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Humber College - BMGT ACCT 203 chapter7 1)Income earned from foreign sources by a Canadian corporation is? ________

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Humber College - BMGT ACCT 203

chapter7

1)Income earned from foreign sources by a Canadian corporation is? ________.

Choose the correct answer.

1. 1. treated as business income
   2. treated as property income
   3. treated as business or property income in the same fashion as if the income was earned from domestic sources
   4. treated as other? income, separately from business and property income

 

2. A Canadian manufacturing company invests in bonds issued by a governmental entity of the US. Interest received on the bonds would be reported as? ________.

Choose the correct answer.

1. 1. business income
   2. capital gains
   3. property income
   4. employment income

 

3. The production of business income generally requires? ________, while the production of property income does not.

Choose the correct answer.

1. 1. a significant amount of time and effort
   2. securing large credit accounts
   3. a significant amount of invested capital
   4. holding assets for a long period of time

 

4. Which of the following types of income is property? income?

Choose the correct answer.

4. 1. capital gains realized on the sale of shares of a publicly traded corporation
   2. wages received by an employee
   3. the net income a proprietor receives from operating a retail store
   4. royalties received by an individual for a company using a patent developed by the individual
5. Which of the following best describes the dividend tax? credit?

Choose the correct answer.

1. 1. a deduction against property income for individuals who received specified types of dividends
   2. a credit against taxes payable for individuals who have significant business income
   3. a credit against taxes payable for individuals who earned dividend income from a Canadian corporation during the taxation year
   4. a credit against taxes payable for corporations that pay significant dividends

 

6. Which of the following best describes the dividend? gross-up?

Choose the correct answer.

1. 1. a deduction against property income for individuals who received specified types of dividends
   2. a credit against taxes payable for individuals who earned dividend income from a Canadian corporation during the taxation year
   3. an increase of the taxable amount of dividend? income, calculated by multiplying the actual dividend amount by a certain fraction
   4. an inflation of taxes payable for corporations that pay significant dividends

 

7. Karl is an individual who holds significant property and earns approximately $325,000 in property income annually. Daniel is an individual who purchased the same types of properties as Karl?, but transferred all of the property to a? corporation, Daniel ?Corp, of which he owns 100?%. Daniel Corp earns approximately 325,000 in property income annually and distributes all the after tax profits to Daniel in the form of a dividend. Assuming the tax rate for each individual is the same and that perfect integration? exists, with regard to the total income taxes that will be paid on each? individual's source of? income, ________.

Choose the correct answer.

1. 1. the overall taxes paid by Karl will be the same as those paid by Karl and Daniel Corp combined

B.it is impossible to determine whether the overall taxes for Karl will be greater or less than those of Daniel and Daniel Corp combined with only this information

C. the overall taxes paid by Karl will be less than those paid by Daniel and Daniel Corp combined

D. the overall taxes paid by Karl will be more than those paid by Daniel and Daniel Corp combined

 

 

8. ?Non-eligible dividends? ________.

Choose the correct answer.

1. 1. can not be grossed up for corporate taxes paid
   2. do not allow an individual to claim a dividend tax credit
   3. have a gross up rate lower than eligible dividends
   4. have a gross up rate higher than eligible dividends

 

9. In? general, in order for interest payments to be deductible they must be incurred for the purpose of earning? ________.
   1. employment income or capital gains
   2. property or employment income
   3. business or property income
   4. business or employment income

 

10. Brad is an individual. He purchases a second home that is rented out the entire year. Brad spends very little time and effort tending to the affairs of the rental home. The income Brad earns from the rental home would be reported as? ________.
    1. property income
    2. employment income
    3. capital gains
    4. business income

 

11. On which of the following would the related interest payments generally be deductible in the computation of an? individual's property? income?

A.a mortgage obtained to purchase a rental home

B.a line of credit used to make improvements to an? individual's principal residence

C.an auto purchased for personal use

D.credit cards used to fund basic living expenses such as food and transportation

 

 

12. CCA deductions related to property income? ________.
    1. cannot be used to create or increase a net loss from property income
    2. apply to buildings? and/or land that is purchased for the production of income
    3. must be taken at the maximum allowable amount or carried forward
    4. are not allowable since property generally appreciates

 

13. The rate that applies to CCA on residential rental buildings acquired after 1987 is? ________ percent.

Choose the correct answer.

