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D each partner uses their own car and pays their own

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Unformatted text preview: advance the necessary funds. The $38,000 represents the net gain after payment of real estate commission and legal fees of $5,000. d) Each partner uses their own car and pays their own car expenses. Selena’s auto expenses totalled $15,400 for the year. Her auto expenses included car lease payments of $1,100 per month including GST and 8% PST for a car leased on January 1, 2001. Thirty per cent of the kilometers driven by Selena in 2001 were for business. Hollie incurred similar auto expenses. e) Hollie originally started the business. Selena bought in several years later. She borrowed $35,000 from the bank to purchase her partnership interest. She paid $1,800 in interest on the bank loan in 2001. f) The December 31, 2001 Balance Sheet of Lakefield Interiors shows that Hollie had drawings of $42,000 and Selena had drawings of $35,000 in the year. Required: Calculate the amount of income, including the types of income, Selena will include in her personal income tax return for 2001. Identify deductions and/or tax credits from the above information that Selena will be entitled to claim on her 2001 personal income tax return. 26 Question 3 (7 marks) (12 minutes) Larry Leeder has decided to incorporate his proprietorship. In this regard, his accountant has recommended that a Section 85 election be made with respect to the transfer of the following three assets: Land Building Goodwill Fair market value $150,000 300,000 10,000 $460,000 Capital Cost/ACB $100,000 280,000 0 $380,000 UCC/CEC N/A $243,000 0 $243,000 Required: Part A Determine the amounts Larry should elect as proceeds for each of the three assets when he makes the Section 85 election. Larry wishes to avoid the recognition of taxable income if possible. (3 marks) Part B Assuming that the corporation will issue debt and preferred shares to Larry in exchange for the properties, determine (a) the maximum amount of debt and (b) the amount of remaining preferred shares that would be issued. (2 marks) Part C What would the tax consequences be to Larry if the corporation later redeemed the preferred shares? Would the result be different if he sold the preferred shares to a third party? (2 marks) 27 Question 4 (10 marks) (18 minutes) Required: For each of the following three independent situations, indicate which corporations are associated and why? 1) Stephanie owns 45% of the common shares of S&V Enterprises Ltd. Victor, who has lived with, but is not married to, Stephanie for the last 23 years, owns another 30%. Their 21 year-old-son Justin owns the other 25% of the shares. Justin and his wife, Kristin, who is 25 years old, each own 50% of the common shares of J&K Mfg. Inc. 2) Mary and Ann are sisters. Each owns 50% of the common shares of M&A Sales Ltd. Each also owns 15% of the common shares of R&D Wholesaling Inc. Mary’s 24 year-old-son, Ron, owns 35% of R&D Wholesaling Inc., while Ann’s 25 year-old son, David, owns the other 35% of the common shares of R&D Wholesaling Inc. 3) Michael owns 100% of the common shares of Mears Ltd. His brother-in-law, Bob, owns 100% of the common shares of Bars Inc. Michael also owns 55% of Shared Ltd., while Bob owns the other 45% of Shared Ltd. 28 Question 5 (6 marks) (11 minutes) Quality Foods Inc. is a Canadian-controlled private corporation carrying on business in Canada. For its year ended December 31, 2001 Quality Foods Inc. earned income from the following sources: Active Business income Capital gain on sale of asset used in the active business Quality Foods Inc. is associated with one corporation, Spreads Inc. Spreads Inc. was allocated a Business Limit of $120,000 for 2001. Ignore large corporate tax implications. Required: Describe in detail how each of the sources of income is taxed. [Ignore provincial taxes]. 29 Question 6 (6 marks) (11 minutes) Each of the following 3 parts is independent. Part A (2 marks) Robert is 48 years of age and his wife, Marie, is 43. Robert has income from employment of $81,000. Marie has employment income of $5,050. Their 19 years old son Ian lives at home. Ian attended university on a full-time basis for 4 months of 2001. Robert paid $2,800 for Ian’s tuition for the calendar year 2001 and $525 for required textbooks. Ian had employment income of $4,000 that he earned during the summer. Required: Calculate the maximum federal tax credits claimable by Robert for 2001 ignoring credits for CPP and EI. Part B (2 marks) Corina owns shares that are listed on the Toronto Stock Exchange. The shares have a fair market value of $100,000 and an adjusted cost base of $20,000. During 2001, Corina gave the shares to a registered Canadian charity. This is Corina’s only donation. Required: Calculate Corina’s taxable capital gain and federal charitable donation tax credit for 2001. Part C (2 marks) Agassi Ltd., a private corporation, received a taxable dividend of $90,000 from its subsidiary. The subsidiary paid a total dividend of $120,000 and received a dividend refund of $18,000. Required: Determine the tax payable by Agassi Ltd. on the dividend receiv...
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This note was uploaded on 10/27/2013 for the course LAW 10-100 taught by Professor Parsons during the One '10 term at Bond College.

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