadas a 10% em opções, as empresas privadas podem ter grandes grupos de opções). Ainda precisa ter um FMV defensável; pode precisar de avaliação independente. Pode se tornar uma verdadeira dor de cabeça se o CRA exigir que isso seja feito retroativamente quando uma saída é alcançada. Eles podem expirar cedo demais. Pode ser necessário ter um prazo muito longo, digamos 10 anos ou mais. A exibição de muitas opções de ações na tabela de limites da empresa impacta diretamente (negativamente) a avaliação por ação em financiamentos em andamento, pois os investidores sempre analisam todas as opções em circulação como ações em circulação.
Alguns benefícios com opções de ações são:
Não há responsabilidade tributária quando as opções são recebidas, somente quando são exercidas. Nenhum desembolso de caixa exigido até o exercício e, mesmo assim, pode ser mínimo. Pode exercer opções para comprar ações imediatamente a preços com desconto sem ter que pagar qualquer imposto até que as ações sejam vendidas. Um exercício precoce evita um FMV mais alto e, portanto, evita um benefício tributável maior posteriormente.
Do ponto de vista da empresa, a concessão de ações (em vez de opções) a um preço muito baixo significa que menos ações precisam ser emitidas - o que é bom para todos os acionistas. Por exemplo, dar ações a um centavo em vez de conceder opções exercíveis a 50 centavos significa que mais opções devem ser concedidas, o que significa maior diluição mais tarde, quando uma saída é realizada. Os 49 centavos extras não fazem muito pelos acionistas, já que o valor do exercício é nominal em comparação com o valor de saída. Esse montante vai voltar para o novo dono da empresa, diluindo todos os acionistas que participam da saída!
Item de ação para investidores: verifique a tabela de limites da empresa para opções e se livre deles! Em vez disso, dê ações que sejam iguais ao valor de Black-Scholes da opção. Exemplo, Joe Blow detém uma opção para comprar 100 mil ações a 60 centavos. As ações são atualmente avaliadas em 75 centavos (com base em investimentos recentes). O valor das opções é determinado em 35 centavos (ou seja, US $ 35K no valor total). Os 35 centavos são baseados no valor da opção (digamos, 20 centavos) mais a quantia in-the-money de 15 centavos. Como regra geral, quando uma opção é emitida com um preço de exercício igual ao preço atual da ação, uma determinação aproximada do valor das opções é tomada dividindo-se o preço por 3, que neste exemplo é 60/3 = 20 centavos. Agora, pegue o valor total de $ 35K e emita 46.666 ações por $ 1,00 (porque 46.666 ações a 75 centavos = $ 35K). Isso é melhor do que mostrar 100 mil ações como opções na mesa de bônus !!
RECOMENDAÇÃO PARA CCPCs:
Conceder opções de ações, exercíveis a um custo nominal, digamos 1 centavo - válido por pelo menos 10 anos ou mais. Sugira que os detentores de opções exerçam sua opção e comprem ações imediatamente (basta pular o passo número 1) Certifique-se de que os bolsistas entendam que se eles se exercitarem cedo ou imediatamente, iniciam o relógio de 2 anos na dedução e também recebem isenção de capital . (Eles também devem entender que pode haver uma possível desvantagem ao fazê-lo, ou seja, a responsabilidade sobre o benefício quando as opções são exercidas ainda é tributável mesmo se a empresa falhar). Nesse caso, eles ainda podem reivindicar a compensação ABIL. Os beneficiários podem optar por negociar essa possível responsabilidade, perdendo a dedução e a isenção e não exercendo até que haja uma saída, caso em que eles não assumem riscos, mas têm um valor muito menor. até 50% mais baixo do que o lucro):
Um empregado tem a opção de comprar ações por um centavo cada. Atualmente, as ações estão sendo vendidas a investidores por US $ 1,00 cada (a CRA argumentaria que o preço de US $ 1,00 é o FMV). Se o empregado exerce a opção imediatamente e compra ações, considera-se que recebeu um benefício de emprego de 99 centavos, que é totalmente tributável como receita, mas tanto um DEFERRAL quanto um DEDUCTION podem estar disponíveis. Primeiro, o imposto sobre esse rendimento pode ser diferido até que as ações sejam vendidas (se a empresa falhar, elas são consideradas como vendidas). As empresas devem enviar fichas T4 com CRA (para que você não possa ocultar essa venda). Em segundo lugar, se as Acções (e não a Opção) forem detidas durante pelo menos 2 anos, então apenas 50%, ou seja, 49,5 cêntimos são tributados como rendimento. A diferença entre o preço de venda (e o FMV no momento em que as ações foram adquiridas) é tributada como um ganho de capital que também é elegível para uma isenção de tempo de vida de $ 750K! Se as ações são vendidas por US $ 1,00 ou mais - não há problema! Mas, se as ações são vendidas por menos de US $ 1,00, o empregado ainda está no gancho para o benefício de 99 centavos (e 0,495 centavo) e, embora ele tenha uma perda de capital, não pode ser usado para compensar o passivo. Ele pode mitigar isso reivindicando uma Perda de Investimento Empresarial Permitida (ABIL). 50% do ABIL pode ser reduzido para compensar o rendimento do emprego. Neste exemplo, 49,5 centavos seriam permitidos como uma dedução contra os 49,5 centavos que são tributados como receita, deixando o empregado em uma posição neutra em relação ao passivo fiscal. Cuidado - reivindicar um ABIL pode não funcionar se a empresa perder seu status de CCPC pelo caminho.
(Nota: Ouvi falar de pessoas nesta situação alegando que o FMV é exatamente o que pagaram desde que foi negociado em armas, as ações não podiam ser vendidas, a empresa estava desesperada, etc, etc. Sua atitude é deixar CRA desafie-o Tudo bem, desde que a empresa não tenha apresentado um T4, como deveria, mas provavelmente não, se estiver falido.)
Por outro lado, se a empresa obtiver sucesso, os funcionários poderão desfrutar de ganhos isentos de impostos (até US $ 750 mil) sem ter que levantar muito capital e assumir apenas um risco limitado.
Se o empregado tiver uma opção até a empresa ser vendida (ou até que as ações se tornem líquidas) e então exercer a opção e imediatamente vender as ações, o ganho total do empregado (ou seja, a diferença entre o preço de venda e o centavo que ele pagou por ação). ) é tributada integralmente como receita de emprego e não há dedução de 50% disponível (a menos que o preço de exercício da opção = FMV quando a opção foi concedida).
A LINHA FINAL:
O melhor negócio para a empresa (se for um CCPC) e seus funcionários é emitir ações para os funcionários por um custo nominal, digamos, 1 centavo por ação. Se esse subsídio for para angariar o compromisso de um empregado para o trabalho futuro, os termos de reversão de garantia devem ser acordados antes que as ações sejam emitidas. Para determinar o número de compartilhamentos, comece definindo arbitrariamente o preço por ação. Este pode ser o preço mais recente pago pelos investidores em armas ou algum outro preço que você possa argumentar ser razoável sob as circunstâncias. Digamos que o preço por ação seja de US $ 1,00 e você queira dar ao seu CFO recém-recrutado um bônus de assinatura de US $ 250.000. Portanto, ele receberia 250 mil ações como um incentivo (elas devem ser adquiridas diariamente durante um período de três anos). Ele paga US $ 2.500 para estes. Em termos tributários, ele agora é responsável pelo imposto sobre rendimentos de emprego de US $ 247,5 mil. No entanto, ele pode adiar o pagamento desse imposto até que as ações sejam vendidas.
Aqui estão os possíveis resultados e conseqüências:
a) As ações são vendidas por $ 1,00 ou mais após a posse das ações por pelo menos 2 anos: ele é tributado em uma renda de 50% de $ 247,5K (ie $ 250K menos os $ 2.500 pagos pelas ações), isto é, o benefício diferido, menos o Dedução de 50%, mais um ganho de capital sobre qualquer produto acima de seu "custo" de US $ 1,00 por ação. Esse ganho é tributado a uma taxa de 50% e, se não for reivindicado anteriormente, seus primeiros US $ 750.000 em ganhos são completamente isentos de impostos.
b) As ações são vendidas por $ 1,00 ou mais, mas em menos de 2 anos: ele é tributado em $ 247,5K, ou seja, o benefício diferido, pois não há dedução disponível, MAIS um ganho de capital sobre qualquer produto acima de $ 1,00 por ação " Ele não se beneficia da dedução de 50% sobre o benefício de emprego nem da dedução de ganhos de capital de 50%. É por isso que faz sentido possuir ações o mais rápido possível para iniciar o relógio de dois anos em execução.
c) As ações são vendidas por menos de 1,00 depois de detidas as ações por mais de 2 anos: ele é tributado em uma renda de 50% de $ 247,5K, ou seja, o benefício diferido menos a dedução de 50%. Ele pode compensar esse imposto reivindicando um ABIL. Ele pode tirar 50% da diferença entre seu preço de venda e US $ 1,00 e deduzir isso de sua renda de emprego - isso é uma compensação direta ao benefício diferido. Se a empresa fracassar e as ações não valerem nada, ele é taxado sobre uma renda de emprego de 50% de US $ 247.500, MENOS 50% de US $ 250.000 - ou seja, nenhum imposto (na verdade, um pequeno reembolso).
d) As ações são vendidas por menos de 1,00 após a detenção das ações por menos de 2 anos: ele é tributado em renda de $ 247,5K, ou seja, o benefício diferido, pois não há dedução disponível. Ele pode compensar esse imposto reivindicando um ABIL. Ele pode tirar 50% da diferença entre seu preço de venda e US $ 1,00 e deduzir isso de sua renda de emprego - isso é uma compensação parcial para o benefício diferido. Se a empresa fracassar e as ações não valerem nada, ele será taxado sobre uma renda de emprego de US $ 247.500, MENOS 50% de US $ 250.000 = US $ 122.500. NÃO É BOM! Essa é a situação que deve ser evitada. Por que pagar imposto sobre $ 122.5K de renda não realizada que nunca viu a luz do dia? Como? Certifique-se de deixar passar 2 anos antes de liquidar, se possível. Você também pode argumentar que o benefício não foi de US $ 247.500 porque não havia mercado para as ações, elas eram restritas, você não podia vender nenhuma, etc. Deixe a CRA desafiá-lo e espero que não (Eu não ouvi falar de nenhum caso onde eles têm - no caso de CCPCs).
Por que se preocupar com as opções quando os benefícios da propriedade de ações são tão atraentes? E o único risco financeiro possível para um funcionário obter ações em vez de opções de ações surge em (d) acima se as ações forem vendidas com prejuízo em menos de 2 anos. Se a empresa falhar rapidamente, o FMV provavelmente nunca será muito alto e, além disso, você pode estender a data de liquidação, se necessário.
Empreiteiros e Consultores.
O diferimento da obrigação tributária em relação às CCPCs é concedido apenas aos funcionários da CCPC em questão (ou de uma CCPC com a qual o empregador CCPC não negocie a distância de armeiros). Empreiteiros e consultores não têm direito ao benefício do diferimento. Consequentemente, os contratados e consultores serão obrigados a pagar impostos mediante o exercício de quaisquer opções.
Nunca subestime o poder da Agência de receita do Canadá. Pode-se esperar que eles persigam os vencedores - aqueles com grandes ganhos em saídas bem-sucedidas, mas e as pessoas que receberam opções de ações, adiaram o benefício e venderam suas ações por zíper? O CRA vai chutar os perdedores quando eles estão para baixo?
Para corporações listadas publicamente e não-CCPCs.
No caso de empresas públicas, as regras de stock options são diferentes. A principal diferença é que, se um empregado exerce uma opção de ações em uma empresa pública, ele tem um passivo fiscal imediato.
Até o Orçamento Federal de 4 de março de 2010, era possível que um funcionário adiasse o imposto até que ele realmente vendesse as ações. Mas agora, quando você exerce uma opção de compra de ações e compra ações na empresa em que trabalha, a CRA quer que você pague o imposto imediatamente em qualquer papel não realizado & # 8221; lucro mesmo se você não tiver vendido nenhuma ação.
Além disso, o CRA agora quer que sua empresa retenha o imposto sobre esse lucro artificial. Isso desencoraja a manutenção de ações para ganhos futuros. Se a empresa for uma empresa listada como junior de capital de risco, onde encontrará o dinheiro para pagar o imposto - especialmente se for pouco negociado?
Este processo não é apenas um pesadelo contábil para você e para a empresa & # 8211; também é fundamentalmente errado que a CRA esteja tomando suas decisões de compra / venda para você.
Também é errado que as opções de ações deixem de ser uma indução de recrutamento atraente. As empresas emergentes acharão muito mais difícil atrair talentos.
Também será um grande impedimento para as empresas privadas que desejam abrir o capital. No processo de abertura de capital, os funcionários geralmente exercem suas opções de ações (geralmente para atender aos limites regulatórios dos pools de opções). Isso poderia resultar em uma conta de impostos de milhões de dólares para a empresa. Além disso, não vai parecer bom para os novos investidores verem os funcionários vendendo suas ações durante um IPO, mesmo que tenham de fazê-lo.
Antes do orçamento de 4 de março, você poderia adiar o imposto sobre qualquer lucro em papel até o ano em que você realmente vender as ações que você comprou e obter dinheiro real na mão. Essa foi uma grande dor de cabeça para quem comprou ações apenas para ver o preço das ações cair.
As histórias que você pode ter ouvido sobre os funcionários da Nortel ou da JDS Uniphase que quebraram para pagar impostos sobre ações sem valor são verdadeiras. Eles exerceram opções quando as ações estavam negociando ao norte de US $ 100, dando-lhes enormes lucros em papel e passivos fiscais substanciais. Mas quando as ações despencaram, nunca houve dinheiro para cobrir o passivo & # 8211; nem houve qualquer compensação para atenuar a dor. O único alívio é que a queda no valor se torna uma perda de capital, mas isso só pode ser aplicado para compensar os ganhos de capital. Enquanto isso, o montante em dinheiro necessário para pagar a CRA pode levá-lo à falência.
O CRA argumenta que a nova regra irá forçá-lo a vender ações imediatamente, evitando assim uma perda futura. (Você não está contente por eles estarem cuidando de você tão bem?) Mas, isso é só porque o benefício estúpido é considerado "óbvio" # 8221; é tributado em primeira instância.
Exemplo: você é o CFO de uma jovem empresa de tecnologia que recrutou você do Vale do Silício. Você tem uma opção de 5 anos para comprar 100.000 ações a US $ 1,00. Perto da data de vencimento, você empresta US $ 100.000 e agora é acionista. Naquela data, as ações valem US $ 11,00. A sua conta fiscal é de aproximadamente US $ 220.000 (taxa de inclusão de 50% X taxa marginal superior a 44% X $ 1 milhão em lucros não realizados) que você deve pagar imediatamente (e sua empresa deve "reter" esse mesmo valor ). A menos que você tenha bolsos cheios, você terá que vender 29.000 ações para cobrir seus custos & # 8211; 20.000 a mais do que se você fizesse um simples exercício sem dinheiro. Tanto por ser um dono! Neste exemplo, se as ações da empresa caírem em preço e depois você vender as ações por US $ 2,00, você estará no buraco US $ 120.000 (US $ 200.000 menos US $ 320.000), ao passo que você deve ter dobrado o seu dinheiro! Claro, você tem uma perda de capital de US $ 9 (ou seja, US $ 11 a menos US $ 2), mas quando você pode usar isso?
Como parte das mudanças de 4 de março, o CRA permitirá que as vítimas do passado da Nortel (ou seja, aquelas que usaram a eleição de deferimento anteriormente disponível) apresentem uma eleição especial que limitará seu passivo fiscal aos rendimentos reais recebidos, quebrando efetivamente - mesmo, mas perdendo qualquer potencial benefício positivo. Eu acho que isso fará com que as pessoas com deferências paguem mais cedo. A mecânica disso ainda não está bem definida. (veja o parágrafo intitulado “eleição de deferimentos” abaixo)
Curiosamente, os warrants (semelhantes às opções) concedidos aos investidores NÃO são tributados até que os benefícios sejam realizados. As opções devem ser as mesmas. Os investidores obtêm garantias como um bônus para fazer um investimento de capital e assumir um risco. Os funcionários recebem opções como um bônus para fazer um investimento de suor e assumir um risco. Por que eles deveriam ser tratados menos favoravelmente?
Não entendo como essas medidas punitivas penetram em nosso sistema tributário. Certamente, nenhum parlamentar (MP) acordou uma noite com um momento Eureka sobre como o governo pode atrapalhar os empresários e os tomadores de risco. Tais noções só podem vir de burocratas ciumentos que não conseguem se identificar com os inovadores do Canadá. O que eles estão pensando?
Uma visão comum é que as grandes corporações públicas, embora criem mais trabalho contábil para elas, não estão preocupadas com esse imposto. Eles vêem isso como um benefício e, para eles e seus funcionários, pode ser melhor vender ações, obter lucro e concorrer. Para empresas emergentes menores & # 8211; especialmente aqueles listados na bolsa TSX Venture, a situação é diferente. Por um lado, uma venda forçada no mercado pode causar uma queda de preço, o que significa ter que vender ainda mais ações. Gerentes e diretores dessas empresas seriam vistos como insiders resgatando. Não é bom.
As regras são complexas e difíceis de entender. As diferenças entre CCPCs, não-CCPCs, empresas públicas e empresas em transição entre ser privado e não privado, causam dor de cabeça, tentando apenas entender os vários cenários. Mesmo enquanto escrevia este artigo, conversei com vários especialistas que me deram interpretações um pouco diferentes. Sua cabeça está doendo ainda? O que acontece se você fizer isso ou se você fizer isso? É confuso e desnecessário.
A solução: não aplicar imposto sobre opções de ações artificiais & # 8220; benefícios & # 8221; até que as ações sejam vendidas e os lucros sejam realizados. Para esse assunto, vamos percorrer todo o caminho e deixar as empresas darem valor & # 8211; não opção de ações & # 8211; subvenções aos empregados.
Gostaria de saber quantos deputados sabem sobre essa medida fiscal? Eu me pergunto se alguém sabe disso. É um assunto complexo e não um que afeta uma grande porcentagem da população & # 8211; certamente não é algo que a imprensa possa ficar muito animada. Tenho certeza de que, se tiverem conhecimento disso, falarão contra isso. Afinal, na frente da inovação, é mais um impedimento ao crescimento econômico.
Para mais um bom artigo sobre o assunto, leia o artigo de Jim Fletcher sobre o Orçamento de 2010 no blog da BootUp Entrepreneurial Society.
Para aqueles que exerceram uma opção antes de março de 2010 e diferiram o benefício, a CRA está fazendo uma concessão especial. Na superfície parece simples: Você tem permissão para apresentar uma eleição que lhe permite limitar a sua conta fiscal total ao dinheiro que você realmente recebe quando você vende as ações (o que provavelmente não deixará você com nada pelo seu trabalho árduo) aos impostos sobre a renda que você nunca realizou (como é o caso antes de março de 2010). De fato, a CRA acha que está fazendo um grande favor a todos porque está sendo gentil em ajudar com uma bagunça que criou em primeiro lugar!
Há uma discussão detalhada e demorada em um artigo de Mark Woltersdorf de Fraser Milner Casgrain em "Tax Notes" da CCH Canadian. O ponto-chave no artigo é que você tem até 2015 para decidir como lidar com adiamentos anteriores. A decisão não é direta porque depende das circunstâncias específicas de um indivíduo. Por exemplo, se houver outros ganhos de capital que poderiam ser compensados, arquivar a eleição resultaria em não conseguir compensá-los. O artigo declara: “Ao preencher a eleição, considera-se que o empregado realizou um ganho de capital tributável igual a metade do menor valor da renda de emprego ou a perda de capital decorrente da venda de ações opcionais. O ganho de capital tributável será compensado (parcial ou integralmente) pela perda de capital permitida decorrente da alienação da ação. Qual é o valor da perda de capital permitida que é usada e, portanto, não disponível para compensar outros ganhos de capital tributáveis? ”O artigo fornece alguns bons exemplos para ilustrar vários cenários. Então, se você está nessa situação, faça sua análise. Tentei criar um link para o artigo, mas é uma publicação paga, por isso não está disponível. Seu contador pode lhe dar uma cópia.
Agradecemos a Steve Reed, da Manning Elliott, em Vancouver, por seus insights sobre impostos e a Jim Fletcher, um investidor anjo ativo, por suas contribuições para este artigo.
Notas de rodapé (o diabo está nos detalhes):
1. & # 8221; Compartilhamentos & # 8221; conforme referido neste documento, significa "Acções Prescritas" & # 8221; na Lei do Imposto de Renda. Geralmente isso significa ações ordinárias comuns & # 8211; MAS & # 8211; se uma Empresa tiver o direito de preferência para recomprar ações, elas não poderão mais se qualificar para o mesmo tratamento tributário.
2.Existem realmente duas deduções de 50% disponíveis: A dedução de ganhos de capital regular que permite uma dedução de 50% sobre ganhos de capital feitos em ações que são adquiridas na FMV e a dedução de 50% disponível para compensar o benefício de renda de emprego em ações que são realizada por mais de 2 anos. (Claro, apenas uma dedução de 50% está disponível.)
3. O status do CCPC pode, sem saber, ser perdido. Por exemplo, se um investidor americano tiver certos direitos pelos quais ele tem, ou pode ter, "controle", a empresa pode ser considerada não-CCPC.
37 Responses to & # 8220; Shares vs Stock Options & # 8221;
Mike & # 8211; obrigado por esta contribuição muito valiosa para a comunidade. As opções são um dos erros mais comuns que vejo nas estruturas corporativas. Um par de pontos adicionais:
1. Quando as empresas usam opções, ou ações de aquisição, elas estão sujeitas às regras de remuneração baseadas em ações. Isso torna a preparação de demonstrações financeiras muito mais complicada e cara.
2. As opções também são muito mais diluidoras. Poucas pessoas, na verdade, "recebem isso"; mas a descrição resumida é que todos que conhecemos sempre contam todas as opções no cálculo totalmente diluído sem considerar o dinheiro adicional do exercício. Isso faz a diluição efetivamente igual entre uma ação ou opção.
Mas os funcionários consideram uma opção como valendo muito menos que uma parte. Então, para obter o mesmo incentivo, na prática, você precisa alocar mais opções do que ações.
3. A complexidade de governança adicional que você aponta é uma consideração. Eu prefiro que o empregado compartilhe uma classe diferente com igual vantagem econômica, mas sem votos.
Nos EUA, as opções tornaram-se muito menos desejáveis ​​do que muitas empresas, como a Microsoft, pararam de usá-las como forma de motivar a equipe.
Seria interessante ver comentários aqui de alguns de nossos amigos nas profissões jurídica e contábil. Eles são muitas vezes aqueles que aconselham as empresas jovens sobre isso.
Obrigado novamente pelo excelente resumo.
Sua opinião é excelente, mas estou curioso sobre as implicações do FMV e da emissão de ações extras de fundadores reservadas em Trust. Embora tenhamos "feito negócios" como "# 8217; & # 8230; Há mais de um ano, estamos nos preparando para incorporar e emitir as ações dos fundadores. Você está dizendo que, embora eu possa emitir ações adicionais de fundadores sem implicação de impostos, no começo, em confiança a ser emitida para uma nova equipe em uma data posterior, se eu transferi-las em uma data posterior elas podem ter sérias implicações fiscais? Reescritas, essas ações, embora já tenham sido emitidas e todos os novos acionistas estejam cientes do fator de diluição dessas ações, uma vez que um grande investidor entra na empresa, a transferência dessas ações agora representa um benefício e, portanto, um Presença fiscal diferenciada? Se sim, qual seria o ponto de emiti-los em confiança. Por que não simplesmente emiti-los? Se eu estou adivinhando a razão, seria porque uma vez que você tem um investidor tangível, você tem um FMV distinto e, portanto, sua posterior emissão de ações de fundadores representa um conflito muito real no interesse de seus novos acionistas pagadores mais altos?
Boas perguntas. Um trust pode ser útil, pois você alocaria ações em sua tabela de limites e todos os acionistas as considerariam como parte do bloco de fundadores.
Como um CCPC, você pode emitir ações a qualquer momento e a qualquer preço (apenas certifique-se de cumprir os regulamentos de valores mobiliários). Suponha que um investidor acabou de pagar US $ 1,00 por ação. Se um funcionário receber 100.000 compartilhamentos de graça (digamos, US $ 0,0001 por ação), ela terá um “benefício de adiamento de emprego” & # 8221; de $ 100K em que ela tem que pagar imposto quando ela vende as ações. Você pode estar pensando que o investidor que acabou de pagar US $ 1,00 ficará aborrecido se alguém receber ações de graça, certo? Neste caso você tem que explicar ao investidor que: a) o funcionário está recebendo este intervalo como parte de seu pacote de remuneração (e trabalhando por um salário baixo) eb) é um bom negócio para todos os acionistas porque se você emitiu Opções em US $ 1,00, você provavelmente terá que emitir mais de 100.000, o que significa mais diluição para todos os acionistas. Além disso, por ela detendo ações CCPC por 2 anos, ela chega a US $ 750 mil em ganhos de capital livre de impostos!
Acredito que li em seu artigo que o bloco de fundadores em uma empresa de capital aberto pode ser tanto quanto 10% das ações de uma empresa, ou talvez esse tenha sido o bloco que foi alocado a opções em uma empresa pública. De qualquer forma, existe um percentual máximo de ações que podem ser emitidas em fideicomisso ou isso é simplesmente uma questão de senso comum em que se você tem muitas ações em confiança, é mais do que provável que alguns de seus primeiros investidores fiquem um pouco preocupados em investir. na sua empresa com tantas ações em circulação?
10% é uma espécie de regra geral para empresas públicas e privadas. Empresas públicas são restritas & # 8211; geralmente para um máximo, mas mais normalmente 10%. Não há limite para empresas privadas. Se as ações forem todas emitidas, isso não deve deixar os investidores nervosos & # 8211; é quando eles se diluem dos exercícios de opção de ações que ficam nervosos.
Muito obrigado pelo post super útil! Eu tenho tentado entender tudo isso no ano passado, lendo tantos artigos e fontes diferentes que me deixaram completamente confuso. Seu artigo foi resumo surpreendente de todos os cenários, escritos em estilo fácil de entender e realmente vai me ajudar com meus planos de risco & # 8230; e também ajudar meus alunos a ensinar também em uma aula de empreendedorismo.
Mike obrigado por sua opinião. Você sabe se uma empresa pública canadense pode conceder a seus diretores a opção de compra de ações sobre o nome da empresa privada do diretor e não em nome do próprio diretor?
Eu não vejo por que não. Mas, verifique com um advogado de secuties. Além disso, verifique quaisquer implicações fiscais de qualquer maneira. Mike.
Essas regras se aplicam independentemente de a empresa ser pública ou privada? Meu contador parece pensar assim & # 8230;
As regras são bem diferentes para empresas públicas versus privadas. São mais favoráveis ​​às empresas privadas porque os benefícios das opções de ações podem ser diferidos, enquanto não há diferimento para as empresas públicas. Isso significa que, em uma empresa pública, você é forçado a vender algumas ações imediatamente para poder pagar os impostos. Desencoraja a propriedade que é lamentável.
Quais são as implicações fiscais para a compra, transferência de valor nominal ou doação de ações em uma CCPC entre dois acionistas da CCPC? Thx & # 8211; este artigo parece ser um dos melhores em torno deste tópico.
Eu acho que depende da natureza da transação e do valor atual das ações.
Se você fizer uma disposição, por exemplo como presente, você pode ter que pagar imposto sobre o valor apreciado. O destinatário não terá um problema tributário até que as ações sejam vendidas.
Se você der ações a alguém em vez de pagar, então eles terão que pagar imposto sobre o benefício (diferença entre o valor justo e seu custo) e você terá que pagar imposto sobre o valor apreciado.
Eu tenho opções de ações adquiridas em uma empresa privada canadense que eu recentemente exerceu em um centavo por ação. O valor justo de mercado é de 70 centavos por ação. No próximo mês ou dois, esperamos que a empresa seja vendida para alguma corporação no exterior por pelo menos US $ 1 por ação. Estou certo em esperar que os 69 centavos entre o valor justo de mercado (70 centavos) e meu preço de exercício (1 centavo) sejam tributados como receita, enquanto o ganho entre 70 centavos e os $ 1 + por ação que a empresa é vendida será tributado como ganhos captiais?
Não há absolutamente nenhum período de espera de 2 anos, mas algumas pessoas acham que o período de tempo rápido (1-2 meses) entre as opções de exercício e a venda da empresa pode, de alguma forma, ser "isento". de ir a rota de ganhos de capital e em vez disso apenas ser tratada como renda regular.
Muito obrigado pelo artigo Mike. É muito claro.
O que acontece se disser que você detém as ações de um CCPC por 1,5 anos e, nesse momento, torna-se público (IPO) e não é mais CCPC? Você não recebe a isenção fiscal de 750K ou as outras guloseimas? Mesmo se você esperar mais 0,5 ano antes de vender, então são 2 anos no total?
Tenho certeza que você está preso. E, simplesmente, não é um CCPC que é necessário & # 8211; o CCPC tem que ser um QSB (Site CRA de Check-in Qualificado para Pequenas Empresas).
Quais são os benefícios de receber & nbsp & nbsp; compartilhamentos sem custo de fundador & # 8221;
As ações são consideradas como tendo um FMV diferente, ex. o FMV quando a empresa foi criada?
Ótimo artigo, eu não tenho certeza da definição de ações do fundador.
O benefício é que eles não lhe custam nada e algum dia, com sorte, serão muito valiosos. O FMV (Fair Market Value) é o que eles valem no dia em que você os recebe. As ações dos fundadores geralmente são emitidas quando a empresa é fundada (iniciada) e em seus estágios iniciais, quando parceiros são contratados para trabalhar na empresa muito antes de os investidores serem contratados. Nessa fase, eles são geralmente considerados como de valor zero (em menos para fins fiscais).
Mike & # 8230 ;. obrigado (novamente) pelo seu post útil (maio de 2011!).
Estou interessado no conceito de problema SHARE (& # 8220; funders shares & # 8221;) & # 8211; especificamente a oportunidade para o empregado beneficiário adiar o imposto por 2 anos ou mais. Recentemente, concedemos dois funcionários com participação acionária, mas tudo o que posso encontrar no site da CRA indica que tais prêmios são imediatamente tributáveis.
Não consigo encontrar qualquer referência CRA para a oportunidade de defefrimento. Especificamente, o boletim CRA IT113R4 fornece conselhos sobre este assunto & # 8211; mas não de deferimento.
Você pode me indicar uma referência de CRA a esse respeito?
