1591_001 - Review 1 SECTION l Multiple Choices (15 marks)...

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Unformatted text preview: Review 1 SECTION l Multiple Choices (15 marks) Q: 1 Ownership of property, other than personal may result in: a) income or loss from business or property, whereas the disposition of property results in a capital gain or capital loss. b) income or loss from business or property, whereas the disposition of property may result in either a capital gain(loss) or business income (loss) 0) Business income on disposition, if the property is held only for investment purposes. d) Income or loss from business or property depending on the type of property purchased. Q: 2 At its December 31 year end, Zeke Capital Corp, declared a $250,000 bonus to Zak, the shareholder— manager. Rather than actually giving Zak a cheque the next year, the corporation recorded payment of the bonus by crediting Zak’s shareholder loan account. This journal entry was dated July 27. The related tax withholding remitted to CCRA on August 15. What are the income tax consequences? a) The corporation will not receive a deduction for the $250,000 bonus accrual, nor for the actual bonus payment, because it was not paid within 180 days of the year end. b) The corporation will not receive a deduction for the $250,000 bonus until next year (when it was actually paid) ' 0) Payment of the bonus will be a shareholder appropriation as it is longer a proper liability given that it was not paid within 180 days of the year end. d) The bonus can be reversed in the following year, in which case it is deductible to Zeke Capital Corp in the past year and then income in the corporation in the current year. Q: 3 Under the source theory, a gain that is not considered income from a recognized source is not taxable. Which of the following items would not be taxable under this theory? a) Fees received from neighbours for painting their house. b) interest received on Eurobonds c) Lottery winnings d) Vacation trip paid by an employer to an employee. Q: 4 Mark would like to loan her spouse $50,000 for investment purposes. The income attribution rules will not apply if: a) The loan is interest bearing and interest is charged and paid on the loan within 30days after year end. b) Mark’s spouse repays the loan plus a market rate of interest within 30days after the year end. 0) Mark’s spouse invests the $50,000 in an income-earning investment d) Mark’s spouse gifts the $50,000 to a minor child for investment purposes. Q: 5 When may a taxable capital gain or an allowable capital loss occurs? a) When a taxpayer sells a family car b) if depreciable property is disposed of c) On non-depreciable property owned by an individual on his or her death d) When a debt owed to the taxpayer becomes bad. MT Review #1 Page 1 of 3 Mumsy Uiiattikuiam 0:6 in keeping with the principle of integra 3m Canadian Corporations subject to? a) Always subject to the one-quarter g b) Subject to the one quarter gross —t 0) Subject to the one quarter gross-up d) Never subject to the one-quarter grv Q: 7 Alex owns 60% of the voting shares of'Ap ting shares of Tulip Ltd., a CCPC. Alex is the son of Tany a) Apple and Tulip deal at arm’s lengtl b) Apple and Tulip and Alex and Tanya do not deal at arm’s length. 0) Apple and Tulip do not deal at arm’s length but Alex and Tanya do. d) Apple and Tulip and Alex and Tanya deal at arm’s length Q: 8 Samantha works as a public accountant. She acquired a 20 unit apartment building, and shortly after its acquisition, she applied and received approval to convert the property into 20 condominium units. The 20 units were sold within a year, resulting in an overall loss of $10,000. Which of the following statements best describes the tax treatment of this transaction? a) The loss is a capital loss, of which 50% can be offset only against any source of income. b) The loss is a capital loss, of which 50% can be offset only against taxable