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Athabasca University, Athabasca - TAXX 301 CH8 1)XYZ Company is a Canadian manufacturer

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Athabasca University, Athabasca - TAXX 301

CH8

1)XYZ Company is a Canadian manufacturer. If XYZ acquires shares of another Canadian company engaged in an unrelated? business, holds the shares for 6? months, and sells them at a? gain, the gain on the sale is treated as? ________.

A. capital gains

B. business income

C. business investment income

D. property income

2. With respect to business? property, capital gains? _______.

A. on business property are perceived to be essential to the production of business income

B. do not apply to business property used for the production of income

C. only apply to business property held for investment

D. on business property are perceived to be incidental to the production of business income

3. Gains realized on the sale of real property? ________.

A. are generally capital in nature

B. are primarily realized due to currency inflation

C. can be capital gains or business income

D. are generally business income

4. Dr. Jarod Cloutier is 36 years old and is in the process of getting a divorce. As part of the divorce? proceedings, Dr. Cloutier must sell a number of his assets and holdings in order to divide the assets of the marriage and pay a large settlement to his former? spouse, Janette Cloutier. Dr. Cloutier has provided you with the following list of assets that he sold in the current? year, including the asset cost and the proceeds of? disposition:

 

 

 

 

 

 

 

 

 

 

 

5. Solita makes the following purchases of shares of ABC ?, a public Canadian? company:

 ?1/1/2001:  ?80shares, ?$15 each

 ?1/1/2005:  ?220shares, ?$85 each

 ?1/1/2010:  370?shares, ?$17.00 each

The shares are capital assets to Solita. Solita sells shares during the current taxation year and receives proceeds from the sale of ?$10,000. How much is ?'s gross capital gain on the? sale?

 

A. ?$6,873

B. ?$0

C. ?$6,800

D. ?$8,800

6. Jeff receives an option to purchase shares of ABC Company as a benefit of employment. The option specifies that Jeff can purchases shares for ?$45 each. On January 1 of the current? year, Jeff exercises options to purchase 160 shares for ?$7,200. At the? time, the shares are trading for ?$65 each on a public exchange. Using only this? information, what are the tax consequences to Jeff when he exercises the stock? options?

A. Jim has an adjusted cost base of ?$65?/share in the shares of ABC Company.

B. Jim has a taxable capital gain of ?$36,000.

C. Jim has an adjusted cost base of ?$?45/share in the shares of ABC  Company.

D. Jim has a taxable capital gain of ?$12,000.

7. When an individual has allowable capital losses for a tax year that exceed his or her taxable capital gains for the? year, _______.

A. the excess becomes a? non-deductible loss

B. the excess becomes a capital loss carryover which can be applied to a previous or subsequent taxation year

C. the excess is deductible against any other type of taxable income

D. the excess can be deducted against business? income, but not against employment or property income

8. If a taxpayer is unable to deduct the entire amount of allowable capital losses in a given tax? year, how long can the unused amount be carried? forward?

Choose the correct answer.

A. 5 years

B. 20 years

C. 2 years

D. indefinitely

9. Colton owns a boat used for personal purposes. Assume Colton sells the boat for ?$27,000. When Colton sells the? boat, ________.

A. any gain realized is a taxable capital? gain, and any loss realized is not deductible

B. any gain realized is a? non-taxable capital? gain, and any loss realized is an allowable capital loss

C. any gain realized is a taxable capital? gain, and any loss realized is an allowable capital loss

D. any gain realized is a? non-taxable capital? gain, and any loss realized is not deductible

10. Which of the following is an example of listed personal? property?

A. a gold watch                          B. a pleasure boat                 

C. an antique car                       D. a book authored by the taxpayer

11. Jacob Edson has the following? assets:

 Land with ACB of ?$70,000

 Building with a cost of ?$?120,000, and UCC of ?$77,000.

 Jacob sells both of land and building in a single transaction for ?$219,000. The estimated FMV of each? was:

 Land?: ?$146,000

 ?Building: ?$73,000

How much capital gain and terminal loss will Jacob realize on this? transaction?

A. capital gain of ?$29,000?, terminal loss of? $0

B. capital gain of ?$72,000?, terminal loss of? $0

C. capital gain of ?$73,000?, terminal loss of ?$40,000

D. capital gain of ?$73,000?, terminal loss of ?$47,000

12. Which of the following is an effective strategy to permanently reduce taxes payable on appreciated capital? property?

A. Convert appreciated business property to personal use property prior to selling it.

B. Replace appreciated land and buildings with newer property of the same type within 24 hours.

C. Delay the sale of the property until the taxpayer is in a lower tax bracket.

D. Gift the appreciated property to family members as opposed to selling it.

13. Proper tax planning for capital gains often involves controlling the? ________ of the gain.

A. timing

B. carry forward

C. taxable amount

D. income classification

14. A? taxpayer's building that is subject to CCA is destroyed by a tornado. Because the insurance proceeds received from the loss are greater than the original cost of the? building, ________.

A. the taxpayer can claim a capital loss equal to the amount of UCC on the building

B. the taxpayer must include the taxable portion of the capital gain in net income for the year

C. the taxpayer can defer the gain by purchasing replacement property during the appropriate time period and making an election in the? taxpayer's return of income

D. there is no taxable capital gain since insurance proceeds are? non-taxable

15. The provision of ITA? 44(1) and ITA? 13(4) allow a taxpayer to? ________.

A. defer gains realized on the disposition of property when it is subsequently replaced with new property during the applicable time period

B. exclude? 50% of the insurance proceeds received in the event of a disaster loss                         

C. exclude gains realized on the voluntary disposition of capital assets

D. recognize losses incurred on the sale of personal assets

16. In the case of an involuntary? disposition, a taxpayer can defer any gains realized on depreciable property if it is replaced within? ________ months after the end of the tax year in which the proceeds were received.

