BusinessIncome

BusinessIncome - IN-CLASS PROBLEMSBUSINESS INCOMEPROBLEM...

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Unformatted text preview: IN-CLASS PROBLEMSBUSINESS INCOMEPROBLEM 1REQUIRED: Are the following deductible in computing the net income for tax purposes of a business? Cite ITA references.(a) An amount paid to a trustee under a registered supplementary unemployment benefit plan.Y N 20(1)(x); 145(b) A membership fee at a racquetball club.Y N18(1)(l)(ii)(c) Legal fees incurred by a manufacturing corporation which sold 10 hectares of land which had been held for future expansion purposes.Y NComponent of capital gain/loss 18(1)(b); 40(1) (d) Amounts paid for legal assistance collecting receivables owed to a corporation.Y N9(1), subject to 18(1)(a) (e) Interest paid on debt incurred by a manufacturing company with respect to the acquisition of vacant land being held for expansion of the companys parking lot.Y N18(2) (f) Interest on late payment of a corporate tax instalment.Y N18(1)(t)(g) Legal fees incurred to defend a business against a lawsuit filed by a customer.Y N9(1), subject to 18(1)(a) (h) Bonuses accrued at the year-end and paid three months after the year-end.Y N9(1), not prohibited by 78(4)(i) Amounts incurred but not paid in a year, to landscape the grounds around a companys office.Y N20(1)(aa) must be paid in the year(j) A reserve for inventory obsolescence.YN18(1)(e)PROBLEM 2The following amounts (with a brief explanation) appeared on the trial balance of a certain large manufacturing company at the end of its December 31, 20X9 fiscal year.REQUIRED (i)Which would be deductible, in whole or in part, in calculating the companys 20X9 net income for tax purposes? Cite ITA references.(ii) What do you note with regard to the deductible expenditures in comparison to the non-deductible expenditures?(a) Legal and accounting costs paid re the acquisition of a subsidiary: $9,000NoAdded to adjusted cost base of shares acquired(b) Advertising (on a television station located across the U.S. border which can be viewed in Canada): $1,000Yes 9(1)* if directed to a non-Canadian audience No 19.1 if directed to a Canadian audience(c) Advertising (on local Canadian television stations): $12,000Yes 9(1)* (d) Advisory fee (paid for advice regarding the selling of shares held for investment purposes): $1,000Yes 20(1)(bb) (e) Agent fees (paid Oct. 1 with regard to the transfer of shares of the corporation): $6,500Yes 20(1)(g)(i)(f) Allowance for doubtful accounts (computed as a % of sales) : $3,400 No 20(1)(l) requires a list of specific doubtful accounts (IT-442R) (g) Appraisal fees (re fixed assets, paid for insurance purposes): $400 YesIT-143 (h) Audit fees: $6,000 Yes 9(1)* (i) Bad debts (the related sale amount is included in Revenue for the year): $4,000 Yes 20(1)(p)(i) (j) Bank charges: $500Yes 9(1)* (k)Bonus payable (this item was included in the 20X9 Salaries expense, and remained unpaid at the end of the following year): $25,000No 78(4) (l) Building renovation: $32,000...
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BusinessIncome - IN-CLASS PROBLEMSBUSINESS INCOMEPROBLEM...

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