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4453FinalW2011 - SAINT MARYS UNIVERSITY DEPARTMENT OF...

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SAINT MARY’S UNIVERSITY DEPARTMENT OF ACCOUNTING ACCOUNTING 4453.2 FINAL EXAMINATION APRIL 8, 2011 QUESTION 1 – 16 MARKS Fully evaluate 2 of the following enacted or proposed measures with regard to their logical consequences and conformity to normative principles of taxation. (a) The FEIC proposal of a super deduction of 125% of the amount contributed to an RRSP, to a maximum of $5,000. (b) Nova Scotia’s reduction of the effective small business rate to 4.5% in 2010 and to 4% in 2012. (c) The federal Conservative proposal to allow couples to split up to $50,000 annual income if they have children 18 and under. This proposal would be enacted once the federal budget is balanced or close to being balanced. (d) The federal Liberal proposal to fund a national child care program by (i) cancelling the scheduled 2012 1.5% reduction in the effective corporation rate (The rate is scheduled to be lowered from 16.5% to 15%.) and (ii) increasing the rate by another 1.5%. If enacted, the effective rate would be 18%. PROBLEM 2 – 6 MARKS Mr. Morin, a resident of France, came to Canada early in 2010 to work on a special project for his French employer. In total, he spent 180 full days and one hour of the next day in Canada during the year. During this period, his salary was deposited into his French bank account. All of his expenses in Canada were paid from an account established by his employer at a Canadian bank. Other than for a short holiday during the summer, his family remained in France. While in Canada he lived in a hotel. REQUIRED: (a) Determine Mr. Morin’s 2010 residency status for Canadian tax purposes. Explain your rationale. (b) In general terms, what income does Mr. Morin have to report in Canada in 2010? (c) Would your answers have changed if Mr. Morin spent 182 full days and one hour of the next day in Canada? Explain. 1
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PROBLEM 3 – 9 MARKS DO EITHER (a) OR (b) (a) In February 2010, Carla and Iain obtained a legal separation. However, due to their financial circumstances, as well as the impact of a physical separation on their three young children (all under the age of 10), they agreed to continue living in their jointly-owned home. By all accounts, they did not continue normal marital relations subsequent to the separation (Nor, do we believe, for some time prior to the separation!). Under the terms of their separation agreement, neither spouse is required to make a maintenance payment to the other. Rather, they formally agreed to deposit an equal amount to a family bank account (which requires both signatures), which will be used for all household expenditures. Carla and Iain each earned approximately $37,000 in 2010. REQUIRED: Is either Carla or Iain entitled to the equivalent-to-spouse credit for 2010? Explain. (b) The taxpayer’s children, ages 23 and 19, each suffer from a severe congenital condition which causes them to become out-of-breath quickly, prevents them from engaging in sports activities, and makes them susceptible to viral illnesses. The older child was only able to obtain work as a part-time caretaker at a not-for-profit children’s agency. His 2010 net income amounted to $8,000. The youngest child is a student at the local university. Her net income
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