CPA Canada PEP Taxation Elective Cheat Sheet

Use the tables for a quick pre-exam check. Expand a topic’s notes for explanations, examples, and additional distinctions.

Case triage framework

First 5 minutes: map the tax file

Notes and examples

Case-writing pattern

Requirement type	Recommended structure
Compute taxable income	Start with accounting income or legal proceeds, adjust item by item, subtotal, apply deductions/losses/credits, conclude.
Advise client	State conclusion first, give tax impact, discuss qualitative risks, recommend action.
Compare options	Use a table: tax cost, cash flow, compliance, risk, timing, non-tax goals.
Identify issues	Use headings by taxpayer and year; do not bury issues in narrative.
Planning	Distinguish tax deferral, permanent savings, income splitting, capital gains treatment, and cash-flow management.
Ethics/compliance	Address disclosure, documentation, due dates, reasonableness, and aggressive planning risk.

Core income tax architecture

Individual income computation

Notes and examples

Corporate income computation

Layer	Common components	Exam traps
Accounting income	Starting point from financial statements	Accounting income is not taxable income.
Taxable income	Add back non-deductible items; deduct allowed tax items; replace amortization with CCA	CCA is discretionary; book depreciation is not deductible.
Active business income	Business income earned in Canada, subject to specific inclusions/exclusions	Property income may not be active business income unless an exception applies.
Aggregate investment income	Passive investment income relevant to CCPC planning	Can affect small business deduction planning and refundable tax mechanics.
Tax payable	Apply current federal/provincial rates, SBD, refundable taxes, credits	Avoid using stale rates; use current CPA Canada exam references.
After-tax funds	Retain, pay salary, pay dividends, repay shareholder loan, capital dividend, bonus accrual	Recommendation depends on shareholder tax, cash needs, payroll, RRSP room, and corporate tax pools.

Classification decision table

Notes and examples

Incorporation Decision

Factor	Supports incorporation	Supports staying unincorporated
Liability risk	Business risk is meaningful	Low risk or insurance adequate
Income level	Profits exceed personal spending needs	All profits withdrawn personally
Reinvestment	Funds retained for growth/investment	No retained earnings
Tax deferral	Corporate rate allows deferral	Deferral minimal after withdrawals
Admin cost	Client can handle bookkeeping, payroll, filings	Cost/complexity not worthwhile
PSB risk	Clearly independent business	Looks like incorporated employee
Succession	Shares can support freeze/sale planning	No succession need
Creditor protection	Holding structure may help	Assets minimal

Bonus vs Retain Earnings

Question	If yes, consider
Does corporation need SBD access or lower taxable income?	Bonus/salary may reduce corporate income
Does owner need personal cash?	Salary/bonus may be appropriate
Does owner want RRSP room/CPP?	Salary creates earned income
Does corporation need cash for expansion?	Retaining earnings may be better
Will passive investments affect future SBD?	Consider dividend/bonus/extraction strategy
Is payroll compliance manageable?	Salary creates source deduction obligations

Rent vs Salary vs Dividend to Related Person

Payment	Deductible to corporation?	Recipient treatment	Main risk
Salary	Yes, if reasonable	Employment income	Reasonableness/documentation
Rent	Yes, if reasonable and for business property	Property income	FMV support and GST/HST
Interest	Yes, if borrowed funds used to earn income and amount reasonable	Interest income	Thin documentation or non-commercial loan
Dividend	No	Dividend income	TOSI and share ownership
Management fee	Yes, if real services and reasonable	Business income	No evidence of service

High-yield formulas

Use current CPA Canada exam reference materials for rates, limits, brackets, prescribed rates, and inclusion percentages.

Taxable income structure

\[ \text{Taxable income} = \text{Net income for tax purposes} - \text{Division C deductions} \]

[ \text{Net income} = \text{employment income}

• \text{business income}
• \text{property income}
• \text{taxable capital gains}
• \text{other income}

• \text{permitted deductions} ]

Net capital gain / loss

\[ \text{Taxable capital gain} = \text{capital gain} \times \text{current inclusion rate} \]\[ \text{Allowable capital loss} = \text{capital loss} \times \text{current inclusion rate} \]

Capital losses generally offset taxable capital gains, subject to the current carryover and special-use rules.

