Deck 9: Other Income, Other Deductions, and Special Rules for Completing Net Income for Tax Purposes

Question 1

Which of the following deductions are allowed as 'other' deductions for tax purposes?

A)Contributions to a child's RESP, fees for an appeal in relation to an assessment under the Income Tax Act, and contributions to an individual's RRSP
B)Lump sum support payments to a former spouse, contributions to an individual's RRSP, and fees for an appeal in relation to an assessment under the Income Tax Act
C)Support payments for a child, allowable moving expenses against income at the previous location, and child care expenses
D)Contributions to an individual's RRSP, fees for an appeal in relation to an assessment under the Income Tax Act, and allowable moving expenses against income at the new location

Answer 1

D

Question 2

Car Co.is selling its land and building to Truck Co.for $340,000 (Land $200,000; Building $140,000).These values have not been officially appraised,and Truck Co.is arguing that the land is only worth $150,000 and the building is worth $190,000.(Car Co.originally paid $100,000 for the land and constructed the building for $150,000.The UCC on the building is currently $130,000.)Which of the following statements is TRUE based on these facts?

A)Future CCA will be higher for Truck Co.if Car Co.'s terms are accurate
B)Car Co.will recognize higher net capital gains if Truck Co.'s terms are accurate
C)Car Co.will recognize higher recapture if Truck Co.'s terms are accurate.
D)The allocation of the costs is irrelevant for tax purposes as the total price is the same under both sets of terms.

Answer 2

C

Question 3

Which of the following examples of income received by adult family members from private corporations would not be excluded from tax on split income?

A)A capital gain from the sale of qualified small business corporation shares
B)Income received from a related business
C)Income received by the 68-year-old business owner's spouse
D)Income received by an uncle

Answer 3

B

Question 4

Case One
Marsha had total income of $112,000 and earned income of $75,000 in 2017.Her 2017 Notice of Assessment showed unused RRSP contribution room of $12,000.She and her employer each contributed $2,500 to her RPP in 2017.Marsha anticipates a pension adjustment of $5,500 in 2018.
Required:
Calculate the maximum RRSP deduction that Marsha can make for the 2018 taxation year.
Case Two (Independent of Case One)
Marsha is 35 years old.She is considering investing $2,000 per year in a savings account at 8%,or $2,000 in an RRSP at 8%.The money will be invested for the next 30 years,and will not be withdrawn until Marsha retires.
Required:
A.Calculate the valuation of each option,net of taxes,if Marsha withdraws all of the money when she turns 65? Assume that her tax rate will be 35% every year until she retires.
B.How much could Marsha contribute to her RRSP each year if $2,000 is the net cost of her investment after the tax savings from her contribution?

Question 5

Indicate whether or not the parties in the following situations are "related" for tax purposes.(Consider the unrelated examples to be operating at arm's length.)

A)Mr.Grey and his sister's son,Matthew,are negotiating an economic transaction.Are Mr.Grey and Matthew related for tax purposes?
B)Mr.Field is the sole shareholder of Corporation X,and Mrs.Field,(Mr.Field's wife)is the sole shareholder of Corporation Y.Are the two corporations related for tax purposes?
C)Sarah owns seventy percent of the shares of ABC Co.Andrew owns the remaining thirty percent.Sarah and Andrew are not related.Is Andrew related to ABC Co.?
D)Glen owns thirty percent of the shares of Corporation A.Glen's wife also owns thirty percent of the shares of Corporation A.The remaining forty percent of the shares are owned by Steven,who is a friend of the family.Is Glen related to Corporation A for tax purposes?
E)Tammy and her brother's wife,Angela,are negotiating an economic transaction.Are Tammy and Angela related for tax purposes?

Question 6

Agatha earned $35,000 at her job during January 1^st - October 10^th of 20x4.She accepted a new position with the company in a town 1312 kilometres away and began the new job on November 1^st,20x4,earning a gross salary of $4000 per month.
Agatha's moving expenses included:
$7,000 for a moving van
$300 for meals en route for Agatha and her 4 year old daughter on the four day drive
$700 for accommodations en route
$3000 ($150 per day)for 20 nights of temporary lodging in the new location until her apartment was available
$550 in gas receipts
She was not reimbursed for the move.
Agatha also received the following in 20x4:
*The support payments are in accordance with Agatha's divorce agreement,which calls for monthly support payments of $1,500 for Agatha and $1,500 for her daughter.
Additional information:
Assumed mileage rates:

Required:
Determine Agatha's minimum net income for tax purposes for 20x4 in accordance with Section 3 of the Income Tax Act.Show all calculations for her moving expenses and identify any amounts to be carried-forward.

Question 7

Which of the following is FALSE regarding Tax Free Savings Accounts (TFSAs)?

A)There is no mandatory age by which a TFSA must be wound up.
B)TFSA contributions are tax deductible.
C)Any unused amounts not contributed in a year may be carried forward indefinitely to future years.
D)Capital gains earned within TFSAs are not taxed.

Question 8

In 20x4,Tom Depuis moved 2874 kilometers from Anytown,Province-1 to Newtown,Province-2 to assume the position of manager for his company at the Newtown head office.Tom began his new job on October 1^st.He receives a salary of $5,100 per month at his new job and received $4,500 per month in his former position.Tom has provided you with the following information pertaining to his moving costs:
Tom received a reimbursement of $15,000 from his employer.
Required:
A.Calculate the maximum amount of moving expenses that Tom can deduct on his 20x4 tax return.
B.Will the moving expenses have any effect on Tom's 20x5 tax return?

Question 9

Identify whether the following sources of income and expenditures are included for the calculation of net income for tax purposes.

Question 10

Steve gifted shares in a public corporation to his fifteen-year-old son,Simon.The ACB of the shares was $10,000.During the year,Simon received $500 in dividends from the shares.Simon then sold the shares for $12,000.Which of the following tax situations is true for Steve and Simon?

A)Simon will have to claim the dividends and capital gain on his tax return.
B)Steve will have to claim the dividends on his tax return and Simon will have to recognize the capital gain on his tax return.
C)Steve will have to claim the dividends and a capital gain on his tax return.
D)Simon will have to claim the dividends on his tax return and Steve will have to recognize the capital gain on his tax return.