Homework answers / question archive / Athabasca University, Athabasca - TAXX 301 CH9 1)Consider? Sam, an individual who has a piece of property that substantially appreciated since he purchased it

Athabasca University, Athabasca - TAXX 301 CH9 1)Consider? Sam, an individual who has a piece of property that substantially appreciated since he purchased it

Accounting

Share With

---

Athabasca University, Athabasca - TAXX 301

CH9

1)Consider? Sam, an individual who has a piece of property that substantially appreciated since he purchased it. If Sam decides to sell the? property, a sale to which of the following people would most likely be considered to be? non-arm's length as per the Income Tax? Act?

A. a buyer that contacted Sam from an advertisement for the property

B. his friend? Rob, whom he has known for 20 years

C. ?Sam's manager at his place of? employment, Jude

D. his? wife, Paula

2. What is the basic reason for the ITA dealing with? non-arm's length sales differently than other? sales?

A. ?Non-arm's length transactions do not in fact transfer any? ownership, and? therefore, only have the appearance of a transaction.

B. In a? non-arm's length? transaction, there is no way to establish the market value for an? asset, so the ITA needs to provide guidance.

C. Because a? non-arm's length transaction does not have any actual consideration paid for an? asset, the ITA must determine an amount that is deemed to be consideration.

D. Tax avoidance can be the primary motivator of engaging in a? non-arm's length transaction.

3. Pablo owns a parcel of land. The estimated fair market value of the land is ?$160,000. Pablo paid ?$70,000 for the land. Which of the following scenarios is an example of a? non-arm's length? transaction?

A. Pablo lists the property for sale with a real estate agent. After two months on the? market, a client of the realtor makes Pablo an offer of ?$235,000.

B. Pablo lists the property for sale with a real estate agent. After two months on the? market, Pablo decides to sell the land to his son Jared for ?$167,000.

C. Pablo lists the property for sale with a real estate agent. The realtor has a client who is willing to pay ?$184,000 for the land. Pablo accepts the offer.

D. Pablo lists the property for sale with a real estate agent. After nine months on the? market, Pablo decides to sell the land to his friend Scott for ?$160,000.

4. Which of the following is correct regarding the definition of? "related persons" with respect to? corporations?

A. An individual with a controlling interest in the corporation is related to the corporation for tax purposes

B. Two corporations cannot be related to one? another, but corporations and their owners are considered related persons

C. As corporations are entities separate from their? owners, it is not possible for a corporation to be related to an individual for tax purposes

D. Corporations doing business within the same industry are considered related persons

5. In accordance with ITA? 69, when land is sold between? non-arm's length parties for a transfer price that is greater than fair market value of the? land, the adjusted cost base of the land purchased by the transferee is deemed to? be: ________.

A. the actual consideration paid plus any capital gain recognized by the transferor                         

B. the greater of the actual consideration paid or the fair market value of the land

C. the actual consideration paid

D. the fair market value of the land

6. Jacob has? non-depreciable property with an adjusted cost base of ?$144,000. The fair market value of the property is ?$174,000. Jacob sells the property to his son Jamison for ?$166,000. Two years? later, Jamison sells the property to an unrelated individual for ?$184,000. How much capital gain will be recognized by each on the sale of the? property?

A. Jacob?, ?$30,000?; Jamison, ?$8,000

B. Jacob?, ?$22,000?; Jamison?, ?$18,000

C. Jacob?, ?$22,000?; Jamison?, ?$8,000

D. Jacob?, ?$30,000?; Jamison ?, ?$18,000

Jacob transfer price is below fair market value = 174,000-144,000 = 30,000

Jamison transfer price is above fair market value = 184,000- 166,000 = 18,000

7. James owns a parcel of land with an adjusted cost base of ?$156,000. The fair market value? (FMV) of the land is ?$180,000. In the current taxation? year, while still? alive, James transfers ownership of the land to his wife Kay. How much capital gain will James recognize on the transfer if he makes no election in his return of? income? (Inter Vivos

A. ?$24,000

B. ?$0

C. ?$90,000

D. ?$112,500

8. Consider a situation in? which, during his or her? lifetime, an individual? transfer's ownership of a building to his or her spouse. If the building is the only asset within the property? class, and if the taxpayer makes no election on return of? income, the spouse will assume an adjusted cost base in the property equal to? ________ of the property.