CCA / UCC continuity

[ \text{Ending UCC} = \text{Opening UCC}

• \text{additions}

• \text{dispositions, limited to original cost}
• \text{CCA claimed} ]

Principal residence exemption concept

\[ \text{Exempt gain} = \text{capital gain} \times \frac{\text{eligible designated years under current rules}} {\text{years owned}} \]

Key exam points: only one property can generally be designated per family unit for a year; land size, change in use, rental use, and documentation matter.

After-tax comparison

[ \text{After-tax cash} = \text{cash received}

• \text{tax payable}
• \text{payroll/remittance costs}
• \text{transaction costs} ]

Use this when comparing salary, dividends, asset sale, share sale, bonus, and capital dividend options.

Employment income quick reference

Business income and deductibility

General deductibility checklist

A business expense is stronger if it is:

• incurred to earn income from business or property;
• reasonable in amount;
• not personal or capital in nature;
• not specifically prohibited or restricted;
• supported by documentation;
• matched to the correct taxpayer and period.

Notes and examples

Expense	Treatment focus	Common trap
Meals and entertainment	Partially deductible under current restrictions	Use current exam percentage; document business purpose.
Golf, clubs, social dues	Often restricted or non-deductible	Client development purpose does not automatically make it deductible.
Interest	Deductible if borrowed money is used to earn income and obligation is legal	Trace use of borrowed funds.
Repairs vs capital	Repairs maintain; capital improves, expands, or creates enduring benefit	Misclassification affects CCA vs immediate deduction.
Reserves	Deductible only if specifically permitted	Accounting reserve is not automatically deductible.
Bad debts	Deductibility depends on income inclusion and collectability	Need evidence debt became bad in the year.
Home office	Limited; must meet statutory/business-use tests	Cannot freely create losses in many cases.
Automobile	Business-use allocation; passenger vehicle restrictions may apply	Logbook and personal-use allocation matter.
Salaries to family	Deductible only if reasonable for actual work	Income splitting risk if excessive.
Fines and penalties	Often restricted	Do not assume deductible because paid by business.

Capital vs income indicators

Indicator	Points toward capital gain	Points toward business income
Intention	Long-term investment	Resale profit or speculative intent
Frequency	Infrequent transactions	Repeated transactions
Holding period	Longer	Shorter
Expertise	Limited	Specialized knowledge
Financing	Conservative, long-term	High leverage, short-term
Work done to property	Passive ownership	Development, marketing, subdivision
Similar business	Unrelated to taxpayer’s business	Related to taxpayer’s ordinary business

Capital property and losses

Notes and examples

Capital Gain Formula

[ \text{Capital gain} = \text{proceeds of disposition}

\text{adjusted cost base}

\text{outlays and expenses} ]

Only the taxable portion of a capital gain is included in income. Confirm the applicable inclusion rate from the current tax reference available for the exam.

ACB, UCC, and Proceeds: Do Not Mix Them Up

Concept	Used for	Key point
ACB	Capital gains/losses on capital property	Tracks cost for specific property or identical properties
UCC	CCA pool for depreciable property	Tracks undepreciated balance by class
Proceeds of disposition	Sale/deemed sale value	May be FMV in non-arm’s-length transactions
Recapture	Depreciable property	Prior CCA effectively reversed when proceeds exceed UCC
Terminal loss	Depreciable property	Possible when class is empty and UCC remains

Depreciable Property Cheat Sheet

Situation	Tax result
Proceeds less than UCC and class still has assets	Reduces UCC; no terminal loss yet
Proceeds less than UCC and class empty	Terminal loss may arise
Proceeds greater than UCC but not greater than original capital cost	Recapture
Proceeds greater than original capital cost	Recapture plus capital gain

Personal-Use Property and Listed Personal Property

Property type	Key rule	Trap
Personal-use property	Losses usually denied	Claiming personal losses
Listed personal property	Special loss rules may allow offset against LPP gains	Applying LPP losses against ordinary capital gains
Principal residence	Exemption may shelter gain	Forgetting designation limits and change-in-use issues
Cottage/vacation property	Often capital property with personal use	Assuming principal residence exemption always applies

Capital vs Income Classification

Factor	Capital	Income
Intention	Long-term investment	Resale/profit-making scheme
Frequency	Infrequent	Repeated transactions
Holding period	Longer	Shorter
Work done to property	Minimal	Development, marketing, subdivision
Relationship to taxpayer’s business	Not core business	Connected to ordinary business
Financing	Long-term	Short-term/speculative

Exam trap: the same asset type can produce capital or income treatment depending on facts.

