chap09 - Copy

chap09 - Copy - CHAPTER 9 Other Sources of Income and...

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Unformatted text preview: CHAPTER 9 Other Sources of Income and Deductions in Computing Income Problem 1 [ITA: 60( i ), ( j .1); 146(5), (5.1), (8.2), (8.3); 147.3(4), (9)] Mr. Rui retired from his job with Wise and Foresighted Consulting Ltd. on January 31, 2005. He had been employed continuously by the same employer since December 1980. Mr. Rui expects that his 2005 income for tax purposes will be as follows: Employment income.................................................... $ 7,000 Pension income:........................................................... Monthly superannuation (11 months of $3,000). 33,000 Old Age Security................................................. 5,700 Canadian Pension Plan........................................ 12,000 Retiring allowance............................................... 55,000 Farming income........................................................... 20,000 Income from rental of apartment................................. 10,800 Royalty income from books written by Mr. Rui.......... 14,200 Interest income............................................................ 12,000 Total income................................................................ $ 169,700 Additional Information (1) Mr. Rui’s 2005 employment income is net of an RPP contribution of $300. His PA for 2005 is expected to be $600. (2) Mr. Rui has been a member of his employer’s pension plan since he commenced working there in 1980. The employer’s contributions have vested in Mr. Rui for each year he has been a member of the plan. (3) Mr. Rui will be 69 in February 2006. His wife is now 65. (4) In 2005 Mrs. Rui withdrew $6,000 from her RRSP. Mr. Rui had made the following contributions to Mrs. Rui’s RRSP: January 2005 — $2,000; April 2004 — $1,000; February 2003 — $1,000; December 2002 — $3,000. Mr. Rui did not deduct the January 2005 contribution in 2004. (5) Rui’s employer reported a PA for him of $7,000 in 2004. His earned income in 2004 was $66,000. (6) Mr. Rui’s employer paid the retiring allowance to Mr. Rui in 2005 and Mr. Rui contributed his entire $55,000 retiring allowance to his RRSP in January 2006. (7) Mr. Rui has unused RRSP deduction room from prior years of $5,000. — REQUIRED (A) Determine the tax implications of Mrs. Rui’s $6,000 RRSP withdrawal. (B) Determine Mr. Rui’s maximum tax deductible RRSP contribution for 2005. What additional RRSP contribution should Mr. Rui make for 2005? (C) It is now February 2006. What are the tax implications to Mr. Rui of the $55,000 transfer of his retiring allowance to his RRSP? (D) What additional planning steps would you advise Mr Rui to take in connection with his RRSP in 2006? 183 Introduction to Federal Income Taxation in Canada Solution 1 (A) Since Mrs. Rui withdrew $6,000 from her RRSP in 2005, Mr. Rui must include in income the lesser of $6,000 and the sum of the amounts paid by him as premiums to her RRSP in 2007, 2006 and 2005 [ssec. 146(8.3)]....
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This note was uploaded on 03/10/2010 for the course ACC ACC742 taught by Professor Sydor during the Spring '10 term at Ryerson.

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chap09 - Copy - CHAPTER 9 Other Sources of Income and...

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