Deck 7: Income From Property

Question 1

Which of the following statements concerning the tax treatment of interest income is true?

A)The anniversary day accrual method of recognizing interest income requires that interest income received by a corporation be recognized for tax purposes for every twelve month period from the date the investment is made.
B)Individuals must accrue interest on a daily basis.
C)The anniversary day accrual method of recognizing interest income requires that interest income received by an individual be recognized for tax purposes for every twelve month period from the date the investment is made.
D)Foreign interest income and Canadian interest income are recognized under different sets of tax rules.

Answer 1

C

Question 2

Pear Corporation earned $150,000 of pre-tax income. The tax rate for the company is 14.5%. The sole shareholder received all of the net earnings in the form of a non-eligible dividend. The shareholder, who lives in Any Province, has a personal tax rate of 50%.
The shareholder is entitled to a total (federal + provincial)dividend tax credit equal to
$21,630. What is the net personal tax owing on the dividend by the shareholder (ignoring all other tax implications)? (Round all numbers to zero decimal places.)

A)$21,630
B)$53,396
C)$42,495
D)$21,750

Answer 2

B

Question 3

Jim Smith owns two rental properties which he purchased in 20x0. Property A cost $100,000 (land $60,000 and building $40,000)and property B cost $120,000 (land
$75,000 and building $45,000). After all allowable expenses other than CCA, Jim's total rental income for the past two years was $1,000 in 20x0 and $10,000 in 20x1. Jim has
Chosen to deduct the maximum CCA allowed for both years. What is the UCC for his
Rental properties at the end of 20x1? (The properties are both Class 1 assets, depreciated at 4%.)

A)$206,976
B)$79,968
C)$3,360
D)$80,640

Answer 3

D

Question 4

Which of the following is true concerning dividends?

A)Dividends received from a CCPC's business income that is subject to the small business deduction are typically grossed-up to include 138% of the dividend.
B)Dividends received from a CCPC's business income that is not subject to the small business deduction are typically grossed-up to include 117% of the dividend.
C)Eligible dividends require a 117% gross-up.
D)The scheme to eliminate double taxation assumes that the corporate tax rate is 27.5% when eligible dividends are grossed-up to include 138% of the dividend.

Question 5

Stella Flier has received an inheritance of $100,000. She is trying to decide what to do with this mon
come to you for some advice. She has an excellent credit rating and no outstanding debts. She would buy a $225,000 house and invest $100,000 in bonds as a safety net.
Required:
How could Stella minimize her tax liability, assuming only the facts given?

Question 6

On March 1, 20x1, Notes Inc. purchased a two-year guaranteed investment certificate (GIC)for $15, interest compounds annually at 8% and will be received at the end of the full term. Notes Inc. has a m tax rate of 30%, which will increase to 34% for 20x2 and 20x3. Notes Inc. uses the calendar year as i year.
Angela Major also invested $15,000 in a GIC with an 8% annual return, on March 1, 20x1, with inte paid at the end of each annual period. Angela's marginal tax rate is 40%.
(Assume there are no leap years in this time period.)Required:
Calculate the after-tax interest income for each year for Notes Inc. and for Angela. (Round all numbe

Question 7

The remainder of the money was applied to her $150,000 mortgage.
Amanda is in a personal marginal tax bracket of 45%. Her marginal tax rate for eligible dividends is
her marginal tax rate for capital gains is 23%. Required:

A)Calculate Amanda's minimum property income for 20x2.
B)Calculate the annual pre-tax return (as a percentage)for each of the three investments.
C)Calculate the after-tax internal return (as a percentage)for each of the three investments.
D)Briefly explain the tax benefit that Amanda could have realized had she used her inheritance to pa mortgage and then borrowed funds to make the above investments.

Question 8

Joanne owns a rental property, which she purchased for $150,000 in 20x0 (land $50,000 and building $100,000). In the same year, her rental income before CCA was $8,000. In 20x1 the rental income before CCA was $3000. Joanne chose to expense the CCA on her rental property both years. Which of the following statements is true? (The rental property is a Class 1, 4% asset.)

A)Joanne has a rental loss in 20x1 of $840.
B)Joanne has a rental loss in 20x1 of $920.
C)Joanne's rental income in 20x0 was $4,000.
D)Joanne's rental income in 20x1 is $0.