Taxation final mcq

A shareholder sells to her corporation $200,000 worth of manufacturing equipment, with an original cost of $225,000 and an undepreciated capital cost (UCC) of $160,000. She makes the election to have the transfer/sale price, for tax purposes, to be equal to the tax cost of the equipment. The related bank loan of $150,000 is assumed by the corporation as part of the consideration received by the shareholder. What would be the UCC of the equipment to the corporation? Multiple Choice $150,000 equal to the loan amount. $160,000 equal to the UCC of the equipment and the elected amount. Correct $200,000 equal to the sale price. $225,000 equal to the original cost to the shareholder.

$160,000 equal to the UCC of the equipment and the elected amount.

The Great Big Cookie Corp. (GBCC) is a Canadian controlled private corporation which realized a total net income for tax purposes of $230,000 in Year 1. During the year, GBCC received $25,000 in dividends from a taxable Canadian corporation during the year, and they also donated $15,000 to a registered charity. What is GBCC's taxable income in Year 1? $190,000Correct $205,000 $215,000 $240,000

$190,000 Net income for tax purposes ITA 3$230,000 Less: Division C deductions: Donation to registered charity ITA 110.1(1)(a)-15,000 Dividends from taxable Canadian corporations-25,000 Taxable Income$190,000

In 2021, Tom realized a taxable capital gain of $30,000 from the sale of shares in a qualified small business corporation (QSBC), and an allowable capital loss of $8,000. He had a carry-forward net capital loss (NCL) of $10,000. Tom never used the capital gain deduction (CGD). What would be the maximum CGD that Tom could claim in 2021? $30,000 $22,000 Correct $15,000 $12,000

$22,000 $30,000 − $8,000 = $22,000. The $10,000 NCL is a discretionary deduction and would not need to be claimed in 2021.

A GST/HST registrant buys an automobile for $42,000 plus HST/GST of 10% to be used exclusively in the business. Assume the first-year capital cost allowance (CCA) on the vehicle is $1,500. What is the maximum input tax credit (ITC) that can be claimed in the year? Multiple Choice $4,200 $3,000 Correct $1,071 $150

$3,000 The ITC for the purchase of an automobile is limited to the GST/HST applicable to the first $30,000 of its cost, where the actual cost is greater than the $30,000 limit.Therefore, since the cost is $42,000, the ITC is equal to $3,000 (i.e. 10% × $30,000).

In 2021, a Canadian-controlled private corporation (CCPC) earns rental income of $78,000 and $2,000 interest income, using a staff of 4. An associated corporation has used $15,000 of the annual small business deduction (SBD) limit. What amount can the CCPC claim for the SBD? Multiple Choice $0 Correct $11,970 $12,350 $14,820

0 The SBD is only available on active business income. The CCPC has earned property only. Hence, no SBD is available.

A Canadian-controlled private corporation (CCPC) with $5,000 of paid-up capital and $30,000 of retained earnings, is being wound-up in 2020. All the corporation's income has been eligible for the small business deduction (SBD). The sole shareholder will receive $35,000 on the wind-up. If the adjusted cost base (ACB) of the shares was $15,000 and he had no other income, what would be his net income for tax purposes? Multiple Choice $10,000 as a taxable capital gain $23,000 as a taxable dividend $30,000 as a taxable dividend $34,500 as a taxable dividend

$34,500 as a taxable dividend A wind-up creates a deemed dividend for the shareholder, computed as the $35,000 of funds received less $5,000 of paid-up capital. Therefore, the deemed dividend amount is $30,000. This is a non-eligible dividend, since all of the company's income was eligible for the SBD. Thus, the taxable dividend to the shareholder is $30,000 × 1.15 (gross-up) = $34,500.

Rainbow Co. is a Canadian controlled private corporation with active business income of $350,000 in Year 1. The company engages in retail and wholesale activities. Capital gains recognized by the company in Year 1 totaled $84,000. Rainbow Co. will utilize a net capital loss carry-over of $28,000 on its Year 1 tax return. What is Rainbow Co.'s net income for tax purposes? $350,000 $364,000 $392,000Correct $434,000

$392,000 Business income $350,000Taxable capital gain ($84,000 × 50%) 42,000 Net Income for Tax Purposes $392,000

In 2021, a person earned employment income of $80,000 They owned a 75% interest in a partnership that incurred a $50,000 business loss, and a 100% interest in a corporation that incurred a $20,000 business loss for its year ended June 30, 2021. What would be the individual's 2021 net income? Multiple Choice $25,000 $32,500 $35,000 $42,500

$42,500 $80,000 employment income − $37,500 ($50,000 × 75%) share of partnership loss = $42,500. The corporation is a separate entity, and the losses would not be deductible by the shareholder.

An individual had employment income in 2021 of $50,000. They had loss carry forward balances as follows: net capital losses (NCL) ($20,000); non-capital losses (NonCL) ($22,000); and farm losses from full-time farming (FL) ($24,000). What would be the maximum amount of losses carry forward they would claim in 2021? $20,000 $46,000 Correct $50,000 $66,000

$46,000 Both the NonCL, and FL from being a full-time farmer, would be applied against the employment income. The NCLs could only be applied against taxable capital gains, except in the year of death.

