chap10 - CHAPTER 10 Computation of Taxable Income and Taxes...

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Unformatted text preview: CHAPTER 10 Computation of Taxable Income and Taxes Payable for Individuals Problem 1 [ITA: Divisions B and C] The following tax information is extracted from Mrs. Hawkins books and records: Employment income per T4s (excluding effects of items below).................................................................................... $ 72,000 Interest income.......................................................................... 5,000 Capital gains (on securities)...................................................... 9,900 Deductible carrying charges...................................................... 1,000 The following balances are losses carried forward from December 31, 2004: Non-capital loss arising 1999.............................................. $ 24,000 2000.............................................. 26,000 2003.............................................. 28,000 Total non-capital losses............................................................. $ 78,000 Net capital loss arising in 2004................................................. $ 12,000 During the latter part of 2005, Mrs. Hawkins moved from Montreal to Toronto to commence working for Leaves Co. Ltd. She received a $100,000 housing loan from Leaves Co. Ltd., which she used to help purchase a house in Toronto. Mrs. Hawkins received the interest-free loan on October 1, 2005. Mrs. Hawkins previously worked for Les Habitants Co. Lte (a public company). Prior to leaving Les Habitants Co. Lte, Mrs. Hawkins exercised the stock option that she held in Les Habitants Co. Lte. Mrs. Hawkins was able to purchase 2,000 listed common shares of Les Habitants Co. Lte for $4 per share (the fair market value of the shares at the time the option was granted). The shares were trading at $10 per share at the time she exercised her option to purchase the shares. Assume that the prescribed interest rate for the last quarter of 2005 is 7%. REQUIRED Calculate Mrs. Hawkins income and taxable income in 2005, in accordance with the ordering rules of Divisions B and C. 203 Introduction to Federal Income Taxation in Canada 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...
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chap10 - CHAPTER 10 Computation of Taxable Income and Taxes...

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