CCA quick reference

Notes and examples

CCA planning points

Planning objective	CCA response
Reduce current taxable income	Claim more CCA, subject to limits.
Preserve losses	Claim less or no CCA.
Keep access to small business deduction	Model ABI, taxable income, and associated corporations.
Avoid wasting deductions	Do not claim CCA that creates unusable losses without benefit.
Anticipate sale	Consider future recapture and terminal loss.

Corporate tax and owner-manager issues

CCPC and small business deduction issue map

Notes and examples

Salary vs dividend quick comparison

Factor	Salary / bonus	Dividend
Corporate deduction	Deductible if reasonable and properly accrued/paid	Not deductible
Individual tax	Employment income	Dividend gross-up and credit system
CPP / payroll	Payroll obligations may apply	No employment CPP on dividends
RRSP room	Creates earned income	Does not create earned income
Cash flow	Requires remittances	Paid from after-tax corporate income
Integration	Can be comparable, but not perfect	Depends on eligible/non-eligible status and province
Loss planning	Salary can reduce corporate income	Dividend cannot create corporate deduction
Reasonableness	Must be reasonable for services	Dividend paid by share rights, not services
Best when	Owner needs earned income, corp wants deduction, bonus planning useful	Corp has after-tax cash, owner wants flexible extraction, payroll avoidance matters

Corporate surplus extraction tools

Tool	Typical use	Key traps
Salary / bonus	Deduct corporate income; compensate owner-manager	Reasonableness, source deductions, timing.
Taxable dividend	Distribute after-tax corporate earnings	Eligible vs non-eligible; RDTOH impact.
Capital dividend	Distribute CDA tax-free	CDA balance must be accurate; election required; excess election risk.
Shareholder loan repayment	Return previously loaned funds	Must be true loan balance, not disguised benefit.
Paid-up capital return	Return capital without dividend to extent available	PUC may differ from legal capital and ACB.
Share redemption	Extract value through deemed dividend and possible capital gain/loss	Deemed dividend, ACB, PUC, stop-loss rules.
Asset sale then dividend	Sell assets, pay tax, distribute cash	Recapture, capital gains, GST/HST, RDTOH, CDA.
Share sale	Vendor may access capital gain treatment	Purchaser may prefer asset purchase; QSBC and LCGE analysis may arise.

Corporate tax pools

Pool	What it tracks	Why examiners care
CDA	Tax-free surplus items, such as non-taxable portion of capital gains and certain insurance proceeds	Supports capital dividend planning.
GRIP	Ability of CCPC to pay eligible dividends from income taxed at higher corporate rates	Needed for eligible dividend recommendation.
RDTOH	Refundable tax on investment income and certain dividends	Refund may arise when taxable dividends are paid.
LRIP	Limits eligible dividends for certain non-CCPC corporations	Less common but relevant in corporate status changes.
UCC	Undepreciated capital cost by class	Drives CCA, recapture, terminal loss.
ACB	Tax cost of shares/property	Drives capital gains and loss planning.
PUC	Corporate law/tax paid-up capital	Drives deemed dividend on share redemptions/returns of capital.

Corporate Taxable Income Framework

A corporation generally computes income by source, adjusts accounting income to tax income, applies loss and deduction rules, and then calculates tax based on corporate status and income type.