A shareholder can lend funds to a corporation either by charging interest of $7,500 or on an interest-free basis. What is the ultimate difference in total taxes payable between the two choices, assuming a 25% tax rate for the corporation and a 45% tax rate for the individual (dividend income taxed at 35%)? Multiple Choice $375 $469 Correct $1,500 $1,125

$469 After-tax position of shareholder that earns interest = $7,500 of interest income less $3,375 (i.e. $7,500 × 45%) of taxes payable = $4,125.If no interest is charged, the corporation will have $7,500 more income, will pay tax of $1,875 (i.e. $7,500 × 25%) and will have $5,625 (i.e. $7,500 less $1,875) of retained earnings available to be paid as a dividend to the shareholder.After-tax position of shareholder that earns the resulting dividend = $5,625 of dividend income less $1,969 (i.e. $7,500 × 35%) of taxes payable = $3,656.$4,125 less $3,656 = $469

A Canadian-controlled private corporation (CCPC) received taxable dividends from public corporations of $18,000. It also received taxable dividends of $6,000 and capital dividends of $3,000 from a connected CCPC. The connected CCPC did not have any eligible or non-eligible refundable dividend tax on hand (ERDTOH/NERDTOH). What amount of Part IV tax must the CCPC pay? Multiple Choice $2,300 $6,900 Correct $9,200 $10,350

$6,900 $18,000 × 38.33% = $6,900

Moon Co. is a new Canadian controlled private corporation with active business income of $450,000 in its first year of operations. Capital gains recognized by the company during the year totaled $30,000. How much is Moon Co.'s small business deduction for the year? (The annual limit has not been reduced by any of the small business deduction reductions.) Multiple Choice$85,500Correct$88,350$91,200$95,000

$85,500 Business income $450,000+ Taxable capital gain ($30,000 × 50%) $15,000= NITP = $465,000Small business deduction: 19% × Lesser of:1) Active business income $450,0002) Taxable income $465,0003) Annual limit $500,000$450,000 × 19% = $85,500.

An individual received monthly payments of $500 as spousal support and $1,000 as child support for their 2 children, pursuant to a court order. The individual earned employment income of $25,000 and incurred childcare expenses of $8,000 for the 6-year-old and $6,000 for the 8-year-old. What net income or (loss) would be included in "other income and deductions"?

-7,000 $6,000 spousal support − $5,000 childcare for the 8-year-old (the maximum allowable amount for children 8 and older) − $8,000 for the 6-year-old.

Alpha Corp. and Beta Corp., two unrelated corporations, both have December 31 year-ends. They formed a new partnership on October 1, 2020 with a fiscal year-end of September 30. The partnership earned $120,000 in its first year ended September 30, 2021, and $70,000 for the period October 1 to December 31, 2021. Partnership income is shared 95% to Alpha and 5% to Beta. What is the amount of partnership income Alpha would report for its December 31, 2021 year-end? Multiple Choice $114,000. $142,500. Correct $152,000. $180,500.

142,500 Alpha would report:95% × $120,000 = $114,000 of income up to September 30PLUS$114,000 × 3/12 months = $28,500 of income from Oct 1 to Dec 31EQUALS:$142,500 in total.

Mr. Pitt (45% marginal tax bracket) intends to acquire all the shares of Opco for $1,100,000. He would borrow the funds from his sibling on an interest-free basis. Opco is a CCPC and earns $100,000 annually on which it pays tax at 15%. If all of Opco's after-tax earnings are distributed as dividends to Mr. Pitt and he uses these funds to pay back the loan, how long would it take before the loan is paid off? Assume perfect integration of dividend taxation. Multiple Choice 11 years 12.9 years 20 years Correct 23.5 years

20 years With perfect integration of dividend taxation, total taxes paid by Opco and Mr. Pitt will be equal o 45% in aggregate.Therefore, since Opco earns $100,000 of income per year, Mr. Pitt should have $55,000 on an after-tax basis if Opco earns the income, pays corporate tax, distributes the after-tax funds to Mr. Pitt as a dividend, who then pays personal tax on the dividend.$1,100,000 / $55,000 = 20 years.

In both 2020 and 2021, a Canadian-controlled private corporation (CCPC) earns business income of $215,000, and interest income of $100,000. An associated corporation has used $130,000 of the business limit. What amount of the small business deduction (SBD) can the CCPC claim in 2021? Multiple Choice $16,150 $21,850 $40,850 $22,800 Correct

22,800 Interest income of $100,000 earned in 2020 is considered "adjusted aggregate investment income" and hence reduces the SBD limit of the associated group of companies in 2021. The reduction is equal to $100,000 less $50,000, times 5. Hence, the 2020 SBD limit is reduced by $250,000 and the remaining SBD limit is therefore $250,000. Since the associated corporation used $130,000 of the SBD limit, only $120,000 remains for the CCPC. The small business deduction is then computed as 19% × SBD limit of $120,000.