No site da CRA, há instruções sobre o preenchimento da linha de imposto de renda 101 Benefícios da Opção de Segurança, onde diz: "Se o seu empregador for uma empresa privada controlada pelo Canadá (CCPC), com a qual você lida no arm & # 8217 Além disso, você só precisa informar esse benefício tributável em sua declaração de imposto do ano em que vender os títulos. Se o seu empregador não é um CCPC, você pode ter que reportar os benefícios tributáveis ​​recebidos (ou transferidos) para o ano em que exerce sua opção de compra de ações. & # 8221;
MAS & # 8230; a sentença que você citou: "No site da CRA, há instruções sobre o preenchimento da linha de imposto de renda 101 Benefícios da Opção de Segurança onde diz:" Se o seu empregador for uma empresa privada canadense controlada (CCPC), com a qual você lida duração, você só tem que relatar este benefício tributável em seu retorno de imposto para o ano que você vende os títulos. & # 8221; & # 8230;
é precedida por "Um benefício de opção de segurança resulta quando você compra valores mobiliários através de seu empregador a um preço pré-estabelecido que é menor que o valor justo de mercado dos valores mobiliários. # 8221;
Então & # 8230; não significa que esta referência esteja relacionada a planos de opções de ações (por exemplo, um preço pré-estabelecido & # 8221;) & # 8230 ;. não a um prêmio geral ou oferta de ações?
Se você receber ações abaixo do custo em um QSB (independentemente de serem um presente, um desconto, bônus, etc), então você tem um benefício. Esse benefício pode ser diferido até que você venda as ações.
Pela primeira vez em muitos anos exerci opções de uma empresa pública. Eu tenho & # 8220; Benefícios das opções de segurança & # 8221; e & # 8220; Deduções das Opções de Segurança & # 8221; no meu T4, deixando-me com 50% do ganho na venda da opção dentro do meu rendimento.
Eu também tenho uma quantidade enorme de perdas de capital por transporte. Eu estava esperando que o ganho de opção pudesse ser totalmente compensado por essas perdas, já que ambas surgem de ações negociadas publicamente.
Mas não consigo encontrar nenhum método para deduzir & # 8221; minhas perdas de capital contra a renda que foi construída em meu T4. Esta receita é o resultado de um ganho de capital sobre a disposição das opções de ações, então por que não consigo encontrar uma maneira de usar minha perda de carga contra ela?
Para adicionar insulto a isso, no ano passado eu tinha "qualificado" # 8221; ganhos na disposição da propriedade agrícola. Em vez de me permitir deduzir o ganho da minha "isenção vitalícia", o CRA me obrigou a pagar minhas perdas de capital. Quando eu finalmente tenho ganhos em ações, minhas perdas não estarão lá para limitar o imposto.
Não seria tão horrível, a não ser que eu tenha feito essas perdas com dinheiro emprestado, e eu preciso de todos os ganhos para pagar os empréstimos. Eu tenho empréstimos em aberto após o ativo subjacente ter ido & # 8211; vendido com prejuízo. É simplesmente louco!
Agora estou aqui com ganhos legítimos, mas não consigo encontrar uma maneira de exercitar as perdas contra eles.
Eu simpatizei com você! A única coisa que posso oferecer é que você pode pelo menos deduzir os juros do seu empréstimo. Além disso, esperamos que você tenha muitos ganhos de capital no futuro, contra os quais poderá usar suas perdas acumuladas.
Excelente post Mike! Muito informativo.
Se uma empresa foi criada há 17 anos e alguns funcionários trabalharam lá por 15 anos, as ações do fundador ainda podem ser criadas e atribuídas a esses funcionários?
Existe um benefício fiscal de obter essas ações atribuídas a uma corporação que o funcionário possui? Em vez de grandes corporações fornecerem ações diretamente ao empregado, elas primeiro vão para outra corporação que o empregado possui?
Independentemente do que precede, & # 8220; a linha de fundo & # 8221; A seção do seu post ainda soa como um negócio incrível. A maioria dos impostos diferidos. Supondo que nenhuma mudança na avaliação acabaria sendo tributada com a renda normal do emprego, como a figura de ações sobredeclaradas no caso de uma venda. Parece bom demais para ser verdade!
Você pode recomendar mais materiais de leitura? Eu estou especialmente interessado em empresas privadas estabelecidas que oferecem ações para seus funcionários.
Rob, você pode criar os fundadores & # 8221; compartilha quando você quiser & # 8211; isto é, pelas ações dos fundadores, eu acredito que você queira dizer ações de custo zero. Acredito que, se as ações forem emitidas para uma empresa, haverá benefícios tributáveis, embora eu não tenha certeza se ela pode ser adiada. Eu sugiro que você verifique com seu próprio contador sobre sua situação particular & # 8211; apenas para estar seguro.
um CCPC concede uma participação ao empregado com um FMV e o funcionário pode adiar os benefícios fiscais até a venda das ações. Se o empregado nunca vender as ações porque o último valor da ação é menor do que o anterior, quando as ações concedidas, o imposto diferido será apagado?
Eu não acho que o benefício seja apagado. E nunca "nunca" venderá & # 8221; porque a empresa ou o acionista morrerá algum dia (e, em seguida, há uma disposição considerada).
obrigado Mike! Ah, sim, as ações poderiam ser vendidas passivamente. Como o CRA poderia determinar o FMV de um compartilhamento concedido por um CCPC há 5 anos?
Sim, esse é o desafio. Eu nunca ouvi falar do CRA determinando isso para uma pequena inicialização do CCPC. Eu adoraria ouvir de alguém que tenha.
Oi Mike, Obrigado pelo artigo muito informativo. Você pode, por favor, me encaminhar para a seção da Lei do Imposto de Renda que permite uma dedução de 50% e / ou deferimento no que se refere ao benefício tributável sob uma venda do SHARE. Eu acredito que o que você está olhando abrange opções e não ações. Obrigado Levi.
Siga as perguntas acima de Ken e Levi, isso foi resolvido se essas regras se aplicam apenas a opções e não a ações? Ken e Levi estavam à procura de confirmação / referências ao ato fiscal, permitindo o diferimento relativo às ações (não opções de ações). Obrigado por qualquer comentário sobre isso.
As regras dizem respeito a ações. As opções são apenas um direito de comprar ações. Se você adquirir ações abaixo do chamado valor de mercado, isso pode ser devido a uma opção que você exerceu ou simplesmente devido a um contrato (por exemplo, contrato de trabalho). Independentemente de como ou por que você tem "barato" # 8221; ações, a responsabilidade fiscal entra em ação quando você recebe o & # 8220; benefício & # 8221 ;. Esse benefício é tributável, mas pode ser diferido (para uma empresa privada) até que você venda as ações. Não há imposto devido quando você recebe opções de ações & # 8211; independentemente dos termos da concessão da opção.
Oi, Mike, excelente artigo. Pergunto-me se o Founders Share deve ser detido pelo fundador ou empresa, se for detido pelo fundador, podem aplicar regras diferidas?
As empresas não possuem ações em si mesmas. As ações dos fundadores seriam mantidas pelos fundadores individuais "founders & # 8221; que poderia ser realmente alguém que você deseja lidar.
Ótimo artigo. Alguma dessas disposições foi atualizada nos 6 anos desde que o artigo foi originalmente publicado? Estamos sediados em Toronto e estabelecendo uma nova startup de tecnologia. Decidimos incorporar em Delaware como queremos atrair dinheiro do vale. Mas para os fundadores e funcionários-chave, parece que as opções e as ações dos fundadores podem ser problemáticas? como um não CCPC, os funcionários canadenses que recebem opções estariam em uma situação semelhante ao seu CFO com 100.000 opções em uma startup do Vale do Silício & # 8211; eles teriam uma responsabilidade fiscal sobre o FMV no momento do exercício, devido imediatamente. Este ainda é o caso?
Se emitirmos ações (ações do fundador) como não-CCPC, mesmo com vesting reverso (ou equivalentes de RSU), parece que haveria um passivo fiscal imediato com base no FMV no momento em que as ações são emitidas & # 8211; estou entendendo isso corretamente?
Não estou ciente de nenhuma alteração nos últimos seis anos desde que escrevi o post. Sim, as regras são diferentes nos EUA. Não tão bom quanto no Canadá. Muitas startups que conheço não têm problemas para atrair a Valley Capital porque são CCPCs. No seu caso, se os destinatários das ações dos fundadores (no Delaware Corp) forem canadenses, acredito que as regras canadenses são aplicáveis ​​e não têm responsabilidade tributária imediata. MAS & # 8211; eles não recebem a isenção de US $ 835.000 do Cap Gains. Então, claro, há também a questão do que é o FMV. Se nenhum capital foi levantado, e se a empresa é nova, eu diria que o FMV é zero. Mesmo para emissões posteriores, eu não ouvi falar de CRA estabelecendo um FMV.
Obrigado Mike! Novamente, ótimo artigo & # 8211; muito informativo.

Tributação de Opções de Ações para Funcionários no Canadá.
Allan Madan, CA.
Você recebeu opções de ações do seu empregador canadense? Se sim, é altamente recomendável que você repasse os pontos deste artigo. Neste artigo, explico como as opções "Tributação de Ações de Ações para Funcionários no Canadá" # 8221; afeta diretamente você.
Uma opção de ações para funcionários é um acordo em que o empregador concede a um funcionário o direito de comprar ações da empresa na qual ele trabalha normalmente a um preço com desconto especificado pelo empregador. Existem diferentes tipos de opções de ações que podem ser emitidas para os funcionários - mais informações podem ser encontradas no site da Agência de Receitas do Canadá.
Para os empregadores que desejam vender as ações de sua empresa, consulte nosso artigo "Planejando a venda de um negócio".
CCPCs (empresas privadas canadenses controladas) - opções de ações de funcionários.
Um CCPC é uma empresa incorporada no Canadá, cujas ações são de propriedade de residentes do Canadá. Por definição, um CCPC é uma "empresa privada" e, portanto, não é listado em uma bolsa de valores pública como a Bolsa de Nova York ou a Bolsa de Valores de Toronto.
Quando seu empregador concede ou dá uma opção de ações para você, você não precisa incluir nada em seu lucro tributável naquele momento. Em outras palavras, não há nenhuma conseqüência fiscal para você na data da concessão.
Quando você exerce uma opção de compra de ações, o que significa comprar as ações através de seu empregador, você deve incluir um benefício tributável em sua receita. O benefício tributável é igual à diferença entre o preço de exercício (ou seja, o preço que você pagou para comprar as ações) e o valor de mercado das ações no momento da compra.
Há um diferimento de imposto especial para funcionários de CCPCs. O benefício tributável pode ser adiado para a data em que as ações são vendidas. Isso torna mais fácil para os funcionários pagar impostos porque eles terão dinheiro disponível com a venda das ações.
Opções de ações do empregado CCPC.
Vamos ver um exemplo. Suponha que o preço de exercício seja de US $ 3 / ação e o valor de mercado seja de US $ 10 / ação. Quando você exerce o seu direito de comprar as ações, um benefício tributável é realizado por US $ 7 / ação (US $ 10 menos US $ 3). Lembre-se, para os funcionários da CCPC, o benefício tributável é adiado até que as ações sejam vendidas.
Se você atender a uma dessas duas condições, poderá reivindicar uma dedução de imposto igual a ½ do benefício tributável, ou US $ 3,50 neste exemplo (50% x US $ 7).
Você manteve as ações por pelo menos dois anos depois de comprá-las. O preço de exercício é pelo menos igual ao valor justo de mercado das ações quando elas lhe foram concedidas. Implicações fiscais para opções de ações de funcionários CCPC.
Empresas Públicas - Opções de Ações para Funcionários.
Agora, vamos passar para a tributação de opções de ações para empresas públicas.
Na data em que você recebe ou recebe opções de ações em um empregador que seja uma empresa de capital aberto, você não tem uma consequência tributária pessoal. Entretanto, na data em que você comprar as ações, você receberá um benefício tributável igual à diferença entre o preço de exercício das ações e o valor de mercado das ações naquela data. Você não pode adiar o tempo desse benefício tributável.
Suponhamos que você trabalhe para a Coca-Cola Canadá e o valor justo de mercado das ações hoje seja de US $ 30 / ação. De acordo com o contrato de opção, você pode exercer ou comprar as ações por US $ 10 / ação. Portanto, o benefício tributável que será incluído na sua renda no momento do exercício é de US $ 20 / ação.
Depois de comprar as ações, você tem duas opções: (A) Você pode vender imediatamente as ações ou (B) Você pode segurá-las se você acredita que elas aumentarão em valor no futuro. Se você optar por manter as ações e vendê-las no futuro com lucro, o lucro obtido com a venda será classificado como ganho de capital e sujeito a imposto. Independentemente de você vender as ações ou retê-las, os impostos serão deduzidos do seu salário para contabilizar o benefício tributável que você percebeu na compra das ações.
Árvore de decisão para opções de ações de funcionários para empresas públicas.
No entanto, não segure os compartilhamentos por muito tempo depois de comprá-los. Isso ocorre porque, se o preço do estoque cair, você ainda será responsável pelo benefício tributável realizado na data da compra.
Você pode reivindicar uma dedução fiscal para ½ do benefício tributável realizado na data do exercício. Para fazer isso, todas essas três condições devem ser atendidas:
Você recebe ações ordinárias normais mediante exercício O preço de exercício é pelo menos igual ao valor justo de mercado das ações no momento em que as opções foram concedidas Você negocia de maneira direta ou de terceiros com seu empregador.
Aviso Legal.
As informações fornecidas nesta página destinam-se a fornecer informações gerais. A informação não leva em conta sua situação pessoal e não se destina a ser usada sem consulta de profissionais contábeis e financeiros. Allan Madan e Madan Chartered Accountant não serão responsabilizados por quaisquer problemas que possam surgir do uso das informações fornecidas nesta página.
SOBRE O AUTOR.
ALLAN MADAN
Allan Madan é um CPA, CA e fundador da Madan Chartered Accountant Professional Corporation. A Allan fornece valiosos serviços de planejamento tributário, contabilidade e preparação de imposto de renda na área da Grande Toronto.
Pós-navegação.
Recursos relacionados
Mais do meu site.
Deixe seu comentário aqui:
Comentários 113.
Obrigado pela explicação muito detalhada.
Outra questão é se [50%] o ganho da opção de ações negociadas em bolsa será capaz de compensar a perda de capital do ano anterior?
Artigo muito perspicaz,
Eu queria saber se existe algum imposto sobre ganhos de capital sobre ações valorizadas ao oferecê-lo a outra pessoa como presente?
Os estoques, quando oferecidos como presente, não estão sujeitos a qualquer imposto sobre ganhos de capital, mesmo que tenham sido valorizados.
Allan Madan e equipe.
Eu tenho que pagar impostos sobre perdas de capital quando eu exercito minhas ações?
Não, você não precisa pagar nenhum imposto porque não há ganhos de capital, mas obtém benefícios fiscais por vendê-lo com prejuízo.
Allan Madan e equipe.
Oi Allan, só para esclarecer, se eu tiver perdas de capital em minhas ações, posso deduzir isso de meus ganhos de capital para minimizar meus impostos sobre os ganhos de capital, mesmo se eles fossem ações separadas?
Sim, a fonte do ganho ou perda de capital é irrelevante, uma vez que espera-se que você relate seus ganhos de capital totais e perda de capital em sua declaração de imposto de renda. É importante observar que, para fins fiscais, as perdas de capital são relatadas apenas em itens que se pretendem aumentar em valor. Eles não se aplicam a itens usados ​​para uso pessoal, como automóveis (embora a venda de um carro com lucro ainda seja considerada receita tributável).
Allan Madan e equipe.
Como o CRA calcularia o preço apreciado das ações para coincidir com a inflação?
O CRA tem seus próprios métodos de cálculo, especialmente para ações que os indivíduos podem ter mantido por longos períodos de tempo. É melhor entrar em contato diretamente com o CRA para obter informações mais específicas.
Allan Madan e equipe.
Oi Allan, há algum imposto sobre as ações recebidas de um indivíduo falecido através da sua vontade, nos casos em que as ações aumentaram drasticamente em valor?
As ações só serão sujeitas a imposto sobre ganhos de capital quando e se você decidir exercer / vender as ações. Não há impostos sobre a transferência de ativos através de testamentos.
Não se deve considerar que os bens em caso de morte são eliminados e, portanto, haverá ganhos na ação?
O que aconteceria se as opções ainda não fossem exercidas até o momento da morte?
Obrigado pela sua pergunta. Após a morte, há uma disposição considerada de todos os seus ativos ao seu valor justo de mercado naquele momento, com exceção dos bens destinados ao seu cônjuge. Se você não exercer suas opções de ações antes de sua morte, elas provavelmente expirarão e se tornarão inúteis, a menos que o acordo de opções afirme que um beneficiário sobrevivente pode assumir as opções em seu lugar.
Oi Allan, como parte do meu contrato de trabalho, eu tenho uma opção para receber ações ou US $ 10.000. Se eu escolhesse receber as ações, mas depois mudasse de ideia, uma vez que os valores das ações são projetados para diminuir em valor, eu seria taxado em $ 10.000?
Se você optar por receber novamente os US $ 10.000, ele será incluído como parte de seu rendimento tributável total, desde que você o receba dentro do ano fiscal. Se for uma opção possível, você pode optar por adiar a receita recebida para o próximo ano, a fim de evitar pagar menos impostos sobre ela este ano, se você projetar sua renda para ser menor.
Allan Madan e equipe.
Há perda de ganhos de capital para ações emitidas nos casos em que a empresa entrou com pedido de falência?
A perda de capital é aplicada apenas nos casos em que você realmente vendeu a ação. Felizmente, para você existe uma provisão sob a seção 50 (1) da lei do imposto de renda que permite algum alívio fiscal. Quando isto for aplicado, as ações serão consideradas como tendo sido alienadas para o resultado de zero no final do ano, e ter sido recuperadas para uma base de custo ajustada (ACB) de zero imediatamente após o final do ano. Como resultado, você será capaz de perceber a perda de capital no estoque. A regra de perda superficial não se aplica na situação.
Allan Madan e equipe.
E se a minha empresa estiver sendo adquirida por vários investidores e estiver indo de uma empresa pública para uma privada, quando eles detiverem 90% das ações, eu forçar a vender o meu abaixo do valor de mercado, receberei qualquer alívio fiscal em termos de de perdas de capital?
Se você for forçado a vender suas ações, então é ilegal para elas pagar abaixo do valor de mercado pelas ações remanescentes, você deve ser capaz de obter pelo menos o valor de mercado para você. Se não, você pode deduzir sua perda de capital contra seus ganhos de capital para alívio fiscal.
Allan Madan e equipe.
Eu fiz alguns trabalhos de contratação de uma pequena empresa de tecnologia de startups. Como eles não tinham dinheiro, me pagavam em ações, se e quando publicassem a empresa, eu teria que pagar impostos então?
Você só teria que pagar imposto sobre ganhos de capital quando e se você decidir exercer / vender suas ações. Se você continuar a segurá-los, você não estará sujeito a nenhum imposto.
Allan Madan e equipe.
É possível manter minhas ações dentro de uma conta da TFSA? Como os juros acumulados sobre essas ações seriam tributados?
Sim, as ações ordinárias geralmente se qualificam para investimentos da TFSA, no entanto, essas ações devem ser listadas em uma bolsa de valores designada. Se eles não estiverem listados, eles serão categorizados como um investimento não qualificado dentro do seu TFSA e você será punido com algumas penalidades severas.
A tributação dos juros acumulados seria a mesma para qualquer tipo de contribuições de investimento feitas ao seu TFSA.
Allan Madan e equipe.
O que seria classificado como uma bolsa de valores designada? E quanto aos estoques de moeda de um centavo?
Oi Mahmoud, o Departamento de Finanças do Canadá, tem uma lista de 41 bolsas de valores designadas no site fin. gc. ca/act/fim-imf/dse-bvd-eng. asp.
Tostão negociadas em folhas-de-rosa não estão em uma bolsa de valores designada, mas qualquer tostão (pessoas discordam sobre sua definição) que estão listadas em qualquer uma das bolsas de valores designadas são elegíveis para os investimentos da TFSA.
Allan Madan e equipe.
E se uma ação estiver listada em várias trocas, algumas das quais não estão listadas, como o departamento financeiro categorizaria isso?
Enquanto a ação estiver listada em pelo menos uma bolsa de valores aprovada e reconhecida pelo departamento de Finanças, ela se qualificará para o investimento da TFSA.
Allan Madan e equipe.
Eu atualmente trabalho para um CCPC, e eles me ofereceram $ 5000 em ações como compensação. Como sou novo no mundo das ações, fico imaginando o que fazer com elas. O que acontece quando eu exercito minhas opções de ações? Existem implicações fiscais?
Olá, obrigado pela sua pergunta.
Opções de ações são uma das formas mais populares de compensação não monetária que os empregadores oferecem. Eles são um benefício tributável e devem ser incluídos na sua renda total de trabalho na caixa 14 do seu boleto T4. Veja como eles funcionam. Um empregado tem a opção de comprar ações de uma empresa a um preço futuro. Nesta fase, não há nada para relatar sobre renda.
Quando você compra as ações a esse preço acordado (chamado exercitar sua opção), o benefício tributável entra em jogo. Este benefício é calculado como a diferença entre o valor justo de mercado das ações na data em que você comprou o valor compartilhado e o preço que você pagou por eles. Como seu empregador é um CCPC, você pode adiar todo o seu benefício tributável até vender suas ações.
Eu trabalhei para uma empresa em 2003 que tinha um IPO. Os funcionários receberam opções de ações e eu recebi 2.000 ações. Eu ainda tenho a carta do homem que era então presidente e CEO. A duração do contrato foi de 25 anos. No entanto, acabei deixando a empresa alguns meses depois, por isso parece que estou apenas com 25% de participação. A empresa agora foi dividida em duas empresas separadas.
Alguma das minhas opções de ações tem valor hoje? Posso sacar minha parte investida?
No seu caso, você teria 25% do contrato original para 2.000 ações. A principal questão que você precisa responder aqui é qual empresa assumiu o estoque. Se a empresa se dividiu em dois, quem assumiu as ações? Além disso, a empresa que assumiu ações cobriu os contratos de opção? Às vezes, o plano de opções de ações (ESOP) dos funcionários não terá as opções convertidas se a empresa estiver desmembrada.
Se a empresa não lhe oferecesse opções, mas apenas 2.000 ações, você precisaria saber em que ações as ações foram convertidas. A maioria das empresas só dá contratos de opção para executivos, porque eles não estão realmente segurando as ações. A maioria dos planos de opções não tem um vesting, mas o ESOP irá.
Eu ligaria para a empresa que detém o estoque e descobrisse quais são suas opções. Se a empresa se separar em 2003, provavelmente levará muito tempo para descobrir as informações. As empresas só precisam manter registros no front office por 3 a 5 anos, dependendo do tipo de registro. Portanto, quanto mais cedo você fizer isso, melhor.
Oi Allan Minha empresa está me oferecendo algumas ações como compensação. Quais são algumas coisas que eu deveria saber antes de levá-las?
Um plano de opção de compra de ações permite que seu empregador lhe venda ações a um preço predeterminado (conhecido como preço de exercício). Normalmente, você terá o direito de comprar ações somente quando o preço de mercado for maior do que o preço de exercício. Afinal, se o seu exercício é de 15 dólares por ação e o valor de mercado é de apenas 12 dólares, você está pagando demais! Ao considerar uma opção de compra de ações por parte dos funcionários, você quer ter certeza de que as ações da empresa vão aumentar de valor. Além disso, você deseja ter certeza de que poderá vender os compartilhamentos posteriormente. Se sua empresa for privada, verifique se você tem alguém para vender essas ações. Não será bom ter muitas ações valendo milhões se ninguém estiver comprando.
Allan Madan e equipe.
Oi Allan Eu me inscrevi para um plano de compartilhamento de ações para funcionários na TFSA com meu empregador. De acordo com o acordo, ele corresponde a 5% das minhas contribuições. Eu recebi um T4PS com um valor na caixa 35 que eu preciso incluir no meu retorno de imposto. Eu pensei que o dinheiro que você ganha de um TFSA é isento de impostos, eu estava errado?
Somente os juros, dividendos ou ganhos de capital dentro de um TFSA são isentos de impostos. Os valores contribuídos são considerados após os impostos e, portanto, não são dedutíveis do resultado. Por outro lado, os levantamentos não são considerados rendimentos.
Seu empregador faz as contribuições correspondentes antes dos impostos, motivo pelo qual essas contribuições são registradas como receita adicional. É por isso que eles são relatados como renda adicional e precisam ser informados em seu retorno de imposto. Por causa das contribuições do seu empregador, é muito fácil contribuir demais para o seu TFSA. Se o fizer, poderá desencadear a penalização, por isso tenha cuidado. Se você tiver alguma dúvida sobre esta ou qualquer outra questão relacionada a impostos, não hesite em me perguntar.
Allan Madan e equipe.
Eu não estou muito familiarizado com ações ou como elas funcionam, mas elas parecem intrigantes para mim. Como isso funcionaria se eu possuísse ações com a empresa em que trabalhei, conseguisse um preço com desconto, de acordo com as opções de ações, mas depois fosse cancelado. Eu ainda estaria na posse dessas ações e ainda teria que pagar impostos sobre elas? Ou eu perderia as ações já que eu não trabalhava mais com a empresa?
Normalmente, os funcionários podem e mantêm as opções de ações dos empregadores, mesmo após o término.
No ano em que você exercer suas opções, você terá uma inclusão de renda, que será a diferença entre o preço de exercício menos o FMV das ações quando as opções forem exercidas.
Quando você vender as ações, haverá um ganho ou perda de capital.
A base de custo ajustada será o FMV das ações quando você exercitou as opções.
Se o produto da alienação for maior que o da ACB, você terá um ganho de capital.
Se o produto da alienação for menor que o ACB, você terá uma perda de capital.
Então, se eu me casar ou viver com um parceiro de direito comum, e ela estiver ganhando muito menos do que eu. Eu seria capaz de compartilhar alguns dos meus dividendos com ela para que ela possa se beneficiar da economia fiscal que vem junto com as opções de ações ou isso só seria aplicado para a minha própria pessoa retornar?
Sob o sistema fiscal canadense, há uma provisão que permite que você transfira todos os seus dividendos para o seu cônjuge para que seu cônjuge possa reconhecer 100% do seu dividendo se certas condições forem cumpridas. Isso pode ou não ser vantajoso, dependendo de você e da situação fiscal do seu cônjuge, e precisaremos de mais informações.
Oi, eu queria saber se valeria a pena investir algumas das minhas ações de funcionários no meu RRSP em vez de vendê-las. Pergunto isso porque um colega meu compra as ações de seus funcionários a um preço reduzido e as vende por volta do começo do ano. De lá, ele vende as ações, coloca o dinheiro em seu RRSP e depois compra as ações novamente dentro do RRSP. Ele diz que isso não o poupa muito em impostos, mas ajuda o retorno, já que ele é capaz de guardar dinheiro em seu RRSP e vê-lo ficar sem impostos. Isso é algo que é plausível?
Uma coisa a lembrar ao lidar com RRSPs é que eles são diferimentos de impostos, não isentos de impostos. Isso significa que você pode economizar impostos enquanto mantém o dinheiro no RRSP, mas depois de fazer um saque você terá que pagar impostos sobre esses saques.
Não há realmente nenhuma maneira de evitar o pagamento de impostos sobre ações de funcionários de empresas públicas, mas existe uma maneira de evitar impostos no futuro sobre esses valores. Se você contribuir com as ações diretamente para uma conta poupança isenta de impostos, poderá economizar o pagamento de impostos adicionais no longo prazo. Você ainda teria que pagar impostos sobre os ganhos de capital incorridos, e não haveria reembolso, mas sempre que você retirar o dinheiro do TFSA, ele estaria isento de impostos. Espero que isto ajude.
Minha esposa está atualmente em licença de maternidade até março. Portanto, ela está na EI. A administração de sua empresa decidiu permitir que ela descontasse suas opções de ações até dezembro. Não temos certeza de quais serão as implicações fiscais disso. O departamento financeiro da empresa disse que a renda seria informada no T4 como benefício do empregado. Ela terá que relatar essa receita para o CRA e reduzirá seu benefício de IE? Ela está no topo da faixa de renda.
As opções não são tratadas como ganhos de capital, pois você não pode deduzir as perdas contra eles. Eles são, no entanto, tributados como renda ordinária. Além disso, eles estão sujeitos a uma dedução de opção de segurança & # 8220; & # 8221; (linha 249 na sua declaração de imposto) se determinadas condições forem cumpridas. Metade do benefício da sua esposa que ela recebe do pagamento da opção está incluída no seu rendimento tributável para o ano. Se ela estiver no colchete, metade do benefício de sua opção pode ser taxada em 46%.
Allan Madan e equipe.
No ano passado, exercitei algumas opções de ações diferidas. Como faço para reportar isso?
Se você recebeu um T4 do empregador que também emitiu as opções de ações em seu nome, então o respectivo ganho ou perda seria relatado como parte do seu T4 slip (assim como a dedução de opção de ações na caixa 39 e 41). Além disso, você poderá reivindicar 50% do valor da linha 4 do Formulário T1212, Declaração de Benefícios de Opções de Segurança Diferidos.
Allan Madan e equipe.
Eu recebi opção de estoque de funcionários quando minha empresa era privada e agora ela foi IPO. Então, é publicamente negociado, eu ainda não tenho exercido & # 8221; minhas opções de ações e está definido para expirar em breve. Estou pensando em fazer "Exercício e espera", quando eu fizer isso eu vou ter que pagar à empresa o preço excessivo, mas também vou ter que pagar o imposto imediatamente (mesmo que eu não esteja vendendo, apenas segurando ?) Além disso, como posso diferenciar os impostos para que eu possa dividir o lucro tributável em vários anos para que eu pague menos impostos?
Qualquer informação do exercício "& # 8220; & # 8221; e segure & # 8221; opção seria boa.
Eu recebi opção de estoque de funcionários quando minha empresa era privada e agora ela foi IPO. Então, com ações negociadas publicamente, eu ainda não "exercitei" minhas opções de ações e está definido para expirar em breve. Estou pensando em fazer "Exercício e segurar", quando eu fizer isso eu vou ter que pagar à empresa o preço excessivo, mas eu também vou ter que pagar o imposto imediatamente (mesmo que eu não esteja vendendo, apenas segurando?). Além disso, como posso diferenciar os impostos para dividir o lucro tributável em vários anos e pagar menos impostos?
Qualquer informação da opção “Exercício” e manter ”seria boa.
Quais são as implicações fiscais de negociar ações em uma conta não-TFSA com uma corretora, quando se trata de impostos sobre lucros no final do ano? Existe uma taxa específica para ganhos de capital? Além disso, eu mesmo acompanho meus ganhos e perdas?