capital gains. c) The loss is a property loss that can be offset only against property income d) The loss is a business loss that can be offset against any source of income. Q: 9 Which of the following is not a relevant criterion when attempting to establish whether a transaction results in a capital gain or incomefrom business? a) The nature of the property b) The number and frequency of transactions c) The nature of the transaction . d) The taxpayer’s primary and secondary intent regarding the transaction Q; 10 When a CGA participates in tax planning that includes a false statement, the amount of the penalty is based on which of the following? v a) 50% of the gross revenue the CGA is entitled to receive for the activity or $1,000, whichever, is greater. b) 100% of the gross revenue the CGA is entitled to receive for the activity or $500, whichever is greater. c) 100% of the gross entitlements from the tax plan or $1,000, whichever is greater d) 50% of the gross entitlements from the tax plan or $500, whichever is greater. MT Review #1 Page 2 of 3 Mumsy Ullattikulam SECTION II Question: 1 (35 marks) Kim Smith is a Chiropractor. Until the end of 2009, she was employed by a public corporation in the chiropractic field. In 2010, she opened her own chiropractic clinic. She has requested your assistance in preparing her 2010 tax return. Information regarding her financial activities for 2009 is given below. 1. Kim Smith terminated her employment on Dec/31/O8. In Jan/2010, she received a bonus of ' $50,000from her former employer. From this amount, the employer deducted income tax of $12,000 and CPP&EI of $2760. At a retirement supper in Jan/2008, the employer gave Kim a painting valued at$800 and also paid for a one—week vacation at a health spa, valued at $1200. Kim Smith sold the painting in Dec/2008 for $1500. On Feb/15/2010, Kim’s former employer paid $12,000 directly into her RRSP in accordance with her former employment contract. 2. In Jan/2010, Kim purchased the Green Chiropractic Clinic, which included the following assets: Small tools (under $500 each) 5000 Library 8000 She also paid the former owner $100,000 to take over the patient list. 3. For the year ended Dec/31/10, the clinic showed a profit of $80,000. The gross revenue for the year was $135,000, which consisted of: Work in Progress—not billed — 10000 Fees billed, but unpaid 30000 Fees billed and received 95000 » 135000 Operating expenses for the chiropractic clinic included the following: Convention 1500 Amortization 15000 Golf Club membership dues 3000 Automobile lease — $400 per month 4800 Automobile operating costs 2000 Reserve for uncollectible fees 6000 Ms. Smith moved her personal computer to the clinic to be used for business purposes. The computer cost $2,000, 2 years ago and had a market value of $1000. The computer is used 30% of the time for personal use. Ms. Smith uses her automobile for personal use and travel to and from the clinic and her home. The convention expense of $1500(above) was to attend the national chiropractic annual convention. The expense includes airfare of $600, meals of $500, and hotel fees of $400. 4. Ms. Smith received a dividend of $4000 from Red Ltd., a CCPC. 5 Kim is a single mom and supports her two children, her daughter is 9 yrs old and Kim paid $5000 for child care expenses in 2010. Her son is 15yrs old and earned interest income of $500 on the money given to him by Ms. Kim. 6. Additional information: a. Listed Personal Property loss carried forward to 2008 $1,500 b. RRSP contribution Room available for 2008 14,500 Required: . Calculate Kim’s minimum net income for tax purposes for the year 2010 in accordance with the format of section 3 of the Income Tax Act. MT Review #1 Page 3 of 3 VMumsy Uliattikulam Review # 2 SECTION l Multiple Choices (15 marks) 1. Enrique sold 2 properties in 2010 as follows: Proceeds Original Cost Diamond ring CF)" {757% $1,200 $ 800 Antique vase K19)”: $ 600 $1,100 By what amount