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Net Income Calculation Guidelines

Chapter 5 outlines the calculation of net income, detailing various sources of income, deductions, and losses that affect taxable income. It also presents general rules and exceptions regarding income tests, as well as expenses that are either denied or allowed for tax purposes. Key points include specific deductions for capital costs, interest, and expenses related to scientific research and development.

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Siopao Jolavidez
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23 views4 pages

Net Income Calculation Guidelines

Chapter 5 outlines the calculation of net income, detailing various sources of income, deductions, and losses that affect taxable income. It also presents general rules and exceptions regarding income tests, as well as expenses that are either denied or allowed for tax purposes. Key points include specific deductions for capital costs, interest, and expenses related to scientific research and development.

Uploaded by

Siopao Jolavidez
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

CHAPTER 5 - NOTES

SEC. 3 - DIVISION B
CALCULATION OF NET INCOME
3(a) Income from all sources
Employment Income + or 0
Income from business + or 0
Property Income + or 0
Income from other Sources + or 0
Total + or 0
3(b) Net taxable capital gain
Taxable capital gain (50%) +
Less: Allowable capital loss - + or 0
3(c) Other deductions
RRSP +
Moving expenses +
Alimony + (-)
Total of 3{a)+3(b)+3© + or 0
3(d) Losses
Losses from Employment -
Losses from Business -
Losses from Property -
Allowable business Investment Losses (ABIL) - (-)
Net income for tax purposes + or 0

General rules
1) Income earning purpose test

2) Capital test

3) Excempt income test

4) Reserve test

5) Personal expense test

6) Reasonableness test

Exceptions to General rule Sec 12


1) Inducement payments

2) Insurance proceeds destroyed property, damaged property


3) Payments based on production or use

Expenses that are denied Sec 18 and 19


Use of recreational facilities and club dues
Political contributions
Advertising expense
Allowance for automobile
Interest and propery taxes on vacant idle land
Cost during construction period
Work space in home
Meals and entertainment (50%)
Auto expenses 36k per year
Leasing cost $950/month
Interest cost 300/month
Stock based compensation
Fines and penalties if the expenses are deductible, the fine
Unpaid remuneration 180 days after the year

Expenses allowed
CCA (Capital cost allowance) depreciation of asset
Incorporation cosrs 3000 is deductible
Interest incurred on loans to acquire long term
Expenses of borrowing money or issuing shares in equal proportion for 5 years
Reserve for doubtful debts deductible if reasonable, based on dou
Reserves for delayed payment revenue inventory sold and payment is not due

Expense deductible - CASH BASIS


Landscaping income producing structure
Investment counsel fees
Representation fees can elect to deduct in 10 years
Site investigation fees allowed even site is not required
Utility service connections
Convention expenses limited to two in a year; within territori

Scientific research and experimental developemnt can be carry forward


Professionals unbilled revenue can be included as inc
Unpaid remuneration accrual basis; dedctible when incurred
deducted if pain w/In 180 days
beyond 180 days - deducted once paid
farming
roperty, damaged property
ses are deductible, the fines for late payments is allowed

loans to acquire long term assets (income generating - deductible)


portion for 5 years
f reasonable, based on doubtful debts, the debt when established created income
ld and payment is not due until after 2 yrs date of sale

ducing structure

deduct in 10 years
n site is not required

wo in a year; within territorial scope of organization

enue can be included as income


s; dedctible when incurred
pain w/In 180 days
days - deducted once paid

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