A. the Undepreciated Capital Cost? (UCC)

B. the adjusted cost base of the transferor plus any capital gain recognized

C. the original cost

D. the fair market value

9. Under the rules set forth in ITA 69 and ITA? 73, a taxpayer engaging in a? non-arms' length transaction with which of the following parties will not trigger double taxation on the gain realized on the ultimate disposition of the? property?

A. the? taxpayer's parents by blood or adoption

B. any immediate family member of the taxpayer

C. the? taxpayer's spouse or? common-law partner

D. a corporation controlled by the taxpayer

 

 

10. The primary goal of the income attribution rules within the ITA are to? ________.

A. add additional scrutiny to transactions between corporations and their shareholders

B. distribute the tax burden equally among members of an immediate family

C. reduce the possibility of double taxation on gains arising from the transfer of appreciated capital property

D. avoid income splitting with a family member subject to a lower tax rate

11. Jeff has a parcel of vacant land that he had purchased as an investment. The land has an adjusted cost base of ?$146,000 to Jeff. The fair market value of the land on January 1 of the current taxation year is ?$170,000. On this? date, Jeff gifts the property to his? 14-year-old daughter, Tala. Tala subsequently sells the land on December 1 of the current year for its fair market value of ?$205,000. How much gain will each recognize on this series of? transactions?

A. Jeff?, ?$35,000?; Tala, ?$24,000

B.  Jeff?, ?$0; Tala?, ?$59,000

C. Jeff?, ?$24,000?; Tala?, ?$35,000

D. Jeff?, ?$59,000?; Tala, ?$0

Jeff: 170,000-146,000=24,000, Tala: 205,000-170,000=35,000

12. When an individual rolls over a farm or fishing property to a minor child at the? property's tax? cost, which of the following? occurs?

A. Future gain on the sale of the property is attributed to the transferor if the property is sold before the child is 18 years old.

B. Future gain on the sale of the property is attributed to the? transferor, regardless of the age of the child on the date of sale.

C. The difference between the FMV and tax cost at the time of transfer will be attributed to the transferor when the property is? sold, regardless of the age of the child at the date of sale.

D. Future business income from the property is attributed to the transferor until the child reaches the age of 18.

13. Jason is the sole owner and CEO of a privately held? corporation, J Co. Jason has the corporation buy a car for his Jake son ?, who just turned 16. With regard to the car? purchase, ________.

A. the cost of the car is taxable to Jake and not deductible for J Co

B. the cost of the car is taxable to Jake and deductible by J Co

C. the cost of the car is taxable to Jason and not deductible for J Co

D. the cost of the car is taxable to Jason and deductible by J Co

14. Payments made by corporations to third parties at the discretion of the taxpayer are? ________.

A. taxable to the taxpayer

B. taxable to the taxpayer if they are? non-taxable to the third party

C. taxable to the taxpayer if they are for the benefit of the taxpayer

D. taxable to the taxpayer if the third party is related to the taxpayer

15. Which of the following would be considered affiliated persons for income tax? purposes?

A. Lorraine Jackson and Cranston? Ltd., a? Canadian-controlled private corporation wholly owned by? Lorraine's husband, George Jackson.

B. Mary Smith and her? sister-in-law, Kate Franklin.

C. Mr. Jones and his adopted? son, Jacob.

D. Louie Egzon and Zion Fabrications? Inc., a? Canadian-controlled private corporation wholly owned by? Louie's brother-in-law, Steve Madson.