50% dos seus ganhos são contados como receita tributável. Você pode deduzir as perdas de capital passadas de ganhos de capital atuais. Depois de contabilizar ganhos de capital, se sua renda pessoal estiver abaixo do nível de isenção, você não pagará impostos sobre ela. Você também não precisa pagar impostos se não vendeu as ações este ano. Os lucros provenientes de dividendos são tributados de forma diferente e têm taxas diferentes, dependendo de serem considerados elegíveis ou não comestíveis.
Finalmente, acompanhe todos os seus ganhos e perdas. Sua instituição pode fornecer um resumo, mas não lhe dará um recibo formal.
Allan Madan e equipe.
Eu recebi uma opção de ações da empresa há algum tempo. Tem um preço de exercício de US $ 3,10 e um colete de US $ 30.000 após cada um dos três anos. O dividendo anual mais recente foi de US $ 0,69 e, seis meses atrás, a empresa ofereceu-se para comprá-lo de volta. Apesar de oferecerem US $ 2,80, ninguém vendeu suas ações. O que, se devo fazer com isso? Quais são as regras fiscais em torno da minha situação?
As regras fiscais para opções de ações no Canadá diferem, dependendo se a empresa é uma CCPC. Se for, não há ganho tributável imediato. O ganho é tributado quando as ações são vendidas, não exercidas. Isso reduz significativamente a dificuldade inicial de comprar opções de ações. Além disso, se as ações são detidas por pelo menos dois anos após o exercício, metade dos ganhos iniciais são isentos de impostos.
Se não for um CCPC, o ganho tributável pode ser devido no ano de exercício. Muitas empresas nessa situação oferecem recompra parcial quase imediata para ajudar a compensar esses custos. A diferença entre o valor de mercado no momento do exercício e o valor no momento da venda é tributada como receita para os não CCPCs.
Meu conselho é exercitar e vender se o preço das ações for mais alto e obter seu lucro em dinheiro. Então, use esse lucro para comprar ações e coletar dividendos. Você será taxado sobre o lucro da venda de suas opções e, posteriormente, sobre os dividendos.
Allan Madan e equipe.
Eu trabalho no Canadá para uma empresa que comercializa nos EUA. Um dos benefícios que recebo do meu trabalho é que recebo unidades de estoque restritas (RSUs) uma vez por ano. Eles estão conectados a uma conta da ETrade que a empresa organizou para mim. Eu preenchi o formulário de imposto W-8BEN. Eu acredito que esta é a forma correta.
Acabei de descobrir que havia um automático "vender para cobrir" # 8217; ação que vendeu ações suficientes para responder por 40% do valor que tinha investido. Este montante satisfaz a Receita do Canadá quando se trata de tempo de imposto? Ou eu preciso colocar um pouco do restante de lado também? Eu pedi um contador, e ele disse que, como é um ganho de capital que o CRA me taxaria em 50% do valor, isso é correto?
Além disso, o estoque foi investido em 25,61 (que é o valor no qual a venda à capa aconteceu), mas na época em que eu podia vender, a ação estava em 25,44. Isso tem alguma influência na minha situação?
O valor justo de mercado do RSU no tempo de vestimenta é tratado como renda regular paga a você pelo seu empregador e será tributado à sua taxa marginal. 40% deve ser suficiente para satisfazer seu imposto de renda pessoal, dependendo de qual é a sua renda total para o ano. Como ele foi investido a US $ 25,61, mas você o vendeu a US $ 25,44, você poderá reivindicar uma perda de capital (ou levá-lo adiante para um ano em que você tem ganhos que você pode compensar com isso).
Allan Madan e equipe.
Eu trabalho para uma empresa start-up, e parte da minha remuneração são opções de ações. Supondo que tenhamos a chance de sair (grande suposição, é claro), posso ganhar uma grande soma de dinheiro quando os exercito. O que acontece neste momento em relação ao imposto? Pelo que entendi, todo o crescimento do preço de exercício será tributado como ganhos de capital. Isso está correto? Se assim for, acabaria perdendo uma grande porcentagem em impostos.
É possível exercitar as opções abrigadas dentro de um TFSA ou RRSP para evitar ganhos de capital? Existe alguma coisa que eu precise fazer de antemão (por exemplo, "transferir" as opções não exercidas para um TFSA) para se preparar para isso?
Suas opções são tributadas em taxas de ganhos de capital (ou seja, 50%) desde que você obtenha uma dedução de 50% sobre a inclusão de renda, supondo que você atenda a determinadas condições. Quanto a mantê-los em um TFSA ou RRSP, certifique-se de que eles não serão considerados um investimento não qualificado e / ou proibido. Em geral, você precisa garantir que você e terceiros (como parentes) não tenham mais de 10% da empresa.
No entanto, você pode não conseguir colocá-los em um TFSA sem pagar imposto sobre eles. Este é o ponto de um TFSA; as contribuições são depois de impostos. Você poderia exercer a opção, pagar o imposto (de renda) e depois transferir as ações para um TFSA. No entanto, isso pressupõe que o preço das ações suba após o exercício.
Allan Madan e equipe.
Olá, em 2012, comprei 1.000 ações na minha empresa por US $ 10 cada. Em 2013, as ações dispararam para US $ 40 por ação. Alguns de meus colegas e eu decidimos vender as ações, mas depois as ações caíram para US $ 10 por ação. Como devemos lidar com essa situação?
Oi, Neste caso, você deve relatar um benefício de emprego tributável de US $ 30.000 em seu retorno T1. Isso representa o lucro obtido com as ações até a data do exercício. Além disso, você deve relatar uma perda de capital de US $ 30.000 porque as ações perderam valor quando você as vendeu. A má notícia é que a perda de capital de US $ 30.000 não pode ser compensada com o benefício de emprego tributável de US $ 30.000.
Se desejar, você pode entrar em contato com o escritório local de Serviços Fiscais da CRA, explicar a situação e eles determinarão se podem ser tomadas providências especiais de pagamento.
Allan Madan e equipe.
Minha esposa precisará exercitar algumas opções de seu antigo empregador nesta semana. É uma empresa de capital aberto. Eu entendo que ela terá que pagar impostos sobre a diferença de preço entre o preço de exercício e o valor atual. Minha pergunta é quem é obrigado a enviar o valor do imposto para o CRA: O empregador ou ela.
Se for o empregador, isso significa que eles podem reter algumas das ações como pagamento ao CRA?
Geralmente, a diferença entre o valor justo de mercado das ações no momento em que a opção é exercida e o preço da opção dará origem a um benefício tributável. Este benefício tributável é incluído no rendimento do emprego quando a opção de ações é exercida (ou seja, é adicionado ao T4 como um salário ou um bônus).
Como esse valor é como um salário, o empregador tem que fazer remessas de folha de pagamento (CPP, EI e imposto de renda).
Oi, eu só estava me perguntando se há algum benefício de transferir as ações da minha conta de poupança de estoque para um TFSA.
Oi Carla, se você tiver espaço para contribuir com seu TFSA e decidir transferir suas ações para o TFSA, será considerado que as ações foram vendidas para um ganho de capital (ou perda de capital). Isso significa que pode haver impostos que você precisará pagar na transferência no ano fiscal. Se você é capaz de pagar uma pequena quantia de ganho de capital agora, seus retornos futuros (ex. Ganho de capital, dividendos) serão isentos de impostos.
Contacte-me ou o seu banco diretamente antes de decidir fazer a transferência. É sempre benéfico obter ajuda profissional para que você não tenha problemas.
Allan Madan e sua equipe.
Em seu exemplo de empresa pública, as ações da Coca-Cola estão em uma bolsa de valores dos EUA, portanto, presumivelmente, as transações ocorrerão nos EUA por meio de algum tipo de fiduciário ou corretora dos EUA. Isso significa que uma declaração de impostos dos EUA precisa ser registrada para a renda obtida nos EUA?
Sob o tratado tributário Canadá - EUA, os residentes canadenses que incorrerem em ganhos de capital em investimentos em ações dos EUA não são obrigados a apresentar declaração de imposto de renda nos EUA. Você simplesmente relatará o ganho de capital em sua declaração de impostos canadense e pagará impostos ao Canadá.
Oi, Poderia, por favor, me dizer quais são as implicações de custo para um empregador e um empregado em um plano de opções de ações.
De acordo com um plano de opção de compra de ações, no momento em que o direito de opção de compra de ações é transferido para o empregado, não há efeito na situação tributária do funcionário até que o empregado exerça ou descarte a opção. Se o empregado exercer a opção abaixo do valor justo de mercado da ação, o empregado receberá um benefício tributável. Este seria um benefício de emprego igual ao valor pelo qual o valor das ações na data do exercício excede o valor total pago.
Como empregador, os planos de opções de ações não são dedutíveis, a menos que sejam pagos em dinheiro.
Olá Allan, eu tenho uma empresa start-up e contratarei funcionários em breve. Eu só quero planejar com antecedência para não me deparar com problemas na estrada. Quais opções devo ter para estoque de funcionários?
Oi Veronica, existem três planos principais que você pode implantar para as opções de ações do seu empregado. Eles são os seguintes:
1) Plano de compra de ações do empregado (ESPP): Este plano permitirá que seus funcionários comprem ações a um preço com desconto. Muitos ESPPs fornecem um amortecedor na compra das ações: um funcionário pagará uma determinada quantia ao longo de um período de tempo e, em períodos pré-especificados, os funcionários podem comprar ações com desconto usando os pagamentos acumulados. O benefício é igual ao valor das ações, menos o valor pago.
2) Plano de bônus de ações: de acordo com este plano, você terá que concordar em dar as ações ao seu empregado (s) gratuitamente. Por sua vez, você concorda em vender ou emitir ações para o empregado sem nenhum custo.
3) Plano de opção de compra de ações: este plano permite que o (s) empregado (s) comprem ações da sua empresa ou de uma empresa que não seja de braço firme a um preço pré-determinado.
Oi, estou me mudando para os Estados em breve, mas ainda tenho estoque no meu atual empregador. Preciso vender minhas ações agora? Ou posso manter as ações e lidar com elas quando chego aos Estados Unidos?
Olá Craig, se você tiver opções de ações no momento em que se tornar um não residente, não deverá haver consequências fiscais no momento em que você se mudar, mas você será responsável por um benefício de emprego no exercício da opção.
Por outro lado, se você já aplicou anteriormente para adquirir ações do CCPC para adiar a renda de emprego novamente antes de se tornar um não residente, você enfrentará imposto de embarque sobre as ações que você possui. O ganho ou perda na alienação das ações será reduzido pelo ajuste inerente ao rendimento do trabalho.
Oi Allan, existe uma vantagem fiscal para vender ações da minha corporação?
Olá Jaimer, sim, em alguns casos, haveria uma grande vantagem fiscal para vender as ações da sua corporação. Se você tem uma pequena empresa qualificada de propriedade canadense ou uma propriedade agrícola qualificada, você poderá reivindicar a isenção de ganhos de capital que virá da venda de suas ações. A isenção de ganhos de capital é de US $ 800.000 em valor para as disposições que ocorrerem em ou após 1º de janeiro de 2014. Essa idéia poderia economizar cerca de US $ 200.000 em impostos de renda.
Você deve observar que vender ações é muito mais difícil do que vender ativos para sua empresa. Você pode ter que diminuir o preço de suas ações e, por sua vez, dependendo da situação fiscal pessoal, talvez não seja possível fazer uso da isenção de ganhos de capital. O governo restringe o uso da isenção em alguns casos em que o contribuinte reivindicou perdas de investimento.
Oi Allan, existe alguma maneira de diferir os impostos que eu pago em minhas opções de ações até eu vendê-los?
Oi Kasey, se você trabalha para uma corporação privada controlada pelo Canadá, você poderá adiar o imposto sobre o benefício de emprego até que as ações sejam vendidas. A CRA percebe que a maioria das pessoas não consegue encontrar uma maneira de pagar impostos sobre US $ 50.000 de compensação não-monetária, e é por isso que eles permitem que você adie o imposto. No entanto, se você não trabalha para uma empresa privada controlada pelo Canadá ou para uma empresa de capital aberto, nenhum adiamento estará disponível.
Olá Allan, eu fiz a eleição para diferir o imposto de renda sobre minhas ações em uma empresa pública. Desde então, o valor do estoque caiu e não tenho dinheiro suficiente para pagar os impostos de renda que eu adiei. Existe alguma maneira de adiar os pagamentos até que eu receba dinheiro suficiente para pagá-los?
Oi Sarah, sim, há alívio temporário que o CRA prevê para os funcionários que fizeram uma eleição para diferir o imposto de renda sobre as opções de ações em declínio. A dedução destina-se a assegurar que o imposto de renda devido sobre o benefício resultante do exercício da opção não exceda o produto da alienação recebida quando os títulos opcionais são vendidos, levando-se em conta o benefício fiscal resultante da perda de capital dedutível sobre esses ativos. valores mobiliários.
Para aproveitar este alívio, a eleição deve ser feita até o seu prazo de apresentação para o ano fiscal durante o qual as ações são vendidas, o que é quase sempre 30 de abril.
Olá Allan, eu estava pensando em dar ações aos meus funcionários em vez de opções de ações. Eu conheço algumas das vantagens deste método, mas não muito sobre as desvantagens. Você pode me dizer algumas desvantagens de dar ações aos funcionários?
Oi Dan, aqui está uma lista de possíveis desvantagens para a emissão de ações para seus funcionários.
• Obrigação tributária diferida se as ações forem compradas abaixo do valor justo de mercado.
• Pode precisar defender o valor justo de mercado. Você também pode precisar de uma avaliação independente, embora isso seja muito raro.
• Você precisa ter certeza de que as disposições do acordo de acionistas estão em vigor.
• A emissão de ações a preços muito baixos em uma mesa de limites pode parecer ruim para novos investidores.
• Mais acionistas para gerenciar.
Aqui estão algumas vantagens de distribuir ações.
• Você pode obter até US $ 800.000 em ganhos de capital isentos de impostos vitalícios.
• dedução de 50% sobre ganhos se as ações forem detidas por mais de dois anos ou se as ações forem emitidas na FMV.
• Perdas em um CCPC podem ser usadas como perdas de negócios permitidas se o negócio falhar.
• Pode participar da propriedade da empresa.
• Menos diluição do que se as opções de ações forem emitidas.
Eu trabalho para uma empresa pública e recebi 1000 ações de opções de ações. Vamos dizer que o preço de exercício foi de US $ 10 / ação, e o valor de mercado da ação foi de US $ 13 / ação (no momento em que as ações foram exercidas). Eu paguei o imposto necessário no momento do exercício, mas não vendi imediatamente minhas ações. Se as ações subirem de valor para US $ 15 / ação e eu vender todas as minhas ações neste momento, tenho que pagar impostos adicionais?
No seu exemplo, se você decidir vender suas ações a $ 15, você será taxado sobre o ganho de capital da seguinte forma:
Base de custo ajustado: $ 13 (FMV de quando você exercitou suas ações)
Produto da Disposição: US $ 15 (FMV de quando você vendeu suas ações)
Taxa de Inclusão: 1/2.
Ganho de Capital Tributável: US $ 1 / ação que você vende.
Você registra um ganho de US $ 2 para cada ação vendida e terá que pagar US $ 1 em ganhos de capital tributáveis ​​para cada ação vendida.
Eu tenho uma pergunta sobre a tributação de opções de ações.
Eu trabalho para uma empresa pública e recebi 1000 ações de opções de ações ao preço de exercício de $ 10 / ação (de acordo com o contrato). O valor de mercado das ações era de US $ 13 / ação (no momento em que a opção foi exercida). Eu paguei os impostos necessários no momento do exercício e o benefício de emprego foi incluído na minha renda no meu boleto T4. Se eu mantiver as ações e as ações subirem de valor, e depois vender as ações a US $ 15 / ação, preciso pagar impostos pelo ganho adicional de US $ 2 / ação?
O imposto sobre ganhos de capital será aplicado aos US $ 2 adicionais por ação que você lucrou na venda.
Posso transferir as Opções de Ações que me foram entregues para minha empresa pessoal, 100% de minha propriedade e de minha esposa? Or to a company 100% owned by myself?
You can transfer stock options given to you to your corporation. However, there will be a capital gain realized upon the transfer. The amount of the gain will be equal to the market value of the options less the amount you paid for them. If your employer issued the stock options to you, it’s imperative that you read the options agreement to ensure that there are not any restrictions on transferring them.
There’s no tax savings in making a transfer of stock options to a corporation.
Quick question about employee stock options. I was wondering what the requirements are to deduct the stock option employment benefit?
As an employee who exercises options and acquires shares, you are entitled to an offsetting deduction that equates to one half of the employment benefit amount. This is given to you as long as these conditions are met:
& # 8211; the employer corporation is the issuer of shares.
& # 8211; the shares are not “preferred shares” but instead “prescribed shares”
& # 8211; the option exercise price must not be less than the fair market value of the shares at the time the option is granted.
& # 8211; the employee deals closely with the employer corporation.
I hope this helped,
I am ready to declare my security option benefit and I work for a private Canadian corporation – how do I go about this?
Declaring your security options benefits depends on the type of company issuing the benefits. If the company is a Canadian controlled private corporation, you have to report the benefits the year you plan on selling your securities.
I exercised options using a net exercise (they used part of my available options to purchase shares and provided me with a certificate for those shares) last year but on review the company did not report the taxable benefit on my T4. The stock is for a publicly listed company on the TSX. How should this be cleared up with CRA? Isn’t it the companies responsibility to report this as income on my T4?
It’s the company’s responsibility to report the taxable benefit realized upon exercising employee stock options. You should speak with your employer and ask them if they will be issuing amended T4 slips to their employees.
I was just wondering what kind of stock options can people generally choose from?
Employees are generally issued a variety of different options under one of three types of plan. There is the Employee Stock Purchase Plan (ESPP), Stock Bonus Plan, and the Stock Option Plan. For further details about each of these options, please visit the Canada Revenue Agency website.
I have read a lot about stock options for workers in Canada. I am just wondering why Canadian employers initially grant these options to their employees.
By granting stock options it ensures keeping good workers. Employers typically want their employees to feel like owners in the business. They also want skilled individuals, thus offering compensation beyond a salary is an incentive to stay loyal.
Quick question! What makes a stock option very “tax-efficient”?
Let’s use an example to answer this question! Suppose you exercise your stock option for $30,000 while the market value is $40,000 – this ultimately means you’ve received a benefit from your employment! You will face tax on the $10,000 benefit, – this is where the idea of ‘stock options’ should be of interest to you. Considering certain conditions are met, you can claim a deduction equal to 50% of the stock benefit. By including this $10,000 on your tax return, you could deduct $5,000. Thus, making a stock option very “tax-efficient”!
What conditions exist to ensure that I am entitled to the 50% deduction?
There are three conditions that must be met for you to be able to claim an offsetting deduction equal to 50% of the stock option that you report as income. The three conditions are as follows:
Eu. You cannot be in control of the corporation – you must deal with the company at arm’s length; on a third party basis.
ii. The shares must be common shares, not preferred shares.
iii. The stock options cannot be in the money on the the money on the day the option is granted.
I work for an NYSE listed company and received stock options as part of my compensation plan. I went on maternity leave last year and they had extended my vesting for the same amount of time (i. e. extended the year). Is this the same treatement in Canada or is this a US common occurance, perhaps company specific? Any help would be greatly appreciated. - C.
As far as I am aware, this appears to be a company specific policy.
What is your take on the Liberal government’s pre-election promise to change how stop options are taxed?
I have unexercised employee options granted to me before the company I work for went public (IPO). Eu sou.
concerned that the changes can have a significantly negative effect on the tax on the gains of those options.
if/when exercised next year (stock price is currently too low to exercise now, or I would).
1) Do you think the federal government will go ahead with these changes? I have read articles that make it.
sound like it may not be worthwhile to go ahead as companies would logically have to be given the ability to.
deduct options as an expense, which is now not the case.
2) Do you think there will be any grandfathering that may benefit situations such as mine?
3) Do you think the changes will apply to pre-IPO companies as well as public companies?
4) If the federal government does go ahead with changes, do you think the changes will be exactly as.
promised, or might there be some lessening of their impact (e. g. higher annual exclusion)?
These are excellent questions. While the liberal government has expressed its intention to make employer stock option benefits 100% taxable, they have said that this high inclusion rate will only apply on gains in excess of $100,000. Therefore, most Canadians will not be affected. I suspect that the liberal government will go head with these plans, but I’m not completely certain.
The finance minister announced that options granted prior to the date on which the new stock option rules come into effect will be grandfathered. He did not specify whether the rules will be different for pre-IPO companies or public companies.
i work for a company that allows me to purchase stock options. they will match up to 30%. i am about to be laid off. better to cash out now? not sure if ei benefits will be reduced if i was to cash out while claiming ei.
Thanks for your question. If your total income for the year including taxable stock option benefits and EI payments does not exceed $61,000, then your EI payments will not be clawed-back. I suggest that you first calculate the total taxable benefit from cashing our your stock options before you decide whether or not it makes sense to cash out.
Hello Allan, can either stock option proceeds (or the options themselves) or ESPP stocks or proceeds be transferred or gifted to as spouse for taxation purposes ? The stock are in an American company which has been purchased and these stocks will be paid out all at the same time.
They can be gifted to a spouse at cost, so that a capital gain will not arise on the transfer. BUT, any income or gains earned by the recipient spouse on the transferred stocks / shares must be attributed back to the transferor spouse. So you can’t save taxes by way of a gift to a spouse.
So what if you have a taxable benefit on your t4 in 2015 and then in 2016 the company goes bankrupt. Can I claim a loss for those shares on my personal tax in 2016?
In that case, claim a capital loss. Capital losses are only deductible against capital gains.
Taxable Compensation on Statement on Publically traded – Employee Stock Option is it part of Purchase Price?
The taxable portion of stock-based compensation included in your T4 becomes your cost basis for the shares you received, assuming you have not cashed out and are still holding these shares.
I realized a gain of the sale of a non-qualified stock option from a US public company. I am a Canadian citizen working for a subsidiary of the US public company, in Canada. ON the sale of the options, my broker withheld income taxes at 37%. How do I report these taxes paid on my canadian return?
Claim a foreign tax credit on form T2209.
If I transfer my shares to my wife as a gift will I be able to avoid taxes on them?
Hi Paul, you can automatically rollover your shares to your wife at cost. However, any gains realized upon their sale will be taxable to you.
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Regulamento & # 8211; Federal Taxation.
Federal Taxation.
Return of capital is not income.
Return of capital of an annuity = cost of the annuity / annuity’s expected value.
Corollary: Expenses are presumed nondeductible.
unsophisticated taxpayers use accrual accounting.
unearned income: received.
service income: provided.
advance payments: can be deferred.
accrued expenses: claimed when liability becomes certain.
Prepaid expenses are prorated for cash basis taxpayers if recognition of the total expense in the current year would distort taxable income.
C. Hybrid Method: required for taxpayers where sales of inventory constitute a substantial source of income.
cash basis for all except that sales and purchases of inventories must be accounted for under an accrual method.
IV. Special Accounting Rules.
• Leasehold Improvements: The fair value of leasehold improvements is income to the landlord • Uniform Capitalization Rules: Virtually all indirect production costs must be capitalized for tax purposes (uniform capitalization) •there is an exception for small business, full absorption costing is generally required when manufacturing goods for sale. •Interest and taxes may be capitalized for construction of long-lived assets and/or assets with high production costs.
V. Interest is included in income when received (cash basis) or accrued (accrual basis).
A. Bond Premiums: Individuals on the cash basis may amortize bond premium (deduction).
taxable bonds: amortize and deduct.
tax exempt bonds: amortize, but no deduction.
Interest is accrued on bonds purchased between interest dates, and the portion earned prior to the purchase is treated as a return of capital.
B. Bond Discounts: Individuals on the cash basis may amortize bond discounts (as interest income)
Cash basis taxpayers can defer the original issue discount on US savings bonds (series EE bonds — not series H) until maturity.
Individuals can elect to amortize discounts on bonds purchased in the secondary market (straight-line method is allowed).
C. Short-term discounts are taxed at maturity for cash basis taxpayers. the interest cannot be withdrawn or made available without penalty.
D. Series EE Bonds: Interest on series EE savings bonds can be excluded if the taxpayer incurs higher education expenses in the year of redemption.
the owner of the bond is at least 24 years old.
The interest is excluded in proportion to the educational expenses of the taxpayer, spouse, or dependent.
phased-out for 2008 when modified AGI exceeds $67,100 ($100,650) for single (filing joint) status.
distributions of cash or property to shareholders is taxed as dividend income.
The value of the property received in a dividend is the amount included in income to the extent the dividend is paid from earnings and profits.
liquidating dividend is treated as a return of capital until the basis of the stock is recovered; amounts in excess of basis are taxed as gains from a sale of the stock.
cash basis: when the property is made available.
5% if the taxpayer is in the 10% or 15% bracket, 0% in 2008. For higher tax brackets, 15%. Requirement: from a domestic corporation or a foreign corporation whose stock is tradable on an established U. S. securities market.
If the stock was held for 60 days or less during the 121-day period beginning 60 days before the ex-dividend date, does not qualify.
Note : Stock dividends ( as long as the dividend is proportionate ) and splits are not taxable.
adjust the basis of the stock’s new number of shares.
Example: TP owns 40 shares in XYZ Corporation purchased at a cost of $10 per share ($400 total). TP received an additional 10 shares as a stock dividend. He has realized no income and his shares now have a basis of $8 each ($400 divided by 50 shares).
A. Constructive Receipt: Constructive receipt requires a cash basis taxpayer to include the value of property in income in the period in which the right to (or control of) the property is acquired.
B. Tax Benefit Rule: previously deducted reimbursement expense need to be included (taxed)
C. Claim of Right Doctrine: The claim of right rule requires the taxpayer to include property in income in the period in which an apparent claim to the property materializes.
A later repayment of the property is deductible.
VIII. Dates for stock options are: Grant date, Exercise date, Sale date.
IX. Opções de ações não qualificadas.
On the exercise date, the employee recognized ordinary income, employer recognize deduction: (FMV of Stock – Exercise Price) x # of shares exercised.
Stock basis: FMV on exercise date.
X. Incentive Stock Options.
For an ISO, the exercise price cannot be less than the FMV of the stock on the grant date.
Income is recognized (except for AMT) when sold.
A. The gain on sale is LTCG if held more than one year, not sold until after two years from the date the option was granted, The employer does not receive a deduction.
B. Otherwise: non-qualified stock option.
& # 8211; The gain on the stock sale is ordinary income, employer receives a deduction.
& # 8211; Difference in the FMV on the sale date and the FMV on the exercise date is capital gain or loss.
C. Corporation receives deduction for ordinary income portion only.
Nonrecognition: Double Tax.
I. Life Insurance Proceeds.
Subject to estate tax at the time of the decedent’s death, so received due to the death of the insured are excluded from income.
The exchange of a life insurance policy for the cash surrender value: sale, proceeds over cost is income. One exception to this rule is the surrender of a policy by a terminally ill taxpayer.
A life insurance policy purchased (from the insured or the owner of the policy) for consideration is an asset, the proceeds in excess of the cost are income.
Example: TP owned a life insurance policy on his spouse, but was short of cash. He sold the policy for $100 to B, an unrelated individual. Upon the death of TP’s spouse, B received $500 from the life insurance company. B will be taxed on $400 of income ($100 is return of capital). If TP had not sold the policy, then TP would have received $500 tax free.
II. Gifts and Inheritances.
A. No consideration is expected in return: non taxable.
B. Income on gift: taxable, to donor if before time of gift, to donee if after.
& # 8211; Gain basis = Depreciable basis = adjusted basis of the donor.
& # 8211; Loss basis = lower of FMV at date of gift and adjusted basis of the donor (a built-in gain can be transferred, but not a built-in loss)
& # 8211; increased for the portion of any gift tax paid by the donor due to appreciation in the property.
Adjustment to basis = Unrealized appreciation / (FMV at date of gift – annual exclusion) X Gift Tax paid.
& # 8211; Effects of basis: gain if price>gain basis, loss if price<loss basis, no gain/loss if in between.
D. Holding Period: gain basis is used, period includes that of the donor; loss basis is used, start from the date of gift.
& # 8211; Basis: fair market value at the date of death, or the FMV on the alternate valuation date (six months after the date of death) if that date is selected by the executor as the valuation date.
& # 8211; Holding Period: long-term.
F. File From 709.
Taxed to the recipient and the payor is granted a deduction.
Payments to a former spouse that do not qualify as alimony are treated as a division of property: nontaxable to the recipient and nondeductible by the payor.
& # 8211; Payment in cash or via expense payment (e. g. mortgage payment)
& # 8211; Contingent: payments cease upon the recipient’s death.
& # 8211; Written agreement or decree.
& # 8211; Not child support or “non-alimony”
B. Child support is never taxable. Any payment that is not specifically identified, is presumed to satisfy child support obligations before other obligations.
C. Special front loading rules require recapture of deductions and income if alimony payments decline more than $15,000 over the first 3 years after the divorce.
A. Personal Injuries: Payment for physical injury or illness (including Reimbursement for loss of wages, and damages due from physical injuries) : non-taxable.
B. Punitive damages: taxable.
C. Damages received for emotional distress, employment or age discrimination, or injury to reputation: taxable ; Attorney’s fees and other suit: deductible, limited to the income included.
A. Taxpayer Purchased Policies: Health and disability insurance proceeds are excluded even if payments are a substitute for lost wages.
B. Employer Purchased Policies.
Medical expense reimbursements and workman’s compensation payments are excluded.
Reimbursement for loss of wages: taxable.
Disability insurance benefits: taxable.
A. Employer-Provided Insurance: premium excluded from employee’s income.
B. Life insurance premiums: excluded on group-term life insurance.
Limit: premium necessary for a group-term policy of $50,000 face value.
Over 50,000: taxable, rate based on table (related to age)
Accelerated death benefits excluded if the insured taxpayer is terminally or chronically ill.
C. Health insurance premiums: nontaxable.
Self-employed individuals can deduct 100% of premium for self, spouse, and dependents with limit of net earnings from self-employment.
D. Accountable Plans: substantiate all expenses to be reimbursed, not excessive reimbursement.
& # 8211; Reimbursed under an accountable plan: nontaxable (for FICA and income tax), no deduction.
& # 8211; Reimbursed, not under an accountable plan: taxable, deduction is 2% miscellaneous itemized deduction.
& # 8211; Not reimbursed: 2% miscellaneous itemized deduction.
E. Personal Expenses Paid by Employer: taxable income.
F. Food and Lodging: excluded if for the employer’s convenience ( non-compensatory reason ), The employer must require the employee to accept lodging as a condition of employment to be excluded from income.
