4561 Lecture 5 updated May 13 10

4561 Lecture 5 updated May 13 10 - 1 1 LECTURE 5:...

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1 1 LECTURE 5: INVESTMENTS AND INCOME FROM PROPERTY – PART II – last updated May 13, 2010 These notes discuss the rules governing income attribution and kiddie tax, non arm’s length transfers and gifts and interest expense. Readings ADMS 3520 Lecture 5 Notes: (Non Arm’s Length Transfers and Attribution Rules) print and bring FIT Ch. 6 ¶6070 (Attribution) and ¶6260 (Interest Expense) (See Lecture 4 notes for a breakdown of which Chapter 6 items are covered in Lectures 4 and 5 and which items are not covered) FIT Ch. 8 ¶8200 (Non-arm’s length transfers and the Attribution Rules Revisited) Income Tax Act Sections Income Tax Act Sections 15, 18, 20, 56, 69, 73, 74.1 – 74.5, 80.4, 80.5 You must bring your Text and Act to each lecture. Recommend Chapter 6 Multiple Choice Questions 3 (Mr. P), 4 (deductions) and 6 (Ron Bordessa); Exercise 2 (Husband & Wife); Exercise 6 (Nadi) Chapter 8 Multiple choice questions 2 (Ms. Y) and 3 (Ms. Y); Exercises 7 (James Meadows) and 8 (Alice Attribution) Problem Set: - Chapter 8, Problem 6 (Madame Moneybucks re attribution and non-arm’s length transfers) - Chapter 6, Problem 11, parts b and c only (Ashley) and Problem 12, parts a, b, d, h, i only (“Funds are borrowed by an individual from a financial institution…”) re the deduction for interest expense. You are expected to do the problems in the Problem Set and the Recommended Multiple Choice and Exercises before class and bring your solutions to class. Include section references in your solutions. Students who are having problems following the material are encouraged to attend the lecture more than once (i.e., attend another section as well). Joanne Magee [jmagee@yorku.ca]
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2 2 ¶6070 to 6120 INCOME ATTRIBUTION This material was covered in ADMS 3520 Lecture 5 and will be reviewed using the Chapter 8 Madame Moneybucks Problem Set Question The purpose of the attribution rules is to prevent “income splitting” among family member. Taxpayers may attempt to “income split” by transferring income-earning assets (and income) into the hands of low income family members, e.g., an unemployed spouse, a child, parent or grandparent. Note that the attribution rules do not apply to business income or losses….just property income/losses (and capital gains in the case of a spouse) This is because the easiest type of income to transfer is investment income (property income [i.e. interest, dividends, rent, royalties] and capital gains. 1 Note that the attribution rules stop when the transferor/lender is dead or no longer resident in Canada. 2.1 Why do taxpayers like to income split? Because if income is split among family members, each family member can use 1. His or her low graduated tax rates - the lowest federal rate in 2009 is 15% whereas the top rate over income over approximately $126,265 is 29% 2. His or her personal credits. The basic credit amount is $10,320. This means that a taxpayer can earn $10,320 and pay no federal income tax. Note that there are four rules that we will cover: the three attribution rules and
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This note was uploaded on 08/10/2010 for the course LAPS 4561 taught by Professor Frankovic during the Summer '10 term at York University.

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4561 Lecture 5 updated May 13 10 - 1 1 LECTURE 5:...

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