will Enrique’s,erincomflggtaxgpgrposes change in 2010’? a) _ NIL ‘ V (in), increase by $100 ,/ 6) increase by $150 d) Increase by $300 a 2. Roger, a CGA, recently provided taxadvicevtofla client that resulted in a reduction of tax. The advice was based upon an interpretation of €é‘é’é‘tfdfi'6’fthe income Tax Act by a leading Canadian Tax Professional and published in CGA Magazine. Shortly after the tax plan was implemented and a tax return filed, the Tax Court of Canada rendered an interpretation on the same section of the income Tax Act that was substantially different from the interpretation in the article in CGA Magazine, which of the following statements best describes Roger’s obligation in this matter? I a) Roger should inform the client that a higher authority has interpreted the relevant section of the ’ V income tax Act and insist that revised tax forms be filed. b) Roger provided proper advice based on the best available information at the time and has no obligation to inform the client of the new interpretation. c). Roger should inform the client that based on the Tax Court of Canada’s interpretation, Revenue Canada will likely disallow the client’s claims unless ruling is reversed by a higher court, and he should allow the client to decide if revised forms should be filed. d) Roger should inform the client that only appeals to the Federal Court of Canada are precedent-setting and therefore the tax-planning advice is still valid. 3 The income Tax Act is revised and amended regularly. Which of the following federal government departments is responsible for developing income tax policy and drafting amendments to the income Tax Act? a) Canada Revenue Agency b) industry Trade and Commerce 6) Finance "6) Tax Services 4 Blue Ltd. is a private corporation incorporated in Canada. All of the corporation’s shareholders reside permanently in Hong Kong. Blue earns commission revenue from selling products from China in Canada. The company has 2 employees-the president, who initiates all of the transactions and lives in Hong Kong, and an administrative clerk/receptionist, who lives in Canada. Which of the following statements accurately describes the income tax status of blue in Canada? a) Blue is not a resident of Canada because more than 50% of its voting shares are owned by non- residents. b) Blue is a resident of Canada because it carries on business in Canada and is subject to tax in Canada only on its Canadian source income. 0) Blue is not a resident of Canada because its central management and control is exercised outside of Canada. d) Blue is a resident of Canada because it is incorporated in Canada and is subject to tax in Canada on its worldwide income. 5. Mary ifiléélafigp.arcel.,of land from her fatheginr199/5? Her father bought this land for $10,000 in 1985 d its market value was $50,000 in 19 SKIMary sold the land in 2009 for $150,000. She ‘ received $25,000 cash and the remaining amount will be paid in 201 1. What will be Mary’s minimum capital gains in 2009? f/C‘W’w; / fwd. ~<{«'2§’,Ir\-’ , , 11/1, 1/1 ‘ i 7 a) 10000 a} ‘” «3/ W JV)? . b) 20000 ax titty/C- {WM- ’6'” 25000 ,, . 4 ,. u . ) . )2).,9““"W‘Mcmér MK. wee/9M x z«r./.<:'-~2.<@,f 9 a??? Mldterm rev1ew # 2 Page 1 of 3 "‘ i</Iilmsy Uiiatti ulam d) 140000 6. Which of the following statements is true regarding the requirement for an individual to file an income tax return? a) All individuals over the age of 18 must file an income tax return annually. b) An individual must file an income tax return only if taxable income exists. c), An individual must file an income tax return if a tax liability exists, or if the individual either has a / capital gain or has disposed of capital property. d) An individual must file an income tax return only if a tax liability exists. 