Choose the correct answer.

A. 6                       B. 36                        C. 24                  D. 12

17. The taxable amount of a capital gain is calculated as? ________.

A. ?50% of the proceeds upon disposition of a capital asset

B. the proceeds realized on the sale of an asset less its adjusted cost base

C. ?50% of the total capital gain

D. ?50% of the amount by which taxable capital gains exceed allowable capital losses

18. Company has the following in the current? year:

Capital gains of $8,000

Capital losses of $18,000

Business income of $7,000

Property income of $5,500

Which of the following will be included in Net Income for Tax Purposes for ABC ?Company?

Choose the correct answer.

A. capital losses of? $0

B. capital losses of $4,000

C. capital losses of $8,000

D. capital gains of $10,000

19. An ITA? 40(1)(a)(iii) capital gains reserve can be deducted by a taxpayer in the current taxation year only if? the:

A. Capital gain incurred on the disposition is in excess of a certain threshold amount.

B. Total proceeds of disposition have been received in the current taxation year.

C. Total proceeds of disposition have not been received in the current taxation year.

D. Number of preceding tax years since disposition of the particular asset is at least five.

20. When a capital asset in the hands of a corporation has an adjusted cost base in an asset that is? negative, the negative balance? ________.

A. is treated as a capital loss and the adjusted cost base becomes nil

B. will increase the gain or reduce the loss on the asset upon disposition

C. is treated as a terminal loss and the adjusted cost base becomes nil

D. is treated as capital gain and the adjusted cost base becomes nil

21. In order for a corporation to avoid recapture of any amount of CCA when it sells capital? property, it must? ________.

A. make an election and purchase replacement property with lower cost a specified period up to 24 months

B. make an election and purchase replacement property with higher cost within a specified period up to 24 months

C. dispose of all property within the same asset class prior to the end of the taxation year

D. make an election to have all gains and losses on the sale of capital property treated as capital gains or losses.

22. The provisions of ITA? 13(4) and? 44(1) allow a taxpayer to? ________.

A. defer capital gains resulting from involuntary OR voluntary dispositions of capital assets

B. permanently avoid capital gains resulting from involuntary OR voluntary dispositions of capital assets

C. permanently avoid capital gains resulting from involuntary dispositions of capital assets

D. defer CCA recapture resulting ONLY from involuntary dispositions of capital assets

23. If a taxpayer realizes a capital gain on an involuntary? disposition, such as a building being destroyed in a natural? disaster, ________.

A. the taxpayer will realize a capital gain or terminal loss as if the property was sold at its FMV

B. the taxpayer can eliminate recognition of a capital gain by acquiring assets of equal value within 24 months

C. the taxpayer can eliminate recognition of a capital gain by replacing the property with similar property within 12 months

D. no gain or loss will be recognized since the sale did not occur at fair market value

24. Which of the following statements with regard to the ITA 54 definition of a principal residence is? correct?

A. The definition of principal residence excludes? land, therefore the disposition of land where the principal residence is located will be subject to capital gains taxation.

B. A principal residence is an accommodation owned and ordinarily inhabited by the taxpayer in the year.

C. A principal residence is an accommodation owned and inhabited by the taxpayer for at least one year.

D. For each taxation? year, the taxpayer and spouse or? common-law partner may each designate a property as a principal residence.

25. The following information relates to the sale of a piece of land in the current taxation? year:

Adjusted cost base of? land: $275,000

Total proceeds of? disposition: $500,000

In the current? year, the seller received? $200,000 of the proceeds of disposition in cash and a note payable for the remainder? ($300,000). What is the maximum? ITA40(1)(a)(iii) capital gains reserve that can be claimed by the seller in the current? year:

A. ?$135,000                   B. ?$180,000                         C. ?$0                       D. ?$225,000

(500,000-275,000)*(300,000/500,000) = 135,000

 

26. AXC Company has the following dispositions during the? year:

Equipment with an adjusted cost base of $46,000 is sold for $57,000. AXC pays a millwright firm $2,800 to remove the equipment from its production line. They sold a parcel of vacant land for proceeds of $17,500 and AXC Co. has correctly calculated the adjusted cost base of the vacant land to be $21,000 .

What is AXC?'s taxable capital gain or allowable capital loss for the? year?

A. $2,350 taxable capital gain (57,000-46,000-2,800)=8,200*(1/2)=4,100. 21,000-17,500=3,500*1/2=1,750

                                                        4,100-1,750=2,350

B. $3,500 taxable capital gain

C. $4,700 taxable capital gain

D. $3,500 allowable capital loss

27. Consider a taxpayer that holds real property and has not incurred any taxable capital gains in the previous three taxation years. The property was originally purchased 3 years ago for? $75,000. The current fair value of the property is? $50,000. From a tax? standpoint, which of the following is the BEST? option?

A. Sell the property to realize an allowable capital loss.

B. Sell the property and acquire similar property as a higher cost to recognize an allowable capital loss.

C. Hold the property and wait for the value to appreciate.

D. Trade the property for another parcel with a fair value of? $50,000.