Chapter 09

Chapter 09 - Chapter Nine CHAPTER 9 OTHER INCOME, OTHER...

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CHAPTER 9 OTHER INCOME, OTHER DEDUCTIONS, AND SPECIAL RULES FOR COMPLETING NET INCOME FOR TAX PURPOSES SOLUTIONS TO REVIEW QUESTIONS 1. "Other sources of income" is a catch-all category that includes taxable items of income that do not qualify as employment income, business income, property income or capital gains. Its scope is limited because the Income Tax Act defines other sources of income as a specific list of items described in sections 56 through 59. Therefore, the term "other sources" is not open-ended as it suggests. 2. The receipt of property from an inheritance would be included in the recipient’s net income for tax purposes only if it qualified as one of the five designated types of income. The inheritance is not income from employment because it was not earned from providing services to an employer. It is not business income because it was not earned from carrying on a business involving the sale of goods or services. It does not constitute a return on invested capital and, therefore, is not property income. It is not a capital gain because it did not result from the disposition of capital property. The inheritance can only be taxable if it qualifies as "other sources of income." A review of the limited list of items in this category does not include wealth enhancement from an inheritance and, therefore, by a process of elimination, it is not part of net income for tax purposes. 3. Yes, support payments to a former spouse are deductible as part of the "other deductions" category provided that the support payments are pursuant to a legal agreement or court order and are on a periodic basis (not a lump sum) [S.56.1(4), 60(b), 60.1(4)]. It does not matter that the payer's only source of income is interest from bonds (which is property income). Items that qualify as "other deductions" are deducted as part of the aggregating formula after income from employment, business, property and capital gains have first been included. Therefore, support payments, as part of "other deductions" can be deducted from any source of income. 4. Each of the primary categories of income (employment, business, property, and capital gains) permit certain items of expenditure to be deducted in arriving at the net income from that source. If those categories do not permit an expenditure to be deducted, the only remaining area of the tax system which may permit its deduction is the category of "other deductions." If this category does not mention the specific item then it is not deductible for tax purposes. Therefore, the category of "other deductions" is important because it is the last test in the income tax scheme to determine the deductibility of an expenditure [S.60]. 1
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Chapter 09 - Chapter Nine CHAPTER 9 OTHER INCOME, OTHER...

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