16. When considering a? non-arm's length? transaction, individuals can be? "related persons" with? ________.

A. Canadian citizens with whom a relationship can be established

B. ?individuals, corporations, or trusts

C. limited to relationships by blood

D. relatives by blood or? marriage, as well as associates connected through business relationships

17. Which of the following amounts is deductible in determining an? individual's net? income?

A. child support payments made to the? individual's former spouse

B. the cost of home improvements made by the individual in order to sell his or her home

C. child and spousal support payments made to the? individual's former spouse

D. spousal support payments made to the? individual's former spouse

18. Greg and Kim are former spouses. Pursuant to a court? decree, Greg must pay Robin $14,500 per year in support payments. Of this? amount $9,000 is child support and is spousal support. For the current tax? year, Greg has only paid $7,250 of his required support. How much of the payment is deductible by Greg in determining his taxable? income?

A. $ 90,000                      B.$3,500                          C. $0                                      D. $5,500

19. Which of the following payments would be included in an? individual's taxable? income?

A. ?workers' compensation payments

B. child support payments

C. spousal support payments

D. social assistance payments

20. Brian and Cathleen are married, and they have two? children, aged 15 and 19. The 19-year-old child is paralyzed and confined to a wheelchair. Cathleen and Brian pay a? live-in nanny $25,000 per year to take care of their children for the entire year. Brian works full time and earns a salary of $105,000 per year. Cathleen works part? time, earning a salary of $40,000 per year. Cathleen is also upgrading her education and goes to college part time during the fall? semester, for a total of 24 weeks or 6 months in the current year. Which of the following is correct with respect to Brian and Cathleen 's ability to claim a deduction for child care? expenses?

A. Neither Brian nor Cathleen can claim childcare expenses as the childcare expenses are paid to a? live-in nanny.

B.  Bria can claim childcare expenses of $2,400 and Cathleen can claim the remaining $136,000

C.  Cathleen can claim childcare expenses of $16,000

D. Brian can claim child care expenses of $16,000

21. Which of the following is a taxable retiring? allowance?

A. payments received from the Canada Pension Plan

B. payments received by a taxpayer under the Old Age Security Act

C. ?workers' compensation payments received by an individual who is no longer able to work

D. a $32,000 bonus paid by an employer upon retirement for completing 30 years of service

22. Retiring allowances are generally? ________ in the computation of? ____________.

A. ?excluded; taxable income

B. ?excluded; net income

C. ?included; other deductions

D. ?included; other income

23. Greg and Natalia are married. In the current? year, Greg is involved in an accident while working for his employer and dies. The employer pays Natalia $15,000 as a death benefit in recognition of ?Greg's service to the company. How much of the $15,000 will be included in Natalia?'s taxable? income?

Choose the correct answer.

A. $0

B. $15,000

C. $5,000 -A CPP death benefit is not eligible for the $1,000 exemption (15,000-10,000=5,000)

D. $7,000

24. In the current? year, Monika Layne moved from Toronto to Vancouver to start a new business. In the current fiscal? year, the business generated income in excess of $88,000. Ms. Layne incurred the following costs of? moving:

 Transport of household? effects: ?$6,500

 Travel self, spouse, and three? children: ?$2,800

 Legal fees condo purchase in? Vancouver: ?$1,700

 Cancellation costs lease in? Toronto: ?$1,550

 Temporary accommodation while waiting for new house at ?$85 per day for 30? days: ?$2,550

 ?House-hunting trip? (prior to? move): ?$400

Which one of the following amounts represents the maximum amount that Ms. Layne may deduct for moving expenses on her personal income tax? return?