Dakota Martin sold a piece of land in Year 1 for $350,000. The land was recognized as capital property. The original cost of the land was $75,000. The selling costs incurred in Year 1 were $5,000. The terms of the payment included an immediate down payment of $50,000, with the remainder of the cost to be paid over the next three years in three equal payments. Dakota wishes to report the minimum taxable capital gain allowed each year. What is the taxable capital gain for Year 1? (Round intermediate and final answers to nearest whole dollar.) Multiple Choice$0$27,000$54,000$135,000

27,000 POD of $350,000 - (ACB $75,000 + Costs of disposition $5,000) = Capital gain of $270,000; Taxable capital gain of $135,000$270,000 less lesser of:$300,000 / $350,000 × $270,000 = $231,42980% × $270,000 = $216,000= Capital gain of $54,000; Taxable capital gain of $27,000.

W Co. had net income of $30,000 as per the income statement. It included $1,000 of donations and $3,000 of dividends from a taxable Canadian corporation. What is its taxable income? $30,000 $26,000 $27,000Correct $29,000

27,000 In determining net income, we would not include the donation. However, it is a deduction to get to taxable income provided the donations do not exceed 75% of net income. The dividends would be deducted after net income under division C. Therefore, the calculation is $30,000 + $1,000 = 31,000 net income - $1,000 - $3,000 = $27,000 taxable income.

Sun Co. is a Canadian controlled private corporation with active business income of $400,000 in Year 1. The company engages in several commercial activities. Capital gains recognized by the company in Year 1 totaled $50,000. Sun Co. will utilize a net capital loss carry-over of $30,000 on its Year 1 tax return. What is Sun Co.'s taxable income? $395,000 $400,000Correct $420,000 $435,000

400,000 Business income $400,000+ Taxable capital gain ($50,000 × 50%) $25,000= Net Income for Tax Purposes = $425,000Less:Net-capital loss (restricted TCG) $25,000Taxable income = $400,000.

A part-time student had income from a registered retirement savings plan (RRSP) of $12,000, a scholarship of $5,000, a prize for achievement in a field of endeavour of $1,500, and a research grant of $5,000 on which they paid related expenses of $1,000. What amount would be included in net income as "other income"? $12,000 $16,000 $17,000 $20,500

A) 17000 $12,000 (RRSP) + $4,000 net research grant ($5,000 − $1,000 of expenses) + $1,000 scholarship ($1,500 − $500 exemption). (S1-F2-C3)

A taxpayer made charitable donations of $1,300 and their spouse donated $600, 2021, the amounts consistent with prior years. Each of the individuals earned $70,000 of employment income. What would be the maximum donation tax credit (round to nearest dollar) the couple would claim in 2021? Multiple Choice $285 $349 $523 $591

523

Joan made a $1,500 federal political contribution. What would be her political contribution tax credit? $500 $650 $725 $1,125

650 Minimum of:(a) $650, and (b) $725 (75% × first $400 + 50% of next $350 + 33 1/3% of contributions over $750).

An individual sold two lots of land, each with a FMV of $30,000 and an ACB of $25,000. Lot#1 was sold to a related corporation for $40,000 and Lot#2 to the spouse for $15,000. No tax election was filed for either sale. What amount(s) would be included in the individual's net income? $0 $2,500 $5,000 $7,500

7500 Lot#1 − ($30,000 − $25,000) × 50% = $7,500. Lot#2 would be automatically transferred/sold at the ACB of the transferring spouse unless an election was filed to have the transfer/sale occur at FMV.

Small Co. is a CCPC with net income for tax purposes of $800,000 in Year 1. All of Small Co's income is active business income except for a $15,000 taxable dividend income that was received from another CCPC during the year. How much is Small Co.'s federal tax liability in Year 1? (Apply rates applicable for 2021. The annual small business deduction limit has not been reduced for Small Co.) Multiple Choice$33,600$87,750Correct$90,000$161,850

87,750Correct $785,000 ABI + $15,000 Dividend income= NITP $800,000-$15,000 Dividend income= Taxable income $785,000× 38% = Primary federal tax $298,300Less:1) Abatement $78,500 (10% × $785,000)2) Small business deduction $95,000 (19% × $500,000)3) General rate reduction $37,050 (13% × $285,000)= Federal Part I tax $87,750.

Which of the following shareholder/employee loans must be repaid within one taxation year of the year that the loan was advanced, to prevent the funds from becoming taxable income to the shareholder/employee? A loan to buy a personal residence. A loan to pay for a child's tuition. Correct A loan to buy treasury shares in the corporation. A loan to buy a car to be used for work purposes.

A loan to pay for a child's tuition.

When a Canadian corporation is capitalized by the purchase of treasury shares, it would be incorrect to say.... Multiple Choice All funds paid by the corporation back to the purchasers would be included in their taxable income. Correct Any loss on the subsequent sale of the shares would be treated as a capital loss. There would be no tax consequences to the existing shareholders. The stated capital or paid-up capital of the shares would equal the amount the corporation received for the shares.

All funds paid by the corporation back to the purchasers would be included in their taxable income.

