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) Contributions to an individual's RRSP, fees for an appeal in relation to an assessment under the Income Tax Act, and moving expenses against income at the new location.
C) 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.
D) Support payments for a child, moving expenses against income at the previous location, and child care expenses.

Answer 1

B

Question 2

Which of the following is FALSE regarding the Tax Free Savings Account (TFSA)?

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

Answer 2

C

Question 3

Case One
Marsha had total income of $112,000 and earned income of $75,000 in 2015. He 2015 Notice of Assessment showed unused RRSP contribution room of $12,000.
Her pension adjustment from 2015 was $5,000. She anticipates a pension adjustment of $7,000 in 2016.
Required:
Calculate the maximum RRSP deduction that Marsha can make for the 2016 taxation year.
Case Two (Independent of Case One)
Marsha is 35 years old. She has the option of 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 The money will be invested for the next 30 years, and will not be withdrawn until Marsha retires.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:
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.

Answer 3

Case One

Question 4

Agatha earned $35,000 at her job during January 1st - October 10th of 20X4. She accepted a new position with the company in a town 1312 kilometres away and began the new job on November 1st, 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:
Support payments from her former spouse ($36,000 x 12)* $36,000
*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:

A) Calculate Angela's total moving expenses.
B) Determine Agatha's minimum net income for tax purposes for 20X4, using th aggregate formula (section 3 of the Income Tax Act) to show your work.

Question 5

In 20X4, Tom Depuis moved 2874 kilometers from Anytown, Province1 to
Newtown, Province2 to assume the position of manager for his company at the Newtown head office. Tom began his new job on October 1st. He receives a
salary of $5,100 per month at his new job. Tom has provided you with the following information pertaining to his moving costs:
Tom received a reimbursement of $15,000 from his employer. Required:
Calculate the maximum amount of moving expenses that Tom may deduct this year and next year.

Question 6

Upon the death of a taxpayer, which of the following statements is true?

A) Capital property that is left to a spouse is deemed to be sold at market value, and all other capital property is deemed to be sold at cost.
B) All property left to a spouse and to others is deemed to be sold at cost.
C) Capital property that is left to a spouse is deemed to be sold at cost, and all other capital property is deemed to be sold at market value.
D) All property left to a spouse and to others is deemed to be sold at market value.

Question 7

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

Question 8

Steve gifted shares in a public corporation which cost $10,000 to his fifteen year old son, Simon. During the year, Simon received $500 in dividends. 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) Simon will have to claim the dividends on his tax return and Steve 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) Steve will have to claim the dividends on his tax return and Simon will have to recognize the capital gain on his tax return.

Question 9

Indicate whether or not the parties in the following situations are "related" for tax
purposes.

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?