A. $15,500

B.  $14,450

C. $13,250

D. $12,125 6,500+2,800+1,550+1,275

25. Which of the following describes the tax treatment of? workers' compensation payments received by an? individual?

A. Payments are included in net income for tax purposes and taxable income.

B. Payments are included in net income for tax purposes and excluded from taxable income.

C. Payments are excluded from net income for tax purposes and taxable income.

D. Payments are included in taxable income and excluded from net income for tax purposes.

26. How do employment insurance? (EI) benefits received affect an? individual's income?

A. EI benefits are included in income.

B. EI benefits are included in income to the extent they are repaid.

C. EI benefits are included in income to the extent they are not repaid.

D. EI benefits are excluded from income.

27. Which of the following is a deductible moving? expense?

A. the loss incurred on the sale of an old residence

B. travel costs incurred to find a new home or apartment

C. GST? (sales tax) paid on a new residence

D. the cost of canceling a lease on the old residence

28. Peter is? self-employed. His total CPP contribution in the current year is $3,200. How? much, if? any, of? Bob's contribution is deductible in the computation of? Bob's net? income?

A. $3,200

B. $ 0

C. $1,600 - The total CPP contributions for a year is? 9.9% of the pensionable earnings so? determined, with the employer responsible for? one-half of this amount and the employee responsible for the other half

D. $1,975

29. Chris and his? wife, Valencia?, separated five years ago. The written separation agreement requires Chris to make both spousal and child support payments to Valencia. Payments were set at 450 per month for Valencia and $650 per month for the child. During the current? year, Chris?'s payments totaled $13,200. How much of the current year payments can Chris deduct on his tax? return?

A. $7,800

B. $8,800

C. $13,200

D. $5,400 – Spousal support deduction (650*12)

 

 

 

30. Miguel had been? unemployed, living in Manitoba. He finds and takes a new job 65km away from his current residence. He earns $14,000 in wages from his new job in the current year. In the current? year, he sells his current? residence, paying $2,600 in realtor commissions. He pays a moving company $700 to transport his belongings to a new home in Manitoba that is only 37km away from his new job. He pays $1,800 in costs to acquire his new home. How much in moving expenses can Miguel deduct to determine his taxable income for the current? year?

A. $700

B. $0 – 40kilometres greater than the distance between the new residence and the new work location or institution

C. $5,100

D. $1,800

31. If an? individual's deductible moving expenses for the current year exceed his or her employment or business income at his or her new location in the current? year, ________.

A. the excess of expenses over income is disallowed and is? non-deductible

B. the moving expenses will result in a taxable loss for the year

C. none of the moving expenses are allowed to be deducted since moving expenses are not an allowed deduction in the Income Tax Act

D. the excess of moving expenses over income earned at the new location can be carried forward to the following year

32. Excluding those with? disabilities, a child must be under the age of? ________ at some time in the year to be an eligible child for purposes of deducting child care expenses.

A. 8          B. 12                  C. 18                 D. 16

33. In? general, expenses for child care are deducted by which spouse for a married? couple?

A. the spouse with higher income

B. equally between spouses

C. by whichever spouse the couple chooses

D. the spouse with lower income

34. An employer agrees to pay up to $5,500 of moving costs to hire a new employee. Reimbursement for which of the following costs of moving would be of greatest tax benefit to the? employee?

A. a total of $5,500 in costs paid to sell the? employee's former residence

B. a total of $5,500 paid for transporting and storing household belongings

C. $5,500 in eligible travel costs to move to the new location

D. a $5,500 loss on the sale of the? employee's former residence

 

 

 

35.  During the current? year, Joshua makes a move within Canada to take a new job. His former residence was 35 km from his old job and is 800 km from his new job. His new residence is 35 km from his new job and 800 km from his old job.  Joshua takes a loss of $2,750 selling his old? residence, pays a moving company $3,100 ?, and pays acquisition costs of $5,700 for his new house. Joshua has employment earnings of $35,000 from his new employer in the current year. If ?'s new employer agrees to reimburse any of the above moving expenses up to $5,850 ?, what will Joshua?'s net income or net deduction for moving expenses in the current? year?