7. Under the Income Tax Act, related persons are deemed not to be dealing at arm’s length. Which of the following statements describes a transaction between persons who are not related? a. Individual A sells an item to corporation X, which is controlled by A’s brother. b. Individual A sells an item to individual B who is the sister—in-law ofA ’ c. Individual A sells an item to individual B, who is the nephew of A d Corporation A sells an item to Corporation B, which is controlled by the grandson of the person who controls corporation A. e. None of the above 8. Which of the following is not one of the main criteria for distinguishing between an employee and a self- employed individual? a. Financial risk in. Method of payment c. Integration d. Control. / 9. Which of the following statements is true regarding retiring allowance or death benefits? a. All amounts received as a retiring allowance can be transferred to an BRSP. ' b. Legal expenses to collect or establish the right to a retiring allowance are not deductible for tax purposes. c. The full amount of any death benefit received by an employee’s spouse is included in the recipient’s income. d. Only the death benefit amount is excess of $10,000 received by an employee’s spouse in included in the recipient’s income. 10 In 2010, Sharon purchased 2,000 shares of Bean Ltd., a Cdn Private corporation for $10 per share. She registered 1,000 shares in the name of her spouse and 1,000 shares in the name of her 14 yr daughter. In 2010,.herrspouse and daughter each received a dividend of $800 and then sold the shares for $14/share. Which of the following accurately describes the tax treatment in 2010 relating to the shares? a). Sharon has a taxable capital gain of $2,000 and a taxable dividend of $2,000; her daughter has a taxable capital gain of $2,000 b) Sharon has a taxable capital gain of $4,000 and a taxable dividend of $2,000 0) Sharon has a taxable capital gain of $2,000 and a taxable dividend of $1 ,0’00; her spouse has a taxable capital gain of $2,000 and taxable dividend of $1,000 ' d) Sharon has a taxable dividend of $2,000 and her spouse and daughter each have a taxable capital gain of $2,000. Midterm review # 2 Page 2 of 3 Mumsy Ullattikulam SECTION ll Question: 1 (35 marks) In 2010, Dennis moved from Windsor, Ontario to Vancouver, BC, to besem‘ployed by Zinc Ltd, a Canadian Public Corporation. He has requested your assistance in preparing his 2010. In addition to his employment, Dennis has several other sources of income. Financial information for the 2009 taxation year is provided as follows: 1. In 2010, Dennis received a sablvpf $98,000. From this amount, Zinc Ltd, defcfirctfledithe following: i) RPP - $4,000 ii) Donations: $1,000 iii) CPP & El: $2,910 and iv) income Tax: $32,000.7rn’c Ltd, made the following payments on behalf of Dennis: i) Private Group Medical insurance Premiums: $800, ii) Airfare and hotel accommodations for Dennis and his family to attend a vacation resort: $2,000, iii) Operating expenses for the company owned car used by Dennis: $3,800. In addition to his salary, Zinc Ltd, provided Dennis with a car that cost $30,000. Dennis drove 24,000km of which 13, 500 km were for personal use. , 52234 2. On January 2, 2010,_’D\ennis‘ borrowed $10.,0‘90mfr‘ ‘ V pounder an employee loan plan. interest of $400 was paid to Zinc. CRA’s prescribed interest for 2009 was aDanis used the funds to purchase 1,000 shares of Oak Ltd, a Canadian Public Corporation, for $10/shar 7""Th’is purchase increased his holdings in Oak to 1,500 shares. He had purchased 500 shares for $6/share in 2007. in November 2010, Dennis received an additional 1:00.,sharesof/Oak when the company declared a stock dividend. At the time, the shares were trading for $12/share. ' In December 2010, Dennis sold 500 shares of Oak for $15/share. 3. On October 1, 2010, Dennis purchased a bond for $20,000. All interest will be paid at the end of the 3—year term at the rate of 6%. . 4. Dennis’s rental property reported a net loss of $2,000 as follows: Rent received $ 12,000 Mortgage interest (6,500) Amortization , (3,500) Utilities and property taxes (4,000) Rental loss $(2,000) Rent of $300 due in December but received in January 2011 is not included in the above. The UCC Of the building that was built in 1989 is: $86,400. 