QUIZ3

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School

Concordia University *

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340

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Accounting

Date

Feb 20, 2024

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pdf

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Uploaded by CaptainProton1829

TIF PROBLEM ELEVEN - 2 Tax Payable For Individuals Revisited - True Or False Taxable Income 1. 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. True or False? Losses 2. An individual has a non-capital loss. It can be carried back three years and forward indefi- nitely. True or False? 3. 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. True or False? 4. 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. True or False? 5. 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. True or False? 6. 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. True or False? ii. Any loss that is not deductible in the current year can be carried forward for a maxi- mum of seven years. True or False? 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. True or False? Lifetime Capital Gains Deduction 7. During 2019, an individual has taxable capital gains on the disposition of shares in a quali- fied small business corporation. The lifetime capital gains deduction can be used to eliminate up to $433,456 of the taxable capital gains on the disposition. True or False? TIF Problem Eleven - 2 Tax Payable For Individuals Revisited - True Or False Test Item File Problems for Canadian Tax Principles 2019 - 2020 367

Tax On Split Income 8. If a 10 year old child receives dividends from a private company owned by his mother, it will always be taxed as Split Income. True or False? 9. If a 22 year old Specified Individual receives dividends from a private company in which he owns 20 percent of the fair market value of the company shares and 20 percent of the voting shares, the dividends will not be subject to the Tax On Split Income. True or False? Transfer Of Dividend Tax Credits 10. Dividends received by the spouse of a taxpayer can be transferred to him and included in his Net Income For Tax Purposes and excluded from hers. True or False? Charitable Donations 11. 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. True or False? 12. The base for the charitable donations tax credit is always limited to 75 percent of the indi- vidual's Net Income For Tax Purposes. Foreign Tax Credits 13. An individual is holding bonds issued in a foreign country. Tax of $2,000 is withheld in that country from the gross interest of $10,000. The foreign tax credit deductible from federal Tax Payable cannot exceed $1,500. True or False? Alternative Minimum Tax 14. Individuals with Taxable Income in excess of $300,000 will always pay some amount of al- ternative minimum tax. True or False? 15. An excess of alternative minimum tax over regular Tax Payable can be carried forward for up to 7 years to be applied against any future excess of regular Tax Payable over the alter- native minimum tax. True or False? TIF Problem Eleven - 2 Tax Payable For Individuals Revisited - True Or False Test Item File Problems for Canadian Tax Principles 2019 - 2020 368

TIF PROBLEM ELEVEN - 3 Tax Payable For Individuals Revisited - Multiple Choice Taxable Income 1. 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: A. a deduction for contributions to an RPP. B. application of a net capital loss carryforward. C. application of a non-capital loss carryforward. D. a credit for a charitable donation. 2. Which of the following would reduce an individual’s Taxable Income? A. A non-capital loss carried forward from a previous year. B. A charitable donation carried forward from a previous year. C. Adoption expenses. D. Medical expenses. 3. 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. A. i, ii, and iv B. ii and iv C. i and iv D. i, iii, and iv Lump-Sum Payments 4. Reuben Chechetto had to take his employer to court in 2019, to sue for wages owing to him over an 8 year period ending in 2019. In the 2019 taxation year, he receives a court settlement of $80,000, or $10,000 per year. In all years, Reuben had taxable income of $60,000. What will the tax consequences be with respect to the $80,000 in back wages received in 2019? A. Mr. Chechetto will have to report the full $80,000 in additional wages in 2019. B. As these funds were awarded through a court settlement, they are not taxable. C. Mr. Chechetto can use a special relief mechanism in the Income Tax Act which will have the effect of spreading the lump-sum payment over a maximum period of 5 years. D. Mr. Chechetto can use a special relief mechanism in the Income Tax Act which will have the effect of spreading the lump-sum payment over the 8 taxation years affected. TIF Problem Eleven - 3 Tax Payable For Individuals Revisited - Multiple Choice Test Item File Problems for Canadian Tax Principles 2019 - 2020 369

Treatment Of Losses 5. Which of the following statements with respect to loss carry overs is NOT correct? A. Losses on the disposition of listed personal property can be carried back 3 years and forward 7 years. B. Restricted farm losses can only be carried over to years in which there is farm income. C. Net capital loss carry overs cannot be deducted in years in which Net Income For Tax Purposes is nil, even if there are taxable capital gains in that year. D. If an individual can deduct either a $10,000 non-capital loss carry over or a $10,000 net capital loss carry over, the effect on Taxable Income of deducting either is the same. 6. Which of the following statements is correct with respect to the disposition of a valuable coin collection? A. If a loss occurs, it cannot be deducted against any source of income. B. If a loss occurs, one-half of this amount can be applied against one-half of any capital gain. C. If a gain occurs, one-half of this amount can be offset by allowable capital losses on any disposition of capital property. D. If a gain occurs, it will not be taxed because this is personal use property. 7. As a part time employee, Derek earns $20,000 per year of employment income. He re- cently 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 resulted in taxable dividend income of $1,400 and incurred inter- est 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? A. Nil. B. $600. C. $3,400. D. $16,000. 8. With respect to net capital loss balances, which of the following statements is NOT cor- rect? A. In the year of death when such balances are deducted, the amount deducted will be based on the capital gains inclusion rate which applied in the year in which the loss was realized. B. When such balances are carried back, they can be deducted only to the extent of tax- able capital gains arising in the carry back period. C. Such balances can be carried back three years. D. Such balances can be carried forward for a maximum of 20 years. 9. Daria is a part time employee who recently started up her own business as a sole propri- etorship. For the current year, she had the following sources of income and loss: Part time employment income $15,000 Net business loss 18,000 Taxable (grossed up) dividend income 1,200 Interest expense on loan to purchase investments 2,000 Capital gain 12,000 Capital loss 16,000 What is her non-capital loss carry forward for the year? A. $3,000. B. $3,800. C. $5,800. D. $18,000. TIF Problem Eleven - 3 Tax Payable For Individuals Revisited - Multiple Choice Test Item File Problems for Canadian Tax Principles 2019 - 2020 370