A. net deduction of $5,700

B. net deduction of $11,550

C. net income of $3,100

D. ?$0 net income

36. If elected by the? pensioner, ________ of pension income can be split between the pensioner and his or her spouse or? common-law partner.

A. any amount up to? 50%

B. ?50%

C. any amount up to? 100%

D. up to? $25,000

37. With respect to the maximum amount an individual can contribute to a? TFSA, ________.

A. any amounts contributed above the annual maximum amount are subject to a penalty tax

B. if an individual does not contribute the maximum amount for a given? year, it cannot be made up for in the future

C. contributions not made in one tax year can be made up for in a subsequent year

D. any amounts that are withdrawn from the account decreases the maximum annual contribution amount

38. Under which of the following plans does the Canadian government contribute to the plan based on the contributions of? others?

A. Canada Learning Bonds

B. Canada Education Savings Grants

C. Registered Retirement Savings Plans

D. Tax Free Savings Accounts

39. How are educational assistance payments from RESPs? taxed?

A. They are considered? non-taxable income to the plan subscriber.

B. They are considered taxable income to the plan subscriber.

C. They are considered? non-taxable income to the student recipient.

D. They are considered taxable income to the student recipient. 

 

 

40. Low income taxpayers can take advantage of? ________ to generate savings for the future education of their children with very little investment of their own funds.

A. Tax Free Savings Accounts

B. Registered Educational Savings Plans

C. Canada Learning Bonds

D. Canada Educational Savings Grants

41. An individual has ?$7,500 to invest. He can choose to invest the funds in either an RRSP or a TFSA. If either investment will yield the same? return, under which scenario would the TFSA lead to an overall permanent reduction in income taxes payable on the? investment?

A. In any? scenario, the TFSA will lead to an overall permanent reduction in taxes payable on the investment.

B. In no scenario will the TFSA lead to an overall permanent reduction in taxes payable on the investment.

C. Tax rates are lower in the year of withdrawal from the plan than the year of contribution.

D. Tax rates are higher in the year of withdrawal from the plan than the year of contribution.

42. Which of the following is an advantage of TFSAs over? RRSPs?

A. TFSA contributions result in an immediate tax savings.

B. TFSAs have more qualified investment options.

C. TFSA withdrawals do not affect OAS clawback.

D. TFSA yield more after tax? funds, given the same investment results

43. When a corporation engages in a transaction with one of its? shareholders, ________.

A. it can be considered? arm's length or not to be at? arm's length

B. it is considered to be at? arm's length

C. it is considered a? non-business transaction

D. it is considered not to be at? arm's length

44. Which of the following transactions would be the BEST alternative for a company to minimize taxes? payable?

A. Transfer an asset that is NOT essential to business operations and that has an unrealized loss to an unaffiliated party.

B. Transfer an asset that is essential to business operations and that has an unrealized loss to the? company's controlling shareholder.

C. Transfer an asset that is essential to business operations and that has an unrealized loss to an unaffiliated party.

D. Transfer an asset that is NOT essential to business operations and that has an unrealized loss to the? company's controlling shareholder.

 

 

45. Bill owns a car dealership. If? Bill's dealership sells a car to? ________, it will be considered? non-arm's length.

A. his nephew Sam

B. an employee of the dealership

C. Can? Co, a corporation owned? 100% by? Bill's son Brian

D. ?Invesco, a corporation in which Bill owns? 5% of the outstanding common shares

46. What is the main reason for the ITA dealing with? non-arm's length sales differently than other? sales?

A. Tax avoidance can be the primary motivator of engaging in a? non-arm's length transaction.

B. Because a? non-arm's length transaction does not have any actual consideration paid for an? asset, the ITA must determine an amount that is deemed to be consideration.

C. In a? non-arm's length? transaction, there is no way to establish the market value for an? asset, so the ITA needs to provide guidance.

D. ?Non-arm's length transactions do not in fact transfer any? ownership, and? therefore, only have the appearance of a transaction.