5. In November 2010 Dennis had to sell shares of Denver Ltd‘,,,a'CC‘PC,for $25,000. All of Denver’s assets are used in active business. The shares were acquired in 1998 for‘$45,000. No dividends were received. No carrying charges were paid. 6. Dennis donated a painting that was professional appraised at $600 to a local registered charity. He had purchased the painting in 2001 for $1,400. 7. Dennis ceased operating his small consulting business in November 2009. The 2008 Financial statements deducted a reserve for doubtful accounts of $2,000 which was reasonable for tax. Of this amount, $1,500 was collected in 2010 and the balance of $500 was written off. 8. Dennis’s other receipts and disbursements are as follows: Term Life insurance premium $ 200 interest received from foreign bond (net of $100 tax) 1,000 Safety deposit box fee 50 RRSP contributions 12,000 9. Information on carried forward amounts to 2010 tax year: LPPfiloss from pneyiggsyears””" 2,000 RRSP contribution room available a 11,500 Required: Calculate minimum net income for Dennis for the year 2010 using Section 3 Format. Midterm review # 2 Page 3 of 3 Mumsy Ullattikulam SECTION | Review 3 Multiple Choices (12.5marks) 1 . 5!) Tree Ltd. A CCPC, has taxable income of $420,000 for the taxation year ending June30, 2010. After claiming the small business deduction on $250,000 of active business income'an'd making all required instalments, Tree has a balance of taxflgwing. On which of the following dates must the balance of tax be paid to avoid interest charges? a) August31, 2010 b) ’ September 30,2010 0)” October 31, 2010 d) December 31, 2010,. ‘_ /l -’ _ / U)?!“ :/ \7/ g> On August/31, mailed Sandra an assessment of her 2009 income tax return. She does notagree with the assessment and plans to file a notice of objection. Which of the following is the latest eligible date for her to file the notice of objection? m1} nfl: 3, 7. fli'értYLJI'vk/L. . a) November 29, 2010 b) March 2, 2011 5;), April 30, 2011 d) December 31,2010 Equity is one of the general objectives that are usually considered essential to a good tax system. Which of the following is an example of equity? a) The tax system should not influence the allocation of resources within the private sector. b) Taxpayers know in advance the tax consequences of any transaction so that they may plan their affairs accordingly. c) The tax system must be easily understood by the majority of taxpayers Taxpayers with a greater ability to pay tax should bear a higher burden of tax George, a musician, agreed to give musicfllessons to customers of ABC Ltd., a retail store that sells musical instruments. When and/ingrumenthisflsold, the store arranges a package of 6 lessons, which George provides in an music'room onthe store premises. George is evaluated by the customer and he will not be invited back if he receives 3 unsatisfactory reports. His fee of $20 per hour is paid to him directly by the customer after each lesson. The store provides music sheets for the lessons. in determining whether George is employed or self—employed, which of the following statements is false? a.) The integration test suggests that George is an independent contractor. b) The control test suggests that George is an employee 0) The financial risk test suggests that George is’an independent contractor d) The ownership of tools test suggests that George is an employee Which of the following does not result in a disposition of property for tax purposes? \’:/,,.,,,V,L/"{%L~4it/Mg) ~ ~ a)“ Ill/and/that is being held forflrlsale, at a profit is subsequently used by the owner to construct l'an‘o‘ffice building to conduct its" business b) An automobile used for personal purposes is subsequently used for business purposes 0) A summer cottage is gifted to an adult child d) ' A business computer is stolen and not recovered. 