M/C Tax Chapters 1-5
On April 1, 2014, E Ltd. made a loan of $100,000 to Mr. Walker, a new employee of the corporation, to assist him in purchasing a residence when he moved from Quebec to commence employment in British Columbia. The loan bears interest at 2%, which is to be paid monthly. The principal of the loan is to be repaid in full on April 1, 2024. The prescribed interest rate on April 1, 2014 was 4%. Assuming that each month, which one of the following amounts represents the increase in Mr. Walker's employment income in 2017 due to the loan. A) 1,000 B) 2,000 C) 3,000 D) 4,000
A) $1,000 *The loan qualifies as a home relocation loan. Computed using the lower of the prescribed interest rate at the time of the loan (4%) and the prescribed interest rate during the year (3%). Therefore the employment benefit (3% x 100,000 - 2% x 100,000 interest paid)
Which of the following amounts is DEDUCTIBLE in computing the income of a corporation under Division B of the Act? A) $13,000 of legal fees to defend a lawsuit brought by a customer B) Accounting loss on the sale of a capital property C) The principal amount of a mortgage on a company's warehouse D) The personal and living expenses of the shareholder who works very hard in the business and is not paid a salary
A) $13,000 of legal fees to defend a lawsuit brought by a customer *legal fees to defend a lawsuit brought by a customer would be deductible*
In the year, ABC Ltd. purchased Goodwill relating to a business for $100,000. Assuming ABC limited has no other depreciable property, what is the maximum write-off that ABC ltd. can claim for this goodwill in the year? A) $2,500 B) $5,000 C) $7,000 D) $5,250
A) $2,500 *CCA claim is classs 14.1: $100,000 x 5% x 1/2 = 2,500
Susanne Denholm is employed as a provincial payroll tax auditor and is required by contract to maintain an office in her home. Susanne works at home most of the time and has been provided withba laptop computer and a fireproof audit bag for her files, She has notn been provided with any reimbursements or allowance in connection with her home office, which occupies 10% of the square footage of her home. She incurred the following costs to maintain her entire home this year Telephone (general line) $600 House insurance $2,000 Property taxes $4,000 Heat, hydro & maintenance $5,000 Mortgage interest $24,000 -Susanne estimates that she used her telephone 50% for employment purposes during the year A) $500 B) $1,100 C) $1,400 D) $3,800
A) $500 *Can claim home office expenses because she is required by contract to maintain an office in her home and she works principally in her home. Therefore Heat, Hydro, Maintenance: $5,000 X 10% = $500*
XYZ Ltd. current financial statement shows a deduction for $20,000 of legal and accounting expenses. This amount consists of the following items: -$5,000 of legal expenses related to the purchase of an investment in shares -$5,000 of legal expenses incurred to dispute a tax assessment -$5,000 of legal expenses related to the issuance of debt -$5,000 of accounting fees related to the prep of a prospectus regarding the issuance of shares. What amount is deductible under Division B of the act? A) $7,000 B) $8,000 C) $15,000 D) $5,000
A) $7,000
R. Ltd. owns a restaurant business which it carries on in rented premises. R Ltd. redecorated and renovated in 2017 and made $80,000 of leasehold improvements. The lease expires on December 31, 2021 (five years) and has two successive renewal options of three years each. Assuming that R. Ltd. has a december 31, year-end, what is the maximum CCA that R Ltd. can claim in 2017 in respect of these improvements? A) $5,000 B) $8,000 C) $10,000 D) $16,000
A) 5,000
This year, Bob's employer provided him with an employer-owned automobile costing $34,500 (including HST) for 12 months. His kilometres for personal use were 15,000 out of a total of 20,000 KM. Operating costs paid by his emloyer during this year were $3,600 (including HST). Which one of the following statements is TRUE for this year? A) Bob's minimum standby charge is $8,280 B) Bob's minimum operating cost benefit is $2,700 C) Bob's minimum operating cost benefit is $3,900 D) Bob can elect to use 1/2 of his standby charge as his operating cost benefit
A) Bob's minimum standby charge is $8,280 *12 X 2% X $34,500 = $8,280*
During the year, Swiss Gleason Restaurants purchased the following assets for its restaurant and catering business: Moulds for chocolate items ($300 each)....$1,200 An accounting program (computer software)...$600 Linens for tables in the restaurants .........................$400 Cutlery, dishes etc (500 each)....................................$15,000 What is the maximum CCA claim for these assets? A) $8,600 B) $16,300 C) $16,900 D) $17,200
B) $16,300 *Under regulations, dies and moulds and software are not excepted from the half net-amount rule but the other Class 12 items are*
On January 1, 2015 Steve Ltd. signed a 5 year lease for retail space for a store. The lease expires on December 31, 2019, and has two successive renewal options for 3 years each. In 2017, Steve Ltd. made $60,000 of leasehold payments to this space. Assuming that Steve Ltd. has a December 31 year end. What is the maximum CCA claim that Steve Ltd. can make in 2017 in respect of these improvements? A) $3,750 B) $5,000 C) $6,000 D) $7,500
