Question

Question 5 (theory questions)

1) Explain what it means when partnership is through entity

2) Why it is important to know whether or not a Canadian company is associated?

3) What are the similarities and differences for the charitable donations credit and political donations credit?

4) A business is able to claim the legal benefit of its assets, does a partnership arrangement do the same?

Answer 1

1. A partnership through entity is a legal business entity that passes income on to the owners. These kind of entities are useful device to limit taxation by avoiding double taxation. In this only owners are taxed on revenues not the entity itself. This type of partnership is called flow-through entity.

2. it is important to know whether or not a Canadian company is associated because, being a associated company in Canada has numerous benefits . When a Canadian company is associated with another, these companies should be treated as a group when applying the small business deduction on active business income. When one sells shares in a company, if they are deemed to be qualified small business associate shares and they meet certain tests, they may be eligible for lifetime capital gain tax exemption of a certain amount.

3.

particulars	Similarities	Differences
Charitable donation credit ( CDC)	An individual get tax credits for donating the both	CDCs are issued partly by federal government and partly by provincial or territorial government. PDCs are issued totally separately by federal government and provincial or territorial government. PDCs are more limited than CDCs in types of claimable gifts
Political Donation Credit

4. As business is able to claim the legal benefits of its assets, forming a partnership is kind of a strategy for asset-protection planning. Partners of the partnership are personally liable for the business obligations of the partnership. It means if the partnership can't afford to pay creditors or the business fails, the partners are individually responsible to pay for the debts and creditors can go after personal assets such as bank accounts, cars etc