In the year a taxpayer dies, which of the following statements would be true? Multiple Choice Net capital losses would be deductible from capital gains in the year or any preceding year. Personal tax credits would be pro-rated based on the number of days from January 1 to the date of death. All income received and all income accrued to the date of death would be taxable in the final return. The rights or things return could be filed to include property income earned in the year of death.

All income received and all income accrued to the date of death would be taxable in the final return.

Which of the following describes tax free savings account (TFSA) contributions in 2021? Multiple ChoiceIf acontribution was not made, the opportunity to contribute in respect of 2021 would be permanently lost.The contribution limit would be reduced by amounts contributed to a registered retirement savings plan (RRSP) or registered education savings plan (RESP). The contribution would be limited to 18% of the individual's earned income, a defined term, in 2020. An individual could contribute up to $6,000 to each of their own and their spouse's TFSA.

An individual could contribute up to $6,000 to each of their own and their spouse's TFSA.

For purposes of the alternative minimum tax (AMT) calculation, which of the following would be considered a tax preference? Capital cost allowance on rental property. Registered Retirement Savings Plan deduction. Losses carry forward and carried back deduction. Capital gain deduction.

Capital gain deduction. Tax preferences for the AMT calculation are specifically listed. (127.5)

A corporation can earn the following basic types of income... Multiple Choice Business income, capital gains, employment income Business income, personal services business income, other income Business income, capital gains, property income Correct Specified investment business income, dividends, other income

Business income, capital gains, property income

Which of the following would apply for claiming the capital gain deduction (CGD)? Multiple Choice Capital losses on public securities could limit the amount of the CGD. The gain realized on the disposition of shares of any private Canadian corporation would qualify. The CGD, if applicable, must be claimed in the year. The cumulative net investment loss (CNIL) would increase the amount of the CGD that could be claimed.

Capital losses on public securities could limit the amount of the CGD.

Canco is incorporated on January 1, 2021. As it anticipates minimal sales in 2021, and the expenses subject to GST/HST would be minimal, it does not register for GST/HST. Suppose that Canco has a better than expected start to operations and is required to register as of July 1, 2021. Which of the following statements accurately describes the GST/HST consequences to Canco? Multiple Choice Canco must go back and charge the tax to all its customers before the date it registered. Canco must go back and charge GST/HST on the transaction that caused it to exceed the $30,000 limit. Correct Canco must remit the GST/HST it should have charged on all its sales, prior to registration, but can claim ITCs on all its expenditures during that time. The period prior to registration is ignored for GST/HST purposes, and Canco begins to charge GST/HST on a go-forward basis only.

Canco must go back and charge GST/HST on the transaction that caused it to exceed the $30,000 limit.

For purposes of the alternative minimum tax (AMT) calculation, which of the following would be considered a tax preference? Multiple Choice Capital cost allowance on rental property. Registered Retirement Savings Plan deduction. Losses carry forward and carried back deduction. Capital gain deduction.

Capital gain deduction.

Which of the following lists of supplies contains only "taxable supplies"? Multiple Choice Car sales, accounting services, landscaping services, manufactured goods Correct Car sales, accounting services, fruit and vegetables sales, software development Hair salon, accounting services, investment dealer services, manufactured goods Car sales, childcare services, landscaping services, physiotherapy

Car sales, accounting services, landscaping services, manufactured goods

Which of the following is not a normal way for a partner to leave the partnership? Multiple Choice Selling their partnership interest to a new partner. Selling their partnership interest to an existing partner. Contributing cash to the partnership to buy their way out. Correct Withdrawing all their partnership capital.

Contributing cash to the partnership to buy their way out.

In the case of an unmarried person, which of their relatives would be eligible for the equivalent to spouse tax credit? Dependent child over the age of 18 at any time in the year who lived with the parent. The 85-year-old, disabled uncle living with the person. Dependent child over the age of 18 at any time in the year and dependent by reason of physical or mental infirmity who lived with the parent. Correct Dependent child over the age of 18 at any time in the year who lived in their own apartment.

Dependent child over the age of 18 at any time in the year and dependent by reason of physical or mental infirmity who lived with the parent. If the dependent child is over 18 and living with the parent, they must be physically or mentally disabled to be eligible for the credit.

For decision-making purposes from an investment perspective, which of the following would be the most relevant tax credit? Spouse or equivalent to spouse credit Basic personal credit Pension tax credit Dividend tax credit

Dividend tax credit The tax credit that would only apply to investments would be the dividend tax credit.

Which of the following amounts would not be included in a corporation's capital dividend account (CDA)? Multiple Choice Non-taxable portion of life insurance proceeds. Non-taxable portion of capital gains. Dividends received from a public Canadian corporation. Correct Capital dividends received from a private Canadian corporation.

Dividends received from a public Canadian corporation.

Which of the following statements does not correctly describe the tax issues related to inter-corporate dividends? Multiple Choice Corporations are connected when there is inter-corporate ownership representing more than 10% of both the votes and value. Dividends received from non-connected corporations are subject to a refundable Part IV tax of 38 1/3%. Part IV taxes are fully refundable when taxable dividends are paid to shareholders. Dividends received from connected corporations are subject to a refundable Part IV tax of 38 1/3%.