B) $5,000 *Lesser of i) 1/5 x 60,000 ii) 60,000/(3+3)*
Mr. Ng is not a resident of Canada. In the year, he had worldwide income of 200,000, including 50,000 of employment income earned in Canada (from directors fees) and 10,000 of interest on Government of Canada bonds What amount of taxable income must Mr. Ng report on his Canadian personal income tax return for the year? A) $10,000 B) $50,000 C) $60,000 D) $200,000
B) $50,000 *Note: the $10,000 in interest is not taxable under either Part 1 or Part XIII "Fully exempt interest*
This year, Mary earned a $50,000 annual salary as a computer repair person and received a total yearly car allowance of $3,500. The car allowance was paid to her monthly and was not based on the number of KM she drove. Her employment related expenses (all reasonable) were: Automobile expenses (gas, parking CCA) $3,000 Entertainment $2,000 What is Mary's minimum employment income for the year? A) $53,500 B) $50,500 C) $49,500 D) $49,000
B) $50,500 *SALARY + ALLOWANCE - AUTOMOBILE EXPENSES = 50,500
Tim began employment as a commissioned salesman in July of this year and received a base salary of $60,000 and $5,000 in commissions based on sales for the year. During the year, Tim worked away from the office negotiating sales contracts. Tim is required to pay his own travelling expenses and his employer has signed a T2200 form certifying that requirement and certifying that no reimbursements are paid for any expenses Tim incurs to earn commissions. Tim incurred the following work-related costs from July through December of this year and all expenses are reasonable: Meals and entertainment for potential customers $14,000 Automobile costs (90% of costs were KM driven based on employment purposes) Fuel $4,000 Insurance $750 Repairs $2,250 Leasing costs for a car costing $20,000 (500 per month) What is the maximum deduction Tim may claim for employment expenses for the year? A) $5,000 B) $9,000 C) $14,000 D) $16,000
B) $9,000 *Meals and entertainment (50% X 14,000) $7,000 Driving costs (90% x 10,000) $9,000 Expenses eligible for deduction $16,000 Therefore maximum deduction is 9,000
In which of the following situations is the person considered a non-resident of Canada for Canadian income tax purposes in the year in question? A) James Hill, a 25-year-old engineer living in Ottawa, accepted a six-month transfer to an office in London, England for the period of July 1 to December 31, of the year in question. He returned to Canada in the following year. James is not married and has always lived at his parents house in Ottawa B) Judy Gordon, a financial analyst, lives in a house she owns in London, England. She had lived in Toronto all her life, until she started a minimum three-year contract. with CS Services Inc. which started in July of the year in question. Judy is single and terminated the lease on her apartment in Toronto before moving her belongings to England when her position started in July C) ERT Limited was incorporated in Canada in 1987 and, until recently, its manufacturing plant was located in Ontario. In June of the year in question, it of its operations, including the manufacturing plant, to Mexico. D) Dough Stewart, a member in the Canadian Armed Forces, has been stationed in Germany for the last 5 years, including the year in question. Doug was born in Canada and lived in Canada prior to moving to Germany
B) *Judy is a non-resident. She seems to have severed her residential ties to Canada (moving her belongings) and established new ties in London, England (buying a house)
X. Ltd. is a corporation which has always been managed by the same board of directors. The board of directors has always met where the directors reside. Based on these facts, X Ltd. will NOT be resident in Canada for income tax purposes if X Ltd. was: A) Incorporated in Canada in 1968 and it's directors are all U.S residents B) Incorporated in the U.S in 1970 and its directors are all U.S residents C) Incorporated in the U.S in 1968and its directors are all Canadian residents D) Incorporated in Canada in 1964 and its directors are all Canadian residents
B) Incorporated in the U.S in 1970 and its directors are all U.S residents
Which one of the following amounts is DEDUCTIBLE in computing the income of a corporation under Division B of the act? A) $11,000 of accrued legal fees for a pending law suit. The accrual is an estimate because no work has been done to date by the lawyers B) $4,000 of donations to registered charities made for no business reason C) $15,000 spent on three social events in the taxation year for all employees at a particular location D) $1,500 for golf club membership dues for employees
C) $15,000 spent on three social events in the taxation year for all employees at a particular location *The entire 15,000 spent on 3 social events for all employees at a particular location is deductible as long as the number of events does not exceed 6*
Jay ceased to be a resident of Canada on April 30 of the year and moved to New Zealand on that date. During the first four months of the year, he earned $25,000 of employment income in Canada and $1,000 of interest income from his bank accounts in Canada. While living in New Zealand during the remainder of the year, he earned $30,000 (CDN$) of employment income in New Zealand and received $2,000 of interest income from his Canadian bank accounts. What amount of taxable income must Jay report on his Canadian personal income tax return for the year? A) $58,000 B) $56,000 C) $26,000 D) Nil