Step	What to check
1. Accounting income	Start with net income before tax
2. Add back non-deductible items	Accounting amortization, meals limitation, penalties, reserves not allowed, etc.
3. Deduct tax items	CCA, eligible reserves, deductible expenses not recorded
4. Classify income	Active business income, aggregate investment income, taxable capital gains
5. Apply losses	Non-capital, net capital, restricted farm, etc., as applicable
6. Consider corporate status	CCPC, private corporation, public corporation, associated corporations
7. Apply tax mechanisms	SBD, refundable taxes, dividend accounts

CCPC and Small Business Deduction Concepts

Concept	Why it matters	Trap
CCPC status	Affects small business deduction and some refundable tax rules	Ignoring control by non-residents/public corporations
Active business income	May qualify for preferential small business rate	Treating passive rental/investment income as ABI without analysis
Specified investment business	May not be ABI unless employee threshold/associated services apply	Assuming all corporation income is active
Personal services business	Restrictive deductions and adverse tax results	Ignoring incorporated employee fact pattern
Associated corporations	Must share business limit	Looking at one corporation only
Passive investment income	Can reduce access to SBD under applicable rules	Ignoring investment portfolio impact

Active Business, Specified Investment, or Personal Services?

Question	If yes, concern
Is the corporation earning income mainly from property, such as rent, interest, royalties, or portfolio income?	Specified investment business issue
Would the incorporated individual reasonably be an employee without the corporation?	Personal services business issue
Are there more than a few full-time employees or active operational services?	May support active business income
Does an associated corporation receive services?	Check deeming and association rules
Are expenses restricted?	PSB deduction restrictions can be significant

Shareholder benefits and loans

Dividends and integration

GST/HST quick reference

Notes and examples

GST/HST case checklist

Question	Why it matters
Is the person carrying on commercial activity?	Determines registration and ITC eligibility.
Is the person a registrant or required to register?	Affects collection obligations and ITCs.
Is the supply taxable, zero-rated, or exempt?	Determines tax charged and ITCs.
What province/place of supply applies?	Determines GST vs HST rate using current reference data.
Is consideration monetary, barter, related-party, or non-arm’s-length?	FMV and documentation may matter.
Are ITCs supported by invoices?	Missing documentation can deny ITCs.
Is the property real property, financial service, employee benefit, or passenger vehicle?	Special rules and restrictions often apply.

Supply Classification

Supply type	Tax charged?	ITC availability	Example logic
Taxable supply	GST/HST charged	ITCs generally available	Ordinary commercial goods/services
Zero-rated supply	Taxed at 0%	ITCs generally available	Certain basic groceries, exports, medical-type items depending on rules
Exempt supply	No GST/HST charged	ITCs generally not available	Certain residential rent, financial services, healthcare/education-type supplies depending on rules
Out-of-scope	Not a supply or outside regime	Depends	Wages, some transfers, non-commercial activity

Exam trap: zero-rated and exempt are not the same. Both may show no tax charged to the customer, but ITC recovery differs.

GST/HST Case Checklist

Question	Why it matters
Is the person carrying on commercial activity?	Registration and ITC eligibility
Is the supply taxable, zero-rated, exempt, or out-of-scope?	Determines tax charged and ITCs
Is the supplier a registrant or required to register?	Collection/remittance obligations
Where is the supply made?	Rate and jurisdiction can matter
Are ITCs supported by proper invoices?	Documentation is required
Is there a special election available?	Asset sale, closely related entities, real property issues
Is the timing correct?	Reporting period and payment timing

Personal tax planning

Notes and examples

Personal Tax Base

For individuals, the core structure is:

[ \text{Taxable income} = \text{net income for tax purposes}

\text{Division C deductions} ]

Net income commonly includes employment income, business income, property income, taxable capital gains, and other income inclusions, less permitted deductions.