Dividends received from connected corporations are subject to a refundable Part IV tax of 38 1/3%.

Which of the following deductions apply to both corporations and individuals? Multiple Choice The capital gain deduction (CGD) potentially applicable on the sale of qualified small business corporation (QSBC) shares. Charitable donations. Losses carry forward and carry back. Dividends received from taxable Canadian corporations.

Dividends received from taxable Canadian corporations.

A portion of which of the following corporate taxes would be potentially refundable to Canadian-controlled private corporations (CCPCs)? Multiple Choice The basic federal tax on all its income. The 5% additional tax on personal services business income. Federal tax on investment income. Provincial tax.

Federal tax on investment income.

Which of the following statements is true when considering a "worst case" scenario? Multiple Choice For a vendor, it is most likely an asset sale. Correct For a vendor, it is most likely a share sale. For a purchaser, it permits them to establish a minimum share price that corresponds on an after-tax basis, to an asset sale price. For a purchaser, it most likely involves a sale of the shares of the newly acquired corporation.

For a vendor, it is most likely an asset sale.

Havana Pérez purchased a piece of land in 2020 with plans to build and operate a greenhouse and evergreen nursery. Havana is a full-time teacher but has always dreamed of running a business. It is now 2021 and Havana has not yet started a business, and upon receiving an offer to teach on a tropical island, has decided to sell the land. Which of the following statements is correct? Multiple ChoiceHavana's primary intent suggests that the income should be treated as a business transaction.Havana purchased the land with the primary intent to resell it at a profit.Havana purchased the land with the primary intent to recognize a long-term economic benefit.The intent of the purchase is insignificant when determining the type of taxable income to report.

Havana purchased the land with the primary intent to recognize a long-term economic benefit.

A plumbing manufacturer based in Alberta provides design drawings for pipes, and builds and ships the required pipes for installation at the building site. The job site is in Manitoba. For purposes of determining the appropriate amount of GST/HST to charge, the "place of supply" is... Multiple Choice Alberta for the drawings and Manitoba for the pipes. Manitoba for the drawings and Alberta for the pipes. Manitoba for both the drawings and the pipes. Correct Alberta for both the drawings and the pipes.

Manitoba for both the drawings and the pipes.

On the sale of assets, which of the following statements is false? Multiple Choice The vendor can be certain of the amount and timing of future taxes occurring from a corporate distribution of its earnings. Correct A vendor corporation can accurately anticipate its current tax liability. A purchaser can accurately calculate the future capital cost allowance (CCA) available after acquisition. A purchaser can allocate the total price among the various assets, and ignore the allocation specified in the purchase agreement, if they believe their allocation is reflective of a fairer measure of the individual asset values.

The vendor can be certain of the amount and timing of future taxes occurring from a corporate distribution of its earnings.

In respect of a house acquired for personal use by an individual, which of the following statements is true? Multiple Choice The purchaser could avoid paying the GST/HST if they were a GST/HST registrant. In all cases, the seller must charge the GST/HST. Since the purpose of the purchase is personal use, and not for business or rent, GST/HST would not apply. The purchaser could claim a GST/HST rebate if the house was new and had a cost under $450,000. Correct

The purchaser could claim a GST/HST rebate if the house was new and had a cost under $450,000.

Which of the following types of losses could be carried forward indefinitely? Non-capital losses. Net capital losses. Correct Allowable business investment losses. Restricted farm losses.

Net capital losses. The losses other than net capital losses have a restricted carry forward period.

When establishing whether the sale of an asset is capital income or business income, which of the following is one of the factors typically taken into consideration to determine the primary intention of a transaction? Multiple ChoiceAge of the assetPayment terms of the saleNumber and frequency of transactionsCorrectMarket value of the asset

Number and frequency of transactions

In what way is a wind-up of a 100% owned subsidiary by a parent corporation not the same as an amalgamation of the two corporations? Multiple Choice On a wind-up, the assets are considered sold at their current value. On a wind-up, the subsidiary ceases to exist and the parent corporation continues. Correct The shareholders of the parent corporation must be Canadian. Carry forward losses of the subsidiary are no longer available to the parent corporation.

On a wind-up, the subsidiary ceases to exist and the parent corporation continues.

Which of the following tax treatments would not be used in examining debt and equity capitalization alternatives? Multiple Choice The return on the invested capital. The re-invested capital after the loans or shares are disposed of. Correct The return of all or a portion of the original capital to the investor. Losses on the disposition of the loans or shares.

The re-invested capital after the loans or shares are disposed of.

Which of the following statements accurately describes the tax treatment of Canadian corporations? Multiple ChoicePublic and private Canadian corporations are eligible for the small business deduction.Public and private Canadian corporations may be eligible for the general rate reduction.CorrectPublic corporations are granted beneficial tax treatment on the first $500,000 of business income.Canadian controlled private corporations recognize the general tax reduction on all business income

Public and private Canadian corporations may be eligible for the general rate reduction. Answer is correct as public corporations are eligible for the 13% general rate reduction and CCPC's are eligible for the reduction on business income not eligible for the small business deduction.

