Question 1

Jennifer Nash is a plumber in Waterloo, Ontario, who spends all of her weekends and holi- days operating a farm she purchased this year.She is confident that within two years her farm will be making a profit.In the current year, the farm had a loss of $18,000.
i.In the current year, she can deduct a maximum of $2,500 of the farm loss against other income.
ii.Any loss that is not deductible in the current year can be carried forward for a maxi- mum of seven years.
iii.Any loss that is not deductible in the current year can only be applied to the extent of farm income in the carry over year.

Accepted Answer

i.False.In the current year, she can deduct a maximum of $8,750 [$2,500 + (1/2)($12,500)] of the farm loss against other income.
ii.False.Any loss that is not deductible in the current year can be carried forward for a maximum of 20 years.
iii.True.A restricted farm loss can only be used to the extent of farm income in the carry over period.

Question 2

A corporation sold a long-term investment in common shares with an adjusted cost base of $25,000, for $10,000 during the current year.It also sold a parcel of land that is consid- ered capital property with an adjusted cost base of $8,000, for $12,000.Its net allowable capital loss for the year is $11,000.

Accepted Answer

The net allowable capital loss is calculated by subtracting the capital gains from the capital losses. The corporation has a capital loss of $15,000 from the shares ($25,000 - $10,000) and a capital gain of $4,000 from the land ($12,000 - $8,000), resulting in a net capital loss of $11,000. However, only 50% of the net capital loss is allowable, which would be $5,500, not $11,000.

Question 3

During the current year, an individual has taxable capital gains on the disposition of a qualified farm property and on the disposition of shares in a qualified small business cor- poration.The lifetime capital gains deduction can be used to eliminate up to $375,000 of the taxable capital gains on either disposition.

Accepted Answer

The statement is true. The lifetime capital gains deduction can be used to eliminate up to $375,000 of the taxable capital gains on either disposition.

Question 4

The alternative minimum tax is an attempt to deal with a tax policy issue.What is this is- sue and, in general terms, how does the alternative minimum tax deal with this issue?
Tax Payable For Individuals Revisited - True Or False

Accepted Answer

The answer of The alternative minimum tax is an attempt...

Question 5

With respect to the deductibility of their losses, farmers fall into three categories.What are these three categories and how are losses treated in each category?

Accepted Answer

The answer of With respect to the deductibility of their...

Question 6

The $750,000 lifetime capital gains deduction is available when the taxpayer has a gain on the disposition of shares in a "qualified small business corporation".What are the con- ditions that must be met for an enterprise to be a qualified small business corporation?

Accepted Answer

The answer of The $750,000 lifetime capital gains deduction is...

Question 7

Net capital losses can be carried forward or back, but can only be deducted to the extent of net taxable capital gains in the carry back or carry forward year.

Accepted Answer

This is true according to the tax laws in many countries, including the United States. Net capital losses can be carried forward for a certain number of years (usually up to 7 or 10 years) to offset future capital gains. They can also be carried back to offset capital gains in the previous year. However, the deduction is limited to the amount of net taxable capital gains in the carry forward or carry back year.

Question 8

John Broley has a $50,000 non-capital loss carry forward and a $50,000 net capital loss carry forward.During the current year, his only income is a $50,000 taxable capital gain.He has asked your advice as to which of the two loss carry forwards he should deduct.What advice would you give him?

Accepted Answer

The answer of John Broley has a $50,000 non-capital loss...

Question 9

If an individual has no loss carry overs from other years, the current year Net Income For
Tax Purposes will be equal to Taxable Income.

Accepted Answer

Net Income for Tax Purposes and Taxable Income can differ due to deductions, credits, and exemptions that reduce the Net Income to arrive at the Taxable Income.

Question 10

What is a Small Business Corporation as defined in the Income Tax Act?

Accepted Answer

The answer of What is a Small Business Corporation as...

Question 11

An individual sells shares in a Canadian controlled private corporation that qualifies as a small business corporation to an arm's length party.The adjusted cost base of the shares is
$50,000 and they are sold for $30,000.The $20,000 loss is an Allowable Business Invest- ment Loss.

Accepted Answer

The answer of An individual sells shares in a Canadian...

Question 12

An individual has a non-capital loss.It can be carried back three years and forward indefi- nitely.

Accepted Answer

In Canada, a non-capital loss can be carried back three years and forward up to 20 years, not indefinitely.

Question 13

If an individual dies and has a net capital loss in that taxation year or unused net capital losses from previous years, these balances are subject to a different treatment than would be the case if the individual were still alive.Briefly describe how this treatment is differ- ent.

Accepted Answer

The answer of If an individual dies and has a...

Question 14

Briefly describe the tax treatment of losses on listed personal property.

Accepted Answer

The answer of Briefly describe the tax treatment of losses...

Question 15

When an enterprise has several types of loss carry forwards, why is it necessary to keep separate balances for each type?

Accepted Answer

The answer of When an enterprise has several types of...

Question 16

What is an Allowable Business Investment Loss? What special tax provisions are associ- ated with this type of loss?

Accepted Answer

The answer of What is an Allowable Business Investment Loss?...

Question 17

In situations where such a transfer would result in the creation of, or an increase in, the spousal tax credit for the taxpayer, dividends received by the spouse or common-law part- ner of the taxpayer can be transferred to him and included in his tax return.

Accepted Answer

This statement is true. If transferring dividends to the spouse or common-law partner of a taxpayer results in the creation or increase of the spousal tax credit for the taxpayer, then the dividends can be included in the spouse or common-law partner's tax return.

Question 18

The carry forward periods for losses varies with the type of loss.Briefly describe the carry forward periods that the Income Tax Act provides for the types of losses that it identifies.

Accepted Answer

The answer of The carry forward periods for losses varies...

Question 19

ITA 110.2 provides for a deduction of "lump-sum payments", for example a court ordered termination benefit.What tax policy objective is served by this provision?

Accepted Answer

The answer of ITA 110.2 provides for a deduction of...

Question 20

When an individual makes a gift of publicly traded securities to a registered charity, any capital gain that results from the disposition is deemed to be nil.

Accepted Answer

This is true as per the Canadian Income Tax Act. When a donation is made in the form of publicly traded securities to a registered charity, the capital gain that may have been realized on the disposition of those securities is exempt from taxation.

Quiz 2: Byrd Chens Canadian Tax Principles 2

The alternative minimum tax is an attempt to deal with a tax policy issue.What is this is- sue and, in general terms, how does the alternative minimum tax deal with this issue? Tax Payable For Individuals Revisited - True Or False