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Chapter10Solutions

Chapter10Solutions - Chapter 10 Solution 1 Employment...

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Chapter 10 - Solution 1 Employment income — per T4s ............................................................................. \$ 72,000 — ssec. 7(1) benefit (1) ........................................................... Nil — interest benefit on loan [ssec. 80.4(1)] (2) .......................... 1,764 \$ 73,764 Property income — Interest net of carrying charges (3) ............................................. 4,000 Par. 3( a ) .................................................................................................................... \$ 77,764 Taxable capital gains (4) [par. 3( b )] ............................................................................ 4,950 Par. 3( c ) and total Division B income ...................................................................... \$ 82,714 Division C deductions: Par. 110(1)( d ) Employee stock option deduction (5) ..................................................................... \$ Nil Par. 110(1)( j ) Home relocation loan deduction (6) ....................................................................... 441 Par. 111(1)( b ) Net capital losses (7) .............................................................................................. 4,950 Par. 111(1)( a ) Non-capital losses (8) ............................................................................................. 67,394 Total Division C deductions .......................................................................................................... \$ 72,785 Taxable income (equal to personal and employment tax credit bases: \$8,929 + \$1,000) .............. \$ 9,929 NOTES TO SOLUTION (1) Since the shares are listed and their value at the grant date was less than \$100,000, the employment benefit of \$12,000 (i.e., 2000 shares × (\$10 – \$4)) may, with an election, be included when the shares are disposed of. (2) Interest on all loans subject to subsection 80.4(1) computed at the prescribed rate on each loan and debt for the period in the year during which it was outstanding (less amounts actually paid, if applicable). [\$100,000 × 92 days/365 × 7%] (3) Property income is equal to the property income earned less the expenses incurred to earn the property income. [\$5,000 – \$1,000] (4) Taxable capital gain = 1 / 2 of the capital gain. [\$9,900 × 1 / 2 ] (5) Since the stock option benefit is deferred, so is the deduction, until the benefit is included. Deduction [par. 110(1)( d )] will be equal to 1 / 2 of the benefit inclusion [ssec. 7(1)], since exercise price is greater than or equal to the fair market value on the grant date. ( 1 / 2 × \$12,000) (6) Where a taxpayer has included an amount in income in respect of a home relocation loan [sec. 80.4], the home relocation loan deduction in Division C is equal to the least of: (a) the amount of the benefit under sec. 80.4 if that section had applied only to the home relocation loan ................................................................................................................. \$ 1,764 (b) the amount of interest for the year that would be computed under sec. 80.4 if the home relocation loan were in the amount of \$25,000 [\$25,000 × 92/365 × 7%] ....................... \$ 441 (c) the amount of the benefit deemed to be received under sec. 80.4 .................................... \$ 1,764 Least of (a), (b) and (c) ........................................................................................................... \$ 441 (7) Net capital losses applied are restricted to the net taxable capital gains (\$4,950). (8) Non-capital losses carryforward from 2006 ........................................................................... \$ 78,000 Non-capital losses applied from: — 2001 ....................................................... \$ 24,000 — 2002 ....................................................... 26,000 — 2005 ....................................................... 17,394 67,394 Non-capital loss carryforward to 2008 (from 2005 balance) .................................................. \$ 10,606

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Solution 2 (A) 2005 2006 2007 Par. 3( a ): Income from non-capital sources ( 0): Employment income .................................................... \$ 75,000 \$ 80,000 \$ 90,000 Property income ........................................................... Nil 3,000 Nil Total par. 3( a ) income .................................................. \$ 75,000 \$ 83,000 \$ 90,000 Par. 3( b ): Net taxable capital gains ( 0): Taxable capital gains .................................................... \$ 72,000 Nil \$ 80,000 Allowable capital losses ............................................... (9,000) (11,250) (40,000) Total par. 3( b ) income .................................................. \$ 63,000 Nil \$ 40,000 Par. 3( c ): Par. 3( a ) + par. 3( b ) ...................................................... \$ 138,000 \$ 83,000 \$ 130,000 Par. 3( d ): Losses from non-capital sources and ABIL: Property loss ................................................................ (4,000) Nil (6,000) ABIL ............................................................................ (18,000) (27,000) Nil Division B income .......................................................................... \$ 116,000 \$ 56,000 \$ 124,000 (B) Deduct: Net capital losses from 2003 (see Schedule 1, Part (I) below) .............................................................................. (21,000) Nil Nil Net capital losses from 2006 (see Schedule 1, Part (I) below) .............................................................................. (11,250) Nil Nil Taxable income ............................................................................... \$ 83,750 \$ 56,000 \$ 124,000 Schedule 1 (I) Net capital losses — Pars. 111(1)( b ) and 111(8)( a ) 2005 2006 2007 Ref.
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