A.5

14. B.6

C.4

D.7

 

 

15. Requirement 3. Jordan informs you that she plans on selling her rental property in the near future and using a portion of the proceeds from the sale to pay off some of her debt with the bank. Jordan would like your advice on which loans she should pay back first in order to achieve the most favourable tax consequences.

Choose the correct answer.

15. 1. Jordan should use the proceeds from the sale of the rental property to repay her personal car loan rather than the loan she used to purchase mutual funds or her personal mortgage.
    2. Jordan should use the proceeds from the sale of the rental to repay the loan she used to purchase mutual funds rather than her personal car loan or her personal mortgage.
    3. Jordan should use the proceeds from the sale of the rental property to repay her personal mortgage and the loan she used to purchase mutual funds rather than her personal car loan.
    4. Jordan should use the proceeds from the sale of the rental property to repay her personal mortgage or her personal car loan rather than the loan she used to purchase mutual funds.
16. Earl is a Canadian resident and is also a shareholder in a Swedish corporation. The corporation pays the shareholder a dividend of Canadian 6500 and withholds Swedish taxes of Canadian 1900 . How much of the dividend will Earl include in his Canadian taxable? income?
    1. $0
    2. 4,600

C.6,500

D.8,400

 

17. Which of the following payments received by an individual are tax? free?
    1. eligible dividends
    2. foreign dividends
    3. capital distributions
    4. stock dividends

 

18. Which of the following would be considered an other than eligible dividend? (i.e. a? non-eligible dividend)?

Choose the correct answer.

1. 1. A dividend from a? Canadian-controlled private corporation? (CCPC) which was paid out of income in the CCPC that was subject to low corporate income tax rates.
   2. A dividend from a? Canadian-controlled private corporation? (CCPC) which was paid out of eligible dividends received by the CCPC.
   3. A dividend from a? non-CCPC which was paid out of income in the corporation that was subject to the full corporate income tax rates.
   4. A dividend from a? Canadian-controlled private corporation? (CCPC) which was paid out of income in the CCPC that was subject to the full corporate income tax rates.

 

19. Which of the following best describes the modified accrual approach used to record interest income earned by individual taxpayers from an investment? contract?

Choose the correct answer.

1. 1. Interest income is recorded when received unless it was reported in a previous period.
   2. Interest? income, regardless of whether the interest is received or? receivable, is recorded based on the calendar year unless it was reported in a previous period.
   3. Interest? income, regardless of whether the interest is received or? receivable, is reported on each anniversary date of the investment contract unless it was reported in a previous period.
   4. Interest? income, regardless of whether the interest is received or? receivable, is recorded on the last day of the fiscal period of the investment contract unless it was reported in a previous period.

 

20. With respect to the calculation of net rental? income, which of the following is? incorrect?
    1. Expenses related to repair and maintenance of the rental property are deductible from gross rents earned from the property.
    2. Net rental income is recorded on an accrual basis.
    3. Expenses that increase the useful life of the rental property? and/or improve the condition of the rental property? (i.e. an enduring? benefit) are deductible from gross rents earned from the property.
    4. Interest on debt used to purchase the rental property is deductible from the gross rents earned from the property.

 

21. With respect to the taxation of trusts in? Canada, which of the following is? incorrect?
    1. Funds distributed to the? trust's unit holders in excess of the? trust's income for the year are called capital distributions and are received? tax-free by the unit holders.
    2. Income earned by the trust and immediately distributed to the? trust's unit holders is not subject to income tax in the trust.
    3. Funds distributed to the? trust's unit holders in excess of the? trust's income for the year are called reinvested distributions and are received? tax-free by the unit holders.
    4. Income distributed by the trust to the trust unit holders retains its character.