G. Working condition: nontaxable.
Benefit that would be deductible (as an employee business expense) if the employee had instead paid the expense.
H. De Minimus Fringes: nontaxable.
I. No Additional Cost Fringes: Nontaxable when provided service (not products given or sold on discount to employees) to employee, their spouses, or dependents.
Benefit provided at no additional cost.
J. Employee discounts: (except on realty and marketable securities) are excluded if the discount is not excessive:
Service: limited to 20% of the value )
Sale of product : limited to average gross profit.
K. Nominal Gifts: up to $25 per employee.
L. Safety and Length of Service Achievement Awards.
Excluded to a limit of $400 if not a qualified plan, and $1,600 if part of a qualified plan.
M. Transportation and Parking: transportation ($115 per month) and parking ($220 per month) are excluded, 2008 limit shown.
& # 8211; Child and dependent care services up to $5,000 ; $2,500 if married filing separately, paid so that the employee can work.
& # 8211; Expenses incurred to adopt a child up to $11,650 (in 2008), phased-out at AGI levels. If paid by taxpayer, non-refundable credit up to the same amount.
A. Municipal Interest: nontaxable.
& # 8211; Does not extend to some special types of municipal bonds, such as “arbitrage” bonds.
& # 8211; Can be used in other tax calculations, such as in the computation of the alternative minimum tax or the exclusion of social security benefits.
B. Social Security Benefits.
Generally nontaxable, but if the taxpayer’s provisional income (PI) exceeds a specified amount, up to 85% of the benefits is taxable.
PI = AGI + tax-exempt interest + 50% (SSB)
If BA1<PI<BA2, taxable SSB = smaller of (50% x SSB, 50% x [PI – BA1])
If Pl>BA2, taxable SSB is the smaller of:
(2) .85 x (PI – BA2), plus the lesser of (amount in first situation, $4,500 (unless married filing joint, then $6,000 ) )
A. fair market value taxable.
B. Nontaxable if they are for civic, artistic, educational, scientific, or literary achievement and the recipient is: selected without action on his/her part, not required to perform services, the amount is paid directly to a tax-exempt or governmental organization.
A. Nontaxable if used for tuition, fees, books, supplies , and equipment required.
B. Taxable earned income if for room and board.
C. If payment is in return for services rendered, taxable as wages, even if the services are a condition for receiving the degree, or required of all candidates for the degree.
D. For employees of nonprofit educational institutions, undergraduate tuition waivers for themselves, their spouse, and dependent children excluded if the institution has a qualified tuition reduction plan.
E. Graduate tuition waivers are excluded from income only for graduate teaching/research assistants .
& # 8211; $5,000 (($10,000 if married) in 2008, or compensation, an additional $1,000 catchup contribution is allowed for taxpayers over the age of 50. Excess contributions are subject to a 6% excise tax each year until withdrawn.
& # 8211; Deduction phased out proportionately over a $10,000 range ($20,000 if married filing joint) based on AGI. always rounded up to the nearest $10 and the minimum deduction is $200.
& # 8211; Taxpayer who is not an active participant can deduct contributions if the taxpayer’s spouse is an active participant, phase-out over 159000 (2008)
& # 8211; Taxpayers who cannot deduct IRA contributions can nonetheless defer the income earned by nondeductible IRA contributions to traditional IRAs.
B. Roth IRA contributions are not deductible.
& # 8211; Combined contributions to all IRAs cannot exceed limits.
& # 8211; Phase-out with AGI over $159,000 for married-joint (a $10,000 range) or $101,000 for single taxpayers (a $15,000 range)
C. Conversion of a Traditional IRA to a Roth IRA: can convert in years that their AGI is $100,000 or less, recognize gain at the time of the conversion to the extent that the conversion amount exceeds the tax basis in the IRA.
D. Roth 401(k) Plans: Beginning in 2007, after-tax dollars are contributed, all distributions are tax-exempt.
E. Coverdell Savings Account: not deductible, income not taxable.
& # 8211; P ayment for higher education costs (tuition, fees, books, and room and board reduced by tax-free scholarships and similar payments, including elementary and secondary school expenses) for a beneficiary who is under age 18 (unless a special needs student)
& # 8211; Limit: 2000 per beneficiary per year, phased-out proportionately if AGI is over $190,000 for married-joint (a $30,000 range) or $95,000 for single taxpayers (a $15,000 range)
& # 8211; Corporations or tax-exempt entities may make contributions regardless of the income of the entity.
VIII. Retirement Distribution.
A. “traditional” IRA are taxed as income in the year of withdrawal.
& # 8211; If made nondeductible contributions, prorated between the total nondeductible contributions and the remaining balance in the account, nondeductible not taxable.
& # 8211; Penalty tax of 10%, exceptions:
* Disabled or age 59 ½
* Made in the from of certain periodic payments.
* Used to pay medical expenses in excess of 7.5% of AGI.
* Used to purchase health insurance of an individual who is unemployed for at least 12 weeks.
* For first-time home buyer expenses.
* Distributed for the qualified higher education expenses.
* Amounts are levied by the IRS.
& # 8211; Must withdrawal from 70.5.
& # 8211; In 2006 and 2007, up to $100,000 of distributions is tax-free if contributed to a charitable organization by an individual age 70 1/2 or over.
& # 8211; Withdrawals are assumed to be from contributions first, nontaxable.
& # 8211; Nontaxable if the distribution occurred five years or more from the date of the initial contribution, and made after 59.5, nontaxable if death or disability, or first-time homebuyer expenses, or certain education expenses.
& # 8211; Coverdell: nontaxable if payment is for higher education expenses, or rolled into a Coverdell Savings account for a member of the beneficiary’s family.
May waive the exclusion for withdrawals if claim the Hope/Lifetime credits.
If not used for education expenses, prorated between total contributions and accumulated income, income part taxable plus 10% penalty (unless the taxpayer is disabled or the withdrawal is limited to the amount above any tax-free scholarship)
C. Special Retirement Plans: for Self-employed taxpayers.
& # 8211; “Keogh” plans, maximum percentage limit is based upon self-employment earnings.
& # 8211; 401(k) allows voluntary employee contributions to reduce taxable salary up to $15,500 , plus $5000 catchup for those 50 and over.
IX. Health Savings Accounts.
& # 8211; Annual contributions are limited to $2,900 for singles, and $5,850 for families. Distributions must be used qualified medical expenses (health insurance premiums are not qualified)
& # 8211; must only be covered under a high-deductible health plan and may not be entitled to benefits under Medicare. High-deductible health plan must have a deductible of at least $1,100 ($2,200 for family coverage) and annual out-of-pocket expenses cannot exceed $5,600 ($11,200 for family coverage).
& # 8211; Income to the borrower unless gift or bankruptcy.
& # 8211; In 2007, 2008, and 2009 on a taxpayer’s principal residence in connection with a debt restructure or foreclosure, up to $2 million of debt relief may be excluded from income. This debt is limited to acquire, construct, or substantially improve a principal residence. Home equity loans, whose proceeds are not used for these purposes, are not included in this exclusion.
Deduções
A. Business expenses associated with a “trade” are deductible.
B. Non-business Deductions: see 1040.
a job change or a first job.
B. Be active in a new job for a substantial period after the move.
A Substantial Period of Employment : is 39 weeks during the next 12 months for an employee. A self-employed taxpayer must meet this requirement, as well as an additional requirement of 78 weeks during next 24 months.
C. reasonable amount for move and transportation (not meal) for self and other residing with TP. Personal automobile calculated by miles (0.19/mile in 2008)
Pay “qualifying” educational expenses of the taxpayer, his spouse, or dependents.
Qualifying Educational Expenses : include tuition, fees, and room and board reduced by educational exclusions (scholarships, education IRAs, education savings bonds, etc.)
Limit: 2500 , phase-out proportionately for married taxpayers with AGI in excess of $110,000 over a range of $30,000 ($55,000 for unmarried over a range of $15,000)
V. Qualified higher education expenses are deductible.
Tuition and academic fees required for enrollment or attendance at post-secondary educational institution for the taxpayer, spouse, and/or dependents.
Cannot be claimed together with Hope or Lifetime credit.
Teacher in grades kindergarten through grade 12.
Limit: 250, related to books, equipment, and supplies that are used in the classroom.
This deduction is allowed in 2007, but not in 2008. Any excess over $250 in 2007 is a 2% miscellaneous itemized deduction, as are all educator expenses in 2008.
A. Personal Itemized Deductions.
Care, prevention, cure, or treatment of disease or bodily function. Deductible for taxpayer, spouse, and dependent (gross income and joint return tests do not apply for this purpose)
Medical expenses is the only deduction allowed for payments made on behalf of someone other than the taxpayer.
* Uninsured expenses above 7.5% of AGI is deductible.
* Deductible items include dental, medical, and hospital care; prescription drugs; equipment such as wheelchairs, crutches, eyeglasses, hearing aids, contacts; transportation for medical care; medical insurance premiums (for insurance covering the costs of prescription drugs are deductible; for insurance against loss of earnings, limbs, sight, hearing and disability are not deductible); qualified long-term care expenses and insurance; alcohol and drug rehabilitation; weight-reduction programs if as part of medical treatment.
* Non-deductable: funeral, burial, and cremation expenses; nonprescription drugs (except insulin); bottled water; toiletries; cosmetics; health spas; stop-smoking clinics; unnecessary cosmetic surgery.
* Nursing home expenses qualify if the primary reason is for medical reasons.
* Capital expenditures may qualify if it’s an (1) advice of a physician, (2) primarily used by the patient alone, (3) reasonable. Cost is fully deductible in year incurred. An expense can only be taken to the extent that it exceeds the increase in the value of the property.
* Qualifying automobile expenses: 0.19 (2008) per mile plus parking and tolls.
* Lodging: 50 per night, including person who is required to travel with. No deduction is allowed for meals, unless part of treatment program.
* Deductible when paid and treatment received, unless prepayment is required.
Qualified Medical Expenses – Reimbursements from Insurance – 7.5% of AGI = Deductible Medical Expense.
Cash basis: in the year paid or withheld.
Federal taxes, death, excise, and sales taxes: generally non-deductible.
Taxpayers can elect to deduct state and local sales taxes instead of income taxes. Amount of sales taxes can be determined by actual receipts or a table provided by the IRS.
Business property tax deductible as expenses.
Special assessments: non-deductible, unless for repair or maintenance of the property, or for interest payments.
Fees, licenses (dog, automobile, hunting, fishing etc.): non-deductible.
* Property taxes on personalty (i. e., automobiles) are deductible if the amount of tax is based on the value of the property.
Interest paid on debt relating to the taxpayer’s principal place of abode and second home: deductible.
Interest on a maximum of $1 million of acquisition indebtedness can be deducted if the debt was used to purchase, construct, or improve the residence.
Interest on a maximum of $100,000 of home equity indebtedness can be deducted regardless of how the proceeds of the debt were used.
The indebtedness cannot exceed the value of the home.
“Points”: deductible in the year of purchase or improvement.
Points : are compensation paid to a lender solely for the use or forbearance of money. Fees paid for services do not qualify.
Points paid for refinancing: be amortized over life of loan.
Premiums for qualified mortgage insurance related to acquisition indebtedness on a qualified residence: deductible, phases out if AGI exceeds $100,000.
Mortgage insurance premiums: deductible (with respect to mortgage insurance contracts issued after 2006, related to indebtedness that was incurred when the home was acquired), phases out at higher AGI levels, amortized over the shorter of 84 months or the length of the mortgage.
Limit: net investment income = Investment income – Investment expenses.
Investment income: interest, dividends, rents, royalties, and annuities if not derived from a trade/business, a passive activity, or a real estate activity for which there is active participation. Net capital gain not included, can chose to include, but taxed at ordinary income rate.
Investment expenses: included in computing net investment income only to the extent that they are deductible after application of the 2% phase-out rule for itemized deductions. 2% expenses, other than investment expenses, are applied against the phase-out first.
Can carried over to future years.
* Personal Interest: non-deductible.
Prepaid interest: allocate to the year interest related.
Mortgage prepayment penalties: deductible as interest.
Related to the production of tax-exempt income: Not deductible.
& # 8211; Public (“A”) charities are government subdivisions, hospitals, churches, schools, and similar institutions operated for religious, scientific, educational, or charitable purposes.
& # 8211; Private (“B”) charities include fraternal orders, cemetery companies, and private foundations operated for religious, scientific, educational, or charitable purposes.
& # 8211; Political organizations do not qualify as charities.
* Cash or property, but not services.
Reduced by any value or benefit received by the taxpayer.
For LTCG and Section 1231 property:
& # 8211; Deduct FMV, but limit to 30% of AGI (unless elects to deduct the FMV reduced by the appreciation in the property.)
& # 8211; If not used in tax-exempt purpose, limit to adjusted basis.
& # 8211; If value > $5,000 , and is sold within three years, recapture income of “price – basis”, unless donee organization certifies that the property had been used for an exempt purpose and that this use is substantial.
All other property , the deduction is the lesser of adjusted basis or FMV.
Unreimbursed costs (including $0.14 /mile): deductable.
Clothing and household goods: must be in good used condition or better, doesn’t apply if single item value > $500 and a qualified appraisal is attached.
In 2006 and 2007, up to $100,000 of distributions from an IRA is tax-free if contributed to a charitable organization by an individual age 70 or over. Not subject to the 50% or 30% limitation discussed above.
For single contribution of $250 or more: must have written acknowledgment of the amount and purpose from donee.
For cash contribution: canceled check, credit card statement, or written statement from the charity.
For property valued > $500 : description of the property, Additional information [Form 8283] is required.
For property valued > $5000 : qualified appraisal.
For property valued > $500000 : qualified appraisal must be attached to the tax return.
The requirements for property valued at more than $5,000 and $500,000 do not apply to cash, intellectual property, inventory, publicly-traded securities, and qualified vehicles.
* Rule for Contributions of Autos.
Auto, boat, or airplane with value > 500 , and donee sells the vehicle without significant use. Limit is gross sales proceeds, and attach to the return the substantiation of this amount from the donee.
* Deduction Limitations: based on AGI.
50% of AGI for aggregate contributions of cash combined with contributions of property.
Capital gain property to “A” charities is limited to 30% of AGI (ignoring cash contributions)
Capital gain property to “B” charities is limited to 20% of AGI (ignoring cash contributions)
Excess of the limits carryforward 5 years.
& # 8211; Casualty losses: only casualty losses of personal assets are deducted as itemized deductions, includes the theft of an asset.
* Calculated by subtracting the adjusted basis of the damaged property from any insurance proceeds.
* Amount of Casualty Loss: the adjusted basis is the lesser of (the adjusted basis, the decline in the value of the asset due to the casualty)
Does not apply to the complete destruction of a business asset.
Deducted in the year that the casualty occurs or the theft is discovered.
* Personal casualty losses deduction = Lower of decline in FMV or AB of property – Insurance Reimbursements – $100 per casualty – 10% x AGI.
* Net casualty gain is treated as a capital gain.
* Appraisal fees are 2% miscellaneous itemized deductions.
* Personal casualty and theft gains and losses are not netted with the gains and losses on business and income-producing property.
Example: Karen (AGI = $40,000) has the following C&T (amounts are lesser of decline in value or adjusted basis):
Car stolen ($6,000) with camera inside ($500)
Earthquake damage: house ($2,000), furniture ($1,000)
Karen has no insurance coverage for either loss:
$6,000 + $500 = $6,500 – $100 = $6,400.
$2,000 + $1,000 = $3,000 – $100 = $2,900.
Karen’s deductible C&T loss is $5,300.
& # 8211; Miscellaneous deductions: non-trade activities.
* Operation of the 2% of AGI floor limitation: subtracting 2% of AGI from the aggregate amount, excess deductions are included with other itemized deductions.
* types subject to the 2% floor:
A. Employee expenses not reimbursed under an accountable plan.
Not considered in a “trade” when the taxpayer acts as an employee. Cost is incurred in performing services as an employee, or if “required” by the employer.
B. Investment expenses (not royalty or rental expenses).
C. Tax return preparation expenses.
D. Home office expenses of an employee.
F. Appraisal fees to determine casualty loss and legal fees to procure alimony.
* NOT subject to the 2% floor:
Bond premium amortization on bonds purchased before October 23, 1986.
Repayments previously included in income under claim of right.
Remaining basis of terminated annuity.
Gambling losses to extent of winnings.
Other miscellaneous deductions not subject to the floor include work expenses of handicapped taxpayers, estate taxes related to income in respect of a decedent, short sale expenses, and expense relating to cooperative housing corporations.
X. Overall Limitation on Itemized Deductions.
AGI exceeds a threshold ($159,950 in 2008) must reduce the total amount claimed for itemized deductions.
Reduction is 3% of the amount of AGI in excess of the threshold . For 2007, this reduction is reduced to 2%, and the reduction is 1% in 2008.
Lower of 1% x (AGI – $159,950) , or 80% x (taxes + home mortgage interest + charitable contributions + 2% miscellaneous deductions)
NOT subject to the phase-out: medical, investment interest, casualty and theft losses, and gambling losses.
I. Requirements and Prohibited Deductions.
A. expenditure must be “ordinary and necessary.” And “reasonable” in amount.
& # 8211; Expenditures benefiting more than one period: capitalized.
& # 8211; Against public policy.
& # 8211; Expense that is used to generate tax-exempt income.
A. Education expenses are not deductible : to meet minimum standards of current job, or qualify taxpayer for a new trade or business .
B. Deductible: To maintain or improve existing skills required in current job, or To meet requirements of employer or imposed by law to retain employment status.
No deduction is allowed for CPA Review Courses.
A. generated with the disposition of business assets: deductible.
& # 8211; A disposition occurs with a sale, exchange, or worthlessness of an asset.
& # 8211; Personal assets: deductible if qualifies as a personal casualty.
A Business Asset : is an asset used in a trade, held for investment, or used by an employee in an employment capacity. A personal asset is an asset used for a motive other than profit seeking (e. g., a personal reason).
& # 8211; Asset for both personal and business use are divided by proportion of time used.
B. deducting the cost of worthless assets: must be totally worthless (no residual value) , a business asset, and treated as being sold for nothing on last day of the year.
C. Bad debts ( not made in a trade capacity, but has a bona fide profit motive ): deductible if the loan is made in a trade activity.
& # 8211; Must be deducted using a direct write off method (cash basis)
& # 8211; Can be deducted to the extent that the loan is partially worthless.
D. Warranty and final removal cost (e. g. drilling business): cash basis, deduct when incurred.
& # 8211; Whether a loan is bona fide or a disguised gift, depends on facts such as whether interest is charged and collateral required.
& # 8211; Non-business bad debts are deductible as short-term capital losses in the year of complete worthlessness.
& # 8211; Allow deductible losses to offset gains without limit.
& # 8211; Special rules apply if qualifying small corporation stock is sold at a loss or becomes worthless (losses are deductible up to $100,000 as ordinary losses)
& # 8211; Carry back 2 years, forward 20 years. In the year of the NOL can elect to forego the carryback (irrevocable)
3 year carryback is available for:
Individuals with NOL from casualty or thefts.
Farming businesses and small businesses with NOLs from Presidentially declared disasters.
& # 8211; Only allowed for business losses and casualty losses, non-business losses be added back to determine NOL.
& # 8211; Net operating loss is generally taxable loss, allowed to include the dividends received deduction in computing its net operating loss.
& # 8211; For an individual, the following cannot create an NOL:
Standard deduction or itemized deductions (except for casualty loss), and other non-business deductions.
Excess of non-business capital losses over non-business capital gains (limited to $3,000)
An NOL deduction from another year.
In the year to which the NOL is being applied, the NOL is a deduction for AGI for an individual, and a regular business deduction for a corporation. For an individual, any deductions that were based on AGI for the carryback year must be recomputed except for the charitable contribution deduction.
Natural resources: straight-line depletion.
Acquired Intangible assets: straight-line basis, 15 years including the month acquired. Example: goodwill , going concern value, information bases, know-how, government licenses and permits, franchises, trademarks. Other assets (covenants not to compete, computer software, film, sound recordings, video tapes, patents, copyrights) qualify if acquired in connection with the acquisition of a trade or business.
B. Organization and Start-Up Expenses.
& # 8211; Limit: 5000, reduced by the amount over $50,000, non-deductible part be capitalized; can elect to amortize over 180 months, beginning in the month business begins.
& # 8211; Typical organizational expenses (legal services incident to organization, accounting services, organizational meetings of directors and shareholders, and fees paid to incorporate), incurred before the end of the taxable year that business begins, don’t have to be paid.
& # 8211; Costs of issuing and selling stock ( syndication expenses ): capitalized.
C. Cost Recovery Rules: class life period (MACRS ). The depreciation methods allowable under MACRS are the straight-line method and the 200 percent and 150 percent declining balance methods switching to straight-line.
& # 8211; Personalty: Double-declining-balance; realty: straight-line.
& # 8211; Recovery for personalty: mid-year convention; realty: mid-month convention.
& # 8211; Common classes of personalty: five-year (computers and office machinery) and seven-year (furniture and fixtures)
& # 8211; Bonus depreciation is allowed for property purchased and placed in service in 2008. 50% bonus is allowed for new tangible property with a recovery period of less than or equal to 20 years, computer software, and certain leasehold improvements. Can elect not to use for the whole class.
& # 8211; A mid-quarter convention is used for all new personalty if more than 40% of personalty is purchased in last quarter. Then must apply to every asset purchased in the year.
D. Section 179 Election: expense a limited amount of tangible personalty if used in a trade activity, Off-the-shelf computer software qualifies.
& # 8211; Maximum limit: lesser of business income or $250,000 ($125,000) for 2008 (2007), election of excess amount is carry forward (indefinitely)
& # 8211; Phase out if qualified assets purchased exceed $800,000 ($500,000) in 2008 (2007). $ for $.
& # 8211; A carryforward is not allowed for the excess amount if used to reduce limit.
& # 8211; Can revoke election in later years.
& # 8211; Straight-line: over the class life of the asset.
& # 8211; The AMT system – one-and-one-half declining balance.
& # 8211; The alternative depreciation system (ADS) provides for straight-line over an extended life.
& # 8211; The units of production method.
& # 8211; Passenger automobile (GVW <= 6,000 pounds), limit change every year. Higher limits apply for vans, sport utility vehicles, and light trucks.
& # 8211; Trucks, vans, and SUVs ) that weigh more than 6,000 pounds are exempt from this rule. 179 election is limited to $25,000, Regular MACRS rules apply for the remaining basis.
& # 8211; Mixed-use autos, limit is multiplied by percentage of business use.
G. Listed property: includes assets, such as computers and vehicles, that can be used for personal purposes.
Business use: >50% of total use, otherwise straight-line, cost recovery only apply for business use of property.
Limitations on Business Deductions.
A. Expenses deductible if has revenue: no hobby loss is deductible (limit is revenue and 2% miscellaneous deduction)
B. “miscellaneous” itemized deductions. Deduction order: interest and taxes (fully deductible as itemized deductions), cash expenses, and depreciation.
C. The burden of proving a lack of profit motive can be shifted to the IRS.
When the activity generates a profit in three out of five consecutive years, the IRS must prove the taxpayer has no profit motive.
A. Deductible when the primary purpose is business.
& # 8211; Commuting between the taxpayer’s residence and the place of business: non-deductible.
& # 8211; Amount and purpose must be substantiated.
& # 8211; Transportation costs include direct costs (airfare, tolls, gas, depreciation of a vehicle, etc.), or a mileage rate ($0.505 in 2008) can be claimed for auto use.
B. Meals and lodging: deductible when “away from home” overnight.
& # 8211; If assigned to a new location for an indefinite period of time or for more than a year, the “tax home” shifts to the new location.
& # 8211; The cost of meals is reduced by 50% .
& # 8211; If mixed with personal travel: business days is greater than 50%, all deductible; otherwise, none is deductible. If Friday and Monday are both business days, weekend can be business days also.
& # 8211; Travel cannot be a form of business education.
& # 8211; The cost of a companion is deductible is he’s an employee or serve business purpose.
& # 8211; No deduction is allowed for travel to “investment” seminars.
A. Must relate to business.
& # 8211; A person with a business relation.
& # 8211; Substantial discussion which must occur before, during, or after the entertainment on the same business day.
& # 8211; No deductions for facilities or club dues.
& # 8211; Dues to clubs organized for pleasure or recreation are not deductible, for public service clubs (e. g., Kiwanis), professional organizations, and trade associations are deductible.
& # 8211; Tickets to an entertainment activity: limit to face value (before the 50% disallowance)
& # 8211; Business gifts are limited to $25 per donee , per year.
B. Contemporaneous written records are required.
& # 8211; Establish the cost, time, activity, relationship, and business purpose.
& # 8211; “Accountable” reimbursement plans and per diem expenditures are exceptions to the record requirements.
C. The cost of deductible meals and entertainment is reduced by 50% (to represent the personal enjoyment of the taxpayer)
D. Deductible when:
1) the expenses are not lavish or extravagant;
2) the taxpayer (or one of his employees) is present when the food or beverages were provided; e.
3) the expense relates directly to the conducting of business.
If provided as compensation, no reduction.
IV. Business use of the Home.
A. Home office expenses: deducted for portion as an office.
& # 8211; Use is exclusive and regular.
& # 8211; Be principal place of business, or ordinary place for meeting clients or for the administration of the business (there is no other fixed location used for substantial administration)
& # 8211; If TP is an employee, must be for the convenience of the employer.
& # 8211; Expenses must be allocated.
& # 8211; Office deductions are limited to income after non-office expenses, deduction takes place in the same order as the hobby loss limit, but excess deductions carryforward.
& # 8211; If rented for less than 15 days a year: personal residence, income excluded, mortgage interest and property taxes are deductible.
& # 8211; If 15 days or more, personal use is not more than the greater of 1) 14 days or 2) 10% of the total days rented: rental property, rent taxable (included in gross income), net of all regular rental expenses (deductible FOR AGI), pro-rated for the percentage of rental days only. Mortgage interest nondeductible (personal interest). A rental loss is allowable. Rental income and expenses reported on Sch. E.
& # 8211; If 15 days or more, personal use is more than the greater of 1) 14 days or 2) 10% of the total days rented: personal/rental property, expenses are pro-rated as above, a rental loss is not allowed. Expenses must be deducted in the same order as for a “hobby.” Mortgage interest and taxes deductible FROM AGI. Personal portion of other expenses (e. g., insurance, maintenance) nondeductible.
C. Allocation of expenses between personal and rental.
1. Mortgage interest and real estate taxes.
IRS requires allocation based on total days used.
Courts have allowed allocation based on days in year.
2. Other expenses are allocated based on total days used.
1. Personal/rental: rent 50 days; use 25 days.
2. Personal: only tax and interest deductible, in full.
3. Rental: rent 65 days, use 10 days.
V. Passive Activity Losses.
Deduction limited to the revenue, if TP does not participate in the management.
A. The expenses and revenues from “passive” activities are combined. Expenses in excess of revenue (the passive loss) is suspended.
A Passive Activity is a profit-seeking activity in which the taxpayer does not materially participate in the management of the activity.
& # 8211; Material participation means in a continuous, substantial way: work more than 500 hours, or more than 100 hours if no others does.
& # 8211; All limited partners and most rental activities are considered passive. Exceptions: car rentals, hotels, golf courses, and other activities where the average rental time is seven days or less, or 30 days or less, if significant personal services are provided by the owner in connection with the rental.
& # 8211; Real estate professionals are excepted from the limit. A real estate professional must perform more than 50% of his/her personal services in trades or businesses involving real property, and must perform more than 750 hours of services in real property trades or businesses in which he/she materially participates.
Active Management : occurs for taxpayers who own at least 10% of the property and significantly participate in decision making.
& # 8211; An active manager can deduct a maximum loss of $25,000 per year.
& # 8211; Actual loss amount phased-out at the rate of 50% ($1 of deduction for each $2 of AGI over $100,000) when AGI>100,000.
C. Suspended losses become deductible in later years if income is generated or the activity is sold.
Interest paid on loans used for investment is an itemized deduction limited to ordinary income by the investment. If loans are used in a trade: deducted “for” AGI.
A. limited to net investment income.
Net Investment Income : is interest, dividends (qualified dividends taxed at 15% are excluded), ordinary income from recapture (not long-term capital gains) less deductible investment expenses (excluding interest)
Example: TP has AGI of $100,000 and $1,200 of investment expenses and $800 of investment interest expense. If TP has investment income of $500, then TP can deduct $500 of investment interest expense. The investment expenses do not exceed the 2% of AGI floor so net investment income is $500.
Individual Income Taxation.
Personal and Dependency Exemptions.
TP cannot be claimed as a dependent by another taxpayer, MFJ claim two. Spouse died during the year: MFJ.
Tests applied on the last day of the year.
& # 8211; Relationship test: natural child, stepchild, adopted child, foster child, sibling, step-sibling, or a descendant of any of these. Note, that this definition includes brothers, sisters, nieces and nephews. A cousin does not qualify as a “relative.”
& # 8211; Residence test: must have the same principal place of abode as the taxpayer for more than one half of the tax year.
& # 8211; Age test: Must be less than 19 at the end of the tax year, or less than 24 if a full-time student for at least five months of the tax year. No age limitation if permanently and totally disabled.
& # 8211; Not self-supporting test: must not have provided more than 50% of his/her own support. Scholarships are not considered.
& # 8211; Joint return test: A dependent cannot file married-joint.
& # 8211; Citizenship/residency test: must be a citizen, resident of U. S., or resident of Canada or Mexico.
If both are parent, don’t file MFJ: with whom resided the longest.
If lives with both parents at the same time: the one with highest AGI.
None is parent: highest AGI.
C. The Qualifying Relative.
& # 8211; Relationship test : bear a certain relationship to the taxpayer (also includes Lineal ascendants (e. g., parents, grandparents), Collateral ascendants (e. g., uncles, aunts) and Certain in-laws (e. g., son-, daughter-, father-, mother-, brother-, and sister-in-law)), except for cousins, or any person who lives in the taxpayer’s home for the entire tax year, not a qualifying child.
& # 8211; Support test: must provide more than 50% of the dependent’s total support (that expended). Exception: multiple support agreements.
Support : all necessary living expenses including housing, food, clothes, and other necessities, does not include services provided.
The income would not violate the support test if it was not used to pay for necessities (e. g., the income was placed in savings)
Scholarships do not count as support.
& # 8211; Gross income test: gross income (taxable) must be less than the exemption amount for the year ($3,500, 2008)
& # 8211; Citizenship/residency test: U. S. citizen or a resident of U. S., Canada, or Mexico. Exception: an adopted child.
III Other Dependency Rules.
A. Multiple support agreements: a group support more than 50%
& # 8211; each individual in the group be eligible to claim the individual as a dependent.
& # 8211; Each individual provides over 10% but less than half of the support.
