Homework answers / question archive / 1) Fahad Lodhi is a resident of the United States, living in Port Huron, Michigan

1) Fahad Lodhi is a resident of the United States, living in Port Huron, Michigan

Taxation

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1) Fahad Lodhi is a resident of the United States, living in Port Huron, Michigan. He works and earns income in Canada all year as follows:

        Employment income in Canada (Sarnia, Ontario)                       $ 10,500

        Business income in Canada                                                             30,000

        Interest income on bank account in Canada                                       500

        Capital gain from disposition of vacant land in Canada              10,000

 

What is his Canadian Net Income for Tax Purposes under Part I of the Income Tax Act?

Question 1 options:

	a)  $30,000
	b)  $45,500
	c)  $46,000
	d)  $51,000

 

2) John and Alexandria are married, and they have two children, aged 2 and 5. They pay Alexandria's 22-year-old sister $150 per week to take care of their children for 48 weeks each year. John works full time and earns a salary of $90,000 per year. Alexandria works part time, earning a salary of $28,000 per year. She also goes to college part time during the fall semester, for a total of 17 weeks, or 4 months, each year. Which of the following is correct with respect to John and Alexandria's ability to claim a deduction for childcare expenses?

Question 2 options:

	a)  Neither John nor Alexandria can claim childcare expenses because they paid a relative to take care of their children.
	b)  Alexandria must claim all the childcare expenses because she is the supporting person with the lower Net Income.
	c)  John can claim childcare expenses of $1,600 and Alexandria can claim the remaining $5,600
	d)  John can claim childcare expenses of $7,200.

 

3) Stan Aiken changed employers during 2020 and, because of the change, moved 150 kilometers, from Windsor to London. His new employer was in London and reimbursed 50 percent of Stan's eligible moving expenses. On his 2020 personal tax return, Stan can:

Question 3 options:

	a)  claim 0 percent of his moving expenses.
	b)  claim 50 percent of his moving expenses against his income from employment.
	c)  claim 50 percent of his moving expenses against his income from his new employer.
	d)  claim 100 percent of his moving expenses against his income from employment.

 

4) Which of the following statements with respect to capital gains reserves is correct?

Question 4 options:

	a)  There is no limit on how many years a reserve can be deducted.
	b)  The maximum capital gains reserve is equal to the ratio between the proceeds not yet collected and the total proceeds, multiplied by the capital gain.
	c)  The maximum capital gains reserve is limited to 20 percent of the total capital gain in the first year after the sale.
	d)  Any capital gains reserve that is deducted in the current taxation year must be added back to income in the subsequent taxation year.

 

5) A business acquires a rental property several years ago for $562,000, with $112,000 of this amount being the estimated value of the land. At the beginning of the current year the UCC for the property is $374,561. During the current year, the property is sold for $843,000, with $262,000 of this amount being allocated to the land. Which of the following statements is correct?

Question 5 options:

	a)  The business will have recapture of $75,439 and a capital gain of $131,000.
	b)  The business will have recapture of $75,439 and a capital gain of $281,000.
	c)  The business will have recapture of $187,439.
	d)  The business will have a taxable capital gain of $281,000.

 

6) During the year, Ted Knight received worker's compensation payments totaling $10,000 because 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?

Question 6 options:

	a)  Net Income $25,000, Taxable Income $25,000.
	b)  Net Income $30,000, Taxable Income $30,000.
	c)  Net Income $35,000, Taxable Income $25,000.
	d)  Net Income $35,000, Taxable Income $35,000.

 

7) Which of the following tax credits CANNOT be transferred to a spouse?

Question 7 options:

	a)  The age credit.
	b)  The disability credit.
	c)  The EI and CPP credits
	d)  The pension income credit.

 

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

Question 8 options:

	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.

 

9) A non-resident individual owns a rental property in Canada. Which of the following statements is correct?

Question 9 options:

	a)  The gross rents are subject to withholding under Part XIII of the Income Tax Act. However, the taxpayer can elect to file a Canadian tax return which will include the net rental income.
	b)  The net rental income is subject to withholding under Part XIII of the Income Tax Act. However, the taxpayer can elect to file a Canadian tax return which will include the gross rents.
	c)  The taxpayer must file a Canadian tax return which includes the net rental income.
	d)  The net rents are subject to withholding under Part XIII of the Income Tax Act.

 

10) Ms. Marston has net tax owing for 2018 of $4,500, net tax owing for 2019 of $8,000, and estimated net tax owing for 2020 of $7,500. If she wishes to pay the minimum total amount of instalments for the 2020 taxation year, her first payment on March 15 will be for what amount?