Employment Income: Quick Rules

Item	Treatment logic	Watch for
Salary, wages, bonuses	Generally taxable when received	Timing of bonus payments and deductions to employer
Allowance	Usually taxable unless specific exception applies	“Reasonable per-kilometre” auto allowance may be treated differently from flat allowance
Reimbursement	Often not taxable if employee is repaid for employer expense	Need receipts and business purpose
Employer-paid personal expense	Usually taxable benefit	Determine whether employee or employer primarily benefits
Stock options	Employment benefit may arise; timing depends on plan and employer type	Don’t treat as capital gain at grant without analysis
Automobile benefit	Standby charge and operating benefit may apply	Personal vs business-use records matter
Home office	Deductibility depends on conditions and support	Employees need proper employer certification/documentation

Employee vs Self-Employed

Factor	Employee indication	Self-employed indication
Control	Employer directs how/when work is done	Worker controls method and schedule
Tools/equipment	Employer provides tools	Worker supplies own tools
Chance of profit	Limited	Can increase profit through management
Risk of loss	Limited	Bears costs and potential loss
Integration	Part of employer’s business	Operating own business
Exclusivity	Works mainly for one payer	Multiple clients more likely

Exam trap: do not rely on one factor. Conclude based on the overall relationship and explain payroll, deduction, GST/HST, and compliance consequences.

Business Income vs Property Income

Question	Business income	Property income
Is there active effort?	Significant activity, services, operations	Passive return on investment
Is there inventory?	Often yes	Usually no
Are expenses operational?	Broader business expense analysis	Financing, investment, maintenance-type costs
Tax planning relevance	May affect incorporation, GST/HST, losses, CCA	May affect passive income and attribution

Deductibility Decision Rule

An expense is more likely deductible when it is:

1. Incurred to earn income from business or property.
2. Reasonable in amount.
3. Not capital in nature unless a specific deduction or CCA applies.
4. Not personal or living in nature.
5. Supported by documentation.
6. Not prohibited or restricted by a specific rule.

Expense type	Common treatment	Trap
Meals and entertainment	Often limited	Deducting 100% without considering restriction
Automobile	Deduct business portion	No mileage log or personal-use adjustment
Home office	Deduct only qualifying portion	Creating/increasing loss where restricted
Interest	Deductible if borrowed money used to earn income, subject to limits	Tracing use of borrowed funds incorrectly
Legal/accounting	Depends on purpose	Capital vs current classification
Repairs	Current if maintenance	Capital if enduring improvement
CCA	Optional deduction on depreciable property	Forgetting half-year rule or recapture

Corporate reorganizations and succession

Notes and examples

Common Reorganization Objectives

Objective	Typical tool	Key tax issue
Defer gain on asset transfer to corporation	Rollover election	Elected amount, consideration, ACB/PUC
Bring family into ownership	Estate freeze	FMV valuation, preferred shares, growth shares
Purify corporation for share sale planning	Remove excess assets	Avoid triggering unintended tax
Split business lines	Reorganization or divisive transaction	Anti-avoidance and technical conditions
Creditor protection	Holding company structure	Transfer tax and attribution issues
Succession	Freeze, trust, share sale, redemption	Control, valuation, family objectives

Rollover Thinking Checklist

Before recommending rollover treatment, ask:

1. Who is the transferor and transferee?
2. Are they eligible for the rollover?
3. What property is transferred?
4. Is an election required?
5. What elected amount is available?
6. What consideration is received?
7. What are the ACB, PUC, and FMV results?
8. Is there boot or non-share consideration?
9. Are there related GST/HST, land transfer, or legal issues?
10. Is the result commercially reasonable?

Estate Freeze Cheat Sheet

Feature	Purpose
Existing owner exchanges common shares for fixed-value preferred shares	Freezes current value for the owner
New common shares issued to children/trust	Future growth accrues to successors
Preferred shares redeemable/retractable	Supports value and future extraction
Valuation needed	Avoid benefit and attribution issues
Family trust often used	Flexibility but adds compliance and tax complexity

Exam trap: an estate freeze is not just “tax savings.” Discuss control, cash flow for retirement, family conflict, valuation, probate/estate goals, and future liquidity.