& # 8211; A written agreement allocates the dependency exemption to a member of the group.
B. Divorced Parents: divorced or legally separated for the last six months of the year.
& # 8211; The parent with custody (over half the year) is entitled.
& # 8211; The custodial parent can waive the exemption to other parent (in writing)
IV. Phase Out of Exemptions.
C. 2008 and 2009, the phase-out is only one-third of the amount it would otherwise be (was two-thirds of regular phase-out in 2007)
& # 8211; Round up stepà (number of step × 2%) × exemption × tax rate = phase out.
Example: A single taxpayer has AGI that is $48,500 over the trigger. This is 19.4 steps ($48,500/$2,500). The total steps are rounded up to 20 and each step results in a loss of 2% of the exemptions. In other words, the taxpayer will lose 40% of his exemptions. If the taxpayer claimed a personal exemption of $3,500 (2008), the phase out will be $3,500 x 40% x 33.33%, or $477.
Adjusted Gross Income – Itemized Deductions or Standard Deduction – Personal and Dependent Exemptions = Taxable Income.
Taxable Income * Tax Rates = Gross Tax.
Gross Tax – Tax Credits + Additional Taxes = Net Tax.
A. A spouse can avoid joint liability when income is omitted from a joint return if the spouse qualifies as an “innocent” spouse.
& # 8211; Note: An “abandoned” spouse may file as a head of household, requirements:
* The taxpayer’s spouse does not live in the home for the last 6 months of calendar year.
* The taxpayer must provide more than half the cost of maintaining a home for self and a dependent child (descendant: son, daughter, or grandchild), or a stepchild, adopted child, or foster child)
II. Married Filing Separate.
A “surviving” spouse may file married-joint for two years after the taxpayer’s spouse has died. To qualify as a surviving spouse, the taxpayer must provide more than half of the cost of maintaining the household (rent, mortgage interest, taxes, home insurance, repairs, food, utilities, etc.) for a dependent child (step, adopted, also).
Unmarried or abandoned spouse. The taxpayer must provide more than half of the cost of maintaining the household for a qualifying child or a qualifying relative . Must be the qualifying child’s, or qualifying relative’s, principal residence for more than half of the tax year.
Cost of maintaining the household: rent; mortgage interest; taxes; insurance on the home; repairs; utilities; and food eaten in the home. May not be considered: clothing; education; medical treatment; vacations; life insurance; transportation; rental value of home owned by taxpayer; and the value of services provided by the taxpayer or a member of the taxpayer’s household.
B. Two exceptions.
& # 8211; If the qualifying child is an unmarried child (step, adopted, and grandchild also), the child need not qualify as a dependent.
& # 8211; If the qualifying relative is a parent, the parent need not live with the taxpayer, but the taxpayer must provide more than 50% of the cost of maintaining the parent’s home.
Short Cut: A taxpayer who resides with a dependent child is most likely to be eligible for some “special” tax treatment, such as abandoned or surviving spouse status.
If either the taxpayer or their spouse is (1) over age 65 or (2) blind, increase by $1,350 for unmarried and $1,050 for married.
Does not apply to dependents.
Spouses filing separately must file consistently.
VII. Special Rules for Dependents on Another Return.
A taxpayer claimed as a dependent by another.
A. The “mini” standard deduction is $900 (2008).
& # 8211; The amount of the standard deduction is the greater of the mini standard deduction or earned income plus $300 (2008) (limited to the regular standard deduction)
Earned Income : is income generated by personal services (wages, self-employment income, etc.,) as opposed to income generated by property (interest, dividends, etc.,)
A. 2007: < 18 ; 2008: includes 18 years old, and 19 – 23 who are full-time students (earned income <= 50% of their total support)
Taxable income for the child is divided into net unearned income (parent’s tax rate) and other income (child’s tax rate)
B. Net unearned income is computed by reducing unearned income.
Taxpayers who don’t itemize subtract $1,800 from unearned income (2008).
& # 8211; Ceiling is reduced by earned wages if any.
& # 8211; Gross income from self-employment less deductions, including director’s fees.
& # 8211; The last step in calculating the tax is to multiply self employment income by 92.35%.
& # 8211; Reminder: One-half of the SE tax is deductible “for” AGI.
Definition Nanny Tax : Taxpayers, who employ domestic workers, must withhold and pay FICA if cash wages exceeds $1,600 (2008).
II. Imposto Mínimo Alternativo.
Formula for computing the AMT is as follows:
Regular taxable income+/- Adjustments + Preferences = AMT Income.
AMT Income – Exemption = AMT Base.
AMT Base × Rate = Tentative Minimum Tax before Foreign Tax Credit.
Tentative Minimum Tax before Foreign Tax Credit – Certain credit (see discussion below) = Tentative Minimum Tax.
Tentative Minimum Tax – Regular Tax Liability = AMT (if positive)
III Preferences and Adjustments.
A. The AMT adjustment: MACRS 3-, 5-, 7-, and 10-year property that is depreciated using the 200 percent declining balance method. The 150% declining-balance method is used over the MACRS life.
B. Percentage of completion contract income over completed contract income.
C. For itemized deductions:
& # 8211; The phase-out of itemized deductions is subtracted from taxable income.
& # 8211; No deduction is allowed for taxes.
& # 8211; 2% miscellaneous deductions not allowed.
D. Personal exemptions and the standard deduction (if used) are added back.
E. The compensation element on the exercise date for an incentive stock option. (The excess of FMV over exercise price as a positive adjustment)
F. Many (but not all) of AMT adjustments are merely timing differences that will reverse in future periods.
G. The difference between AMT cost recovery and that used for regular tax is the most common AMT adjustment. For AMT, the 150% declining-balance method is used over the MACRS life.
Note: Misconception: There is no difference between AMT cost recovery and regular cost recovery for real property . Different methods are required only for personalty .
$66,250 if married filing joint ($44,350 for others) in 2007, $45,000 ($33,750 for individuals in 2008)
A. Phase-out when ATM I> $150,000 (married, $112,500 for others): 25% of the amount of AMTI over the trigger.
B. Kiddie tax: the AMT exemption cannot exceed the sum of the child’s earned income plus $6,400 (in 2008).
A. The preferential rates on capital gains are available for a net capital gain when calculating the AMT tentative tax.
B. Taxpayers pay the greater of the AMT tentative tax or regular tax (before credits).
C. For 2008, these nonrefundable credits will not reduce the AMT unless Congress takes action to extend this provision to 2007.
D. The amount of AMT paid, that is due to timing differences between regular taxable income and AMTI, creates an AMT credit that can be used to offset regular tax liability (but not below the tentative minimum tax for a given year) in future years.
E. AMT paid in one tax year, that is attributable to timing differences, may be carried forward indefinitely and used as a credit against the corporation’s future regular tax liability, that exceeds the TMT for that year.
Beginning in 2007, the AMT credit may be used to generate a limited refund, even if the AMT liability for the year does not exceed the regular tax liability.
The AMT refundable credit is the greater of: The lesser of $5,000 or the long-term unused minimum tax credit, or.
& # 8211; The long-term unused minimum tax credit for a tax year is the regular AMT credit carryforward reduced by any minimum tax credit for the three immediately preceding tax years.
Other Income Tax Issues.
Personal and Business Tax Credits.
Personal Tax Credits.
A. Personal credits (except for the foreign tax credit): limited to gross tax, no carryover.
B. The general business credit: limited to a percentage of gross tax after personal credits, carries over (back 1 year and forward 20 years).
C. Refundable credits (earned income and withholding; child credit): no limit based upon tax (any excess is refunded).
A. Child Credit: 1000 for each qualifying child under the age of 17.
& # 8211; Qualifying children include a dependent son, daughter, stepchild, or grandchild.
& # 8211; Phase-out: above 110,000 (married), 75,000 (unmarried), 50 for each 1000 over trigger AGI amount.
& # 8211; refundable to the extent of 15% of the taxpayer’s earned income (including Combat pay) in excess of $12,050 (for 2008).
& # 8211; Nondeductible tuition and academic fees (reduced by tax-free benefits), incurred during first two years of post-secondary education. Academic period beginning in the current tax year, or the first three months of the next tax year.
& # 8211; Taxpayer, spouse, or any dependent, at least half time in an institution of higher education, degree program.
& # 8211; Phase-out: AGI>48,000 (96,000 joint return) (2008), over a $20,000 range ($10,000 for unmarried)
B. “Lifetime Learning Credit”: limit 2000 per taxpayer per year.
& # 8211; Nondeductible tuition and academic fees (reduced by tax-free benefits, post-secondary education, don’t need to be degree program.
& # 8211; Phase-out as Hope Credit.
& # 8211; No double or triple “dipping”: The Hope credit, the lifetime learning credit, and distributions from educational IRAs.
Shortcut: The two credits differ in the percentage applied to calculating the credit (100% and 50% for the Hope versus 20% for the lifetime), the total expenses eligible for the credit ($2,200 per year for the Hope versus $5,000 total for the lifetime), and the type of expenses covered by the credit (first two years of post-secondary education in a degree program for the Hope versus any post-secondary education for the lifetime).
May claim credit and exclude from gross income amounts distributed from a Coverdell Education Savings Account in same tax year but not for same expenses.
& # 8211; Limit: 1000 (in addition to any exclusion or deduction that would otherwise apply) and is based upon IRA contributions (Roth or traditional)
& # 8211; >18, not a full-time student, or claimed as a dependent, and cannot receive a distribution from the account.
A. a person needing care must live with the taxpayer for more than half the year.
& # 8211; Child or dependent under the age of 13.
& # 8211; Other dependents or a spouse.
& # 8211; If they are incapable of self-care (physical or mental disability)
B. Expenditures for household services and care are required.
-Care-giver cannot be a dependent relative or child of the taxpayer.
-Must be employed and earn at least as much as the amount of the expenses. If married, must file joint (unless abandoned) and the spouse must also be employed (unless incapable of self-care or a full-time student, take as employeed).
& # 8211; For boarding school, amounts paid for food, lodging, clothing, and education must be separated from amounts paid for other goods or services.
& # 8211; Qualified: Full amount paid for day camp or similar programs, Sick child centers ( either the credit or a medical expense), additional cost of providing room and board for a caregiver.
& # 8211; Not qualified: Summer school and tutoring programs, Cost of overnight expense.
C. Credit = expenses×rate.
& # 8211; If AGI<15,000, 35%; reduced by 1% for each 2000 increase, minimum 20% (when AGI is 43,000)
& # 8211; Maximum limit: 3000 (6000 if more than one) or earned income (of the lesser-earning spouse if married)
A. Reasonable expenses up to $11,650 (2008), $11,650 is available for children with special needs regardless of actual expenses.
Phase out: AGI > $174,730, completely phased out when modified AGI is $214,730.
limited to regular tax, carries forward for five years.
The Elderly Credit is 15% of difference between an initial (flat) amount and income.
A. The taxpayer or spouse must be age 65 or totally disabled.
B. The flat amount is $5,000 if one spouse is eligible, or $7,500 for two.
C. Income is certain retirement pay plus one-half of AGI over $7,500 ($10,000 if joint).
VII. Alternative Motor Vehicle Credit.
“Qualified fuel cell motor vehicles,” “advanced lean-burn technology motor vehicles,” “qualified hybrid motor vehicles,” and “qualified alternative fuel motor vehicles.” The credit is computed differently for each type of vehicle.
VIII. Personal (Nonbusiness) Energy Tax Credit.
10% of the amount spent for energy efficiency improvements to one’s personal residence, $50 for each advanced main air circulating fan, $150 for qualifying furnaces or boilers, and $300 for energy efficient heat pumps, water heaters, and central air conditioners. All years maximum $500. A maximum of $200 can be for new windows.
IX. Residential Energy Credit: residential energy efficient property (REEP)
Qualified solar electric property ( 30% of cost up to $2,000 ), qualified solar water heating property ( 30% of cost up to $2,000 ), and qualified fuel cell property ( 30% of cost up to $500 for each .5 kilowatt of capacity).
A. The credit is limited to the foreign tax paid, or the proportion of U. S. tax allocable to U. S. income.
& # 8211; U. S. tax allocable to U. S. income = U. S. tax×(foreign taxable income / total taxable income)
& # 8211; As an itemized deduction.
& # 8211; Exclude income earned (in excess of housing costs) while a bona fide resident in a foreign country. The exclusion is a maximum of $85,700 (prorated by days of stay) if the taxpayer is physically present in the foreign country for 330 days in any 12 consecutive months.
Example: TP earned $83,000 from working 340 days in France. TP can exclude $79,830 (340/365 x $85,700) because he was in residence more than 330 days.
The credit percentage increases if the taxpayer maintains a home with qualifying children (descendents under age 19, or students under age 24, or permanently disabled)
Phased out based on earned income or AGI (if greater), depending on number of qualifying child.
Ages of 25 through 64 without qualifying children are also eligible if they are not claimed as a dependent on another’s return.
Should not have investment income more than $2,900 in 2007.
XII General Business Credits: investment credit; work opportunity credit; alcohol fuel credit; incremental research credit; low-income housing credit; disabled access credit; credit for producing electricity from specified renewable resources; enhanced oil recovery credit; Indian employment credit; employer Social Security credit; empowerment zone employment credit; orphan drug credit; and excise tax payments to the Trans-Alaska Pipeline Liability Fund credit.
A. overall credit is limited to “net regular” imposto.
& # 8211; The net regular tax liability is the regular tax less personal credits.
& # 8211; The limit is net regular liability less 25% of net regular liability over $25,000 .
B. Carried back one year and then forward 20 years.
Credits cannot reduce the regular liability below the “tentative” tax required to be paid under the alternative minimum tax.
Example: TP has a net regular tax liability of $125,000 this year. TP has a general business tax credit of $70,000 and no other credits. What if TP also had a tentative minimum tax liability of $105,000?
Answer: If his tentative tax was $105,000, he could only reduce his regular tax liability to the tentative tax by claiming a maximum credit of $20,000.
XIII. The Rehabilitation Credit.
A. depends upon the type of expenditure.
& # 8211; Expenditures to rehabilitate property placed in service before 1936 are eligible for a 10% credit.
& # 8211; Expenditures to rehabilitate certified historic structure are eligible for a 20% credit.
B. Qualifying expenditures are often used to adjust basis, and may be subject to recapture.
& # 8211; The adjusted basis of the property is reduced by the amount of credit.
& # 8211; Rehabilitation credit is recaptured if the building is held less than five years (the recapture rate is 20% per year).
XIV Miscellaneous Credits.
A. The cost of operating employee child care facilities generates a 25% credit for employers up to $150,000 per year.
B. Incremental research expenditures are eligible for a 20% credit. The research must be conducted within the U. S. and does not apply to research for commercial production, surveys, or social science research.
C. Energy credits are granted for certain solar and geothermal property at a rate of 10%-30% of qualified expenditures.
D. Welfare to work credits are calculated on the amount of wages paid per eligible employee during the first two years of employment.
E. Other credits include credits for disabled access, low-income housing, enhanced oil recovery, orphan drugs, employer provided child care, and alcohol fuel, alternative fuel production credit.
A. An individual, whose “gross income” exceeds the individual’s automatic deductions, must generally file a tax return.
& # 8211; Automatic deductions: personal exemption, the standard deduction, and the increment to the standard deduction for taxpayers who are over age 65.
& # 8211; Must file if net self-employment income exceeds $400.
II. Filing Deadlines: April 15 (individuals, partnerships and trusts ); corporate is the 15th day of the 3rd month following the close of the tax year.
A. If weekend or holiday: the next business day.
B. Automatic six-month filing extension: apply and pay estimated tax.
C. Corporations are entitled to an automatic six-month extension, as are partnerships and trusts. Estimated tax pay with application.
III Penalties are imposed on taxpayers under four circumstances.
& # 8211; Maximum: 25% of the tax due; Minimum: lesser of $100 or the amount of the tax due.
& # 8211; If fraudulent (intentional): 15% per month up to a maximum of 75% of the tax due.
C. Required Tax Payments for Individuals:
& # 8211; Estimated payments (4/15, 6/15, 9/15, 1/15) if the amount of tax owed is at least $1,000 after subtracting withholding and credits.
& # 8211; No penalty if the tax due with the return is less than $1,000.
& # 8211; No penalty if payments during the year were at least 90% of current year taxes or 100% of last year’s. If AGI exceeds $150,000 , payments must be at least 110% of last year’s taxes.
D. Required Corporate Tax Payments.
& # 8211; Estimated tax payments are due (if annual tax payments are at least $500 ) on 4/15, 6/15, 9/15, and 12/15.
& # 8211; The expense is the excess of:
1) the sum of its regular tax, alternative minimum tax, taxes on U. S. source transportation income of foreign corporations and pre-’96 environmental tax and.
2) allowable tax credits (all credits normally available).
& # 8211; No penalty if the payments are at least equal to the lower of:
c. Each estimated tax payment is based on quarterly income computation.
& # 8211; Cannot use the preceding year method if:
uma. the corporation did not file a return showing a tax liability for that year (e. g., the corporation experienced a net operating loss);
b. the preceding year was less than 12 months; ou.
c. the corporation had taxable income of over $1million . If $1 million or more of taxable income in any of its three preceding tax years, only first installment can use the preceding year’s tax exception, others based on current year’s tax.
Example: TP remitted $8,000 in withholding this year, but his total income tax is $10,000. Hence, $2,000 is due with TP’s return. TP will be subject to an underpayment penalty unless his total income tax paid in the preceding year was at least $8,000 (if his AGI was less than $150,000).
E. Interest and Delinquency Penalties: tax not paid on filing date.
& # 8211; Interest starts on due date for filing, using Federal short-term interest rate.
& # 8211; Pay at the time of filing, or 0.5% of the underpayment is imposed per month (up to 25% in total)
& # 8211; If has both delinquency penalty and the non-filing penalty: 25% of the tax due.
& # 8211; No nonfiling or the delinquency penalties if has a reasonable cause. Taxpayer has the burden of proof.
20% of the tax if due to negligence. Waived if reasonable.
20% of the tax if “substantially” understates. Waived if reasonable or adequately disclosed on the tax return.
Substantial Understatement : individual: additional tax due exceeds the greater of $5,000 or 10% of the total tax; corporations: understatement exceeds the lesser of 10% of the tax required to be shown on the return (or $10,000 if that is greater) or $10 million.
“substantial” or “gross” overstatement of the value or basis of any property. 20% of the tax understatement for a substantial misvaluation ( 150% or more of the correct amount) and 40% for a gross misevaluation ( 400% or more)
G. Civil fraud penalty on corporation: 75% of underpayment and an addition of 50% of the interest due on the underpayment.
IV. The statute of limitations.
A. The primary statute of limitations expires after three years from filing, start from from the due date or filing date, whichever is later.
B. E xtended to 6 years if 25% or more of the gross income is understated. Never expires if fraud or fails to file a tax return.
C. The statute of limitations on corporate tax returns begins on the return’s filing date.
D. A corporation prevailing in a determination allowing a deduction in an open tax year that was taken erroneously in a closed tax year would meet the requirements for reopening its tax year after the expiration of the statute of limitations.
E. Claim for refund: if a taxpayer was required to file a return, either within 3 years of the date of filing the return (or the due date if later) or within 2 years of the date the tax was paid.
If no return was required to be filed, within 2 years from the time the tax was paid.
V. Penalties may also be imposed on tax preparers.
A. “unreasonable position,”: penalty of the greater of $1,000 or 50% of the income derived from filing.
B. unreasonable position with willful attempt: penalty is the greater of $5,000 or 50% of the income.
C. Additional penalties.
& # 8211; Not signing returns.
& # 8211; Not providing a copy of the return for the taxpayer.
& # 8211; Not keeping a list of returns filed.
& # 8211; Endorsing or negotiating a refund check.
& # 8211; Disclosing information from a tax return, unless for quality or peer review, under an administrative order by a regulatory agency, for use in preparing state and local taxes and/or in declaring estimated taxes; under code.
& # 8211; Can be fined $100 if he does not exercise due diligence in determining if a taxpayer is eligible for the earned income credit.
& # 8211; Fail to make reasonable inquiries when taxpayer information appears incorrect.
VI. Summary of Terminology for Penalties.
A. Not frivolous = not patently improper.
B. Reasonable basis = at least one authority that has not been overruled.
C. Substantial authority = more than a reasonable basis.
D. Realistic possibility = 1 in 3 chance of success.
E. More likely that not = more than 50% chance of succeeding.
Taxation of Corporations.
The Control Club : is the group of individuals, who participate in a transfer of property to a corporation, and are in control (80%) of the corporation immediately after the transfer.
A. property must be contributed (service doesn’t count)
B. property transferred solely for stock.
Stock : is any equity interest except that “nonqualified” preferred stock (NPS) is treated as boot. NPS is preferred stock that is expected to be redeemed within 20 years.
& # 8211; Immediately after the transfer, the transferor(s) are in control (>=80% of the voting and nonvoting stock)
& # 8211; “Boot” triggers gain but not loss.
Boot : is property received other than stock. Liabilities transferred with property are boot to the extent the liabilities exceed the adjusted basis of the property.
C. If boot is received, the gain recognized to the shareholder is the lower of:
1. realized gain , or.
2. the fair market value of the boot received.
D. If stock is received in exchange for services.
& # 8211; The transferor has wage income equal to the fair market value of the stock (basis of the stock)
& # 8211; The corporation has a salary expense deduction (unless the services rendered were an organizational expense)
A. The corporation’s basis in the property received is: Shareholder’s basis in the property + Gain recognized by the shareholder .
B. The shareholder’s basis in the stock received from the corporation is: Basis of all property transferred to the corporation + Gain recognized by shareholder – Boot received by shareholder – Liabilities assumed by corporations.
C. Basis Adjustment for Loss Property.
& # 8211; When FMV < base, the downward basis adjustment is allocated proportionately among all assets contributed by the shareholder that had a built-in loss.
& # 8211; If the shareholder and corporation elect, the shareholder’s stock basis can be reduced rather than the corporation’s assets.
Example: As part of a corporate formation, TP contributes property with an adjusted basis of $100 and a FMV of $75. The corporation’s basis in this property will be reduced to $75, and TP’s stock basis will be $100. Alternatively, TP and the corporation could elect to leave the property’s basis at $100 and reduce TP’s stock basis to $75.
If the total liabilities assumed by the corporation exceed the total adjusted basis of property transferred by the shareholder, then gain must be recognized as follows: Gain Recognized = Liabilities Assumed – Basis of Property Transferred.
A. Capital asset or Section 1231 asset transferred to corporation – property holding period is tacked on to stock holding period.
All other property – holding period of property does not tack on. Holding period for stock begins on day after the transfer.
B. The corporation’s holding period in the property received always includes the period that the transferor held the property before the exchange.
IV. Special Issues for Certain Shareholders.
A. Section 1244: shareholders claim an ordinary loss deduction (up to $50,000 , or $100,000 filing joint) on the sale of worthless “small business” estoque. The corporation must issue stock for less than $1 million and conduct an active business.
Exclusion of 50% of gain on sale of “qualified” small business stock: stock must be held for five years after the initial issuance from an active corporation with assets less than $50 million .
Corporate debt can be reclassified as equity, but this is a question of fact.
A. Debt characteristics are important (instrument, collateral, interest, etc.).
B. The corporation is not thinly capitalized (debt equity ratio too high).
Corporate Income Computation.
I. Definition of a Corporation.
A. “check-the-box” regulations: unincorporated entities can elect to be taxed as a corporation or treated as a partnership.
& # 8211; Associations must be taxed as corporation: business entities formed under statutes that refer to the entities as incorporated.
Short cut: applicable to limited liability companies (LLCs), limited liability partnerships ( LLPs), and partnerships. “Incorporated” entities are taxed as per se corporations.
& # 8211; Single-owner firms: eligible for corporate status, unless qualified as a “per se” corporação.
& # 8211; Multiple-owner firms: default as partnership.
& # 8211; Effective for the tax year if made within the first 75 days of the year.
& # 8211; Election can be changed after 5 years or with IRS permission.
& # 8211; Subchapter S electing corporations: pass income through to shareholders regardless of dividend distributions.
A. Expenses are generally deductible as business deductions.
B. No deduction for a net capital loss, loss is carried over (back 3 years/forward 5 years) to offset against capital gains in other years.
& # 8211; Corporations can choose a fiscal year unless the corporation makes an “S” election or qualifies as a “personal service” corporação.
A Personal Service Corporation : principal activity of personal services is performed by employees who own substantially all of the stock.
& # 8211; Accrual accounting is required except for small corporations (gross receipts less than $5 million), certain personal service corporations, and “S” corporations. Recurring expenses, must be paid within one-and-one-half months of the fiscal year end and expenses to certain related taxpayers (e. g., cash basis shareholders) can only be deducted when paid.
& # 8211; Multiple tax brackets are not available for members of a “controlled group” or for personal service corporations (a flat 35% tax rate)
& # 8211; Passive loss limits do not apply to corporations (except personal service corporations and certain “close” corporations).
& # 8211; Due date: 3/15 , six-month extension granted upon request. Estimated corporate tax payments are required if the tax liability exceeds $500 .
The Corporate Income Tax Formula.
Realized Income – Deferrals and Exclusions – Cost of goods sold = Gross Income.
Gross Income – Deductions = Taxable Income before Special Deductions.
Taxable Income before Special Deductions – Special Deductions = Taxable Income.
Gross Tax – Credits and Payments + Other Taxes = Net Tax.
D. Book Income versus Taxable Income.
Nondeductible expenses: add to book (federal tax expense, net capital loss, expenses in excess of limits, etc.)
Income that is taxable but not included in book: add to book (prepaid income)
Nontaxable income that is included: subtracted from book income (municipal interest, life insurance proceeds)
Deductions not expensed in book income: subtracted ( dividends received deduction, election to expense )
III Special Corporate Deductions.
Gross Income – Deductions (except charitable, Div. Rec’d, NOL carryback, STCL carryback) = Taxable income for charitable limitation.
Taxable income for charitable limitation – Charitable contributions (<= 10% of above) = Taxable income for Div. Rec’d deduction ( NOL carryforwards are not allowed for computing the DRD limit, additionally, the U. S. production activities deduction is not allowed for the DRD limit)
Taxable income for Div. Rec’d deduction – Dividends received deduction = Taxable income before carrybacks.
Taxable income before carrybacks – NOL carryback and STCL carryback = TAXABLE INCOME.
Organizational and Syndication Expenditures.
IV. Expenses incurred in connection with the organization of a corporation .
A. Limit: 5000, reduced by expenditures over 50,000. The part not deducted is capitalized ( can be made to amortize them over 180 months, beginning with the month operation started). Election must be filed with first corporate tax return. Same for for start-up costs.
B. Typical organizational expenses : legal services, accounting services, organizational meetings of directors and shareholders, and fees paid to incorporate. They must be incurred before the end of the taxable year.
C. Costs of issuing and selling stock ( syndication expenses ): capitalized, cannot amortize.
V. Charitable Contributions.
A. same as for individuals, with the following exceptions.
& # 8211; Inventory, by corporations only: used to the exempt purpose and solely for the care of the ill, needy, or infants, or for research under specified conditions, are subject to special rules.
& # 8211; The deduction is the lower of: AB of property + 50% x (FMV – AB) , or 2 x AB.
& # 8211; Same rule for books, by corporations, to a public elementary or secondary school that uses the books in an appropriate manner.
& # 8211; Computer equipment to a primary or secondary school and newly manufactured scientific equipment to a college or university (if for research)
& # 8211; Can elect to deduct accrued contributions, if paid in first 2-and-one-half months following the year-end.
& # 8211; Amount above limit carries forward for 5 years.
A. must be of a domestic corporation held over a 45 - day window ( 90 days for preferred stock)
Short cut: If owns less than 20% of the stock, DRD is 70% of the dividends received. 80% or more, 100% of the dividends received. between these two, 80% .
B. Limited by taxable income (before the DRD, multiplied by the above %), unless the DRD creates or adds to a net operating loss.
Example: ABC corporation received $100 in dividends from a domestic corporation (ABC owned less than 20% of the stock). If ABC has taxable income (before the DRD) of $200, then the DRD is $70. If ABC has taxable income (before the DRD) of $90, then ABC is only entitled to a DRD of $63 (70% of $90).
C. If debt is used to finance the investment, DRD is limited to the proportion of dividends that are not financed by debt.
VII. Net Operating Loss: Not included in calculating the current year NOL.
VIII. Domestic Production Deduction.
A. Deduction equal to 6% times the lower of qualified production activity income ( Gross receipts from domestic production – Cost of Goods Sold – Direct expenses allocated – pro-rate share of indirect expenses allocated ) or taxable income.
B. This deduction may not exceed 50% of the wages allocable to domestic production income.
The Corporate Alternative Minimum Tax (AMT)
I. Small Corporation Exemption.
Doesn’t apply to small corporations meeting a gross receipts test . The tentative minimum tax (TMT) is zero if the corporation’s average annual gross receipts for all three - tax-year periods ending before the tax year doesn’t exceed $7,500,000 ( $5,000,000 for the first three-year-tax period (or portion thereof). For new corporations, the TMT is always zero for its first year of operations ) . If fail this test for any year, subject to the AMT for ALL future years.
II. Adjustments and Preferences.
Tax Preferences : are specific adjustments that increase taxable income, often represent economic income excluded.
& # 8211; Tax-exempt interest on private activity bonds (net of related expenses). Interest from general obligation bonds is not added back.
& # 8211; Realty (and leased personalty) – excess of accelerated over straight-line depreciation for pre-1987 acquired property.
& # 8211; Excess of percentage depletion deduction over property’s adjusted basis.
AMT Adjustments : can either increase or decrease taxable income.
& # 8211; The AMT adjustment applies only to MACRS 3-, 5-, 7-, and 10-year property that is depreciated using the 200 percent declining balance method. For AMT, the 150% DBM is used over the MACRS life.
* Differences in gain/loss between regular tax and AMT caused by different bases in assets.
* Difference in percentage of completion method income over completed contract method income.
III Other Items in Corporate AMT Formula.
A. The AMT NOL deduction is allowed for the carryover of net operating losses under the AMT in prior years, limited to 90% of AMTI (before NOL).
B. The AMT exemption for corporations is $40,000 , and it is phased out for AMTI over $150,000 ( 25% of the amount of AMTI over this trigger). Completely phased out when AMTI equals $310,000.
C. Pay the greater of the AMT tentative tax or regular tax (not reduced by the foreign tax credit)
D. The AMT credit is limited to the amount of AMT generated from timing differences, and this credit is available in a year in which the tentative tax is less than regular tax.
Short Cut: no AMT credit is available unless both conditions are present (prior AMT payments and timing differences).