Which of the following properties does not qualify for the section 85 election of transferring/selling property to a corporation at tax cost? Multiple Choice Capital property Inventory Real property held for resale Correct Resource property

Real property held for resale

Which of the following properties does not qualify for the section 85 election of transferring/selling property to a corporation at tax cost? Multiple Choice Capital property Inventory Real property held for resale Resource property

Real property held for resale

Sasha Ivanov gifted Canadian public securities to a public charity in Year 1. The securities had a market value of $22,000 and an ACB of $8,000. Sasha is in a 40% tax bracket. Which of the following will apply to Sasha? Multiple ChoiceSasha will have a capital gain of $14,000 and receive a donation receipt for $14,000.Sasha will have a capital gain of $14,000 and receive a donation receipt for $5,600.Sasha will have a capital gain of $0 and receive a donation receipt for $14,000.Sasha will have a capital gain of $0 and receive a donation receipt for $22,000.

Sasha will have a capital gain of $0 and receive a donation receipt for $22,000.

Which of the following is a common element of limited partnerships? Multiple Choice The need for nominal amounts of initial capital. A short period of time before profits may be realized. Special incentives with respect to the timing of deductions for tax purposes. Correct A low rate of tax on investment income. Special incentives with respect to the timing of deductions for tax purposes.

Special incentives with respect to the timing of deductions for tax purposes.

For a registrant to claim an input tax credit (ITC) on a $100 invoice, the supplier's invoice must contain... Multiple Choice Supplier name, business number, description of the goods/services, and date. Supplier name, business number, total invoice amount, and terms of payment. Supplier name, business number, GST/HST rate, and registrant's name if different from supplier. Supplier name, business number, amount of GST/HST charged and date.

Supplier name, business number, amount of GST/HST charged and date.

Which of the following does not correctly describe the rules for an asset sale/transfer? Multiple Choice There must be an established selling price. The amount of payment for the assets must equal the fair market value (FMV) of the assets being sold. The sale/transfer price of each asset for tax purposes can be set to either fair market value (FMV) or an elected, lesser value. The taxpayer must be consistent in applying the sale/transfer price - either FMV or undepreciated capital cost (UCC) must be used for all assets.

The taxpayer must be consistent in applying the sale/transfer price - either FMV or undepreciated capital cost (UCC) must be used for all assets.

When a business that is registered for GST/HST is selling 90% or more of its assets together as a whole, to another registrant who will continue operating the business, which of the following statements is false? Multiple Choice The GST/HST would not have to be charged. Since the GST/HST would be large, and the purchaser could claim the input tax credit (ITC), an exemption alleviates the potential cash flow problem to the purchaser. Correct The sale would be considered in the normal course of the vendor's business and therefore GST/HST would be applicable. The GST/HST would be charged on the sale and the purchaser could claim the ITC. The GST/HST would not be charged if the parties filed a joint election.

The GST/HST would not have to be charged. Since the GST/HST would be large, and the purchaser could claim the input tax credit (ITC), an exemption alleviates the potential cash flow problem to the purchaser.

Which of the following describes tax free savings account (TFSA) contributions in 2021? If acontribution was not made, the opportunity to contribute in respect of 2021 would be permanently lost. The contribution limit would be reduced by amounts contributed to a registered retirement savings plan (RRSP) or registered education savings plan (RESP). The contribution would be limited to 18% of the individual's earned income, a defined term, in 2020. An individual could contribute up to $6,000 to each of their own and their spouse's TFSA.

The TFSA annual limit, per person, is set by the CRA and is not depended on one's income or contributions to other registered plans.

In determining the present value of the cash flows generated from capital cost allowance (CCA), which of the following is most likely to be unique to the purchaser? Multiple Choice The after-tax discount rate Correct The cost of the asset acquired The rate of corporate tax The rate of CCA

The after-tax discount rate

Which of the following results in no immediate income to the existing shareholders? The admission of new shareholder by the existing shareholders selling some of their shares. The corporation buying back some of the existing shareholders' shares. The corporation admitting the new shareholder by issuing them treasury shares. Correct The paying of dividends to the existing shareholders to reduce the purchase price to the new shareholders.

The corporation admitting the new shareholder by issuing them treasury shares.

Which of the following is not one of the dates that would normally cause GST/HST to be charged to a customer? Multiple Choice The date the payment became due under a written agreement. The date of the invoice or the date the invoice was first issued. The date customer accepted delivery of the goods or services. Correct The date the invoice would normally have been issued but for an undue delay.

The date customer accepted delivery of the goods or services.

Which of the following would apply to corporations? Multiple Choice They are a separate entity for both legal and tax purposes. The year-end must be December 31 for tax purposes irrespective of its year end for accounting purposes. The controlling shareholders would be considered the owners of both the shares of the corporation and the underlying assets of the corporation. The annual income would be allocated to the 100% shareholder.

They are a separate entity for both legal and tax purposes.