Asset sale vs share sale

Notes and examples

Vendor and Purchaser Perspectives

Issue	Asset sale	Share sale
Vendor preference	May trigger recapture, income, and gains inside corporation	May access capital gain treatment; possible QSBC planning
Purchaser preference	Gets stepped-up cost base and CCA base	Inherits corporate history and tax risks
Due diligence	Specific assets/liabilities selected	Greater need for tax/legal due diligence
GST/HST	May apply unless special election/conditions	Share sale generally not subject in same way
Employees/contracts	May require transfers/assignments	Corporation continues as employer/contracting party
Complexity	Allocation of purchase price matters	Share attributes and indemnities matter

Purchase Price Allocation

Allocation target	Vendor usually wants	Purchaser usually wants
Inventory	May create business income	Deductible through cost of goods sold
Depreciable property	May cause recapture	Higher UCC/CCA base
Land/building	Capital gain/recapture mix	ACB/UCC allocation matters
Goodwill/intangibles	Capital treatment considerations	Amortization/CCA treatment depends on property class
Non-compete	Specific tax treatment required	Documentation important

Exam trap: always state whose perspective you are analyzing. The best tax answer for the vendor may be the worst answer for the purchaser.

Losses

Notes and examples

Corporate Losses

Loss type	General use	Trap
Non-capital loss	Can offset other income subject to carryover rules	Ignoring acquisition-of-control restrictions
Net capital loss	Generally offsets taxable capital gains	Applying against business income
Allowable business investment loss	Special treatment may allow deduction against other income	Not verifying small business corporation conditions
Terminal loss	Deductible when depreciable class is empty and UCC remains	Claiming while assets remain in class
Superficial loss	Loss denied/deferred when reacquisition rules apply	Missing affiliated person purchases

Non-resident and cross-border basics

Tax administration and compliance

Notes and examples

Tax Administration and Compliance

Tax cases often include compliance marks because clients need to know what to file, when to pay, and what records to keep. Use current authorized tax references for exact deadlines, rates, thresholds, and prescribed amounts.

Area	What to mention in a case
Filing obligations	Tax return, information return, election, or GST/HST return
Payment timing	Balance due, instalments, payroll remittances, GST/HST remittances
Documentation	Invoices, mileage logs, contracts, valuation reports, loan agreements
Elections	Identify election, deadline sensitivity, and consequences
Objections	If CRA reassesses, discuss objection/appeal process at a high level
Penalties/interest	Flag exposure if late, negligent, or unsupported
Voluntary correction	Consider amended returns or disclosure options where appropriate
Professional conduct	Avoid false filings or unsupported positions

Missing Information to Request

In a case answer, asking for missing information can earn judgment credit when it affects the recommendation.

Issue	Information needed
Asset sale	ACB, UCC, FMV, allocation, debt assumed, GST/HST status
Share sale	QSBC status, holding period, asset mix, shareholder history
CCA	Class, acquisition date, cost, proceeds, remaining assets in class
Employment benefit	Personal/business use, fair value, reimbursements, employer policy
Shareholder loan	Date advanced, purpose, repayment, interest charged
Family salary	Duties, hours, market rate, payment records
GST/HST	Registration status, supply type, customer location, invoices
Loss claim	Type of loss, affiliated transactions, carryover balances

Related-party and anti-avoidance traps

Common exam traps

Notes and examples

Technical Traps

Trap	Better approach
Treating accounting income as taxable income	Reconcile accounting-to-tax adjustments
Forgetting CCA is discretionary	Consider whether claiming CCA helps or hurts
Claiming terminal loss while class still has assets	Check whether the class is empty
Applying capital losses against business income	Net capital losses generally offset taxable capital gains
Ignoring superficial loss rules	Check reacquisition by taxpayer or affiliated person
Assuming all corporate income qualifies for SBD	Analyze ABI, CCPC, association, passive income, PSB/SIB
Paying capital dividend without confirming CDA	Calculate and document CDA before recommending
Ignoring TOSI or attribution	Family planning needs anti-avoidance review
Confusing eligible and non-eligible dividends	Link dividend type to corporate tax accounts
Treating exempt supplies as zero-rated	ITC consequences differ
Ignoring elections	Many deferrals require valid elections
Forgetting non-tax factors	Client objectives, cash flow, risk, control, succession

