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Homework answers / question archive / Athabasca University, Athabasca - TAXX 301 CH7 1) Income earned from foreign sources by a Canadian corporation is? ________

Athabasca University, Athabasca - TAXX 301 CH7 1) Income earned from foreign sources by a Canadian corporation is? ________

Accounting

Athabasca University, Athabasca - TAXX 301

CH7

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

A. treated as business or property income in the same fashion as if the income was earned from domestic sources

B. treated as property income

C. treated as business income

D. 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? ________.

A. capital gains

B. employment income

C. property income

D. business income

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

A. a significant amount of invested capital

B. a significant amount of time and effort

C. holding assets for a long period of time

D. securing large credit accounts

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

A. capital gains realized on the sale of shares of a publicly traded corporation

B. the net income a proprietor receives from operating a retail store

C. royalties received by an individual for a company using a patent developed by the individual

D. wages received by an employee

5. Which of the following best describes the dividend tax? credit?

A. a credit against taxes payable for corporations that pay significant dividends

B. a deduction against property income for individuals who received specified types of dividends

C. a credit against taxes payable for individuals who earned dividend income from a Canadian corporation during the taxation year

D. a credit against taxes payable for individuals who have significant business income

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

A. a deduction against property income for individuals who received specified types of dividends

B. an increase of the taxable amount of dividend? income, calculated by multiplying the actual dividend amount by a certain fraction

C. a credit against taxes payable for individuals who earned dividend income from a Canadian corporation during the taxation year

D. an inflation of taxes payable for corporations that pay significant dividends

7. David is an individual who holds significant property and earns $275,000 approximately in property income annually. Anthony is an individual who purchased the same types of properties as David ?, but transferred all of the property to a? corporation, Anthony ?Corp, of which he owns 100?%.  Anthony Corp earns approximately $275,000 in property income annually and distributes all the after-tax profits to Anthony 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, ________.

A. the overall taxes paid by David will be the same as those paid by Anthony and Anthony Corp combined

B. the overall taxes paid by David will be more than those paid by Anthony and Anthony Corp combined

C. the overall taxes paid by David will be less than those paid by Anthony and Anthony Corp combined

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

8. Non-eligible dividends? ________.

A. do not allow an individual to claim a dividend tax credit

B. cannot be grossed up for corporate taxes paid

C. have a gross up rate higher than eligible dividends

D. have a gross up rate lower than eligible dividends

9. In? general, in order for interest payments to be deductible they must be incurred for the purpose of earning? ________.

A. employment income or capital gains

B. property or employment income

C. business or property income

D. 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? ________.

A. capital gains

B. property income

C. business income

D. employment 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. an auto purchased for personal use

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

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

D. a mortgage obtained to purchase a rental home

12. CCA deductions related to property income? ________.

A. apply to buildings? and/or land that is purchased for the production of income

B. are not allowable since property generally appreciates

C. must be taken at the maximum allowable amount or carried forward

D. cannot be used to create or increase a net loss from property income

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

A. 4                                              B.5                                            C.7                                   D. 6

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Requirement 1. Compute Dr.

Roberts?'s

net property income for

2020.

 

Requirement 2.  Jessica has reviewed your calculation of net property income and she is confused. Jessica does not understand why the dividend income included in your calculation is different than the amounts she received in the year. Describe for Jessica the concept of integration and how this impacts the taxation of Canadian source dividends as well as the tax consequences of foreign source dividends received by an individual in Canada.

A. The taxable dividend income reported on Jessica tax return will be equal to the inflated or? "gross-up" dividend calculated as the actual dividend divided by a certain fraction.

B. The taxable dividend income reported on Jessica tax return will be equal to the inflated or? "gross-up" dividend calculated as the actual dividend multiplied by a certain fraction.

C. The? "gross-up" refers to the procedure where dividend income earned by an individual from a Canadian corporation must be inflated by multiplying the actual dividend by a certain fraction.

D. The? "gross-up" refers to the procedure where dividend income earned by an individual from a Canadian corporation must be inflated by dividing the actual dividend by a certain fraction.

Requirement 3.  Jessica 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. Jessica would like your advice on which loans she should pay back first in order to achieve the most favourable tax consequences.

A. Jessica 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.

B. Jessica 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.

C. Jessica 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.

D. Jessica 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.

 

 

Requirement 4. Prior to selling the rental? property, Jessica plans on upgrading the wood siding on the house to vinyl siding. Explain to Jessica the difference between capitalizing and expensing? costs and indicate which treatment the siding cost should receive.

A. Although repairs and maintenance expenses are fully deductible against rental? income, capital expenditures are not deductible.

B. Repairs and maintenance expenses are larger but less frequent costs that improve the value of the property.

C. Capital expenditures are any expense that have an enduring? value, increase the useful life of the rental? property, or relate to the purchase of a separate asset.

