Chapter 6 - odd numbered problem solutions

Chapter 6 - odd numbered problem solutions - Solution 1...

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Solution 1 (Basic) (A) As a fixed sum, the $50,000 cash payment is treated as proceeds of disposition for the assets of the business. [IT- 462, par. 5( b )] (B) The $60,000 paid on the basis of sales over the next three years with any balance remaining at the end of the third year payable at that time is not subject to paragraph 12(1)( g ). Hence, the amount is also considered to be proceeds of disposition for the assets. It is not the amount of this receipt, but the timing of the instalments of the $60,000 that is dependent on production or use (i.e., sales). [IT-462, par. 8] (C) The receipt of 25% of the gross sales over the next five years is dependent on production or use and, hence, must be included in property income when received [par. 12(1)( g )]. It is neither a capital receipt nor proceeds of disposition for goodwill. (D) Fees earned for consulting services by Rudolph would be taxable as either employment income or business income from self-employment, depending on whether he is considered an employee or a self-employed individual in respect of the consulting services. Solution 3 (Basic) The interest and property taxes on vacant land can only be deducted to the extent of income from the land in excess of all other expenses [ssecs. 18(2) and (3)]. None of the exceptions in subsection 18(2) is met by the facts of this case. (a) The land is not used in the course of the taxpayer’s business. (b) The land is not held primarily for the purpose of gaining or producing income therefrom. (c) Leasing, rental, sale or development of land is not the taxpayer corporation’s principal business. Any remaining non-deductible amounts can be added to the cost base of the land held as a capital property [par. 53(1)( h )]. Thus, $10,000 is included as income and $10,000 of interest and property taxes may be deducted in the current year. While the remaining $25,000 of interest and property taxes is not deductible, it can be added to the cost base of the land. Solution 5 (Advanced)
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Chapter 6 - odd numbered problem solutions - Solution 1...

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