Case-Writing Traps

Trap	Symptom	Fix
Too much rule dumping	Long technical paragraphs with no client advice	State rule briefly, apply facts, conclude
No prioritization	Equal time on minor and major issues	Spend time where dollars and risk are material
Unsupported recommendation	“I recommend incorporating” with no why	Compare alternatives using facts
One-sided analysis	Only tax savings considered	Include admin cost, risk, cash flow, legal/commercial factors
No assumptions	Calculation relies on missing data silently	State assumptions and request data
No conclusion	Ends after calculation	Say what the client should do next

Compact case answer templates

Taxable income reconciliation

Recommendation paragraph

Use this structure:

1. Conclusion: “I recommend Option A because it provides the best after-tax cash flow while managing compliance risk.”
2. Quantification: “Option A saves/defers tax of approximately X compared with Option B, before transaction costs.”
3. Qualitative factors: “It also preserves RRSP room / reduces CRA risk / improves purchaser due diligence.”
4. Conditions: “This assumes current rates, valid documentation, and that the corporation remains a CCPC.”
5. Action: “Prepare election, update minutes, document FMV, and confirm GST/HST treatment before closing.”

Final review checklist before submitting

• Identified each taxpayer and tax year.
• Separated income tax from GST/HST.
• Used current exam-provided rates, limits, and prescribed amounts.
• Classified income correctly: employment, business, property, capital, shareholder.
• Reconciled accounting income to taxable income.
• Checked CCA, recapture, terminal loss, and discretionary claim.
• Considered related-party, attribution, TOSI, and shareholder benefit issues.
• Addressed salary vs dividend and corporate tax pools where owner-manager facts exist.
• Mentioned documentation, elections, deadlines, and CRA risk.
• Gave a clear recommendation, not just a technical discussion.

CPA Tax Cheat Sheet

This page is an independent Cheat Sheet for candidates preparing for the CPA Canada PEP Taxation Elective exam, official code CPA Tax. It is designed for quick review before moving into topic drills, mock exams, original practice questions, and detailed explanations.

Use it to refresh the major technical areas, sharpen case-writing judgment, and avoid common traps. It is not affiliated with CPA Canada and should be used as independent companion practice support.

How to Think on a CPA Tax Case

Taxation cases usually reward more than knowing a rule. You need to identify the tax issue, calculate what matters, explain consequences to the client, and recommend a practical course of action.

Fast Case Workflow

    flowchart TD
	    A[Read role, client, deadline, requireds] --> B[Identify taxpayer: individual, corporation, trust, partnership]
	    B --> C[Classify issue: income, deduction, disposition, planning, compliance, GST/HST]
	    C --> D[Quantify material tax effect]
	    D --> E[Explain qualitative factors and risks]
	    E --> F[Recommend action tied to client objectives]
	    F --> G[Flag missing information and compliance steps]

Notes and examples

What Strong CPA Tax Answers Usually Do

Case skill	What to do	Common weak answer
Issue identification	State the tax issue clearly before calculating	Jumping into numbers with no conclusion
Role awareness	Write for the client, owner-manager, CFO, estate executor, or advisor	Generic tax textbook explanation
Quantification	Calculate taxable income, deduction, tax base, UCC, ACB, proceeds, or planning savings where possible	Saying “there may be tax” without measuring it
Technical accuracy	Apply the specific Canadian tax rule that fits the fact pattern	Using a memorized rule without checking facts
Recommendation	Compare options and recommend one	Listing pros and cons with no decision
Risk handling	Discuss CRA challenge risk, documentation, timing, and anti-avoidance concerns	Assuming all planning is acceptable
Integration	Connect personal, corporate, GST/HST, and succession impacts	Treating each issue in isolation

Exam habit: every calculation should answer a decision question. If the calculation does not change the recommendation, summarize it briefly and move on.

High-Yield Topic Map

Attribution, Income Splitting, and Family Planning

Attribution Rules: Quick Triggers

Attribution can apply when property or funds are transferred or loaned to certain related individuals and income or gains arise from that property.

Notes and examples

Reasonableness Is a Repeated Theme

For salaries, management fees, interest, rent, and related-party transactions, ask:

• Was there a real service, asset, or financing arrangement?
• Is the amount comparable to market terms?
• Is there documentation?
• Is the payment legally enforceable?
• Was it actually paid or credited?
• Is the purpose tax-motivated, commercial, or both?