D. ?Generally, repairs and maintenance expenses are? smaller, more? frequent, expenses that restore the property to its previous condition but do not materially improve the property.

E. In Jessica?'s ?case, the cost of upgrading the wood siding to vinyl siding on the rental property would be considered a capital expenditure as siding will have enduring value? (it will last for several taxation? years) and it improves the quality of the rental property beyond its original condition.

F. Since repairs and maintenance expenses are fully deductible against rental? income, capital expenditures are also deductible.

Requirement 5. Explain to Jessica the tax consequences that could occur if she sells the rental property due to the fact that she has claimed the maximum CCA on the rental property since acquisition.

A. Since the real estate property is decreasing in? value, Jessica will trigger recapture on the sale of her rental property because the value of the property is less than the high UCC balance.

B. Recapture on the disposition of rental property would not be included as taxable income on the ?Jessica's income tax return.

C. Since real estate property has the potential to increase in value over? time,  Jessica could likely trigger recapture and capital gains on the sale of her rental property.

D. The sale of the property could trigger recapture? (in addition to a capital? gain) if the property was sold for proceeds of disposition that exceed the capital cost of the property.

15. Ryan is a Canadian resident and is also a shareholder in a Swedish corporation. The corporation pays the shareholder a dividend of Canadian $6,000 and withholds Swedish taxes of Canadian $1,600. How much of the dividend will Ryan include in his Canadian taxable? income?

A. $6,000

B. 4,400

C. ?$0

D. $7,600

16. Which of the following payments received by an individual are tax? free?

A. eligible dividends

B. stock dividends

C. foreign dividends

D. capital distributions

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

A. 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.

B. 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.

C. 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.

D. A dividend from a? Canadian-controlled private corporation? (CCPC) which was paid out of eligible dividends received by the CCPC.

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

A. 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.

B. Interest income is recorded when received unless it was reported in a previous period.

C. 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.

D. 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.

19. With respect to the calculation of net rental? income, which of the following is? incorrect?

A. 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.

B. Net rental income is recorded on an accrual basis.

C. Interest on debt used to purchase the rental property is deductible from the gross rents earned from the property.

D. Expenses related to repair and maintenance of the rental property are deductible from gross rents earned from the property.

20. With respect to the taxation of trusts in? Canada, which of the following is? incorrect?

A. Income distributed by the trust to the trust unit holders retains its character.

B. 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.

C. 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.

D. Income earned by the trust and immediately distributed to the? trust's unit holders is not subject to income tax in the trust.

 

 

 

21. 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?

A. Accounting fees

B. Investment counsel fees

C. Interest expense on debt acquired for investment purposes

D. Safe deposit box charges

22. When a corporation that is not a financial institution holds bonds of another company that were issued at a? discount, interest is recognized? ________.

A. on accrual? basis, using the effective interest method

B. on accrual? basis, using straight line amortization

C. on a cash basis

D. on accrual? basis, using the stated interest rate

23. When a corporation holds property that is subsequently rented? out, ________.

A. any gain or loss resulting from the sale of the property will be treated as property income

B. the income received will be classified as property income unless the company is primarily engaged in property rentals

C. CCA deductions can be taken on the buildings and? land, so long as the corporation is primarily engaged in property rentals

D. CCA deductions are not permitted unless the corporation is primarily engaged in property rentals

24. A Canadian resident corporation has a portfolio of investments which earned dividends from taxable Canadian public corporations of $26,000 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 $12,000 of interest on the bank loan used to purchase the portfolio of investments. In? addition, the corporation purchased a $190,000 ?par-value bond with a 9?% 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. $13,763

B. $31,700

C. $19,700

D. $7,500

25. 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? ________.

A. the Canadian tax rate

B. the tax rate of the foreign country plus the Canadian tax rate

C. ?15%

D. the tax rate of the foreign country

26. 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? ________.

A. limited to? 15% of foreign? non-business income

B. limited to the amount of foreign taxes paid

C. limited to? 15% of foreign business income

D. limited to? 15% of foreign taxes paid

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

A. 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.

B. 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.

C. 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.

D. 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.

28. From a tax? standpoint, rental property income is appealing because? ________.

A. capital losses from rental properties are deductible against property income

B. it allows taxpayers to claim losses for CCA that exceeds rental income

C. only? 50% of the income is includable in a? taxpayer's Net Income for Tax purposes

D. 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

29. Which of the following factors MOST often prevents the ITA from achieving perfect integration between corporate and individual? taxes?

A. the application of different tax rates to different types of corporations

B. varying provincial tax rates

C. varying federal tax rates

D. the application of different tax rates to individuals and corporations

 

 

 

 

30. 

A. $63,460

B. $8,660

C. $6,560 (6,000+2,660-1,500-600)

D. $7,660

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