INCOME FROM BUSINESS
Solutions to Key Concept Questions
9(1) – Capital vs. Income]
The intended use of the property on acquisition is the principal factor in deciding its tax
treatment on a subsequent sale.
In Bill’s case, the land was acquired for the purpose of providing Bill with a long-term
enduring benefit by generating rental income.
The sale of the rental property will most
likely be treated as a capital gain in which case only one-half of the gain will be taxable.
In Martha’s case, the land was acquired for the purpose of reselling it at a profit.
profit on the sale of the land, like any inventory item, will be treated as business income.
100% of the profit will be taxable.
18, 20(1), 37(1), (2) – Deductions]
The $25,000 legal and accounting fee incurred with respect to the issue of a new class
of shares is a cost of issuing shares and as such is deductible over 5 years [ITA
Therefore, $5,000 is deductible in the current year and in each of the following
The $8,000 expense for landscaping is deductible in the current year, provided that the
$8,000 was paid in the current year [ITA 20(1)(aa)].
The $1,200 of interest paid to the CRA is not deductible [ITA 18(1)(t)].
The $2,700 of interest paid to finance the purchase of office equipment is fully deductible
in the year incurred [ITA 20(1)(c)].
Interest can, at the taxpayer’s option, be deducted on
a cash basis when paid, rather than by the accrual method.
Alternatively, the interest
expense can be added to the cost of the equipment and deducted over time in the form
of CCA [ITA 21].
Scientific research and experimental development (SR&ED) carried on in Canada is
given preferential tax treatment.
The expenditures, both current & capital in nature
(except for buildings), are deductible in full in the year incurred [ITA 37(1)(a)&(b)].
Alternatively, the deduction, or any portion of it, can be saved and deducted in any future