Owner-Manager Compensation

Salary vs Dividends

Notes and examples

Exam trap: a good recommendation considers tax, cash flow, CPP/RRSP, administrative burden, creditor protection, and the owner’s personal cash needs.

Shareholder Loans and Benefits

Issue	Tax concern	Planning response
Shareholder borrows from corporation	Inclusion may arise if not repaid within required timeframe or not within exception	Track repayment and purpose
Low/no-interest loan	Deemed interest benefit may arise	Charge prescribed/market interest where needed
Personal use of corporate asset	Shareholder benefit	Document business use and charge fair value
Corporate-paid personal expenses	Benefit or appropriation	Reimburse corporation or record as salary/dividend
Debt forgiveness	Income or benefit consequences	Analyze debtor, creditor, and relationship

Dividends and Corporate Accounts

Account/concept	Purpose	Common issue
CDA	Allows tax-free capital dividends from certain non-taxable amounts	Must confirm balance before election/payment
GRIP	Supports eligible dividends from certain income	Paying eligible dividends without sufficient GRIP
RDTOH	Tracks refundable tax recovered when taxable dividends are paid	Ignoring refund timing
Eligible dividend	Generally taxed more favourably personally but tied to corporate tax history	Misclassifying dividend type
Non-eligible dividend	Common for income taxed at small business rate	Forgetting personal gross-up/credit difference

Personal and Corporate Integration

Integration Mindset

Canadian tax often aims for rough integration between earning income personally and earning it through a corporation then distributing it. In exam cases, do not assume perfect integration.

Calculation Reminders

CCA Pool Formula

[ \text{Ending UCC} = \text{Opening UCC} + \text{additions}

\text{dispositions}

\text{CCA claimed} ]

Remember to consider class-specific rules, available-for-use timing, half-year concepts, recapture, terminal loss, and whether claiming CCA is strategically useful.

Capital Dividend Account Concept

CDA is not simply “cash available.” It is a tax account that generally tracks certain non-taxable capital amounts and other eligible additions, reduced by capital dividends paid.

Fast review points:

• Confirm the CDA balance before paying a capital dividend.
• File the required election properly.
• Avoid excess capital dividend problems.
• Track life insurance proceeds and capital gains/losses carefully where relevant.
• Do not confuse CDA with retained earnings or bank cash.

Taxable Income vs Cash Flow

Ethics and Professional Judgment

CPA Tax cases may test whether you can identify technically possible planning that is not advisable.

Professional Judgment Checklist

Before recommending a tax plan, consider:

• Is the plan supported by legislation and current administrative practice?
• Is there a bona fide commercial or family objective?
• Are valuations supportable?
• Are related-party amounts reasonable?
• Are elections and documentation available?
• Could GAAR or specific anti-avoidance rules apply?
• Does the client understand cash-flow, legal, and compliance consequences?
• Would you be comfortable documenting the advice in a working paper?

How to Phrase Risk

Use direct, professional wording:

• “This may be challenged if the amount is not reasonable based on services performed.”
• “The tax deferral is useful only if the cash remains in the corporation.”
• “This election is deadline-sensitive, so we should confirm dates before proceeding.”
• “The plan should not be implemented until the CDA balance and valuation are confirmed.”
• “The GST/HST result depends on whether the supply is exempt or zero-rated.”

Cheat Sheet: What to Memorize vs What to Look Up

Final 48-Hour Review Plan

Day 1: Technical Refresh

1. Review personal tax classification: employment, business, property, capital.
2. Drill CCA, recapture, terminal loss, and capital gains.
3. Review owner-manager compensation and shareholder loans.
4. Practice corporate tax adjustments and SBD issue spotting.
5. Review GST/HST classification and ITC logic.

Day 2: Case Application

1. Complete short topic drills under time pressure.
2. Write one integrated tax case focusing on recommendations.
3. Debrief using detailed explanations, not just answer keys.
4. Make an error log with:
   • missed issue,
   • wrong rule,
   • calculation error,
   • weak conclusion,
   • time-management problem.
5. Reattempt targeted original practice questions for weak areas.

Put the review into practice