Question 1

Which one of the following would not affect the calculation of the alternative minimum tax?

Accepted Answer

Stock options not yet exercised do not affect the calculation of the alternative minimum tax because they have not been realized as income or a deduction.

Question 2

Charitable contributions that are not used during the current year can be carried forward for five years, without regard to whether the taxpayer is an individual or a corporation.

Accepted Answer

Charitable contributions can be carried forward for five years regardless of taxpayer type.

Question 3

Which of the following statements with respect to the tax on split income (the "kiddie tax") is not correct?

Accepted Answer

The answer of Which of the following statements with respect...

Question 4

In the calculation of Adjusted Taxable Income in the alternative minimum tax calculation, which of the following are not considered tax preference items?

Accepted Answer

Dividend tax credits are not considered tax preference items in the calculation of Adjusted Taxable Income for the alternative minimum tax.

Question 5

With respect to net capital loss balances, which of the following statements is not correct?

Accepted Answer

The answer of With respect to net capital loss balances,...

Question 6

A corporation can deduct all dividends received, without regard to the source of the divi- dends.

Accepted Answer

Corporations can only deduct a portion of the dividends received, typically 50% to 65%, depending on their ownership percentage in the dividend-paying corporation.

Question 7

Which of the following statements is correct with respect to the disposition of a valuable coin collection?

Accepted Answer

If a gain occurs on the disposition of a valuable coin collection, one-half of this amount can be offset by allowable capital losses on any disposition of capital property. This is because a coin collection is considered a capital property for tax purposes. However, if a loss occurs, it can only be used to offset capital gains, not any other sources of income.

Question 8

With respect to the lifetime capital gains deduction, which of the following statements is not correct?

Accepted Answer

Split income rules apply to certain types of income earned by a person's spouse, minor children, or other related minors. The best choice is D because it does not relate to split income, whereas choices A, B, and C are all related to the rules governing split income.

Question 9

Shelly is seeking your advice on how she can claim various deductions and credits.Which of the following items would reduce the amount of her Taxable Income? i.A net capital loss carried forward from a previous year.ii.A charitable donation.
Iii)Contributions to an RESP.
Iv)Childcare costs paid during the year.

Accepted Answer

A net capital loss carried forward from a previous year and childcare costs paid during the year can reduce the amount of taxable income. Contributions to an RESP and charitable donations are claimed as credits on the tax return, reducing the amount of taxes owed, but they do not directly reduce taxable income. Therefore, option C (i and iv) is the best choice as it includes the two items that directly reduce taxable income.

Question 10

With respect to an Allowable Business Investment Loss, which of the following statements is not correct?

Accepted Answer

An Allowable Business Investment Loss can only be applied against taxable capital gains in a carry forward or carry back period if it is not used during the current year. The other statements are correct: an Allowable Business Investment Loss can be deducted against any source of income, it results from the disposition of shares of a small business corporation, and it is the deductible portion of a Business Investment Loss.

Note: There is no question about the Lifetime Capital Gains Deduction, so no answer is provided for that.

Question 11

Non-capital loss carry overs must be deducted in the order in which they were incurred, the oldest one first, followed by amounts arising in later years.

Accepted Answer

Non-capital loss carry overs must be deducted in chronological order, starting with the oldest loss first. This is in accordance with the Income Tax Act.

Question 12

Which of the following statements about Allowable Business Investment Losses is correct?

Accepted Answer

Allowable Business Investment Losses (ABILs) are treated as non-capital losses and can be carried back or forward to offset any type of income, not just capital gains. If not used in the current year, they are added to the non-capital loss balance.

Question 13

A net capital loss carry forward can only be deducted to the extent that there are net tax- able capital gains in the carry forward year.

Accepted Answer

This statement is true. Net capital losses can only be applied against net taxable capital gains in the same tax year or carried forward to future tax years for offset against future taxable capital gains.

Question 14

An individual has Net Income For Tax Purposes of $147,500.During the current year, the individual donates a depreciable capital asset with a fair market value of $300,000.The capital cost of this asset is $225,000 and it has a UCC $147,000.It is the only asset in its CCA class and no additions are made subsequent to the gift.If he elects to have the dona- tion valued at its fair market value, what is the maximum amount that this individual can claim as the basis for his charitable donations tax credit for the current year?

Accepted Answer

The maximum charitable donations tax credit is limited to 75% of the individual's net income for tax purposes. Therefore, 75% of $147,500 is $110,625. However, since the donation is a capital asset, the individual can claim an additional 25% of the net capital gain ($300,000 - $225,000 = $75,000), which is $18,750. Thus, the total maximum claimable amount is $110,625 + $18,750 = $129,375. However, the correct choice should be $139,500, which suggests a miscalculation or additional context not provided.

Question 15

Which of the following would reduce an individual's Taxable Income?

Accepted Answer

Non-capital losses carried forward from a previous year can be used to offset taxable income, thereby reducing it.

Question 16

Which of the following transactions would result in the taxpayer being able to make a life- time capital gains deduction?

Accepted Answer

The answer of Which of the following transactions would result...

Question 17

As a part time employee, Derek earns $20,000 per year.He recently started up his own business as a sole proprietorship.For the current year, his business revenues were $12,000 and his business expenses were $28,000.Derek has some investments that re- sulted in taxable dividend income of $1,400 and incurred interest expense of $2,000.Assuming this accounts for all of Derek's sources of income, what is his non-capital loss carry forward for the year?

Accepted Answer

The answer of As a part time employee, Derek earns...

Question 18

Dividends received from taxable Canadian corporations are not included in the Net In- come For Tax Purposes of Canadian corporations.

Accepted Answer

Dividends received from taxable Canadian corporations are included in the Net Income for Tax Purposes, but they may be eligible for a deduction under the Dividend Received Deduction, reducing taxable income.

Question 19

Martin is worried about how much tax he will have to pay this year and he is looking for anything that he might have missed that will decrease his Taxable Income.All of the fol- lowing could decrease his Taxable Income, with the exception of:

Accepted Answer

A credit for a charitable donation reduces the tax liability directly, not the taxable income.

Question 20

Assume that any foreign income is taxed in the foreign jurisdiction.Which one of the fol- lowing types of foreign income generates foreign tax credits that may be applied to other taxation years?

Accepted Answer

The answer of Assume that any foreign income is taxed...

Quiz 2: Byrd Chens Canadian Tax Principles 2