IV. Adjusted Current Earnings (ACE)
A. A positive ACE represents high pretax economic earnings.
& # 8211; modify AMTI by adding economic income and adjusting for timing differences analogous to E&P adjustments (+municipal interest, – expenses related to municipal interest)
& # 8211; If ACE > AMTI (before the ACE adjustment), then 75% of this difference is used as an adjustment for calculating AMTI.
& # 8211; If ACE is negative, limited to cumulative amount of prior positive adjustments.
* Short Cut: The DRD must always be added back to taxable income in computing E&P. For ACE, the DRD can be ignored if it is based on ownership of 20% or more.
& # 8211; No deduction for federal income tax.
& # 8211; No adjustment for excess charitable contributions, net capital losses, penalties, or disallowed T&E.
Formula for Corporate AMT.
Taxable Income + Tax Preferences +/- AMT Adjustments +/- ACE Adjustment = Alternative Minimum Taxable Income (AMTI)
AMTI – Minimum Tax Exemption = Tax Base.
Tax Base × Tax Rate (20%) = Tentative Tax.
Tentative Tax – Regular Tax = Alternative Minimum Tax (AMT)
Penalty Taxes – Corporations.
Accumulated earnings tax can be avoided either by documenting business reasons for accumulating income, or by distributing income as dividends.
A. An accumulated earnings tax of 15% is imposed on undistributed accumulated taxable income.
& # 8211; Computed by adjusting taxable income to reflect retained economic income.
& # 8211; Dividend distributions reduce accumulated taxable income.
& # 8211; Dividends include “consent dividends” and dividends paid within two-and-one-half months of year-end.
Definition A Consent Dividend : is not actually paid to shareholders. Instead, shareholders consent to be taxed as though a dividend (identified in the consent) was paid.
The Accumulated Earnings Tax Formula.
Taxable Income – (1) corporate income tax – (2) excess charitable contributions – (3) net capital loss or (4) net capital gain (after tax) + (5) dividends received deductions + (6) any net operating loss or capital loss carryovers – Dividends paid or deemed paid – Accumulated earnings credit = Accumulated Taxable Income.
C. Accumulated Earnings Credit: the greater of:
& # 8211; Amount of the current earnings and profits needed for the “reasonable needs” of the business.
The Reasonable Needs does not include amounts retained for unrealistic needs or for loans to shareholders.
& # 8211; A flat $250,000 ($150,000 for service corporations) less the accumulated earnings and profits at the close of proceeding year.
Short cut: Earnings and profits are critical, a rule of thumb is that the credit will not be less than $250,000.
II. Personal Holding Company Tax.
Can be avoided either by keeping investment income levels relatively low, or by distributing income as dividends.
The Personal Holding Company Tax Formula.
Taxable Income – corporate income tax – excess charitable contributions – net capital gain (after tax, not loss ) + dividends received deduction + net operating loss carryover ( not previous year ) = Adjusted Taxable Income.
Adjusted Taxable Income – Dividends paid or deemed paid = Undistributed PHC Income.
A. only imposed on corporations qualifying as a “personal holding company” (PHC)
& # 8211; Banks, insurance, and finance companies are exempt.
& # 8211; The tax base for the PHC tax is taxable income adjusted to reflect retained economic income.
B. Income and Ownership Tests: For a corporation to qualify as a personal holding company.
& # 8211; The “income” test: passive income constitutes 60% of adjusted ordinary gross income (AOGI).
Passive Income : includes dividends, interest, and sometimes , rents, royalties, and personal service contracts, compensation for more than 25 percent use of corporate property by shareholders; amounts received under personal services contracts; and amounts received from estates and trusts.
Adjusted Ordinary Gross Income : (AOGI) is gross income excluding capital and 1231 gains and reduced by expenses associated with the production of rent and royalty income.
& # 8211; The “ownership” test: more than 50% of the value of the stock is owned directly or indirectly by five or fewer individuals any time during the last half of the year.
Indirect Ownership : is determined by stock “attribution” regras. These rules define ownership to include the stock held by an entity (the portion relating to a corporation, partnership, trust, or estate) or by family members (collaterals, spouse, ancestors, and lineal descendants).
C. PHC Tax: The PHC tax is imposed on undistributed PHC income.
& # 8211; Dividends must be pro rata.
& # 8211; Dividends include dividends paid during the year, “consent” dividends, and dividends paid within 2-and-one-half months of year-end.
& # 8211; A “deficiency” dividend can also be paid to avoid the tax: paid within 90 days of tax imposition (the finding of a deficiency due to the PHC tax).
Distributions from a Corporation.
Do not present economic outlay : + Municipal interest and life insurance proceeds + dividends-received deduction + Deductions carryforwards.
Undeducted economic outlay: – federal income tax (net of credits) – excess amount of charitable contributions – Net capital loss – penalties – life insurance premiums for a “key” man – disallowed portion of entertainment expenses.
Timing difference: + deferred portion of installment sale gain (deduct in later year when recognized) + depreciation deducted in excess of straight-line (deduct when reversed)
Distributions: – Cash distributions – Distributions of property (greater of value or adjusted basis, reduced by liability assumed by shareholders, appreciated property first increase E&P by the amount of the gain recognized)
* Distributions cannot create a deficit in E&P – only losses can create a deficit.
A. to extent of the shareholder’s pro-rata share of E&P: ordinary income.
B. Excess is tax-free to extent of shareholder’s basis in stock (and reduces the basis).
C. Remaining: capital gain.
D. Both current and accumulated E&P are used.
& # 8211; Both current and accumulated E&P are negative: return of capital (tax-free up to adjusted basis — and then capital gain).
& # 8211; Both current and accumulated E&P are positive: dividend, reduce current E&P first.
& # 8211; current E&P is positive but accumulated E&P is negative: dividend only to extent of current E&P.
& # 8211; accumulated E&P is positive but current E&P is negative: dividend to the extent of net E&P.
III Property Distribution.
A. Appreciated property: recognize gains (not losses) like a sale of the property.
B. Amount distributed = FMV – liabilities on property.
C. Basis to shareholders: FMV.
D. Constructive dividends (a payment to a shareholder that, despite the form of the payment, is regarded as a dividend – unreasonable part of compensation) are also treated as distributions.
Corporate Redemptions and Liquidations.
Can be structured to have the identical effect of a dividend distribution: e. g. no change of share.
A. distribution is “not essentially equivalent to a dividend” ( NEED )
Not Essentially Equivalent to a Dividend : This phrase has been interpreted to mean that there is a “meaningful” reduction in the shareholder’s rights, including voting rights and rights to earnings.
B. a “substantially disproportionate” redemption qualifies if passes two tests:
& # 8211; The Control Test : own less than 50% of the voting shares after the redemption.
& # 8211; The Reduced Interest Test : own less than 80% of the shares that were owned prior to the redemption.
C. “complete termination” of the shareholder’s interest: the shareholder must surrender the stock owned directly and indirectly (through stock attribution)
For complete terminations, family attribution can be waived with the execution of an agreement by the taxpayer to notify the IRS of any subsequent acquisitions of stock for the next 10 years.
III Attribution: Indirect or constructive ownership is determined through stock “attribution” regras.
Stock attribution : a shareholder is deemed to own stock held by other related taxpayers. Two forms of attribution: from an entity and from family.
Entity Attribution : stock owned by corporation, partnership, trust, or estate is deemed to be owned by a taxpayer who is an owner or beneficiary of the entity. Stock owned by the owner or beneficiary may be deemed to be owned by the entity.
A. A corporation is only subject to entity attribution if the corporation is controlled by the taxpayer (50% or more of the value of the stock), the taxpayer is deemed to own a proportionate interest of the stock held by the corporation.
B. Stock owned by a partner is deemed to be owned in full by the partnership. Stock owned by a greater than 50% shareholder is deemed to be owned in full by the corporation.
Example: 1. A taxpayer owns a 10% interest in a partnership. If the partnership owns 100 shares of a corporation, then the partner is deemed to own 10 shares of the stock (10% of the stock held by a partnership).
2. TP owns 10% in Corporation A. If Corporation A owns 100 share of Corporation R, TP is not attributed any stock of Corporation R. However, if TP owns 60% of Corporation A, then TP would be deemed to own 60 shares (100 X 60%) of Corporation R.
Family Attribution : means that stock is owned by family members, including spouse, children, grandchildren, and parents. The rules applying to redemptions is narrower than to the personal holding companies (include siblings (brothers and sisters)).
A. treated as a sale by noncorporate shareholders.
A Partial Liquidation : is a contraction of the corporate business. Hence, the determination for sale treatment is made by looking for a contraction at the corporate level.
B. Must completely terminate a “qualifying” business (trade conducted for five years prior to the determination)
C. Must qualify as not essentially equivalent to a dividend: results from a genuine contraction of the corporate business, and not just from the sale of excess inventory.
V Redemption Used to Pay Death Taxes.
if the corporate stock is the primary asset of the estate, then a redemption may be necessary. If the stock held by the estate is treated as a sale, no additional tax is usually due because adjusted basis of stock is increased to FMV on date of death.
& # 8211; The stock held by the decedent must be a large portion of the estate ( 35% of adjusted gross estate).
& # 8211; The redemption is limited to that amount of federal and state death taxes and funeral and administrative expenses.
A. Not taxable if there is no option to receive property in lieu of stock and there is no change in proportionate interests of the shareholders.
B. A stock “bailout”: dividend to the extent of earnings and profits.
A Stock Bailout : is a distribution of nonvoting stock followed by sale (or redemption) of the stock by the corporation.
VII Complete Liquidations.
A. recognize gain or loss.
& # 8211; Gain or loss (generally be a capital gain or loss (depending on whether the stock is a capital asset)) = the value of the distribution – adjusted basis of the stock.
& # 8211; Reduces the fair market value of the property by the amount of liabilities assumed by shareholders.
& # 8211; The adjusted basis of the property received is FMV.
B. A corporation will recognize gain or loss.
& # 8211; Gain or loss = FMV of the property – adjusted basis of the property.
& # 8211; The nature of the gain or loss depends on the nature of the asset distributed (ordinary, capital, or Section 1231).
& # 8211; The fair market value of the property cannot be less than the amount of liabilities.
& # 8211; Expenses incurred in the liquidation are deducted on the last corporate return.
& # 8211; If the corporation realizes a loss distributing to a shareholder owning more than 50% in value of the corporation’s stock), then the loss is not recognized if:
* The distribution of each asset is not pro rata, or.
* The property distributed is disqualified property (i. e., property acquired by the liquidating corporation in a tax-free incorporation or as a contribution to capital during a five-year period ending on the date of the distribution).
& # 8211; If the principal purpose was to recognize loss, built-in losses will be disallowed.
* Such a purpose is presumed, if the transfer occurs within two years of the adoption of the plan of liquidation, unless a business purpose can be established.
* Any decline in value for the property after its contribution to the corporation results in a deductible loss to the liquidating corporation.
Note:Under the related-party rule, all losses are disallowed. Under the non related-party rule, only builtin losses are disallowed.
C. No gain or loss is recognized on the liquidation of a subsidiary by the parent under two conditions.
& # 8211; The parent must own 80% of the voting stock and other stock of the subsidiary.
& # 8211; The subsidiary must distribute its assets within the tax year (or within three years of the close of the tax year of the first distribution).
& # 8211; The parent corporation takes a carryover basis in the distributed assets and inherits the subsidiary’s tax attributes.
Taxation of Related Corporations.
At least 80% of the voting power of another corporation and holds shares representing at least 80% of its value . Met this every day .
To qualify as a parent, a corporation must own 80 percent or more of each class (voting stock and other classes).
Companies of control relationship can form an affiliated group, group’s total ownership is 80% or more also counts.
Example 😛 corporation owns 80 percent of S corporation and 20 percent of X corporation. S owns 70 percent of X but all other shares are held by unrelated individuals. P and S form an affiliated group. Because in aggregate P and S also own more than 80 percent of the stock of X, this corporation is also included in the affiliated PSX group.
II. Eligible affiliated corporations can elect to file a consolidated return.
A. Consolidating permits offset of income and loss, capital gain and loss between companies.
B. Intercompany gains and losses are deferred until a restoration event occurs.
C. Foreign corporations, exempt corporations, S corporations, and insurance companies are not eligible to consolidate.
D. The election to consolidate must be unanimous and it is binding on future returns (irrevocable) and creates a joint and several tax liability.
E. The members of the group must conform their tax year and accounting methods to the parent’s.
F. Intercompany dividends are eliminated from consolidated taxable income.
G. The parent adjusts the basis of the stock of a consolidated subsidiary for allocable portion of income, losses, and dividends.
III Controlled Groups: parent-subsidiary corporations, brother-sister groups, and certain insurance companies.
A. A controlled group of corporations is entitled to one $250,000 accumulated earnings tax credit and is limited to taxable income in each of the first two brackets, as though the group was one corporation. Receives only one Sec 179 expense deduction and one AMT exemption.
Example : Rather than form a corporation that expects to generate $100,000 of taxable income, a taxpayer might try to form four corporations with $25,000 of taxable income each. This tactic would allow each corporation to be taxed at 15% instead of the higher tax rates imposed on taxable income over $25,000. However, the four corporations would form a controlled group and would only be eligible for one set of tax brackets that could be allocated among the group.
B. The following tests are applied on the last day of the year .
& # 8211; Stock possessing at least 80% of the voting power of all classes of stock entitled to vote , OR at least 80% of the total value of shares of all classes of stock of each of the corporations, except the common parent, is owned by one or more of the other corporations, and.
& # 8211; The common parent owns stock possessing at least 80% of the total combined voting power of all classes of stock entitled to vote, OR at least 80% of the total value of shares of all classes of stock of at least one of the other corporations .
& # 8211; Two or more corporations are owned by five or fewer persons (individuals, estates, or trusts)
* who have a common ownership of more than 50% of the voting powers or total value of each corporation.
* who possess stock representing at least 80% of the voting power or the total value of each corporation , and.
* the 80% test does not apply for determining brother-sister corporations in some circumstances. These circumstances include determining corporate tax brackets, the accumulated earnings credit, and the minimum tax exemption.
Example :A, B, and C corporations are owned by X and Z (unrelated individuals) as follows:
A cannot be a member of a controlled group because it fails the control test (X and Z only own 50%). B and C both meet the total control test (80% or more by five or fewer individuals) and this group also passes the common ownership test (60%). Thus, BC is a controlled group!
I. Acquisitions and Reorganizations.
Mergers, stock acquisitions, and asset acquisitions can all qualify if the shareholders receive sufficient equity from the acquiring corporations.
A type ‘A’ reorganization : is a merger or consolidation under state law (called a statutory merger)
& # 8211; “Continuity of interest” requirement (Merge): a majority of the equity (stock) of the target is exchanged for equity (qualified stock) in the acquiring firm.
& # 8211; The shareholders of the acquired firm can only defer gains and losses to the extent they receive equity of the acquiring corporation.
& # 8211; Forms of payment, that do not qualify as equity, are considered “boot.”
Example : T corporation merges into B corporation. All T shareholders receive B stock in exchange for their T shares. T shareholders will defer gains and losses on the disposition of their T shares because this transaction qualifies as a reorganization. If B corporation transferred consideration other than voting stock in the acquiring firm, these payments would be considered boot. These payments would not disqualify the merger unless a majority of T shareholders received boot instead of equity (violation of continuity of interest requirement).
B. B Reorganization : an acquisition of the stock of the target solely in exchange for voting stock (or that of its parent company) of the acquiring firm.
& # 8211; The acquiring firm must own at least 80% of the stock of the target firm (voting and all other classes of stock) after the most recent acquisition of stock.
C. C Reorganization: “ substantially all ” ( 90% of net asset value and 70% of gross asset value) of the assets of the target solely in exchange for voting stock of the acquiring firm.
& # 8211; Target company’s share bases carryover, gain/loss deferred.
D. D Reorganization: is (typically) a divisive reorganization (not acquisitive) in that the parent divides by transferring assets to a subsidiary in exchange for subsidiary shares.
& # 8211; The parent then distributes the subsidiary shares to its shareholders (spin-off) or redeems P stock with the S stock (split-off). Alternatively, the parent could be liquidated into two new corporations (a split-up)
& # 8211; Parent must distribute control of the subsidiary in the exchange (80% of the vote and other classes of stock)
& # 8211; Parent company’s shareholders allocate the adjusted basis of their P stock between their P shares and the S shares.
E. “E” and “F” reorganizations are recapitalizations and nominal changes (such as changes in the name of the corporation or the state of incorporation)
F. “G” reorganizations are related to bankruptcy recapitalizations.
Tax Consequences of Reorganization.
II. Deferral of Gains/Losses and Basis Issues.
Does not require income recognition at the corporate level.
A. Whenever a corporation distributes appreciated property (property with a value in excess of adjusted basis), the corporation will recognize the gain. This applies regardless of whether the distribution is related to a reorganization (for both acquiring and acquired companies), a redemption, or a liquidation.
B. For acquired company shareholders, n o gain or loss is recognized to the shareholders of the corporations involved in a tax-free reorganization if they receive only stock in exchange for property of the acquiring organization.
& # 8211; If other property is received, it’s boot, gain is recognized equal to the lower of: boot received, or realized gain.
& # 8211; The basis in the stock received is Basis in stock surrendered + Gain recognized – Boot received.
III Tax Attributes: The tax attributes of the target firm (such as net operating loss carryovers) survive in reorganizations.
& # 8211; The code lists 24 different characteristics but the most common attributes are the adjusted basis of assets, the earnings and profits of the corporation, carryovers (including net operating loss, capital loss, and excess charitable contributions), accounting methods (including depreciation methods), and tax credit carryovers.
& # 8211; Acquired company’s bases carryover to acquiring company or stay the same with acquired company. Purpose is to limit tax incentives for corporate acquisitions.
IV. Other Types of Acquisitions: taxable, not reorganization.
A. Subsidiaries: purchases the stock of the target and operates the target as a subsidiary, no gain/loss recognized.
& # 8211; Bases for acquiring company: purchase price.
& # 8211; Bases for acquired company: no change.
B. Section 338 Elections: Under certain conditions in a taxable stock purchase, the acquiring firm can elect to step up the basis of the target’s asset to FMV.
& # 8211; Recognize any gain generated by the difference between the adjusted basis of the target’s assets and the fair market value of the stock.
& # 8211; The benefit of the election (step up in the basis of the acquired assets) is generally less than the tax cost triggered by gain recognition. Hence, the election is rarely invoked.
& # 8211; The adjusted basis of the target’s assets is their FMV. Any excess purchase price is allocated to goodwill and amortized over 15 years.
Taxation of S Corporations.
S Corporations – Introduction.
Can only be elected by a corporation.
A. S corporations retain corporate status and their corporate characteristics.
& # 8211; Shareholders can be employees (separation of ownership and management)
& # 8211; Taxed like partnership.
& # 8211; No corporate AMT, PHC, or accumulated earnings taxes.
& # 8211; The adjusted basis of shareholders’ stock is generally adjusted at year end.
& # 8211; Distributions (cash or property) exceed the adjusted basis in the stock is recognized as gains.
C. Default Rules for S Corps are the C Corp Rules.
& # 8211; There is no special provision for contributions of property to an S corporation. Hence, the “control club” rule prevails for nonrecognition.
& # 8211; can elect to amortize organizational expenses.
& # 8211; Distributions of property take an outside basis of FMV.
& # 8211; Distributions of builtin gain or loss property do not have any special implications for the contributing shareholder.
& # 8211; Distribution of appreciated property: recognize gain at corporate level (passed through to shareholders)
& # 8211; A special calculation is necessary to distinguish Subchapter S earnings (called accumulated adjustments) from earnings and profits accumulated previously under chapter C status.
& # 8211; Foreign corporations: not eligible.
& # 8211; Certain members of affiliated groups, parents of subsidiaries, financial institutions, and DISCs: not eligible (certain banks are eligible)
& # 8211; S corporations may own an 80% or more equity interest in a C corporation.
& # 8211; S corporations may own a “qualified” subchapter S subsidiary (definition: meets all requirements for subchapter S status and is owned 100% by a parent S corporation).
B. Shareholder Requirements.
& # 8211; Nonresident aliens, C corporations, partnerships: not eligible.
An S corporation can be a parent corporation, but can only be a subsidiary of another subchapter S corporation.
& # 8211; Estates (bankruptcy or testamentary) can be shareholders.
& # 8211; Trusts can be shareholders, if grantor or testamentary (2-year limit after transfer)
& # 8211; Special stock voting trusts and qualified S trusts (all beneficiaries are qualified and electing shareholders): yes.
& # 8211; Small business electing trusts and exempt entities: yes.
C. Shareholder Limit: no more than 100 shareholders.
& # 8211; All members of a family and their estates are treated as a single shareholder.
& # 8211; Each beneficiary of a shareholding trust is counted as a separate shareholder.
& # 8211; Co-owners of stock each count as one shareholder.
D. Stock Requirements: Only one class of stock is outstanding.
& # 8211; Shares that vary solely in voting rights are not considered two classes of stock.
& # 8211; Convertible debt does not violate the requirement unless and until it is converted into a second class of stock.
& # 8211; Unissued treasury stock does not violate the requirement.
& # 8211; Shareholder debt (must be evidenced by a written promise that is not contingent or convertible) doesn’t violate. Short-term unwritten loans are sanctioned in amounts under $10,000 .
III Elections Requirements.
A. Unanimous consent of shareholders is required.
& # 8211; A corporation must make the S election on or before 3/15 after commencing business.
& # 8211; An election that is ineligible for the current year is still valid for the next year (if the circumstance causing ineligibility is corrected)
& # 8211; All current shareholders and past shareholders for the current year must consent.
& # 8211; Both spouses must consent, if the stock is jointly owned.
B. Termination Requirements: occur through three circumstances.
& # 8211; A majority vote specifying a prospective year or made before 3/15.
& # 8211; An involuntary termination occurs through a violation of an eligibility requirement: effective on the date of the violation.
The IRS can waive an inadvertent termination.
& # 8211; An involuntary termination can occur due to a violation of the limit on passive investment income for 3 consecutive years, effective on the first day of the 4th consecutive year.
Once terminated, S status cannot be elected without IRS permission for 5 years.
S Corporations – Income and Basis.
A. Required Year-End: S corporations report income to shareholders on a year-end consistent with that of the shareholders.
B. A calendar year-end is generally the default.
& # 8211; S corporations can elect a fiscal year-end (with IRS permission) if there is a business purpose (to elect a “natural” business year)
A ‘natural’ business year : is one in which 25% or more of the gross receipts occur in the last two months of the year (three consecutive years)
& # 8211; May elect a year-end under Section 444 with no more than 3 months of deferral (a deposit with the IRS is required to compensate the government for the deferral benefits to the shareholders if the benefits exceed $500 ).
Calculate taxable income (reported on form 1120S) in a manner similar to partnerships (e. g., no “personal” deductions)
A. may use the cash basis of accounting unless the corporation is a “tax shelter.”
B. reports taxable income (ordinary income or net business income) and separately stated items for each shareholder on Schedule K-1 whether or not any dividends were declared.
Separately stated items : are any tax items (deductions, income, preferences, etc.,) that might affect owners differently. These items retain their character to the owners and must, therefore, be reported separately for each owner. Including:
Tax-exempt income, Passive gains, losses, and credits, Portfolio income, Investment income and expense, Depletion, Section 179 expense.
charitable contributions; dividendos; capital gains and losses; Code Section 1231 gains and losses; income, gains, losses, deductions and credits specially allocated under the partnership agreement; nonbusiness production of income expenses; income, gains and losses from the sale of unrealized receivables and appreciated inventory; bad debt, prior taxes and delinquency amounts recovered; taxes of foreign nations and U. S. possessions eligible for the foreign tax credit; intangible drilling and development expenses; mining exploration expenses; and soil and water conservation expenses. Guaranteed payments to partners are treated as salary payments.
C. Not entitled to most special corporate deductions (e. g. DRD)
D. Do not pay alternative minimum tax, personal holding company tax, or accumulated earnings tax.
E. Make most of the tax elections (not shareholders), including the election to amortize organization and start-up costs.
III Flow-Through to Shareholders.
A. Each shareholder reports income and separately stated items according to pro rata share of stock ownership.
& # 8211; If relative interests change: calculate the share of income on a daily basis.
& # 8211; Daily share of income prior to (or after) the change = divide annual income / the number of days in the year × number of days prior to (after) the change × the percentage ownership interest. The new purchaser is deemed to own the shares on the day of the sale.
& # 8211; If a shareholder’s interest is completely terminated (death or sale), then the share can be calculated by closing the books as of the termination date (an “interim” close). All shareholders, including the departing shareholder, must agree to this treatment.
Example:As of January 1 of this year, TP1 owned half of the 100 shares of ABC, a calendar year S corporation. On February 10th TP1 sold all of his shares to TP2. This year (365 days) ABC reported $73,000 in ordinary income, that accrued ratably through out the year, and a capital loss of $3,650, that occurred on June 30. What amount of nonseparately stated income should TP1 report from ABC?
Unless the shareholders elect an interim close, TP1 should report ordinary income of $4,000 ($200 per day for the 40 days TP1 owned 50%) and a capital loss of $200 ($10 per day for the 40 days TP1 owned 50%). If all the shareholders elect an interim close, then TP1 still reports the $4,000 of ordinary (it accrued ratably). TP1 cannot, however, report any of the loss because it occurred after he sold his stock.
Basis is modified by contributions, income, distributions, and expenses.
Initial Basis + Additional Contributions + Shareholder’s share of Corporate Income and Exempt Income – Distributions of cash, inventory and receivables, other property – Shareholder’s share of Nondeductible Expenses and Corporate Loss.
A. adjusted basis of the stock.
B. the adjusted basis of loans to the corporation by the shareholder can be used after the adjusted basis of the stock.
C. may only deduct losses to the extent they are “at risk” for investments in the corporation.
D. May also have passive loss limits depending upon the nature of the corporate business and the shareholders participation in management activities.
E. Unused losses (due to inadequate basis) are carried forward indefinitely (until the adjusted basis of the stock increases or the S election is revoked)
F. Appreciated property contribution:
A. Corporate Gain: by distributing appreciated property, passed through to shareholders.
B. Shareholder Income if Corporation has no E&P.
& # 8211; Amount of a distribution = cash + the value of any property.
& # 8211; Distributions in excess of adjusted basis: gain from sale of stock.
C. Shareholder Income if S Corporation has E&P.
& # 8211; Always - be S corporation and that with C corporation history without E&P from previous period: no need to use accumulated adjustments account.
& # 8211; Accumulated undistributed income generated during S status: record in Accumulated Adjustments Account.
& # 8211; AAA is adjusted in the same way as stock basis except (1) no adjustment is made for tax exempt income (and related expenses) and (2) AAA can be negative (only losses can reduce AAA below zero)
& # 8211; “Other Adjustments Account”: tracks tax exempt income.
& # 8211; Distribution order: first tax-free from AAA (previously taxed to shareholders) and then from E&P (dividend income). All other distributions (including from other adjustments account or OAA) are a return of capital (tax-free up to the remaining stock basis, then capital gain)
& # 8211; Distributions reduce AAA, never below zero – only losses can.
& # 8211; Distributions from AAA and OAA reduce the adjusted basis of the shareholder’s stock.
VII. Built-In Gains Tax: not imposed on a corporation that has always been an S electing corporation.
Builtin gain property : for purposes of a tax on an S corporation, is appreciated property (value in excess of adjusted basis) as of the beginning of the first year of the S status.
& # 8211; Use the highest corporate rate and is limited to the net amount of built-in gain at the time of election.
& # 8211; Only be imposed for a period of 10 years after the S election.
Example :ABC Corporation made an S election this year and, at the time of the election, it held property with a value of $100 and the basis of $80. ABC will be taxed on this $20 builtin gain (at the highest corporate rate) if the property is sold any time during the next 10 years.
VIII. Passive Investment Income Tax.
Passive income : interest, dividends (except dividends from a subsidiary to the extent the subsidiary is conducting an active trade or business), royalties, and rents (unless substantial extra services are provided)
A. Excessive passive income is passive income over 25% of gross receipts.
B. may avoid if the corporation establishes that it made distributions within a reasonable time of discovering that E&P existed from a prior year.
Taxation of Partnerships.
I. Introduction: Income is taxed, Distributions are return of capital. No tax is imposed on partnerships.
A. An entity may be exempt from partnership rules if organized for investment purposes.
B. Certain publicly traded partnerships (i. e., master limited partnerships) are taxed as corporations.
& # 8211; More than two owners entity is by default partnerships and limited liability companies, can select to be taxed as corporation.
& # 8211; One owner entity is “disregarded” for federal income tax purposes, can select to be taxed as corporation.
& # 8211; Effective if filed within the first 75 days of the tax year.
IV. General/Limited Partners.
A. A partnership loss will be a passive loss to a limited partner.
B. A partnership loss may be a passive loss to a general partner depending upon whether the partner meets the material participation test.
Without specific information (e. g., number of hours of activity for the partner), partnerships engaging in rental activities are most likely passive.
A. Partnerships are NOT subject to tax, but report taxable income on Form 1065.
Separately stated items : are any tax items (deductions, income, preferences, etc.,) which might affect partners differently — these items retain their character to the owners.
* Examples of separate items are dividends, capital gains and losses, tax-exempt interest, passive losses, charitable contributions, investment income, section 179 expenses, Life insurance premium on partners’ lives, Taxes paid to a foreign country or to a U. S. possession. Section 1245 recapture is never separately stated.
* Qualified dividends (taxed at a maximum rate of 15%) also flow-through to the partner as a separately stated item.
& # 8211; Partnerships may use the cash basis unless a “tax shelter” or at least one partner is a C corporation. Allow the cash method for farming and small business (average annual gross receipts of $5 million or less for the three prior years ending with the current tax year)
& # 8211; may elect to amortize organization and start-up costs: same $5000 rule.
& # 8211; Special simplified reporting (and IRS audit) rules exist for electing “large” partnerships (non-service partnership with over 100 partners)
VI. Partner Interests: Each partner owns a “capital” interest and a “profits” interesse.
A. The capital-sharing ratio represents each partner’s share of partnership capital.
B. Profit and loss (P&L) sharing ratios are each partner’s share of profits and losses, respectively.
A. income (or loss) and contributions (withdrawals) increases (decreases) basis.
B. Schedule K-1 provides a reconciliation of the capital account to help partners calculate their adjusted basis.
A. partners only report income once the partnership closes it books at the partnership year-end.
B. Required Tax Year determination:
& # 8211; All of its principal partners ( 5% P&L interest or more)
& # 8211; Use the least aggregate deferral method, determines the year-end which will provide the least amount of deferral for the entire partnership group.
C. can elect a fiscal year end (with IRS permission) if there is a business purpose; a natural business year can also be used.