6. Conrad is employedmby the government. By chance, he discovered a used automobile for sale at a bargain price. He purchased the automobile and sold it for a profit 1 month later. Which of the following best describes the tax treatment of this transaction? ‘ \. J a) The automobile is an investment and its sale results in a taxable capital gain. b) The automobile transaction is an investment and its sale results in property income c), The automobile'transaction is an adventure or concern in the nature of trade and its sale J results in businels‘smintcgme d) The automobile, transaction is an adventure or concern in the nature of trade and its sale results in a taxable capital gain. 7. Which of the following statements is true regarding the annual revenue and expenses from a rental property? ' a) Under no circumstances can a loss from the rental property be deducted against other sources of income ‘ b} A loss cannot be deducted to the extent that it was created by capital cost allowance on the property 0) A loss can be deducted only to the extent of net property income from all sources d) A loss can be deducted against all other sources of income except employment income. 8. Ash Ltd.~,\a CCPC, soldall its business assets in 2009. Part of the proceeds included $150,000 L "“ or g jo'dwill. The ofigfialcost of the goodwill was $120,000. At the end of 2009, the balance in ; ,th e cur , ulative etigible capital account was $70,000. Which of the following correctly describes ' tltie typfif income earned bv’AshV‘fEm t e ,salgpf_gog.qv1' I I . X07573 ‘ “fl. ’ 'Q‘Q mfg/{w (C’c;f,.’/wm;,§/‘b J5)!" , Q1 (\7' 27"Lézci (’ l, \m a) Ash will earn business income and a taxable c {ital ga/ififl- {1% f ' mil/b) Ash will earn only business income /‘ Waging}? ,luk ' l *3 $33621 wily/1;" " 0) Ash Will earn property income and a taxable capital gain if (gag/L4. yaw/{gm d) Ash will earn only a taxable capital gain W .‘ » ‘ Which of the following is true regarding the‘valuationvof inventoryfor tax purposes? /' M W [76/121, Cébakl {fa/3'; a 0/ -?%%&M ,wufiwz/fl t.; g. . // '» C C”; Kara/21,2: a) All inventory must be valued at the lower of cost or market b) inventory can be valued at the lower of cost or market, or all at cost, or flatmvarketm c) inventory cagbevalued all at cost, or all at market g d) Inventory/gap be"va’lUEdyTthe‘lo _\erbf cost or market, gwallwatwmarvket. [3g gag/éé‘mné, egg/W [5 #44 xii alga."*1Wt‘géam “<5” W" V— -~>2:;/4aée. ,fiwjvrcz <31 MK 10 (Which the ollowrng best describesth’é cons quences thatresult when a taxpayer fails to file a tax‘r‘érurnmonrtrmé?M“ " 214% a) The taxpayer is charged interest on the unpaid balance but no penalty if the return is filed ~ within 1 month of the due date a The taxpayer is charged interest plus a penalty of 5% of the unpaid tax, plus 1% for each ‘1 ' \ month after the due date, to a maximum of 12 months “ c,‘_ The taxpayer is charged interest plus a penalty of 10% of the unpaid tax. T ’7, The taxpayer is charged interest plus a penalty of 5% of the unpaid tax and 2% for each month after the due date, to a maximum of 6 months. l Kym/fin ,( // j SECTION ll Question: 1 (37.5 marks) Amy Fisher is employed by MDC Ltd., a Canadian Public Corporation. She worked as a warehouse supervisor for 11 months, and’on December 1, 2010“"s’he transferred to the sales department as a commissioned sales person. Amy has requested your assistance in preparing her 2010 tax return. Information regarding her financial activities for 2010 is given below. Amy received a salaryggf..$7.0,00_0fgffiirnonths as a warehouse supervisor. For the month of December 2010, she earned $5,000 in commission, of which $3,000 was received on December 31, 2010 and $2,000 was received on January 15, 2011. MDC Ltd, does not have RPP but instead contributed $7,000 directly into Amy’s RRSP. / ' On December 1, 2010, Amy purchased a new automgbilaforx $33,000, to be used to earn U commission income. The automobile was financed with a" bank Ioag, and she paid interest of $350/7’Q for the month of December. She drove the new automobilKéBTOOU km, of which 2,000km was for personal use. Amy paid the following additional costs to earn commission income in 2010: yew} Meals and entertainment $ 300 )0 a ,7 Advertising and promotion 2,000 __..