C) $26,000 *Jay is considered to be a resident of Canada on April 30 of the year, only his worldwide income during the first four months of the year (26,000 = 25,000 + 1,000) is subject to tax in Canada*
CART Ltd. is registered for HST purposes. The following is a summary of the transactions for CART Ltd. for the month of December Account Amount (Net of HST) Sales (Taxable at 13%) $250,000 Exports $100,000 Purchase of supplies from a registrant $(30,000) Salaries $(70,000) Interest expense $(20,000) Total $230,000 The HST that has to be remitted in respect of the above transaction is: A) $19,500 B) $26,000 C) $28,600 D) $39,000
C) $28,600 *Sales (taxable at 13%) $250,000 Purchase ($30,000) $220,000 220,000 X 13% = $28,600
X Ltd. purchased a $50,000 passenger vehicle in 2017. What is the maximum amount that X Ltd. may claim as capital cost allowance for the vehicle in 2017, ignoring HST? A) $7,500 B) $9,000 C) $4,500 D) $4,050
C) $4,500 *Max CCA is: 1/2 X 30% X $30,000 = $4,500
Which one of the following amounts is DEDUCTIBLE in computing income of a corporation under Division B of the act? A) $5,000 of donations to federal political parties B) $44,000 in accrued bonuses unpaid 7 months after year-end. The amounts were legal liabilities at year-end C) A $10,000 increase in the financial accounting reserve for warranty expenses D) The $2,000 cost of tickets for meals and entertainment at a gala fund-raising event for a registered charity
C) A $10,000 increase in the financial accounting reserve for warranty expenses
Joe is legally separated from his wife and has two adult children who live with his wife and are not dependent on him for support. Joe is leaving Canada to take a job in Germany on June 30 of this year. He plans to stay in Germany indefinitely and has purchased a home there. Which one of the following things is the most important for Joe to do to help ensure that he is not a resident of Canada for Canadian income tax purposes after he leaves? A) Take his wife and children with him to Germany B) Give up his Canadian citizenship C) Sell his Canadian home or rent it under a long-term lease D) Put all his household furniture and personal effects into storage in Canada
C) Sell his Canadian home or rent it under a long-term lease *Generally the CRA will consider the individual not to have severed residential ties within Canada if he has a dwelling available for occupancy*
Tanya, an employee of a Canadian public company, received an option to purchase 1,000 common shares of her employer at $30 per share in April 2016, when the shares were worth $19 per share. In December 2017, when the fair market value was $40 per share, she exercised her options. In January 2018, she sold all the shares for $48 per share. Tanya wants to know what employee benefit she will have to report on her tax return. She wants to pay the lowest amount of taxes possible A) $5,000 B) $18,000 C) $14,000 D) $10,000
D) $10,000 *The stock option benefit is ($40 - $30) X 1,000 shares = 10,000
The new controller of a pharmaceutical company has asked you how the legal costs to obtain a 20-year patent on a new drug are treated for tax purposes. Which one of the following options is not available? A) Include in Class 14 B) Include in Class 44 C) Deduct in the year incurred D) Include in Class 14.1
D) Include in Class 14.1 *Not available since the property is not intangible property with an indefinite life*
Which one of the following items is NOT deductible in computing the income of a corporation under Division B of the act? A) Amounts paid for landscaping business premises B) Interest on money borrowed to finance the purchase of a factory for use in its business C) The premium on a $100,000 term life insurance policy on an employee if the beneficiary of the policy is the employee's family D) Interest and penalties on late income tax payments
D) Interest and penalties on late income tax payments *A deduction for interest and penalties on late income tax payments is denied*
Ten years ago, Sam, a real estate agent, purchased a piece of land for $50,000. His intention at that time was to build a rental building on the land and use it to earn rental income, which he did four years ago. In the current year, he sold the land and building for $100,000 and $80,000 respectively receiving an unsolicited offer. Based on the facts, which one of the following statements is true? A) The CRA may argue that the ain on the sale of the land is a capital gain, because Sam is a real estate agent B) The CRA may argue that the gain on the sale of the land is business income, because of the 10-year holding period of the land C) The CRA may argue that the gain on the sale of the land is business income because of the unsolicited offer for sale D) The gain on the sale of the land will likely be treated as a capital gain for income tax purposes
D) The gain on the sale of the land will likely be treated as a capital gain for income tax purposes *Most of the facts support capital gain treatment*
