Question 1

In December 2008, Arcor Co.advanced funds of $200,000 to Mr.Jones, a new employee of the corporation, to assist him in acquiring a residence when he moved from Newfound- land to commence employment in British Columbia.The loan bears no interest and is to be repaid in full on December 31, 2013.The prescribed interest rate at the time of this ad- vance was 5 percent.Assuming that the prescribed interest rate throughout 2011 was 6 percent, which one of the following represents the increase in Mr.Jones's Taxable Income in 2011 due to this loan?

Accepted Answer

The prescribed interest rate is 6% and the loan amount is $200,000. The imputed interest is $200,000 x 6% = $12,000. The increase in Mr. Jones's Taxable Income in 2011 is $12,000 - $2,250 = $9,750.

Question 2

Some tax credits are referred to as "refundable".What does this mean?

Accepted Answer

The answer of Some tax credits are referred to as...

Question 3

Under what circumstances can a taxpayer deduct the ITA 118(1)(b) credit for an eligible dependant?

Accepted Answer

The ITA 118(1)(b) credit for an eligible dependant can be deducted when a taxpayer supports a dependant who is not their spouse or common-law partner, lives with them, and meets specific criteria set by the Income Tax Act.

Question 4

The charitable donations tax credit is the only credit which is partially calculated at the maximum federal rate of 29 percent.What is the likely reason for this unique feature?

Accepted Answer

This is true as per the Canadian Income Tax Act. The charitable donations tax credit is calculated at different rates depending on the amount donated, but the portion within the first $200 is calculated at 15% federal rate and the portion above $200 is calculated at the maximum federal rate of 29%.

Question 5

Which of the following statements with respect to an individual's Tax Payable is not cor- rect?

Accepted Answer

Not all provinces in Canada apply a progressive rate system; some may have flat tax rates.

Question 6

A medical expense tax credit, based on the total medical expenses for a family, can be claimed by either spouse.Does it make any difference which spouse makes the claim?

Accepted Answer

It does not make any difference which spouse makes the claim as the credit is based on the total medical expenses for the family. However, only one spouse can claim the credit.

Question 7

Of the following statements about the spousal tax credit, which one is correct?

Accepted Answer

The spousal tax credit can be claimed by either spouse, provided they meet the eligibility criteria.

Question 8

Certain credits against Tax Payable can be transferred to a spouse or common-law part- ner.Indicate which credits are eligible for this transfer.Include only credits that can be transferred, not credits that can be taken by either spouse or common-law partner.

Accepted Answer

The answer of Certain credits against Tax Payable can be...

Question 9

During the year, Ted Knight received worker's compensation payments totaling $10,000 as a result of an injury he suffered at work.His only other source of income for the year was his wages of $25,000.Which one of the following represents Ted's Net and Taxable Incomes for the year?

Accepted Answer

The worker's compensation payments are not taxable, so Ted's taxable income is only his wages of $25,000. Therefore, his net income is $35,000 ($25,000 wages + $10,000 worker's compensation) and his taxable income is $25,000.

Question 10

ITA 118(1)(a) provides a tax credit for an individual's "spouse or common-law partner".
Briefly describe the types of relationships that are eligible for this tax credit.

Accepted Answer

The types of relationships that are eligible for this tax credit are a legal spouse or a common-law partner, which is defined as a person who has been living with the individual in a conjugal relationship for at least 12 continuous months.

Question 11

For an individual who is over 65 years of age, which of the following types of pension in- come does not qualify for the ITA 118(3) pension income tax credit?

Accepted Answer

All three types of pension income listed (Canada Pension Plan, Old Age Security payments, and payments from a provincial pension plan) qualify for the ITA 118(3) pension income tax credit.

Question 12

Jake Baxter donated $100,000 in cash to a Canadian registered charity.His Net Income For Tax Purposes for the year is $120,000.Calculate Jake's maximum federal tax credit for charitable gifts.

Accepted Answer

The maximum federal tax credit for charitable donations in Canada is calculated as 15% on the first $200 and 29% on the amount exceeding $200. Therefore, for a $100,000 donation, the credit is 15% of $200 plus 29% of $99,800, which equals $26,072.

Question 13

The same relative of an individual may be eligible for either the ITA 118(1)(d) tax credit for an infirm dependant over 17 or the ITA 118(1) caregiver credit.As the value of the two credits is the same, what determines which credit should be used?

Accepted Answer

The choice of credit depends on the taxpayer's circumstances and which credit provides the greater tax benefit.

Question 14

Which of the following tax credits cannot be transferred to a spouse?

Accepted Answer

The EI and CPP credits cannot be transferred to a spouse.

Question 15

Which of the following tax credit bases is not subject to full indexation?

Accepted Answer

The pension income amount is not subject to full indexation, unlike the other tax credits listed.

Question 16

On July 1, 2011, Sam Confrey received a five year, $50,000 loan from his employer.The loan was intended to assist Sam with the purchase of a home in his new employment loca- tion.The new home is 47 kilometers closer to Sam's new work location.The interest rate on the loan was 3 percent.Assume that during the third and fourth quarters of 2011, the relevant prescribed rate of interest is 4 percent.The effect of this transaction on his Tax- able Income would be:

Accepted Answer

The answer of On July 1, 2011, Sam Confrey received...

Question 17

Of the following statements about tax credits, which one is correct?

Accepted Answer

Tax credits directly reduce the amount of tax owed, providing the same benefit regardless of the taxpayer's marginal tax rate.

Question 18

With respect to the federal political contributions tax credit, which of the following state- ments is correct?

Accepted Answer

Contributions made to a candidate at the time of a federal general election are eligible for the federal political contributions tax credit.

Question 19

Of the following statements about medical expenses, which one is correct?

Accepted Answer

Only medical expenses that exceed a certain percentage of the taxpayer's net income are eligible for a tax credit. This is referred to as the "threshold amount," and it varies based on the taxpayer's age and income level. The amount of the tax credit is not dependent on the taxpayer's marginal tax rate. Taxpayers can claim medical expenses for themselves, their spouse or common-law partner, and any dependent children under the age of 18. Expenses can be claimed for any 12-month period ending in the taxation year, not necessarily the same calendar year.

Question 20

Jean Marchand is a single parent with a child.Which of the following conditions is not re- quired for Jean to claim the ITA 118(1)(b) credit for an eligible dependant?

Accepted Answer

The child does not need to be a resident of Canada for Jean to claim the ITA 118(1)(b) credit for an eligible dependant.

Quiz 1: Byrd Chens Canadian Tax Principles