 

22. Assuming all of the following expenses were incurred for the purpose of earning property? income, which of the following would NOT be deductible in the computation of net property? income?
    1. Safe deposit box charges
    2. Accounting fees
    3. Investment counsel fees
    4. Interest expense on debt acquired for investment purposes

 

23. When a corporation that is not a financial institution holds bonds of another company that were issued at a? discount, interest is recognized? ________.
    1. on accrual? basis, using straight line amortization
    2. on accrual? basis, using the stated interest rate
    3. on accrual? basis, using the effective interest method
    4. on a cash basis

 

24. When a corporation holds property that is subsequently rented? out, ________.
    1. any gain or loss resulting from the sale of the property will be treated as property income
    2. the income received will be classified as property income unless the company is primarily engaged in property rentals
    3. CCA deductions can be taken on the buildings and? land, so long as the corporation is primarily engaged in property rentals
    4. CCA deductions are not permitted unless the corporation is primarily engaged in property rentals

 

25. A Canadian resident corporation has a portfolio of investments which earned dividends from taxable Canadian public corporations of $28,000 in the current year. The corporation purchased this portfolio of investments using excess cash as well as a loan from the bank. During the current? year, the corporation paid 14,000 of interest on the bank loan used to purchase the portfolio of investments. In? addition, the corporation purchased a 13,000 ?par-value bond with a 3?% interest rate on September 1 of the current year. What is the correct amount of net property income the corporation should report on its tax return for the current year ended December? 31?

Choose the correct answer. ?(Round your answer to the nearest whole? dollar.)

A.15,300

B.29,300

C.15,763

D.9500

 

26. A Canadian resident corporation decides to invest in shares of a foreign corporation. The tax rate in the foreign? corporation's country of residence is lower than the Canadian tax rate. When the foreign corporation pays? dividends, the overall tax on the dividends will be at? ________.
    1. the Canadian tax rate
    2. the tax rate of the foreign country plus the Canadian tax rate
    3. the tax rate of the foreign country
    4. 15%

 

27. The amount of foreign tax withheld on foreign source income that a taxpayer can utilize in the computation of the foreign? non-business tax credit is? ________.
    1. limited to? 15% of foreign taxes paid
    2. limited to the amount of foreign taxes paid
    3. limited to? 15% of foreign business income
    4. limited to? 15% of foreign? non-business income

 

28. Which of the following is NOT a benefit of investing in a mutual fund organized as a? trust?

A.Income earned by the trust is? re-characterized as a dividend when distributed to the? trust's unit? holders; therefore,? taxpayer's holding units of a mutual fund trust will only earn dividend income.

B.Income earned by the trust retains its character when distributed to the? trust's unit? holders, therefore? taxpayer's holding units of a mutual fund trust will earn various types of investment income including? dividends, interest, capital? gains, foreign investment income and other Canadian investment income.

C.Income earned by the trust and distributed to the? trust's unit holders is not subject to income tax in the? trust; therefore, mutual funds organized as trusts are often subject to little to not tax at the trust level.

D.Mutual funds organized as trusts can distribute amounts to unit holders that exceed income earned by the mutual fund for the year. These distributions are referred to as a? "return of? capital" and are received by the unit holders on a? tax-free basis but will reduce the unit? holder's adjusted cost base of the mutual fund units.

 

29. From a tax? standpoint, rental property income is appealing because? ________.
    1. only? 50% of the income is includable in a? taxpayer's Net Income for Tax purposes
    2. capital losses from rental properties are deductible against property income
    3. it allows taxpayers to claim losses for CCA that exceeds rental income
    4. there is a wide variety of expenses which are deductible from rental income for tax purposes and the rental building can be depreciated for tax? purposes, even though most real property appreciates over time

 

30. Which of the following factors MOST often prevents the ITA from achieving perfect integration between corporate and individual? taxes?
    1. varying provincial tax rates
    2. varying federal tax rates
    3. the application of different tax rates to different types of corporations
    4. the application of different tax rates to individuals and corporations

 

31. You are provided with the following amounts for Susan Kim for the current? year:

Net employment income? (ITA 5 to? 8) = 40,000

Interest income? (ITA 12)? = 6,200

Taxable amount of dividends? (ITA 12)? = 2,680

Taxable capital gains? (ITA 38 to? 55) = 2,500

Allowable capital losses? (ITA 38 to? 55) = 3,500

Interest expense? (bank loan for investment? purposes) = 2500

Investment counsel fees? = 100

RRSP deduction? (allowed pursuant to ITA? 60) = 12,500

Based on the? above, the? "net property? income" reported by Susam Kim pursuant to ITA? 3(a) for the current year? is:

1. 1. 38,460
   2. 6,280
   3. 8,880
   4. 7,880