Question 10 options:

	a)   Nil.
	b)  $1,125.
	c)  $1,875.
	d)  $2,000.

 

Question # 11

Mrs. Joan Brockton is 42 years of age and lives with her husband Jack Brockton. They have two children who live with them.

 

Employment Information

Joan is employed by a large public corporation at an annual salary of $122,000. In addition, during 2020, she earned commissions of $46,000. Her employer withholds the following amounts from her income:

 

RPP Contributions                                                        $2,700

EI                                                                                        856

CPP                                                                                 2,898

Professional Association Dues                                       1,500

 

Joan's employer makes a matching contribution to her RPP of $2,700.

 

Her employer requires her to maintain an office in her home and has provided her with a signed Form T2200. The office occupies 15 percent of the floor space in her home. The 2020 costs of operating this property are as follows:

 

Maintenance and Utilities                                             $2,200

Property Taxes                                                               4,800

Insurance                                                                           950

Mortgage Interest                                                          9,800

 

Several years ago, Joan's employer granted her options to buy 2,000 shares of the company's stock at a price of $20 per share. This was the market value of the shares at the time the options were granted. In January 2020, when the shares are trading at $32 per share, Joan exercises all the options. In December 2020, the 2,000 shares are sold for $35 per share.

 

Joan’s employer pays her an allowance of $1,500 per month to cover all of her employment related expenses, including her use of an automobile that she owns personally. This automobile was acquired in 2019 at a cost of $29,500. In her 2019 tax return, she claimed CCA based on the automobile being used 75 percent for employment related activity. During 2020, only 60 percent of the automobile usage was employment related. Joan’s employment related expenses during the year are as follows:

 

Automobile Operating Expenses                                 $4,200

Hotels                                                                             5,500

Airline and Other Transportation                                 7,600

Business Meals and Entertainment                                6,400

 

Other Information

1. During 2020, Joan received eligible dividends of $2,350.

 

2. At the beginning of 2020, Joan owned 1,000 units of the Torstar Income Trusts. The adjusted cost base of these units at that time was $12 per unit. During 2020, the trust had a distribution of $1.00 per unit, all of which was interest income. Joan had all this distribution invested in additional units at $14 per unit. In December 2020, all of her Torstar units were sold for $16 per unit.

3. At the beginning of 2020, Joan owned a tract of land with an adjusted cost base of $125,000. Joan had owned the land for a number of years, hoping at some point to construct a rental property on the site. However, in 2020 she receives an unsolicited offer for the property of $375,000. She accepts the offer and immediately receives a payment of $100,000. The remaining $275,000 will be paid in 11 annual instalments of $25,000, beginning in 2021. Joan would like to use a capital gains reserve to defer as much 2020 taxation as possible.

 

4. Joan owns a painting with an adjusted cost base of $2,000. During 2020, she sells this painting for $22,000.

 

Required: Calculate Mrs. Brockton’s minimum 2020 Total Income, Net Income for Tax Purposes, her 2020 minimum Taxable Income. Show all of your calculations.

Ignore provincial income taxes, any instalments she may have paid during the year, any income tax withholdings that would be made by her employer, and GST/HST/PST considerations.

 

 

Question # 12

Jasmine Ramiz is 46 years old. Jasmine’s taxable for 2020 has been correctly calculated as $200,000.

The Taxable income includes $6,000 of eligible Canadian dividends and $6,000 of non-eligible Canadian dividends.

She is married to Raul Ramiz.  Raul is 41 years old and has 2020 Net Income for Tax Purposes of $9,650.

The couple have two children:

 

Diego  Their son, Diego, is 15 years old and has a 2020 Net Income For Tax Purposes of $6,420.

 

Isabella  Their daughter, Isabella is 20 years old and has Net income of $12,500 all of which is interest income. She attends university on a full-time basis for 8 months of the year.  Jasmine pays for all of Isabella’s education costs, including $10,200 for tuition and $2,200 for textbooks and supplies.  She has agreed to transfer the maximum tuition credit to her mother.

 

The family’s 2020 medical expenses, all paid for by Jasmine o December 31,2020, are as follows:

 

Jasmine                                                                        $ 3,200

Raul*                                                                               7,800

Diego                                                                               2,450

Isabella                                                                            7,235

Total                                                                            $20,685

*$4,800 was for hair transplants and the remaining $3,000 was for plastic surgery on his nose as a result of a collision with a tree while bike riding.

 

During 2020, Jasmine makes donations of $2,150 to the United Way Fund, a registered Canadian Charity.  

In addition, she makes donations to registered federal political parties of Canada in the amount of $ 950.

Required:  Calculate Jasmine’s Federal Tax payable for the 2020 taxation year., Show all your calculations.