In the capitalization of a small business corporation that earns active business income eligible for the small business deduction (SBD), why would share capital most likely be preferred over interest-bearing shareholder loans? Multiple Choice Shares are easier to dispose of. Dividend income is taxed at a lower rate because of the dividend tax credit. The immediate tax paid by the corporation and the shareholder is lower. Correct Interest income is fully taxed to the shareholder.

The immediate tax paid by the corporation and the shareholder is lower.

In the capitalization of a small business corporation that earns active business income eligible for the small business deduction (SBD), why would share capital most likely be preferred over interest-bearing shareholder loans? Multiple Choice Shares are easier to dispose of. Dividend income is taxed at a lower rate because of the dividend tax credit. The immediate tax paid by the corporation and the shareholder is lower. Interest income is fully taxed to the shareholder.

The immediate tax paid by the corporation and the shareholder is lower.

In which of the following situations, the CRA typically requires gains on the sale of commodities and futures to be reported as business income? Multiple ChoiceNo long-term or enduring benefit will arise from the acquisition of the commodity.The nature of the taxpayer's business is closely associated with the commodity.The commodity is an infrequently traded cryptocurrency by an investor with little knowledge about the market.Similar transactions have been accurately reported as capital gains in previous years.

The nature of the taxpayer's business is closely associated with the commodity.

In the capitalization of a small business corporation not eligible for the small business deduction (SBD), why would interest-bearing shareholder loans most likely be preferred over interest-free shareholder loans? Multiple Choice The business would be able to establish a credit rating. The overall tax paid by the corporation and the shareholder is lower. Correct The shareholder may desire a regular cash flow. The shareholder may have borrowed money to invest.

The overall tax paid by the corporation and the shareholder is lower.

in 2021, a parent gifted 100 shares to their 16-year-old child. The shares cost $1,000. At the time of the gift, the shares were worth $1,500.Which of the following statements would betrue? Multiple ChoiceThe parent would recognize a $500 capital gain in 2021. The child would have an adjusted cost base of $1,000. The parent would not have to recognize a capital gain. If the child sold the shares for $1,800, the $300 capital gain would be attributed back to the parent.

The parent would recognize a $500 capital gain in 2021.

In 2021, a parent gifted 100 shares to their 16-year-old child. The shares cost $1,000. At the time of the gift, the shares were worth $1,500.Which of the following statements would betrue? The parent would recognize a $500 capital gain in 2021. The child would have an adjusted cost base of $1,000. The parent would not have to recognize a capital gain. If the child sold the shares for $1,800, the $300 capital gain would be attributed back to the parent.

The parent would recognize a $500 capital gain in 2021. Transfers from parent to child are deemed to occur at the FMV of the property. Until the year the child reached 18, there would be attribution of any income back to the parent. There would be no attribution of capital gains whenever the child sold the shares.

Which of the following is a valid consideration for analyzing a limited partnership investment? Multiple Choice How and when the losses can be deducted for accounting purposes. When the profits are allocated to investors. What the minimum pre-tax cash gain if the business succeeds is. What the annual tax cost is on profits earned by the limited partnership.

What the annual tax cost is on profits earned by the limited partnership.

Which of the following is not a fundamental area of concern in a partnership agreement? Multiple Choice Each partner's required contributions to the partnership. Whether corporations can be partners or only individuals. Correct The format and rules for decision making and management of the partnership's business. How the profits and losses are to be shared among the partners.

Whether corporations can be partners or only individuals.

For an amalgamation to be completed on a tax-free basis Multiple Choice all corporations must be Canadian; All assets and liabilities must become assets and liabilities of the new corporation; new treasury shares must be issued for the new corporation. more than 50% of the corporations must be Canadian; All assets and liabilities must become assets and liabilities of the new corporation; the controlling shareholders must be Canadian. all corporations must be Canadian; All assets and liabilities must become assets and liabilities of the new corporation; the controlling shareholders must be Canadian. all corporations must be Canadian; All assets and liabilities must become assets and liabilities of the new corporation; all of the shareholders of the old corporations must become shareholders of the new corporation.

all corporations must be Canadian; All assets and liabilities must become assets and liabilities of the new corporation; all of the shareholders of the old corporations must become shareholders of the new corporation. An amalgamation can be completed on a tax-free basis if:1) All corporations being amalgamated are Canadian;2) All assets and liabilities of predecessor corporations are transferred to the amalgamated corporation;And3) All shareholders of the predecessor corporations become shareholders of the amalgamated corporation.

The net income of a corporation is determined by the Multiple Choiceincome statement.income statement less income taxes.income statement less income taxes and depreciation.application of the section 3 schema.

application of the section 3 schema. The net income of a corporation is calculated the same way as net income for an individual.

The fundamental difference between a primary and secondary relationship between a corporation and a shareholder would Multiple Choice depend on the degree of control by the shareholder over the corporation. depend on if the corporation was a Canadian controlled private corporation (CCPC) or a public corporation. be that payments between the parties were deductible by the payor and income to the recipient. vary by the type of corporation.

be that payments between the parties were deductible by the payor and income to the recipient.

