2023 Fall Final Exam (Word Doc)

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University of Windsor *

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4610

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Business

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Feb 20, 2024

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20

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UNIVERSITY OF WINDSOR FALL SEMESTER 2023 FINAL EXAM (2.5 HOURS) ( © Province of Ontario) COURSE 4610- 91 INSTRUCTOR: DONALD E. JONES, CPA/CA/CMA/LPA/MBA/AMCT DECEMBER 11, 2023 Exam Available for Download at 3:20 pm Exam Solutions (Word doc) to be Uploaded to djones@uwindsor.ca by 6:00 pm (see below) INSERT STUDENT NAME: ______________Nahin Chowdhury________________ INSERT STUDENT I.D. NUMBER ____________110068845_________ IMPORTANT NOTES The total exam consists of 20 questions for a total of 90 marks. All questions are to be answered on this Word document file. This exam paper Word file must be submitted for grading purposes. The exam is to be completed on an individual basis without reference to the text book or any other information, whether on line or not. Reference to the Income Tax Act only is allowed. Save your work often. Every 10 minutes is recommended. 3.This exam paper Word file containing all your solutions must returned to be received by the instructor by email to djones@uwindsor.ca for grading by 6:00 pm December 11, 2023. using a subject line of: “(Insert Your Last name) 4610 Final Exam” For example, in the subject line, Robert Brown inserts: “Brown4610Final Exam” A one mark reduction per minute will be assessed on exams received after 6:00 pm. 4. UWIndsor rules on academic integrity apply to this exam so please do your own work. 1
Question # 1 (4 marks) Explain in your own words four reasons for doing an estate freeze. 1. To incorporate children into your company as shareholders 2. To provide a tax free rollover for the shareholders in order to transfer one share into another type of share 3. To allow future profit/growth to accrue to children 4. To defer and minimize tax Question #2 (2 marks) Explain in your own words four ways in which the concept of paid-up capital of a share differs from the adjusted cost base of that same share for tax purposes. 1. Paid up capital is calculated at the corporate level. It doesnt matter who own’s them. Adjusted cost base is affected by who owns the shares and what they paid for them. It is calculated at the shareholder level. 2. Paid up capital is based on the capital contributed to the corporation. Adjusted Cost Base is based on the amount paid for the shares. 3. Paid up capital is averaged among all shares of that class. ACB is unique to each shareholder. 4. PUC provides insight into the equity structure of a company and is essential for calculating metrics. It is crucial for determining the tax implications of an investment Question # 3 (2 marks) Briefly describe in your own words the nature of each of the following types of trust: 1.a testamentary trust When you pass, if your will, says, I'm going to create a trust for somebody, whoever it might be, that's called a testamentary trust. 2
2. an inter vivos trust An inter vivos trust is created while the settlor is still alive and it is defined in the Act to be a trust other than a testamentary trust. Question #4 . (2 marks) What is the effective federal income tax rate for each of the following: 1.an inter-vivos trust - 33% 2.a graduated rate estate trust – same as the graduated rates for individual tax payer Question # 5 (3 marks) Briefly describe in your own words how a bump in cost base may occur on each of the following (3 marks) 1.a vertical amalgamation On an amalgamation where a parent company owns 100% of the shares of its subsidiary company, the new amalgamated company is allowed to bump up the adjusted cost base (ACB) of any non-depreciable capital properties (shares, land, partnership units) that the subsidiary company continuously owned since the parent last acquired control of the subsidiary. 2.a hortizontal amalgamation There is no bump up benefit for a horizontal amalgamation (between a subsidiary and subsidiary) they are just combining their equity and are allowed to make the number of shares whatever they want when they merge. 3
Q #6. (1 mark) Explain in your own words the reason for the existence of the s. 84.1 anti-avoidance rule on dividend stripping. (1 mark) The purpose of the dividend string provisions in the ITA is to prevent an individual from removing funds from a corp on a tax-free basis through transactions that take advantage of the tax-free intercorporate dividends, the capital gains exemptions and possibly utilization of a section 85 election Q #7. (1 mark) Explain in your own words the reason for the existence of the s. 55 anti-avoidance rule on capital gain stripping. (1 mark) It exists to prevent a Canadian resident corporate shareholder from convicting a capital gain on disposition of shares held in another corporation into a dividend that would not be taxable under Part I or under Part IV due to the connected corporation exemption. The provision applies to taxable dividends received by corporations resident in Canada where the dividend recipient is entitles to a Division C deduction for the dividend and one of the purposes of the dividend is to reduce a capital gain on the disposition of share. Q #8. ( 2 marks) Explain in your own words four steps to complete the payment of a dividend from a CCPC’s capital dividend account. 1. File an election with CRA 2. Calculate the balance of the capital dividend account to file this election 4
3. File a copy of the director’s resolution authorizing a payment from the capital dividend account 4. Pay out dividend Question # 9 (3 marks ) Briefly explain in your own words three different ways that a loan could be made by a corporation to its shareholder without adverse tax consequences. 1. Short term loan - paid within the next year 2. Loan received by virtue of employment - person who is both a shareholder and an employee – a. employee but not a specified employee - owns less than 10% shares b. to help them acquire a home for work or, acquire unissued shares or, buy a motor vehicle for work purposes 3. Loan arising in ordinary course of lender's business : bank or trust company i.e. a loaning business 5
Question # 10 (1 mark) Explain in your own words the purpose of the “at risk” rules for tax purposes as they relate to limited partnerships. The “at risk” rules are say that you cannot write off losses for tax purposes which exceed your at risk capital, So if you invested $25000 in a partnership your at risk capital is $25000 because any amount above that is not at risk. Question #11 (3 marks) List one tax advantage and one disadvantage of doing a holdco freeze instead of on internal freeze. Advantage 1. If you have a holding company, the operating company can pay a dividend up to the holding company tax free Disadvantage 1. Companies must be incorporated to do a holdco freeze. This will cause additional costs and time associated with creating and maintaining the corporation 6
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