{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chapter 07 - Chapter Seven CHAPTER 7 INCOME FROM PROPERTY...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter Seven CHAPTER 7 INCOME FROM PROPERTY SOLUTIONS TO REVIEW QUESTIONS 1. The definition of property income is derived from common law precedents. From this source income from property can be defined as the return on invested capital where little or no time, labour or attention is expended by the investor in producing the return. Property income includes the interest earned on bonds and loans, dividends earned on shares of corporations and rents earned from real estate [S.9(1)]. 2. Income from property refers to the regular returns derived from ownership of the property (such as dividends from shares). The gain or loss which results from the actual sale of the property is classified either as a capital gain (loss) or business income (loss) depending on the purpose for acquiring the property [S.38, 39(1)]. 3. Interest income earned by a financial institution such as a bank or trust company is normally classified as business income because substantial cost and effort is expended to earn the interest -- the loaning of money is a part of the entity’s business. A taxpayer who earns interest from investing their savings earns property income because little effort is required to generate and maintain the returns. 4. Income from property is determined using the same rules as income from business. It is the profit there from determined in accordance with well accepted business principles with the aid of normal accounting principles. Similar to business income, the determination of profit is modified by several general limitations and can apply the same exceptions to those limitations [S.9(1)]. 5. The taxation year of a corporation is the fiscal period chosen to account for its affairs. Therefore both business income and property income are determined annually for the corporation's fiscal year. In contrast, property income earned by an individual cannot use a fiscal period and must be accounted for on a calendar year basis. 6. Yes, the statement can be true. Interest expense on a loan is deductible in arriving at property income provided that the funds obtained from the loan are used to acquire an investment which in turn can generate taxable income [S.20(1) (c)]. Therefore, if an individual borrows money by mortgaging a home and uses the funds to acquire an income generating investment (and does not use the funds to buy the home) the interest is deductible. 7. Because the property is sold to an arm’s length buyer with substantial deferred payments without interest, it may be construed that the selling price of the property was increased in exchange for the elimination of interest. In such 95
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Chapter Seven circumstance, a portion of the price may be considered to be property income from interest and taxed accordingly.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}