A natural business year : is one in which 25% or more of the gross receipts occur in the last two months of the year ( 3 consecutive years)
D. under Section 444: may elect a year-end with no more than 3 months of deferral, but a deposit with the IRS is required to compensate the government for the deferral benefits to the partners (only if the deferral benefit exceeds $500).
E. due on or before the 4/15 following the year-end.
Formation of a Partnership.
A. Contributions to a partnership: not taxable, but need to calculate a substituted basis for their partnership interest.
B. Deferred Gain or Loss: recognize no gain or loss on contributions in exchange for a partnership interest.
& # 8211; The “control club” used for corporate contributions is not relevant for partnerships since partnerships are taxed as conduits.
& # 8211; No deferral is available for contributions to a partnership in exchange for property, deferral is only for a partnership interest.
& # 8211; Services contributed for interest is income in the amount of the value of the partnership interest (also is adjusted basis of partnership interest).
& # 8211; No deferral for contributions that are essentially disguised sales or attempts to diversify stock holdings.
Example : on appreciated stock contributed: no deferral of gain.
Example: TP contributes property ($100 FMV and basis of $20) in exchange for a 5 percent interest. Five days later TP withdraws cash of $100. This is a disguised sale and TP will recognize gain of $80.
A. Partnership: carryover basis, holding periods and depreciation methods also continue unabated.
Inside basis : of property refers to the aggregate basis of assets in the hands of the partnership.
B. Partner : Each partner takes a substituted basis in the partnership interest from the assets contributed.
Outside basis : refers to the adjusted basis of each partners’ interest in the partnership.
A. Holding periods tack for capital assets and Section 1231 assets. Others, when received.
B. Basis of contributions of services: value included in the income of the partner.
C. The adjusted basis for partnership interests purchased from existing partners or interests received as gifts or inheritances: like other assets (cost or carryover basis, respectively)
& # 8211; Any “special” allocation must pass a judgmental “substantial economic effect” test: partners with special allocations bear the economic burden or receive the economic benefit of the special allocation.
B. Precontribution (builtin) Gains and Losses: are allocated back to the original contributing partners when sold.
& # 8211; Allocated to the contributing partner up to the built-in gain or loss realized on the sale, amount above that is allocated based on profit-sharing ratios to all partners.
No time limit on the allocation of the amount from sales of property. Five years limit applies to the characterization of these gains and losses. Seven years applies to the distribution of builtin gain property (to partners)
& # 8211; The character of the builtin gains and losses is generally determined by the use of the property, with two exceptions.
* Sales of contributed ordinary income or loss property (e. g., inventory and accounts receivable): ordinary income or loss. The characterization is limited to five years. No time limit for accounts receivables.
* built in capital losses: the amount that can be recharacterized as capital is limited to the builtin loss.
& # 8211; If capital is a material income producing factor, the income allocated to a donated interest cannot exceed the capital percentage.
& # 8211; Partnership income must be adjusted by the value of any services provided by donor family members.
Example :Dad is a half partner in a partnership where capital is a material income producing factor. Dad gives a 20 percent interest to his son. This year, the partnership earns $100 of income and Dad provides services worth $10. The son is allocated partnership income of $18.
II. Basis of Partnership Interest.
A. Increases: contributions of property, income ( gains and exempt income ), and increases in liabilities (treated like a contribution).
B. Decreases: distributions, expenses ( deductions, losses, and nondeductible expenses (not capital expenditures) ), and decreases in liabilities ( deemed distributions)
A ‘Deemed’ distribution : occurs with any decrease in the partnership liabilities.
A partner’s basis in the partnership cannot be reduced below zero.
C. Loss Limitations: limited by the amount of adjusted basis.
& # 8211; Partners may only deduct losses to the extent they are “at risk” for debt (nonrecourse debt is not “at risk”)
& # 8211; Passive loss limits may limit loss deductions.
& # 8211; Carried forward indefinitely.
Initial Basis + Additional Contributions ( Debt Increases, Partnership Income, Exempt Income ) – Distributions ( Cash Distributions, Deemed Cash Distributions, Asset Distributions ) – Partner’s share of Nondeductible Expenses and Partnership Loss.
III Transactions Between Partners and Partnerships.
A. Guaranteed Payments: paid to partners without regard to partnership income.
& # 8211; Ordinary income to the recipients.
& # 8211; Reduce partnership income.
B. Special Rules: Partners may contract with the partnership at arm’s length with “normal” consequences.
& # 8211; No deduction until the cash basis partner includes the payment in income.
& # 8211; Losses on sales to partnerships in which the taxpayer is a controlling partner (more than 50% interest) are deferred as related party losses.
& # 8211; Sales of capital gain property by a controlling partner (majority interest) to a partnership will be deemed noncapital if the asset is not capital in the hands of the partnership.
& # 8211; The above two rules also apply for sales between commonly controlled partnerships (brother-sister partnerships)
Liquidations, Sales, and Transfers.
I. Gain/Loss Deferral: Partnerships generally do not recognize gains or losses on distributions.
A. Cash distributed (nonliquidating or liquidating) in excess of outside basis causes gain recognition.
B. Nonliquidating distributions of property NEVER trigger loss recognition, but losses may be recognized on a liquidating distribution.
II. Nonliquidating (or Current) Distributions: a distribution to a continuing partner, including a draw by the partner.
A. Basis Effects: return of capital (in a specific order).
& # 8211; First adjusted basis is allocated to cash distributions and cash deemed distributed.
& # 8211; Second, unrealized receivables and inventory in amount of partnership’s basis in these assets.
& # 8211; Finally, other assets distributed. Any deficiency in the partner’s adjusted basis is allocated to properties with unrealized losses and any excess basis is allocated to properties with unrealized gains.
& # 8211; Distributed property retains its inside basis (in the hands of the partner) unless the partner runs out of outside basis, then the inside basis of the property is reduced to the outside basis.
& # 8211; Distribution of multiple assets. A simple approach is to allocate the outside basis by the amount of the inside basis.
Example: Two parcels of inventory (parcel A and parcel B) are distributed to a partner in a nonliquidating proportionate distribution at a time when the partner has an outside basis of $12. Parcel A has an inside basis of $6 and Parcel B has an inside basis of $18. Each parcel is worth $20. In this situation, one-fourth [($6/($6+$18)*$12] or $3 of the outside basis is allocated to parcel A. The remaining three-fourths of the outside basis ($9) is allocated to parcel B [$18/($6+$18)*$12].
III Liquidating Distributions: may result in gain or loss, transfer his outside basis to assets received.
A. When the entire partnership is liquidated or the interest of one partner is redeemed.
& # 8211; The distribution can be a series of transfers.
& # 8211; The partnership does not recognize any gains or losses.
B. Basis Effect: a return of capital, outside basis is substituted for the inside basis of distributed property.
& # 8211; D istributions of cash (and deemed distributions) trigger gain to the extent cash exceeds outside basis.
& # 8211; Distributed property retains its inside basis, but is adjusted depending upon the outside basis of the partner. Complicated, not tested.
& # 8211; Inventory and receivables must be distributed pro rata (a nonpro rata distribution will be “disproportionate”)
C. Loss Recognition: can recognize, only if met two conditions:
& # 8211; Distribution must consist only of cash, inventory, and unrealized receivables.
& # 8211; Outside basis exceeds the sum of cash plus the inside basis of the receivables and inventory.
A. Deemed distributions (reductions in liabilities) are treated as cash distributions.
B. Distributions of marketable securities (up to the value of the securities less the partner’s share of appreciation inherent in the securities) are treated as deemed distributions.
C. Distributions of builtin gain property to “other” partners (not the partner who originally contributed the property) within 7 years of the original contribution causes gain recognition.
D. “Disproportionate” distributions of “hot assets” (see below) can also trigger income recognition.
Disproportionate distributions : ordinary income assets (inventory and receivables) are distributed to partners without regard to their proportionate ownership interests.
V. Sales of Partnership Interests.
“Hot” assets gain/loss is not eligible for capital gain treatment.
& # 8211; Outside basis is used to calculate.
& # 8211; The amount realized includes assets received and liabilities assumed.
& # 8211; The partnership determines the partner’s share of income or loss on the date of the sale.
Hot assets : generate ordinary income or loss because the partner has not yet been taxed on accrued, but unrealized, income.
& # 8211; Unrealized receivables and inventory are hot assets. Inventory has to be substantially appreciated (FMV> 120% x adjusted basis)
& # 8211; Potential section 1245 and section 1250 recapture is included as an unrealized receivable.
C. Collectibles or has Section 1250 assets owned also impact the gain. The selling partner’s gain will be taxed at 28% to the extent it is due to collectibles, and any unrecaptured Section 1250 gain will be taxed at 25% .
A. Requires the closing of the partnership books: a closing of the partnership tax-year, a deemed distribution of assets to the partners.
B. A partnership terminates for tax purposes if either of two events occur.
& # 8211; No part of the business continues to be carried on by any partner in the partnership form.
Example:In a two-person partnership, one partner sells his interest to the other partner. This is sale terminates the partnership for tax purposes because it will no longer have two owners (it is now a proprietorship).
& # 8211; There is a sale or exchange of at least a 50% interest in both capital and profits within a consecutive 12-month period.
The death or withdrawal of a partner doesn’t necessarily terminate partnerships for tax purposes.
& # 8211; Merge: one partnership continues if its old partners also control the new entity (over 50% interest).
& # 8211; Division: one of the new partnerships is a continuation of the old partnership if the partners (in the new partnership) had a controlling interest in the old partnership.
Estate and Gift Taxation.
Introduction to Transfer Taxes.
A Trust : is a legal entity created by transfer of property from a grantor . The purpose of the trust is to hold and administer property for beneficiaries according to the terms of the trust instrument. The trust exists for the period determined by the trust instrument and state law.
An Estate : is a legal entity that comes into existence automatically at the death of a taxpayer (the decedent ). The executor of the estate collects the assets of the decedent, pays the decedent’s debts, and distributes the remaining assets to the beneficiaries according to the decedent’s will or according to the state law governing inheritances. The estate exists for the period required by the executor to perform his duties.
A Donor : is a person who makes a gift to a donee .
A Terminable Interest : is one that ends upon the occurrence of a contingency.
A Remainderman : is a person who receives property after a present interest is terminated.
A Contingent Interest : is one that is created upon the occurrence of a contingency.
II. Gifts and Inheritances.
A. A transfer during the life of the donor (an inter vivos transfer) triggers a gift tax.
B. A transfer at death (a testamentary transfer) triggers the estate tax.
C. The donor or decedent can only transfer their ownership interests and not others’. In community property states (Texas and California, among others), property acquired during a marriage is owned one-half by each spouse.
D. The donee or heir is secondarily liable for the transfer tax.
E. The decedent’s will directs transfers after the death of the decedent.
F. Gifts and inheritances are not income to recipients. Under the income tax, most donees assume a carryover basis for a gift and the holding period “tacks” from the donor. For inheritances, the heir takes a step-up basis (the fair market value which was included in the estate) and the holding period is always long-term.
III The generation skipping tax (GST)
The Generation Skipping Tax : is a supplemental tax, that prevents the avoidance of the transfer taxes by skipping one generation of recipients.
A. Apply to transfer of property to someone who is more than one generation younger than donor or decedent.
B. not applicable if the persons in the intervening generation are deceased.
C. not widely applicable, most transfers qualify for an annual gift tax exclusion and each donor/decedent is entitled to a large aggregate exemption ($2.0 million in 2008)
IV. Integration of Gift and Estate Tax.
A. all transfers are only subjected to one of the two transfer taxes, unified after 1976.
B. Deductions for both the estate and gift taxes.
& # 8211; unlimited marital deduction for transfers to a spouse.
& # 8211; unlimited charitable contribution deduction for transfers to charity.
C. Unified Credit: the first $2.0 million (in 2008) of transfers from an estate will not trigger a tax liability, The credit allowed for the first $2,000,000 of transfers is $780,800 . The unified credit for transfers by gift is limited to $1,000,000.
II. The transfer must be complete to be treated as a gift.
Delivered, donor must give up control, donee must accept.
The creation of a joint ownership interest without equal consideration from each co-owner is considered a gift of the excess contribution to the owner making a smaller contribution. Typically “tenants in common” do not hold property with the right of survivorship. “Tenancy by the entirety” and “joint tenancy with the right of survivorship” hold property with the right of survivorship. Right of survivorship means that when one co-owner dies, the property immediately passes to the other co-owners.
A. The creation of a joint interest without adequate consideration creates a gift regardless of the form of ownership.
B. Transfers of cash to joint bank accounts do not constitute a complete gift until the donee withdraws the cash.
C. A purchase of a savings bond held jointly in the name of the donee and the donor is not a complete gift.
D. The creation of a joint interest with a spouse (with the right of survivorship) is not taxed because of the marital deduction.
E. The termination of joint ownership may also trigger a tax, if the proceeds are not divided according to each owner’s interest.
IV. Exclusions from Gift Tax.
A. Certain transfers are not considered gifts.
& # 8211; Payment made directly to the institutions of another unrelated individual’s medical or educational expenses (tuition and fees only)
& # 8211; The satisfaction of an obligation.
B. Annual Exclusion: $12,000 (2008) per donee per year eliminates modest gifts, only applies to a gift of a “present” interesse.
A. The purpose of a gift splitting election: available each year, donor must be married at the time of the transfer.
B. a gift is split and treated as being given equally by both spouses.
& # 8211; Both spouses will need to file a gift tax return so that each can elect gift-splitting. Both spouses can use an annual exclusion.
& # 8211; Gifts of “terminable interests,” generally do not qualify for the deduction.
Terminable Interest : is an interest in property that terminates upon the death of the recipient.
& # 8211; The deduction is unlimited.
& # 8211; The amount of the deduction is the total gift less any excluded portion (if the annual exclusion applies)
& # 8211; A charity is defined similarly to income tax (educational, scientific, religious organizations), but includes foreign charities and excludes cemeteries.
& # 8211; No limitation on the amount of the deduction.
& # 8211; determine current taxable gifts (gifts reduced by exclusions and deductions)
& # 8211; add previous taxable gifts and calculate the total gift tax.
& # 8211; reduce the total gift tax by the gift tax computed on taxable gifts from previous periods.
The gift tax on previous gifts is computed using the current tax rate schedule and ignores the use of the unified credit. This amount does not represent the amount of gift tax paid.
& # 8211; reduce any remaining gift tax by the unused portion of the unified credit. The unified credit in 2008 for transfers made by gift is limited to $1,000,000 , which will offset $345,800 of gift tax.
B. Filing Requirements: based upon the annual exclusion.
& # 8211; 4/15 the due date, no fiscal years are allowed.
& # 8211; The gift tax return (form 709) is due if gifts exceed the annual exclusion or if a gift is made of a future interest.
& # 8211; No gift tax return is required for charity.
C. The Federal Gift Tax Formula.
Current Gifts – 1/2 of split gifts + 1/2 of split gifts by spouse – ANNUAL EXCLUSION ($12,000 per donee) – Marital and Charitable Deductions = Current Taxable Gifts.
Current Taxable Gifts + Prior Taxable Gifts = Cumulative Taxable Gifts.
Cumulative Taxable Gifts × Tax Rates = Cumulative Tax.
Cumulative Tax – Current Tax on Prior Taxable Gifts – remaining Unified Credit = Gift Tax Payable.
VIII. Integrated Review Problem.
A gift of present interest: currently receiving.
A gift of a future interest: start from a point in the future.
Not a completed gift: incomplete transfer due to power to revoke.
The gross estate includes property owned by the decedent at death and certain property transfers.
A. Property owned by the decedent is included in the probate estate.
The Probate Estate : includes cash, stocks, and assets such as a residence, clothing, and jewelry. The probate estate is the collection of the decedent’s possessions for legal purposes, whereas the gross estate is a measure of the value of these possessions for estate tax purposes.
B. Property “transferred” by the decedent is also included in the gross estate.
Property held in joint ownership with right of survivorship, retained life estates, revocable gifts, transfers triggered by death (retirement benefits), and life insurance.
C. Valuation of Property: FMV.
& # 8211; Valuation date: date of death, or executor can elect.
& # 8211; The alternate valuation date: six months after the date of death or on the date the property is disposed of (if earlier than the former), only available if it causes gross estate and tax payable to decline.
& # 8211; An executor can elect to value certain realty used in farming or in connection with a closely held business at a “special use” avaliação.
Special Use Valuation : allows realty to be valued at a current use that does not result in the best or highest fair market value, available when the business is conducted by the decedent’s family, constitutes a substantial portion of the gross estate, and the property passes to a qualifying heir of the decedent.
II. Specific Inclusions in Gross Estate.
A. Life Insurance proceeds: included in the gross estate under either of two conditions.
& # 8211; The decedent had incidents of ownership (e. g., the right to designate the beneficiary).
& # 8211; The decedent’s estate or executor is the beneficiary of the insurance policy.
B. Jointly Owned Property: included in the gross estate.
& # 8211; The value of the decedent’s interest is included.
& # 8211; Husband and wife (right of survivorship or tenancy in the entirety): 50% of the value of the property will be included.
& # 8211; For jointly owned property with the right of survivorship (unmarried owners): the proportion of the consideration that the decedent provided to acquire is included.
C. Retained Interests: Property transferred where the decedent retained an interest or a power which cause the property to be included:
& # 8211; A retained life estate or the retention of a power to alter, amend, or revoke a transfer are retained interests.
& # 8211; The power to designate possession or enjoyment of property or income (including power created by another that can be exercised in the decedent’s favor)
A Life Interest : is an interest in property that is retained for the life of the transferor. For example, a life interest in a residence means that the residence can be occupied for the life of the owner even though the property itself has already been transferred to another individual.
Example :Donor transferred property in trust with income to self for life and property to go at donor’s death to R (remainderman).
Question: What is included in the donor’s estate upon his death?
Answer: The trust property will be in the donor’s gross estate.
D. Transfers within 3 Years of Death: included in the gross estate.
& # 8211; Transfers with retained interests, revocable transfers, and transfers of life insurance, if made within three years of death.
& # 8211; Property is included at the date of death value.
& # 8211; The gift tax paid on the gift is included in the estate for any gifts made within three years of death (this is the “gross up” provision).
Example :Two years ago TP transferred a life insurance policy on his life to S (his son), and paid gift tax on the transfer.
Question: When TP died this year, what was included in his estate? Suppose that TP also transferred stock to S?
Answer: The value of the insurance and the gift tax paid on the transfer are included in T’s gross estate. If TP had transferred stock, only the gift tax would be in his gross estate because TP did not retain any interest and the transfer was not completed by the death of the decedent.
A. the spouse must receive property outright and be able to control its ultimate destination.
& # 8211; Joint tenancy qualifies.
& # 8211; Only the net value of property subject to mortgage qualifies.
& # 8211; Property rights that are terminable do not qualify.
B. Qualified terminable interest property ( QTIP ): qualified.
& # 8211; use the marital deduction for a transfer to a spouse of less than a complete interest in trust.
& # 8211; The surviving spouse must receive all of the trust income annually (or more often) for life, but the decedent determines where the property goes at the surviving spouse’s death.
& # 8211; The property must be included in the surviving spouse’s estate at its value when the survivor dies.
C. No marital deduction is allowed for non-citizen spouses.
& # 8211; An exception to this rule is a transfer to a “qualified domestic trust,” which assures estate tax imposition upon non-citizen spouse’s death.
IV. Other Deductions: expenses and losses.
A. Debts of the estate, such as mortgages and accrued taxes.
B. Final expenses ( Funeral expenses and administration expenses )
C. Casualty and theft losses.
& # 8211; incurred during the administration of the estate.
D. Charitable contributions: The same charities as the gift tax (e. g., includes foreign charities, but excludes cemeteries).
E. The executor has option of deducting administration expenses, casualty and theft losses on the estate tax return or the estate’s income tax return.
Example 😀 had a taxable estate of $1,400,000 and had made adjusted taxable gifts of $800,000 that were not included in the estate. D did not pay any tax on the gifts because he used his unified credit to offset the gift tax.
Question: If the unified credit offsets $2,000,000 of taxable transfers (2007), how much of the estate will effectively be subject to the estate tax?
Answer: D’s estate will owe tax on $200,000 ($1,400,000 plus $800,000 less $2,000,000)
& # 8211; taxable estate + adjusted taxable gifts (at date of gift values)
Adjusted Taxable Gifts : are taxable gifts other than gifts already included in the gross estate.
& # 8211; apply tax rates.
& # 8211; Tentative transfer tax – gift taxes paid.
& # 8211; Subtract the unified credit and other credits (unified transfer tax credit and credit for state and foreign death taxes paid)
In contrast to the gift tax calculation, the estate tax calculation uses the amount of gift taxes paid on previous transfers. Because this calculation uses taxes actually paid, the calculation uses the entire unified credit regardless of any amounts previously claimed in computing gifts taxes.
& # 8211; A credit for tax on “prior transfers” to adjust for taxes on proximate deaths (deaths within 10 years)
& # 8211; A credit is allowed for all or part of the death taxes paid to a foreign country.
C. Filing Requirement: based upon whether the gross estate exceeds the exemption equivalent.
& # 8211; Installment payment of estate taxes is available for closely held business interests.
& # 8211; Return is due 9 months after date of death.
& # 8211; must be filed if the gross estate plus adjusted taxable gifts equals or exceeds the exemption equivalent.
D. The Federal Estate Tax Formula.
Property Included in Gross Estate – Expenses, Debts, and Losses = Adjusted Gross Estate.
Adjusted Gross Estate – Marital and Charitable Deductions = Taxable Estate.
Taxable Estate + Adjusted Taxable Gifts = Estate Tax Base.
Estate Tax Base × Tax Rates = Tentative Tax.
Tentative Tax – Gift Taxes Paid – Unified Credit – Foreign Death Tax Credit – Taxes on prior transfers = Estate Tax Payable.
Fiduciaries.
Income Taxation of Fiduciaries.
Taxed on income retained by the fiduciary and not distributed currently to beneficiaries.
A. Single taxation: either the fiduciary or the beneficiary.
& # 8211; A distribution deduction for fiduciary prevents double tax.
& # 8211; Income taxed to beneficiaries retains its character (a conduit approach).
B. Income Computation: Individual income tax rules.
& # 8211; Personal exemption depending on the type of fiduciary: $600 for estates, $300 for simple trusts and for complex trusts that distribute all of their income currently, and $100 for all other complex trusts. A trust may be simple in some years and complex in others.
A Simple Trust : (1) must distribute all income currently, (2) make no distributions of corpus currently, and (3) make no current charitable contributions. Any trust that does not qualify as simple must be complex.
A Grantor Trust : is a trust controlled by the grantor through retained powers or the possibility the property in the trust will revert to the grantor.
& # 8211; No standard deduction, but can deduct interest, taxes, charitable contributions, and trustee’s fees.
& # 8211; When income is distributed currently by the fiduciary, beneficiaries are taxed on the income.
C. Fiduciary accounting rules determine what can be disbursed.
& # 8211; Receipts and disbursements of trusts and estates are categorized by the fiduciary instrument or state law as either belonging to income or corpus (principal).
Corpus : is the principal or property in a trust or estate. The income earned on the principal is distinguished from the principal.
& # 8211; Income and deductions are allocated among beneficiaries according to the trust instrument.
A. Deduction for Distributions: Fiduciaries are entitled to deduct distributions of income to beneficiaries.
& # 8211; Fiduciaries pay income taxes, including an alternative minimum tax (when applicable), if the fiduciary has undistributed taxable income.
& # 8211; The distribution deduction cannot exceed the distributable net income.
& # 8211; Property distributions are not dispositions of assets, but distributions of DNI.
& # 8211; Beneficiaries are taxed on the receipt of distributions (to the extent of DNI).
& # 8211; Beneficiaries report income for the beneficiary’s tax year in which the estate’s or the trust’s year-ends.
B. The calculation of DNI requires adjusting taxable income.
Taxable income + personal exemption, net tax-exempt income, and net capital loss – net capital gains allocable to corpus.
Distributable Net Income (DNI) : is the amount of accounting “income” that’s available to be distributed; typically capital gains belong to corpus and are not part of DNI.
To compute distributable net income for an estate, taxable income must be adjusted for:
–extraordinary dividends and taxable stock dividends;
–capital gains and losses;
–gains excluded from gross income under the 50 percent exclusion for qualified small business gain;
–the distribution deduction;
–the personal exemption; e.
–the deduction for estate tax attributable to income in respect to the decedent. Capital gains are excluded from distributable net income if the gains are allocated to corpus and.
uma. not paid, credited, or required to be distributed to a beneficiary or.
b. not paid or set aside for charity.
For estates and complex trusts, there is a two-tier system of allocating income and deductions and a “throwback” rule to discourage tax avoidance by timing trust distributions.
C. Income Tax Formula for Fiduciaries.
Gross Income – Deductions ( interest, taxes, business expenses, depreciation, and charitable contributions) – Distribution Deduction – Personal exemption = Taxable Income.
Taxable Income × Tax Rates = Gross Tax.
Gross Tax – credits + additional taxes = Tax Payable.
A. Trusts must use a calendar year, but estates may choose any year-end. Both must file by the 15th day of the fourth month after the year-end.
B. Trusts must pay estimated income taxes, but estates need only pay estimated income taxes after their first two tax years of operation.
C. Fiduciaries must file an income tax return if gross income exceeds $600 , if the fiduciary has taxable income, or if a nonresident alien is a beneficiary.
IV. Income in Respect of a Decedent.
When a decedent was entitled to receive income at the date of death (but not included in the decedent’s final return), also included on the estate tax return.
A. Income and expenses are reported on a decedent’s final individual income tax return up to the date of death.
& # 8211; Income actually and constructively received through the date of death is included on the final return. When the decedent was on the cash basis, some income will not be received until after the date of death.
& # 8211; Deductible expenses paid through the date of death are properly claimed in the decedent’s final return.
B. T axed as income to the estate (or beneficiary if distributed).
C. no step up for income in respect of decedent.
D. The income, and accrued expenses report in both the estate income tax return and the estate tax return.
E. Estates (or beneficiaries) who are taxed on income in respect of a decedent are entitled to deduct the estate tax on this property.
Property Transactions.
I. Only a “sale or exchange” of a “capital” asset is eligible for capital gains netting.
A sale or exchange : except a casualty, theft, or other involuntary conversion, such as a condemnation.
Capital assets : do not include inventory, accounts receivable, depreciable assets in trade, realty in trade, creative works (in the hands of the creator), or certain miscellaneous assets (such as government publications or obligations).
A. Short Cut: Investment assets and personal use assets are capital assets.
Only losses of sales from investment and business assets are deductible, personal is not.
II. Classified based on long-term or short-term.
A. Holding periods “tack” for transactions in which an asset takes a substituted basis.
Example: TP’s pickup was destroyed in a storm and he replaced it with a similar pickup. If TP elected to defer the gain as an involuntary conversion, then the holding period of the old pickup will tack onto the holding period for the new pickup.
B. There are automatic holding periods for “nonbusiness” bad debts (short-term) and inheritances (long-term).
III The combination of the net short-term gain or loss and the net long-term gain or loss determines whether any gain is eligible for a preferential tax rate.
A capital loss (whether short-term or long-term) must be deductible in order to be netted with gains.
A net capital loss : occurs if a net loss results from combining net short-term gains and losses with net long-term gains and losses.
A. individuals can deduct this “net capital loss” up to $3,000 per year, limited to taxable income.
B. If the combination of net short-term and net long-term gains and losses is positive, then this is deemed capital gain net income .
C. A net capital gain : is net long-term capital gain in excess of a net short-term capital loss (if any).
D. Corporations can only use a “net capital loss” to offset capital gain net income. Net capital losses are carried over as short-term capital losses: carriedback three years and forward five years.
1. Calculate total for short-term and long-term (3 different rate categories) separately first. Within long-term, loss go offset gain, higher rate first.
2. Total of short-term and long-term. If short-term gain is not totally offset by long-term loss, it is taxed at ordinary income; otherwise, offset, carryover long-term loss under its category.
-5,000 (offset 11,000)
IV. Preferential Tax Rates.
A. rate depends on the composition of the net long-term gain.
& # 8211; Net capital gain attributable to straight-line depreciation claimed on real estate is taxed at maximum 25%
Decide on 5% or 15%: apply tax rate from the highest (ordinaryà28%à25%à5/15%), add up all taxable income to decide taxpayer’s tax bracket, if the 5/15% category income put taxpayer across border, divide the amount into half and tax with 5% or 15% separately.
B. netting losses against various categories of long-term gains.
1. A net short-term loss is applied against a net long-term gain (the group of long-term gains taxed at the highest rate is offset first).
2. A net loss in one of the long-term groups is first applied to the group of long-term gains taxed at the highest rate.
1. Partnerships and “S” corporations: determination of maximum tax rate is made at the entity level.
2. Gains from the sale of “qualifying small business stock” are eligible for a 50% exclusion. The gain qualifying for the exclusion is taxed at 28% (and thus is taxed at 14% [28% x 50%]), and any excess gain is taxed at 15 percent.
Qualifying small business stock : is stock of a small business corporation (less than $50 million in capital) held for five years. The maximum exclusion is ten times the taxpayer’s basis in the stock or $10 million in aggregate.
Example:ABC corporation, a qualified small business corporation, issued 100 shares of stock to TP for $20,000 in 1994. On September 25 of this year, TP sold the stock for $300,000 and realized a gain of $280,000. The gain eligible for the exclusion is the lower of $200,000 (ten times TP’s basis) or $10 million. Hence, $200,000 of the gain is taxed at a net rate of 14 percent, and the remaining gain will be taxed at a maximum gain of 15 percent.
D. Gains from the sale of qualifying small business stock are eligible for deferral if the proceeds are reinvested in another qualifying corporation within 60 days.
E. If a nondealer, noncorporate taxpayer subdivides real property into at least two lots for resale, the gain from the sale of the lots will be treated as capital gain as long as the taxpayer had held the property for at least five years and no substantial improvement has been made to the lots by the taxpayer. All gain on the first five lots sold will be capital gain. For others, 5% of the selling price will be treated as ordinary income.
A. Section 1231 applies to the sale or exchange of “section 1231” assets, and all involuntary conversions of business assets.
Section 1231 assets : are assets used in the trade and held for over 12 months (long-term). Section 1231 assets include realty and depreciable property but excludes capital assets, inventory, accounts receivable, copyrights, and government publications.
Short Cut: “Section 1231” assets include realty and depreciable personalty held in a trade for over 12 months.
B. recapture of depreciation.
1. “Section 1245 recapture” recharacterizes gain on depreciable personalty as ordinary income to the extent of accumulated depreciation.
2. “Section 1250 recapture” is recapture of accumulated accelerated depreciation of depreciable real estate in excess of straight-line depreciation as ordinary income.
3. “Unrecaptured Section 1250 gain” recharacterizes gain on realty as eligible for a special ( 25% ) tax rate to the extent of accumulated straight-line depreciation.
