Deck 10: Individuals: Determination of Taxable Income and Taxes Payable

Question 1

Theodore is 37 years old. He earns $97,000 a year at his job as a financial
analyst. His CPP and EI contributions totaled $3,499. Last year he enrolled in part-time studies at his local university. He was enrolled for eight months and
his tuition fees totaled $1,500. Theodore donated $2,000 to Ducks Unlimited (a registered charity for tax purposes), and $800 to a federal political party.
(Theodore has made annual contributions to these organizations for the past five years.) He spent a total of $4,200 on eyeglasses, dental care and prescriptions, none of which was reimbursed. Theodore's wife did not work during the year, as she was enrolled in full-time studies for eight months as a nursing student. Her
tuition fees for the year were $8,000. She transferred as much of her tuition and education amount allowable to Theodore. Theodore had a $2,000 non-capital los carry-forward from the previous year that he incurred during the wind-up of his proprietorship. Theodore and his wife do not have any children.
Required:
Calculate Theodore's federal tax payable for the current year. (Assume a 2016 tax year.)

Answer 1

Question 2

Which of the following is FALSE with respect to the final returns of deceased taxpayers?

A) Of the tax returns available for a deceased taxpayer, only the final tax return must be filed.
B) A Rights and Things return may be filed in addition to the final tax return.
C) Unused net capital losses less any capital gains deductions previously claimed are deductible against any income.
D) Non-refundable tax credits are prorated to the date of death on the final tax return.

Answer 2

D

Question 3

Stuart Planter is a full-time teacher, and lives in the country with his family.
Stuart farms on a part-time basis. Stuart earned $85,000 in 20X6 at his full-time teaching job. During 20X6 he also incurred farm expenses totaling $12,000 and farm revenues totaling $8,000.
Stuart has asked you to help him prepare his 20X6 tax return for the year, and provides you with the following additional information:
-Net capital losses from 20X5 totaled $10,000, and non capital losses from 20X5 totaled $2,000.
-Stuart had the following amounts deducted from his pay during the year: CPP and EI of $3,499; and federal income tax of $21,000.
-Stuart contributed $5,000 to his TFSA, and $15,000 to a guaranteed investment certificate which pays 4% annual interest. His first interest payment is due on
June 30th of the following year.
-Stuart received a $1,000 non-eligible dividend in 20X6.
-Stuart's wife works full-time and earns $68,000 a year.
-Stuart had extensive dental work done in 20X6. The total cost was $7,500 and Stuart did not receive any reimbursement for the cost.
Required:

A) Calculate Stuart's minimum federal tax liability for 20X6. (Round all numbers to zero decimal places.)
B) Explain why any items have been omitted.

Answer 3

on the GIC may be claimed in the 20X7 (the first anniversary of the investment).
Stuart's wife's income: His wife will file her own tax return.

Question 4

Samantha received an eligible dividend in the amount of $2,000. She is in a 50% tax bracket for regular income. How much is Samantha's dividend tax credit? (Assume a dividend tax credit rate of 15%.)

A) $2,000
B) $414
C) $2,760
D) $1000

Question 5

Susan White incurred the following income, disbursements, and losses in 20X1 and 20X2:
20X1 was the first year that Susan sold a capital asset.
Susan incurred a business loss of $5,000 in 20X0 that was not needed to reduce her taxable income for that year.
She has never used her lifetime capital gains deduction. Required:
Calculate Susan's minimum taxable income for both years, using the aggregate formula from Section 3 of the Income Tax Act.

Question 6

Which of the following is a requirement for a business to qualify as a 'qualified small business corporation'?

A) More than fifty percent of the fair market value of the assets of the business must have been used for active business in the past 36 months.
B) The shares must not have been owned by another non-related individual in the past 24 months.
C) The corporation must be a CCPC that uses at least 50% of the fair market value its assets for active business purposes in Canada at the time the shares are sold.
D) The shares must not have been owned by another related individual in the past 24 months.

Question 7

Which of the following is an accurate list of some of the personal federal tax credits available to reduce the federal tax liability?

A) caregiver, employment credit, medical expenses, disability
B) education amount, adoption expenses, farming, child fitness credit
C) dividend, non-capital loss, charitable donations, age amount
D) public transit pass, pension, Canada pension plan, qualified small business deduction

Question 8

Archie Smith works full-time as a dentist and is in a 50% tax bracket. He lives on an acreage and he began a part-time farming operation last year (20X1).
During 20X1, Archie incurred farm expenses totaling $38,500 and he received
$5,200 in farming revenue. Operations became more profitable this year,
however, and in 20X2 Archie's farm revenues were $20,000 and expenses totaled
$16,000.
Required:
a) What type of loss was Archie able to recognize in 20X1? Briefly explain your answer.
b) Calculate the loss that Archie was able to apply against his other sources of income in 20X1.
c) What effect will the 20X1 operations have on the 20X2 and future year's taxable income? Show your calculations.

Question 9

Sally earned $210,000 during 20X4. She also received eligible dividends in the amount of $10,000. She sold a piece of land during the year and recognized a capital gain of $500,000. Sally is married. Her husband earned $100,000 during the year.
Required:

A) Calculate Sally's taxable income and her federal tax liability before the
deduction of any allowable non-refundable tax credits for 1) the normal method, and 2) the alternative minimum tax.
B) Identify which method from A and B above would allow for a deduction of the non-refundable dividend tax credit?
C) Which method will Sally be required to use in 20X4?

Question 10

ABC. Ltd. had unused allowable capital losses of $20,000 during the current fiscal year and an unused business loss of $10,000. Which of the following statements is TRUE?

A) The unused business loss will be converted to a non-capital loss and can be carried back 3 years and forward indefinitely.
B) The unused business loss will be converted to a net-capital loss and can be carried back 3 years and forward indefinitely, and the unused allowable capital loss will be converted to a non-capital loss and can be carried back 3 years and forward twenty years.
C) All of the losses will be lost if not used in this fiscal year.
D) The unused allowable capital loss will be converted to a net-capital loss and can be carried back 3 years and forward indefinitely, and the unused business loss will be converted to a non-capital loss and can be carried back 3 years and forward twenty years.