-;..X:i’ Automobile operating costs(employment only) ((71,000 ,1” 9,) Purchase ofdigit‘alphone’ ‘ “ ’ v 700 ' ) - -- On January 1, 2010, Amy took advantage of MDQ_NI:td,f_s+er33pfilgy§§/ ' , )$10_,000.to’acquire shares on the stock market. Amy paid\/4% on the rate (after 2% of rate reduction) for 4 quarters of year 2009 was/6%. ’/ ' /~. wfiwwfim, J //~ On June 30, 2010, Amy sold her~r”1r,0‘00,sharesirrflyl‘DgCLtd fore-“$530 per sha The shares were 1‘ l/ 62/4 1, acquired for $20 per share under stock option arrangement. Other information relating to the r/ / shares is as follows: WTMMM" ,, , 1, Option Granted November 1, 2008 Fair market Value-$20 t1) (9” “26/ ) Shares acquired December 15, 2008 Fair Market Value-$26 [2, 5.,,>,0),e>5” x ,plrogram and borrowed ‘an. _> The CFA prescribed .1; pm ,r/-”i j I 1:2th ts > 0/ p‘ité'iz'tx _" ,, Jr“ 4‘ meg..." -- After agarréébidentfijn April 2010, Amy was off work for 2 months and receivedsi$5,000 from/the ‘ ""'»-~cagrouprsickfiéssTafid‘ accident insurance plan for IOSt wages- Over the paSt years’ Amy had paid :,v-U,,.\premiums to the plan of $2,000 / in 2010, Amy acquiredpublic/corporation shares as follows: , A , W 675, Date Corporation (W # of shares Cost / ’ ‘ Jan 5, 2008 X 1,000 $10 Jan 5, 2007 Y 500 $15 Jan 20, 2009 X 800 $14 eff/O x” w M? On December 31, 2010, she sold 1,000 shares of X for $20 per share and 500 shares of Y for $10 per share. ’ ,..r:§‘ifi7‘V / a In September 2010, Amy sold regal property #gijter $110,000 (land—$30,000; building — $80,000). The property was purchased in"'19‘98"'f6?"$65,000 (land—$20,000; building - $45,000). Amy continues to own rental properties #1 and #3. Propertyé’.,_#1/ was" purchased in 1999 for $200,000(land—$40,000, building-$160,000) and property,” #Ef‘ was purchased in 2001 for $80,000(land~$38,000, building — $42,000). For CCA purposes,,/léroperty #2 & #3 were placed in one glass 1) For the year ended December 31, 2010, the three properties showed a rental loss of $3,0007‘(‘e§<‘/cl.u'ding any gain on the sale of property#2) as follows: 01 I! xéréixpf is , ~ l,_ 10/ 7 a \ .xf/mcii m... / r, l e kt; 4/” W" \ ,. \ I, V 'I-fl;/£',§ L? 4’7:Zf¢{ (:2; S, {yr/)7] Area 9),] “Fag-O 7 by 19.». .1 " // {w if A/ f/i‘w {/v‘fij/(j r. -~. Rental revenue $ 36,000 Utilities (13,000) Property taxes and insurance (7,000) Repairs and maintenance (11,000) Amortization (8,000) Loss (3,000) 4. Foflowing are Amy’s other receipts and disbursements eggs from Cdn Public corporation $13,200 /,, ‘ \Mg‘gfiiggl‘lnsurance premiums paid ‘ "8‘00 0/;le , Proceeds from rs'al’gof grand piano (cost—$4,000) 5,000 ' r w2;.» v- FM» 247; X 5. Other information: Wu AL 6 2L ‘4 RRSP contributiortjoomfivailable for year 2010 $6,200 2%”; ngr LPP loss carried forward from 2005 1,500 W1 im/y, ) Net Capital loss from 2004 _ , , 2,200 x / UCC — opening - Property #1 I“ i 11‘ 120,000 “Jig/£41245 WWZWQ>Q " . UCC — opening - Property #2 &#3 r ' ' 70,000 l7), , _ [566‘ WK Required: ,1 . ;, K , /_ Calculate Amy’s minimum net income for tax purposes in accordance with the format{ongétighfl/pféthg iii/AA income Tax Act. A. i , i , /* / , 23 MW ~ \ [/4 A}: 3/5615”; k/W/ 9; / < t ‘ / ‘9 W. (71:) / p '5 J I 30 Marks bkééNh—‘Ath-hh-hh-DNNNNNNNANN—X Mid—Term Exam-#1 Review Solutions Session I Q1 Q2 0:3 0:4 0:5 0:6 Q:7 0:8 0:9 0:10 ONQU‘OONOUU Taxation (TX1) Mid-Term Exam—#1 Review Solutions Session II: Kim Smith's Net Income for tax Purposes: Section 3(a): i) Employment income Salary (Bonus) Retirement gifts ($800+$1,200) Employer's Contribution to her RRSP ii) Business income income per financial statement Work in Progress Meals - 