Recapture does not recharacterize losses.
Gains on the sale of land held long-term in a trade are 1231 gains.
Gains on the sale of machinery held long-term are ordinary income, unless sold for an amount greater than the original purchase price.
Gains on the sale of buildings held long-term in a trade are 1231 gains: “accelerated depreciation – straight-line” is ordinary; straight-line depreciation: 25% .
C. separate netting for business casualties, other involuntary conversions, and trade assets.
1. section 1231 gains – section 1231 losses = net gain: long-term capital gain.
2. section 1231 losses – section 1231 gains = net loss: ordinary loss. Lookback provision states that the net Section 1231 gains must be offset by net Section 1231 losses from the five preceding tax years that have not previously been recaptured. To the extent of these losses, the net Section 1231 gain is treated as ordinary income.
I. Short Cut: steps for disposition problem.
Realized gain or loss – gain or loss deferred.
Basis of the new property = value of the new property – gain deferred or + gain deferred.
Sale or disposition : includes sales, exchanges, trade-ins, casualties, condemnations, thefts, and retirements.
A. Amount Realized – Adjusted Basis = Realized Gain/Loss.
B. Amount realized: Cash, FMV of property, Liabilities assumed, Less selling expenses.
C. Adjusted basis: cost or other acquisition basis + capital improvements – depreciation, amortization, and depletion.
Cost includes any liabilities or expenses connected with the acquisition.
II. Like-Kind Exchanges: The deferral provision for direct (like-kind) exchanges is a prototype for deferral provisions governing transactions that are not in substance dispositions.
A. Losses are never recognized from a like-kind exchange. Recognized gain is the lesser of: realized gain, or boot received.
B. Rules are mandatory.
C. Only “like-kind” business (investment) property qualifies for deferral, inventory and receivables do not qualify.
Like-kind property : has the same general character as the property given up.
In general, all realty is considered like-kind, real property for personalty is NEVER considered like-kind.
Property located outside the United States for property inside: not qualify as like-kind.
Special rules apply when like-kind property is acquired from related taxpayers.
D. Must be identified as property to be received on or before the day which is 45 days after the date on which the taxpayer transfers the property relinquished in the exchange, and.
Received within the earlier of:
1. 180 days after the date on which the taxpayer transfers the property.
2. the due date (determined with regard to extension) for the transferor’s return of the tax imposed by this chapter for the taxable year in which the transfer of the relinquished property occurs.
III The Receipt of Boot: triggers gain recognition.
A. Cash and nonqualifying (not like-kind) property are considered boot.
B. If the buyer assumes more liabilities than the seller does, then the excess liabilities assumed by the buyer are considered boot.
& # 8211; Basis of like-kind property received: FMV of property received – Postponed gain + Postponed loss.
& # 8211; Holding period of like-kind property surrendered tacks on to property received.
A. Dealers cannot use installment method for sales of inventory. Even if the installments method is elected, all depreciation recapture must be recognized in year one (the year of sale)
B. Recognition of Deferred Gain: triggered by receipt of cash.
& # 8211; Gain = gross profit percentage×cash received.
* A disposition of the installment obligation will trigger recognition of the deferred gain.
* The installment obligation (note receivable) must have market interest rate or a portion of the gain will be treated as imputed interest.
V. Involuntary Conversions.
A. If the taxpayer replaces the converted property with similar property, gain is eligible for deferral. Losses are recognized.
Amount realized from conversion (proceeds) – Adjusted basis of old property = Realized gain/loss.
Amount realized from conversion (proceeds) – Cost of replacement property = Recognized gain, limited to realized gain.
An involuntary conversion : is the result of a casualty (an unexpected, unavoidable outside influence like a storm, fire, or shipwreck), a theft, or a condemnation.
A condemnation : is a taking by the government. An imminent threat of condemnation is considered sufficient to trigger an involuntary conversion.
& # 8211; Any kind of property is qualified.
& # 8211; The replacement property must be similar or related in the service or use made by the taxpayer. Narrower than the like-kind test, because the properties must also have similar end uses.
& # 8211; Replacement must be made within two years from END of tax year in which the gain is realized.
* Extended to three years if the conversion was a condemnation of business realty. Can also extend with IRS permission, or if the area of the conversion is declared a disaster area.
* Adjusted basis of the new property = cost – deferred gain . If investment is less than the proceeds, the adjusted basis is the same as the converted property.
A. Losses from the sales of securities that often occur near year-end.
& # 8211; Not recognized if similar securities are purchased within 30 days of the sale.
& # 8211; Adjusted basis in the new securities = cost + the deferred loss.
A wash sale : results from the purchase of “substantially identical” stock or securities within a 30-day window around (The repurchase period is 61 days) the sale date.
& # 8211; Holding period: old security.
B. Losses: Business Property.
& # 8211; Loss from sale to related parties are not recognized, can only be used to reduce a gain upon the ultimate sale to unrelated parties, rest of unrecognized loss is not recognized (should be recognized if related party sale didn’t happen)
A related party : for purposes of loss deduction, includes family members — brother, sister, spouse, ancestors, and descendants, and controlled entities (corporations where the taxpayer owns more than 50% of the stock). In addition, beneficiaries of estates and trusts can also be treated as related parties.
& # 8211; Treated as constructive sale on the date of the short sale.
& # 8211; “marking to market”: Recognize gains on any short sales even if the sale was not closed through the purchase of additional stock or the delivery of shares previously owned.
& # 8211; Losses are deferred until the short position is actually closed.
VII. Sale of Principal Residence.
A. exclusion of gains from a principal residence once every two years.
& # 8211; up to $250,000 ($500,000 if filing joint) exemption if:
* The taxpayers are married and file a joint return for the year.
* Either the taxpayer or spouse meets the ownership test.
* During the 2-year period ending on the date of the sale, neither excluded gain from the sale of another home.
* Any depreciation taken after May 5, 1997 must be recaptured (e. g., the gain attributed to portion of the home depreciated as an office)
* if only one spouse meets the frequency limit, that spouse can only claim a $250,000 exclusion.
* Sale after 2007, if the sale occurs not later than two years after the death of a spouse, the surviving spouse may exclude $500,000, must meet ownership test and use test at time of sale.
B. Ownership and Use Tests.
& # 8211; owned and used as a principal residence for at least two of the preceding five years (need not be continuous, 730 days)
& # 8211; Short or temporary absences (e. g., vacations) are ignored and use is imputed for taxpayers who are institutionalized (e. g., unable to care for themselves)
C. Other Unforeseen Circumstances.
& # 8211; maximum amount of the exclusion = 250000 × qualifying months (ownership or use) / 2 years (or months/days) , qualifying months is the lesser of the number of ownership/use months or the number of months since the last sale.

Founding Partners.
Established in 1993 by Robert Green, Aki Chencinski, Laurie Starkman and Jim Eles, GCSE is not your typical accounting firm. Our strong leadership core and impeccable support staff allow us to offer a hands-on approach to attaining your business goals, while maintaining our family-like culture. We proudly strive to go beyond what you’d expect from a traditional firm.
While based in the GTA, we’re happy to serve clients right across the country and around the globe.
ROBERT GREEN CPA, CA.
Robert (Bob) Green is the firm’s real-estate guru, with a knack for helping clients make well-informed business decisions. As a partner formerly in another mid-sized accounting firm with a specialized practice, he draws upon more than 40 years’ experience in tax, accounting and consulting.
Not surprisingly, Bob’s practice is largely, but by no means exclusively, real-estate based. However, if you’re an investor seeking business venture advice, or a high-net worth individual, rest assured he can help you too.
Bob holds a BA from the University of Toronto (1961) and the CA designation from the Institute of Chartered Accountants of Ontario (1966).
JIM ELES CPA, CA.
Under Jim’s direction, GCSE has developed a significant Due Diligence practice, provided mainly to non-accounting clients on a project or assignment basis. Outside of these specialized areas, Jim handles a “regular” client portfolio comprised of manufacturers, distributors and high-tech companies.
Jim brings a dimension to GCSE not shared by many smaller accounting firms. A partner from the beginning, Jim’s prior experience includes a stint with a national accounting firm, where he worked with smaller, entrepreneurial clients and public companies. He has also served as Vice-President for a major Canadian public company, and as a partner in another mid-sized accounting firm.
Jim has both taught and spoken on accounting and auditing matters, including as a lecturer for the Canadian Institute of Chartered Accountants. Jim holds a B. from Laurentian University (1979) and a CA designation from the Institute of Chartered Accountants of Ontario (1981).
LAURIE STARKMAN CPA, CA, TEP.
Laurie is one of the founding partners of GCSE. His practice has grown in a number of directions, not the least of which is acting for a significant number of lawyers and other professionals as their personal accountant and advisor. Laurie has become one of the leading practitioners in the field of professional corporations.
Based on both the nature and extent of his personal tax involvement, Laurie has become one of the most knowledgeable individuals in the personal tax field, anywhere in the country. Notwithstanding, or maybe because of this expertise, Laurie has also developed a large client following of owner-managed enterprises. Such clients are acutely aware of the interaction of personal and corporate tax to their overall financial well-being.
Combining his knowledge and experience with his innate ability to communicate with people has made Laurie a highly sought after professional.
Laurie has also been involved in various speaking and writing engagements, especially with our In Touch With Tax publication. Laurie gets most of the credit (or blame) for the unique sense of humour that has become a hallmark feature of our publication.
Laurie is the Chairman of The Randy Starkman Charitable Foundation, created to honour the memory of his late brother, the award winning Olympic journalist. The charity supports a number of charitable endeavours, including the Canadian Olympic Committee’s “Randy Starkman Olympian Humanitarian Award”.
Laurie has a B from the University of Toronto, holds a CPA, CA designation from the Institute of Chartered accountants and has a TEP (Trust and Estate Practitioner) designation.
When Laurie isn’t working, he cherishes spending time and travelling the world with his wife, Nancy.
AKI CHENCINSKI CPA, CA, TEP.
Aki’s involvement in GCSE is multifaceted. While specializing in tax matters, he also works directly with clients on the many financial aspects of their business.
Whether determining the best overall annual tax planning for a company’s performance, or helping to restructure a company for estate planning or other business reasons, Aki’s background and experience, along with his flair for the creative, serves him and his clients well.
Prior to establishing GCSE with his partners, Aki was the president and a member of the executive committee of the Toronto Estate Planning council. Aki holds a BA from York University (1976), the CA designation (1977), the US CPA designation (1997) and the TEP (Trust and Estate Practitioner) designation (1998).
When not working, Aki enjoys spending time with his grandchildren, and if there’s any time left he tries to hit the golf links.
More than the Sum: Our Team.
The spirit of our firm is evident in every member of our 55+ team, who strive for perfection while providing service that exceeds our clients’ expectations. Many of our Chartered Professional Accountants and support staff have been with us since the beginning, so our clients can always rely on continuity of service.
Let’s meet the senior members of our team.
With 10 years of public accounting experience, Adam has a wealth of knowledge in the real estate, construction, transportation, professional, charities and condominium corporation sectors. His areas of expertise include accounting, auditing, tax compliance and advisory services for privately owned businesses and not-for-profit organizations.
Before joining GCSE in 2015, he obtained his CPA designation at a national accounting firm, and was an Associate Partner for a small accounting company. He completed his undergraduate degree at York University.
In his free time, he enjoys playing golf, soccer, snowboarding, and other competitive and recreational activities.
Clifford is a Chartered Professional Accountant with over 17 years of service in the accounting industry. He joined GCSE LLP in the summer of 1999. His areas of expertise include accounting, taxation and advisory services for privately owned businesses. He has worked with clients in various industries including legal and medical professional corporations, investments, manufacturing, real estate, retail and information technology. He is also fluent in French.
In his spare time he enjoys spending time with his family, watching soccer and movies and keeping active by Latin dancing.
Thanks to her 20 years of public accounting experience, Sandra serves her clients with expert knowledge on all accounting and financial matters, from planning and advisory to financial reporting. Combining her technical skills with a friendly approach, she consistently delivers value-added service that exceeds her clients’ expectations.
Sandra holds a Bachelor of Arts degree from University of Waterloo, with a specialization in accounting.
Outside of work, she enjoys spending time with her family and traveling in search of unique life experiences.
Anselina joined GCSE as a co-op student in 2010 while studying at the Master of Management and Professional Accounting program at the University of Toronto. She completed two co-op work terms with GCSE before becoming a full time staff member in 2011 and received her CPA designation in 2014. Anselina’s focus is in personal taxation and accounting and taxation for privately held businesses.
Before studying and working in accounting, Anselina completed a bachelor’s degree in pharmacology at the University of Toronto. In her spare time, she enjoys being outdoors and staying active.
George is a CPA, CGA with over 20 years of experience in the accounting industry. Of his twenty years in public practice, George has spent more than 10 of those years working with GCSE LLP. His focus has always been to provide timely service to his clients, and assist them in making sound business decisions.
George’s free time is limited, but when he has spare time, he enjoys volunteering at his church and with various organizations in his community, including senior outreach programs and preparation of income tax returns for low income families.
Having served as a tax manager for a national accounting firm, and later as a partner in a small public accounting firm, Michael brings more than 11 years of public accounting experience to GCSE.
Joining the firm in 2015, he provides accounting, assurance, taxation compliance and advisory services for a large number of owner-managed businesses in various industries, in particular for construction contractors and real estate developers, as well as legal and medical professionals, retail, automotive, manufacturing and not-for-profit organizations.
Michael has a strong foundation in all aspects of his clients’ business including personal and corporate tax, and has completed CPA Canada’s In-Depth Tax Courses levels 1 and 2. Michael is a member and past director of the Canadian Italian Business and Professional Association (“CIBPA”) a member and past committee member of the Vaughan Chamber of Commerce (VCC) Business Achievement Awards and a member of the Italian Chamber of Commerce of Ontario (“ICCO”).
When not at work, he enjoys playing sports, staying up to date on the latest IT trends and spending time with his family.
William de Groot.
William has over 15 years of public accounting experience dealing with owner-managed businesses. His focus has been on accounting and tax for a wide variety of industries and companies.
Before joining GCSE in 2017, William obtained his CPA, CGA at a national accounting firm. William’s experience included eight months in India training staff on Canadian accounting standards and tax issues.
In his spare time, William enjoys reading, biking, and learning Spanish.
Franco De Simone.
Franco has been working in public accounting and private sector accounting for over 30 years.
Always reliable and organized, Franco ensures that his client’s business needs are taken care of in a way that makes them feel completely at ease. He tackles each problem in an approachable and assessable way, so clients know they are taken care of at all times.
Priding himself on his close knit relationships with his clients, Franco has extensive experience with the owner-managed business. This experience has given him a knowledge base in the following areas:
Small business Commercial and real estate rentals Real estate investments and land development Investment companies General tax consulting.
When he has time off, Franco and his wife like to travel. In addition, Franco enjoys woodworking and has made some exceptional furniture for his home.
With over 11 years of experience specializing in private company tax services, Michael provides a creative and insightful approach to personal and corporate tax planning for entrepreneurs and their businesses. He has extensive background in delivering highly customized advice to private companies, their shareholders, and family members. He advises clients on matters such as business acquisitions and divestitures, corporate restructuring, succession planning, compensation strategies, and integrated tax advice for privately owned corporations.
His clients operate in various industry sectors, including real estate and construction, automotive, professional services, manufacturing, and information technology.
Michael is a member of the Canadian Tax Foundation, and has completed CPA Canada’s In-Depth Tax Courses levels 1 and 2.
Vivian graduated from York University with a Bachelor of Administrative Studies. She joined GCSE LLP in 2013 after working in an international CA firm for six years. She obtained her CA designation in 2010. Vivian has over 10 years of experience in the accounting industry. She has served clients in various sectors including manufacturing, real estate, professionals, automotive, wholesale, retail, insurance, financial and not-for-profit organizations.
In her spare time, Vivian enjoys outdoor activities such as running, hiking and water sports. She also loves to spend time with her family and furry friends.
Robyn Libin is a Chartered Professional Accountant with over 10 years of experience in public accounting and taxation. Robyn is a specialist in GCSE’s tax department with a focus on minimizing the taxation of individuals and privately held businesses in a wide range of industries. She regularly and successfully works with the Canada Revenue Agency to resolve client objections, manage appeals, and present voluntary disclosures.
Robyn graduated from Western University with an Honours in Business Administration from the Ivey Business School. She obtained her CA designation in 2008 and is a member of the Canadian Tax Foundation. She successfully completed all three levels of CPA Canada’s In-Depth Tax Course.
Outside of work, Robyn enjoys healthy cooking, fitness and spending time with her family.
Tess is a CPA, CA. She obtained her designation in 2011 after earning the degree of Master of Management and Professional Accounting (MMPA) from University of Toronto. She has over eight years’ experience in public accounting service and focuses on providing comprehensive accounting and tax services to small and mid-size business, in various industries, including real estate, manufacturing and retail. Tess specializes in taxation, both income tax and sales tax. She completed CA’s In-depth tax course level I, II and III, and HST In-depth tax level I.
In her spare time Tess enjoys reading and snowboarding.
Ernest is a CPA, CA and joined GCSE in 1997 after having spent seven years with another local public accounting firm. Ernest has extensive experience working on assignments in accounting, corporate and personal taxation and financial management. His clients consists primarily of manufacturing companies, retail and whole sales businesses, investment holdings, real estate rental and development corporations and joint ventures. Ernest has built successful relationships with his clients because he loves what he does – he spends time to provide technically correct advice in a timely manner.
In his spare time, Ernest volunteers as an assistant treasurer and Sunday school teacher in a local Baptist church. Ernest’s personal interests include travelling and camping with his family.
Jon has been providing accounting, assurance and tax services for owner-managed businesses for over 20 years. His client base over the years has ranged from owner managed consulting businesses to closely held public companies. This client base has held Jon’s interest throughout his career. There is great satisfaction in working with entrepreneurs and playing a part in the success of their business.
Jon’s approach combines solid technical knowledge and practical solutions to each client’s individual situation. These solutions provide strategies for tax minimization and wealth preservation for corporate groups, families and individuals.
Jon also enjoys mentoring new staff and derives great satisfaction in watching the staff develop into the next generation of accountants.
Albert obtained his professional Accounting Designation while employed by a medium size public accounting firm. Shortly thereafter, the firm merged with a national firm, allowing him a wide variety of accounting, income tax and audit experience with owner-managed client businesses.
He accepted the position of Controller at one of the firm’s clients, a growing land development corporation, a position that he held for ten years.
Subsequently, Albert worked for several of the GCSE LLP predecessor accounting firms, the last of which, in 1993, re-organized and resulted in the formation of Green Chencinski Starkman Eles LLP. His primary area of work focuses on accounting and income tax matters related to real-estate investment and land development.
Each fall, he attends the Education Consortium series of courses geared to the professional in order to remain up to date on current accounting and income tax matters.
Specializing in accounting, tax compliance and advisory services for privately owned businesses, Rebecca consistently demonstrates an in-depth understanding of their needs.
She works with clients in various industries including manufacturing, real estate, professionals, retail, information technology and the not-for-profit sector.
Prior to joining GCSE in 2013, she worked as a manager in a mid-size accounting firm.
In her spare time, she enjoys traveling, reading, watching movies and being with her family.
Debra manages, organizes and coordinates office operations, procedures and policies to ensure that the firm runs effectively and efficiently. Debra is involved with certain aspects of the firm’s accounting department and is heavily involved with e-filing during tax season. She supervises administrative staff and liaises with GCSE personnel.
Debra is one of the few staff members who joined the original GCSE upon inception of the firm on June 1, 1993.
In her spare time, Debra likes to watch movies, go for long walks and loves spending time with her family.
Having been involved with GCSE since the beginning, Ron’s role in client relations is quite broad. His knowledge, skills, and ongoing involvement in follow ups with the CRA contributes strongly to our work on financial statement and tax return preparation.
He works extensively with businesses in the manufacturing, distribution, real estate, professional and service industries and is also involved with clients that have extensive investment portfolios.
In his spare time, Ron keeps himself active by participating in a volleyball league, and collects “Coke”™ memorabilia.
Director of Professional Standards, General Manager.
As our Director of Professional Standards and General Manager, Sharon brings a diverse set of skills and experiences to both roles. Her experience includes nine years with the assurance practice of a Big 4 firm, in Canada and in Australia. Her time in Australia coincided with the adoption of IFRS as the national accounting standards there. Sharon was actively involved in the transition to IFRS for her clients, which ranged from small, owner-managed businesses and not-for-profit organizations, to large, multinational companies and a publicly traded company.
Just before joining GCSE, Sharon worked for the Chartered Professional Accountants of Ontario (previously the Institute of Chartered Accountants of Ontario). In her role there, she interacted with practices of all sizes, from sole practitioners to national firms, and evaluated their compliance with professional standards.
She is also a Board Member and the Treasurer for the Barbra Schlifer Commemorative Clinic, a specialized clinic for women experiencing violence, which provides counselling, legal support, and multilingual interpretation services.
As our Director of Tax, Valerie’s practice focuses on tax planning for high net-worth individuals and privately owned businesses, where she provides helpful and timely advice.
Prior to joining GCSE, she was a principal at a Big-Four accounting firm and gained experience in various industries, including manufacturing, real estate, professionals, not-for-profits and insurance. She has extensive experience dealing with international issues, corporate reorganizations, estate planning and negotiations with the CRA.
An avid reader and theatre goer, she also loves travelling the world in her spare time.
Quyen Vu is a Chartered Professional Accountant who joined GCSE LLP in the winter of 1996. Her work primarily focuses on accounting, taxation compliance and advisory services for privately owned businesses. She is experienced with a variety of industries including manufacturing, real estate, professionals, retail and the non-profit sector. Part of her role at GCSE LLP is to assist with Quality Control and ensure that the high standards of the firm are maintained.
In her spare time, she enjoys doing puzzles, reading, traveling, gardening, watching DVDs and spending time with friends and family.
Robert Wells is the newest associate partner to join GCSE LLP. He was formerly an associate partner in a National accounting firm, specializing in the automotive, retail, manufacturing, software, and not-for-profit sectors. Robert obtained his legacy CA designation in 1988.
After many years serving clients in the privately-owned business sector at national and mid-sized accounting firms, IIana joined GCSE in 2015. Specializing in tax, she brings incredible focus and attention to detail in seeking solutions to her clients’ tax compliance and planning needs.
IIana graduated with a Bachelor of Commerce from McGill University and has completed levels 1, 2 and 3 of CPA Canada’s In-Depth Tax Course.
In her spare time she enjoys music, playing tennis, travelling and spending time with her family.
Miranda graduated from University of Toronto with a Masters of Management and Professional Accounting in 2013. She joined GCSE in 2012 as a co-op student and became a full time staff in 2013. In 2016, Miranda obtained her CPA, CA designation.
Miranda’s focus is in personal taxation and accounting and assurance for private enterprises in various industries, such as legal and medical professional corporations, manufacturing, retail and not-for-profit organizations.
Miranda loves traveling, drawing and taking care of her orchid flowers. She has more than 20 orchids at home.
Going Above the Bottom Line.
Going Above the Bottom Line.
We understand how difficult it is to run a business, especially when it comes to keeping track of financial information. This is especially true for small business owners, who frequently have to do it all. But whether you’re a business owner, manager, or family owned enterprise, GCSE is here to share our knowledge and expertise.
Here’s our full service offering and some of the industries we serve. This should give you a better sense of exactly how we can help you run your business.
Accounting and Assurance.
Our auditing and assurance services are designed to deliver value beyond balancing books. We always ask ourselves – what else can we bring to this client or this assignment?
First, we identify your unique needs, then work with you to provide a tailored approach. In many cases, we’ll also bring our tax expertise or business advisory skills to the fore to provide a full-service solution.
Whether it’s a family-owned business looking for assistance with their accounting needs, or a company seeking an auditor, we have the understanding and expertise to handle the job.
Tax Planning and Compliance.
At GCSE, we’re especially proud of our expertise in tax matters. From our partners and senior management to our front-line staff, we take care of your most pressing tax needs. We also produce a highly-acclaimed tax publication, In Touch with Tax .
Our tax expertise encompasses a wide range of services, including:
Preparation of corporate, personal and trust tax returns All aspects of integrated corporate and personal tax planning, especially for the family owned enterprise, including estate planning for the owner/manager Planning for the structuring of transactions such as the purchase or sale of a business, and restructurings such as re-financing and creditor arrangements General tax compliance issues, including dealing and negotiating with the Canada Revenue Agency on behalf of clients Advising on international and public company transactions, including planning for inbound and outbound investments Dealing with all aspects of commodity taxes, especially the federal Goods and Services Tax (GST) and Harmonized Sales Tax (HST)
Personal Tax.
It goes without saying that personal tax is a major part of our practice, so we make sure to apply our hands-on approach to this delicate matter with the deftest of touches. We prepare the returns for virtually all of our corporate and business clients’ owners and family members, as well as many annual individual clients for whom we primarily provide return preparation and related functions.
Our personal tax practice includes returns for non-resident individuals with Canadian tax reporting requirements, and we also prepare U. S. returns for Canadians with U. S. tax filing requirements. This can include returns for an entire group or class of individuals of an organization. Since these matters call for thoroughness, we always pursue necessary follow ups with the Canada Revenue Agency, either on initial review or subsequent reassessment.
Accountants tend to be swamped in April, so generally people don’t contact them around that time. While our personal tax practice has been growing every year, almost exclusively thanks to word of mouth referrals, we can always handle more because of the efficient way we operate during this hectic season. Not only is it good business, but it helps keep stress levels down and office morale up.
Business Advisory.
As your trusted business advisor, your financial well-being is our priority. Because we understand what creates success for a business and what causes it to underperform, we offer all our clients business insights tailored to their specific needs.
This includes helping businesses expand through acquisition or internal growth, or perhaps divest themselves of an unprofitable division or product line. We also prepare financial forecasts and projections for a business plan, and prepare a valuation report for any one of several reasons. These could include the purchase or sale of a business or division, a litigation (perhaps family law) matter, a reorganization for income tax or business purposes or planning in the context of a family owned enterprise.
All that to say, we’re here to ensure your financial wellbeing.
Diligência devida.
In a commercial context, due diligence is the process of determining that information and representations are accurate prior to signing a contract.
At GCSE we have taken the “art” of due diligence to a new level. We do not simply check for numbers and documents, but strive to truly understand the core of every business. What makes it successful? What critical areas could adversely affect it? This in-depth and personalized approach is vital, especially when preparing or reviewing management prepared business forecasts.
Whether working with a financial institution, lawyer or principal investor or purchaser, we provide this service to the small and mid-market business sector, whether for a private owner managed business or for a public company.
To get a sense of our experience in this field, here’s a brief sample of some of the transactions we have been involved in:
Two separate private placements in publicly traded food processing and distribution companies Outright purchase of the major machine shop and fabrication division of a large multinational corporation Equity and subordinated debt investment in beverage operation, followed-up with subsequent merger with a second beverage processor Equity and subordinated debt investment in companies in the following industries: Foundry operations Manufacturer and distributor of packaging and storage products Photo-finishing lab Glass and plastic recycling.
Imobiliária.
GCSE’s strength in the real estate industry comes in large part from founding partner Robert Green, and his 40 years’ experience in accounting and real estate. This background, combined with our tax expertise, allows us to provide the right answers.
So whether an investor or owner/manager requires assistance in analysing an existing or prospective deal, or seeks advice in connection to purchasing or selling a property or project, rest assured we will work diligently to assist with these delicate matters.
Legal Professionals.
We’re proud to act as personal accountants and advisors to a number of law firms, and count more than 300 lawyers as our clients. In this area of practice, we have demonstrable experience in:
Developing and recommending appropriate information systems for a law practice Acting as an independent consultant to a firm and its partners in connection to partnership arrangements Advising on alternative structures, such as the use of management companies and partnerships, as well as the use of trust arrangements Dealing with the Law Society and other regulatory bodies on behalf of the firm and its members Assisting individual partners in minimizing their personal tax bite.
We also have considerable experience in the use of professional corporations and related structures. Our familiarity with the legal profession, combined with our range of expertise, renders us well-equipped to serve as advisors and accountants to both individual lawyers and their firms.
Medical Professionals.
Medical professionals, such as doctors and dentists, enjoy income splitting opportunities unique to their profession. We’re well-suited to help them manage these specific factors, as well as tackle the same business and investment challenges shared by our other clients.
With the changes that have expanded the tax benefits of incorporation for medical professionals, we’re poised to assist our medical professional clients in navigating the tax planning opportunities and ownership options available.
In addition, lower corporate tax rates will present an opportunity for doctors or dentists to accumulate more investment assets in a company. This makes our investment accounting and tax services all the more useful.
Investors and Wealth Management.
Many of our clients have accumulated significant wealth (or aspire to do so).
To meet the growing demand from our clients for financial planning and investment management, we provide estate, wealth and preservation planning, which includes reorganizing the way assets are held.
While we don’t consider ourselves investment advisors, as we refrain from recommending specific publicly traded stocks, we’re well positioned to analyse, compare and provide our expertise on investments, most notably real estate. This includes the economic and tax consequences of any given investment opportunity.
When it comes to wealth management, our goal is to help our clients achieve success by providing professional, straightforward, and unbiased advice.
Not-for-Profits and Charities.
Some may think not-for-profit organizations have less pressing needs for our services. However, they’re still the custodians of assets, whether received as donations, grants or some other form of fundraising, and are accountable to government authorities, donors and other stakeholders.
Since they have an obligation to maximize these assets in pursuit of the public good, our role is to provide credibility to an organization’s financial information through the audit process, as communicated in the auditors’ report.
Because of this, our not-for-profit clients can expect the same level of expertise and commitment to the financial health of their organization as we offer to our profit oriented clients.
Join the GCSE Family.
When you choose to work at GCSE, you can be confident that you’re joining a vibrant and dynamic team that’s committed to growing with you.
Whether you’re a veteran or a relative newcomer to the profession, the ability to learn, get the job done, and communicate effectively are key. Specific experience and knowledge within our core disciplines, such as accounting standards, tax, bookkeeping and proficiency with standard business software, is, of course, a must.
If you are interested in joining our team, we encourage you to send your resume to recruitment@gcsellp . We thank all candidates for their interest, however, only those being considered for further screening or an interview will be contacted.
Our Open Books.
Our Open Books.
CRA Forms & Publications.
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Ecovis is a leading global consulting firm of independent accounting legal and business professionals with more than 4,500 people operating in over 60 countries. The particular strength of Ecovis is the combination of personal advice at a local level with the expertise of an international and interdisciplinary network of professionals.
GCSE is proud to be the Canadian representative of Ecovis Global.
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Direitos autorais & copy; 2017 GCSE LLP Chartered Professional Accountants.