Chapter6Solutions

Chapter6Solutions - Chapter 6 Solution 1 (A) As a fixed...

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Chapter 6 Solution 1 (A) As a fixed sum, the $50,000 cash payment is treated as proceeds of disposition for the assets of the business. [IT- 462, par. 5( b )] (B) The $60,000 paid on the basis of sales over the next three years with any balance remaining at the end of the third year payable at that time is not subject to paragraph 12(1)( g ). Hence, the amount is also considered to be proceeds of disposition for the assets. It is not the amount of this receipt, but the timing of the instalments of the $60,000 that is dependent on production or use (i.e., sales). [IT-462, par. 8] (C) The receipt of 25% of the gross sales over the next five years is dependent on production or use and, hence, must be included in property income when received [par. 12(1)( g )]. It is neither a capital receipt nor proceeds of disposition for goodwill. (D) Fees earned for consulting services by Rudolph would be taxable as either employment income or business income from self-employment, depending on whether he is considered an employee or a self-employed individual in respect of the consulting services.
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Solution 2 (A) Dividend Fund: Dividend Income (6% of $2,000) . .................................................................................................. $ 120.00 Add: gross-up of 45% of dividend. ................................................................................................. 54.00 Grossed-up dividend subject to tax. ................................................................................................ $ 174.00 Federal and provincial tax on grossed-up dividend @ 46% . .......................................................... $ 80.04 Less: dividend tax credit. ................................................................................................................ (54.00) Net tax payable . .............................................................................................................................. $ 26.04 After-tax dividend ($120.00 – $26.04) . .......................................................................................... $ 93.96 Income Fund: Interest income (8% of $2,000) . ..................................................................................................... $ 160.00 Federal and provincial tax payable @ 46% . ................................................................................... $ 73.60 After-tax interest ($160.00 – $73.60) . ............................................................................................ $ 86.40 The difference between the two is $93.96 – $86.40 = $7.56. As a percentage of the $2,000 principal invested, this difference is marginal (less than 1% of the principal invested), so non-tax factors may affect the decision. (B) Putting the investment in the name of the daughter would be of no advantage in the holding period envisaged:
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Chapter6Solutions - Chapter 6 Solution 1 (A) As a fixed...

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