The deduction of moving expenses is limited by the employment income from the new location in the year of the move and the following year.Correct if the move was not 100 kilometres closer to the new work location. to the same per kilometre rate as applies to automobile allowance paid by employers. to the employee's or student's own expenses and could not include moving costs related to their family members.

by the employment income from the new location in the year of the move and the following year. The move must be to a new work location, and not closer to the existing location. Further, the amount is limited to the employment income earned after the move. If the moving expenses exceed the income, the excess can be deducted from the employment income in the following year. (Folio S1- F3- C4)

If a partner sells/transfers property they own to a partnership of which they are a member Multiple Choice the partner would realize neither a capital gain nor a capital loss on the transfer, as the partnership is not like a corporation. the partner would report a capital gain or loss, based on the partnership interest not held by her, as this is the portion they have effectively sold. any capital gains or losses to the partner would be deferred until the partnership sells the property. the sale would be deemed to occur at the fair market value (FMV) of the property.

the sale would be deemed to occur at the fair market value (FMV) of the property.

Tax on spilt income (TOSI) would apply to dividends or salaries received by spouse from a corporation controlled by the spouse's partner, if the partner was 65 or older. reasonable salaries paid to children under the age of 18. dividends received by children who attend university. interest received by a parent's sibling on funds loaned to their nieces or nephews.

dividends received by children who attend university.

The transfer of assets from the venture participants to the joint venture Multiple Choice is considered to occur at the tax cost of the asset. is considered to occur at fair market value of the assets. has no valuation rules that apply to the transfer. Correct is not allowed under the Income Tax Act.

has no valuation rules that apply to the transfer.

A joint venture Multiple Choice typically involves only two participants. is normally formed for a single transaction or for an activity of limited duration. Correct has the same powers and responsibilities of a standard partnership. has the same powers and responsibilities of a limited partnership.

is normally formed for a single transaction or for an activity of limited duration.

A limited partnership Multiple Choicepays tax at the highest rate applicable to individuals in the particular year. receives preferential tax treatment because of its higher risk activities. pays tax at the standard corporate tax rate. is not a taxable entity and allocates all of its income and losses to its partners.

is not a taxable entity and allocates all of its income and losses to its partners. All partnerships, both limited and general, do not pay tax on the income they earn. Rather, such income is allocated to the partners and is taxed in the partners' hands as a result.

Support payments from a former spouse would be included in income if the payments were received annually.for the children's education.made pursuant to the written agreement.the payments were tax deductible to the payor.

made pursuant to the written agreement.

When past profits of a partnership are distributed to the partners, the profits are Multiple Choice added to each partner's equity or capital account. taxed in the hands of the partners. not subject to tax. Correct taxed to the partners like dividends, since the distributions represent after-tax profits.

not subject to tax.

In determining an acceptable rate of return, a purchaser would compare the anticipated future pre-tax cash flows Multiple Choice on a net present value basis with the sale price. on a net present value basis with the purchase price. Correct on a gross value basis with the sale price. on a gross value basis with the purchase price.

on a net present value basis with the purchase price.

The sale of shares of a corporation normally results in Multiple Choice one level and type of tax - capital gains. Correct two types of taxes - recapture of capital cost allowance (CCA), and capital gains. three types of taxes - dividends, recapture of CCA, and capital gains. four types of taxes - dividends, business income, recapture of CCA, and capital gains.

one level and type of tax - capital gains. Shares are capital property, and their sale would result in a capital gain to the seller.

The limited partnership form of business organization is Multiple Choice allowed only if all the partners are corporations since they already have limited liability. permitted by legal statute. Correct allows for the limited liability of all its partners. an investment vehicle for low-risk opportunities.

permitted by legal statute.

Under the Canadian Income Tax Act, corporate profits are taxed at the shareholder level since corporations are extension of shareholders. the corporation level because it is a separate entity. the corporation level first and then the shareholder level on the difference in tax rates. the corporation level first and then the shareholder level on profits distributed.

the corporation level first and then the shareholder level on profits distributed. The corporation is taxed separately on the profits earned. The shareholder is also taxed on the distribution of those profits in the form of a dividend.

An individual would be prudent to convert their registered retirement savings plan (RRSP) to a pension or annuity by December 31 of the year they turn 71. Otherwise, the RRSP would be automatically converted into a registered retirement income fund (RRIF). the assets would remain in the RRSP and the RRSP would pay taxes on any income it would earn after that time. the full amount of the RRSP would be included in the income of the individual.Correct the RRSP would be automatically converted into a life annuity.

the full amount of the RRSP would be included in the income of the individual. Unless converted by the individual, and there is no automatic conversion, the full amount of the RRSP would be included in income in the year.

The primary benefit to an existing shareholder of establishing a holding corporation is to allow Multiple Choice new shareholders to invest in the group of companies. the shareholder, now being the holding company, to receive tax-free dividends from the operating company, for reinvestment. Correct the shareholders to receive tax-free dividends from the operating company, for disbursement. one shareholder to obtain control of the operating companies without buying more than 50% ownership of each one.

the shareholder, now being the holding company, to receive tax-free dividends from the operating company, for reinvestment.