50% (500) Amortization Golf club membership dues Automobile ( $4,800+$2,000) CCA - Small Tools-Class 12 - 100% ($5,000) CCA - Library-Class 8 - 20%($8,000)50% CCA — Computer - Class 50-55%($1,000)70%x50% CECA - Goodwill — 75%(100,000)7% iii) Property income: Taxable dividends - $4,000 x 1.25 income attributed from her son Section 3(b) Taxable Capital Gain Listed Personal Property -(1,500—1000)50% Less: Carried forward allowable loss on LPP Section 3© Other Deductions: ,- RRSP Child Care — Limited to $5,000 Net Income for Tax Purposes $ 50,000.00 2,000.00 12,000.00 $ 80,000.00 (10,000.00) 250.00 15,000.00 3,000.00 6,800.00 (5,000.00) (800.00) (192.50) (5,250.00) $ 5,000.00 500.00 $ 250.00 (250.00) $ 0.00 (5,000.00) $ 64,000.00 83,807.50 5,500.00 0.00 (5,000.00) 148,307.50 i) RRSP contribution by the employer might have claimed in 2007 T1 due to immediate refund ii) Reserve for uncollectible fees is considered reasonable under circumstances. l2, ,, 2 ,l \EMK {1k} m- Session II: ,, 1 Section 3(a): i Employment income 1 Salary 98,000 1 RPP (4,000) 1 Airfare * accomodations 2,000 1 Standby charges — $30,000 x 2% x 12 7,200 2 Operating benefit $.24 x 13,500 km = $3240 3,240 10,440 1 Interest benefit (10,000 x 7% - $400) 300 ii) Property income 1 Stock dividend $12 x 100 x 1.44 1,728 1 Interest income from foreign sources — $1 ,000+$100) 1,100 1 Less: Safety deposit box (50) 1 Interest paid on loan ($400+$300) (700) (750} - iii) Business income 1 Reserve claimed in prior year 2,000 1 Less: write off (500) 1 Section 3 (b) 3 i) Sale of shares 500 x ($15—$8.875) X 50% 1,531 2 ii) Sale of painting - ($1,000 — $1,400) x 50% (200) 0 1 Section 3© 1 RRSP contributions limited to room available 1 Section 3(d) , i) Property loss - Rental loss Net Rental loss (2,000) 1 Amotization 3,500 1 Rental revenue 300 2 CCA - 4% x 86400=$3,456 limited (1,800) 2 ii) ABIL 1/2 (25,000-45,000) 1 Net income per section 3 30 106,740 2,078 1,500 1,531 (11,500) 0 (10,000l 90,349 Solution Midterm Review 3 1 2 3 3(a) 3(b) 3© 3(d) 1 1 1 1.5 1.5 1.5 fi‘fl‘fi‘ b 4a c 5a d 60 i) Employment income Salary Commission RRSP contribution interest benefit - 10,000 X (6%—4°/o) Stock option benefit (1 ,000x ($26-$20) Proceeds from group ins ($5,000-$2,000) Less: Employment expenses Meals 50% X 300 Advertising Auto operating costs Limited to commission income CCA class 10.1 — $4500x4000/6000 Loan interest — $300 x 4000/6000 Property income Rental income Loss Add: amortization CCA* Dividend income - 13,200 x 1.45 Less: interest expense — $10,000 X 6% Properties #2 and #3 cost less than $50,000 each and are pooled in a single class. Property #1 is in a separate class. Opening UCC (Prop #2&#3) Sale of property#2 Opening UCC of property #1. Total available CCA — 4% X $145,000 Limited to net rental income Taxable Capital Gain MDC Ltd. [1,000 x (30-26)] x1/2 X shares [(1,000x$20)—(1,000x$11.78*)] x 1/2 * ACB=[(1,000X$10)+800x$14)]/1,800=$11.78 Y shares [(500x$10)—(500x$15)]x1/2 Rental property#2 Less: Net capital loss from 2002 Taxable PUP gain - ($5,000 - $4,000) x 1/2 subdivision "e" deductions. RRSP contribution limited to the room Losses from current year Net income under section 3 - 1/2 x ($110,000-$65,000) 7 b 8 b 9 d 10 b 70,000.00 3,000.00 7,000.00 200.00 6,000.00 3,000.00 89,200.00 150.00 2,000.00 1,000.00 3,150.00 -3,000.00 3,000.00 200.00 3,200.00 3,000.00 8,000.00 5,000.00 5,000.00 0.00 19,140.00 -600.00 70,000.00 -45,000.00 25,000.00 120,000.00 145,000.00 5,800.00 5,000.00 2,000.00 4,110.00 —1,250.00 4,860.00 - 22,500.00 27,350.00 2,200.00 500.00 83,000.00 18,540.00 25,160.00 500.00 —6,200.00 0.00 121,000.00 ...
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This note was uploaded on 05/16/2011 for the course BSAD 1060 taught by Professor Mumsy during the Spring '11 term at Langara.

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1591_001 - Review 1 SECTION l Multiple Choices (15 marks)...

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