10. For which of the following types of losses is it not necessary to segregate the loss by type in order to track the balance carried forward as a separate balance? A. Net capital losses. B. Allowable Business Investment Losses. C. Restricted farm losses D. Business losses. 11. Under which set of circumstances would it be advisable to utilize a loss carry over to re- duce taxable income to nil in the carry over year? A. When the taxpayer is carrying a loss back to a prior year, taxable income can be re- duced to nil without negative consequences. B. When the taxpayer is carrying a loss forward, taxable income can be reduced to nil without negative consequences. C. Net capital losses are the only type of loss that should be used to reduce taxable in- come to nil in the carry over year. D. It is never advisable to use a loss carry over to reduce taxable income to nil in the carry over year. 12. Which of the following types of losses cannot be carried forward for at least 20 years? A. Listed personal property losses. B. Non-capital losses. C. Net capital losses. D. Restricted farm losses. 13. Tabari has income from employment of $25,000 during the year. As well, he has a capital gain on Listed Personal Property of $8,000 on the sale of a stamp collection, and a capital gain from the sale of some shares of $6,000. Last year, he had a capital loss on Listed Per- sonal Property of $10,000 that he was unable to use and carried forward to the current year. What is his net income for tax purposes for the year, assuming that this accounts for all of his income for the year? A. $27,000. B. $28,000. C. $31,000. D. $32,000. 14. Zina Chaburi has a full time job as a nurse in her local hospital. In her spare time she has a goat farming operation. The goat farm began in 2018, and resulted in a loss of $10,000. She deducted the maximum allowable amount against her 2018 income. In 2019, most of the problems had been worked out, and Zina had a profit from the farm operation of $5,000, as well as employment income of $90,000. Determine Ms. Chaburi’s minimum taxable income for 2019. A. $81,000. B. $88,750. C. $91,250. D. $95,000. Allowable Business Investment Losses 15. In 2016, Lorrie Meller use her lifetime capital gains deduction to eliminate a $10,000 tax- able capital gain. During 2019, she had employment income of $50,000, a capital gain of $26,000, and a business investment loss of $30,000. What is the amount of Lorrie's Tax- able Income for 2019? A. $45,000 B. $58,000 C. $46,000 D. $48,000 TIF Problem Eleven - 3 Tax Payable For Individuals Revisited - Multiple Choice Test Item File Problems for Canadian Tax Principles 2019 - 2020 371

16. Which of the following statements about Allowable Business Investment Losses is correct? A. They are losses that result from the disposition of shares or debt in a Canadian con- trolled public corporation. B. They can only be deducted against business income. C. If they are not used during the current year, they are added to the net capital loss bal- ance. D. If they are not used during the current year, they are added to the non-capital loss bal- ance. 17. With respect to an Allowable Business Investment Loss, which of the following statements is NOT correct? A. An Allowable Business Investment loss can be deducted against any source of income. B. If not used during the current year, an Allowable Business Investment Loss can only be applied against taxable capital gains in a carry forward or carry back period. C. An Allowable Business Investment Loss results from the disposition of shares of a small business corporation. D. An Allowable Business Investment Loss is the deductible portion of a Business Invest- ment Loss. Lifetime Capital Gains Deduction 18. Which of the following statements with respect to the lifetime capital gains deduction is correct? A. For purposes of calculating this deduction, the annual gains limit is reduced by the amount of the individual's CNIL. B. It is always preferable to deduct net capital loss carry overs prior to making any use of the lifetime capital gains deduction C. For 2019, the maximum deduction for qualified small business corporations is differ- ent than the maximum deduction for qualified family farm corporations. D. The cumulative gains limit includes the annual gains limits for all previous years, but not for the current year. 19. Which of the following transactions could result in the taxpayer being able to make a life- time capital gains deduction? A. An individual sells 100 percent of the shares of a CCPC that uses 85 percent of its as- sets in the operation of an active business. B. An individual sells 15 percent of the shares of a CCPC that uses 95 percent of its assets in the operation of an active business. C. A CCPC sells 100 percent of the shares of another CCPC that uses 100 percent of its as- sets in the operation of an active business. D. An individual sells 25 percent of the shares of a CCPC that uses 30 percent of its assets to produce property income. 20. With respect to the lifetime capital gains deduction, which of the following statements is NOT correct? A. The deduction is only available to individuals. B. The Cumulative Gains Limit is reduced by any CNIL balance at the end of the year. C. The Annual Gains Limit is reduced by Allowable Business Investment Losses realized during the year. D. The deduction is available on any disposition of shares or debt of a qualified small business corporation. TIF Problem Eleven - 3 Tax Payable For Individuals Revisited - Multiple Choice Test Item File Problems for Canadian Tax Principles 2019 - 2020 372

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