Question 1
A bakery with a December 31st year end purchased new equipment on October 31st 2000 for $10,000. This was their first equipment purchase.
Required:
1. What are the tax consequences if the equipment is sold for:
a. $3,000
b. $8,000
c. $12,000
2. How would your answer change if on December 31st 2002 the business acquired new equipment costing $1,000? Would you advise them to hold off and get the equipment January 1st 2003 instead?
Question 2
Photo Stop, a photo franchise, started operations January 1, 2001. To start operations, the following expenses were incurred:
|
Automobile for deliveries
|
12,000
|
|
Legal costs to incorporate
|
5,000
|
|
Franchise fees (20 year life)
|
75,000
|
|
Various tools (under $200)
|
15,000
|
|
Furniture and fixtures
|
30,000
|
|
Developing equipment
|
80,000
|
The business was very profitable for the years ended 2001 and 2002. In 2002 the delivery car was traded for a newer one costing $20,000. A value of $7,000 was assigned to the old vehicle when it was traded.
In 2003 the business owner was hit by a train, as a result the assets was valued and sold on December 31 2003, for the following values:
|
Automobile for deliveries
|
15,000
|
|
Legal costs to incorporate
|
0
|
|
Franchise fees (20 year life)
|
85,000
|
|
Various tools (under $200)
|
10,000
|
|
Furniture and fixtures
|
15,000
|
|
Developing equipment
|
60,000
|
|
Goodwill
|
50,000
|
Required:
Determine the effect of all of these transactions on net income for tax purposes for the years 2001, 2002 and 2003.
Question 3
Mr Ha Sleft has a question about his 2002 tax return. He used to work for Delta company in Fredericton, but has just accepted a job with Bermco in the US. On September 30, 2002 he and his family moved to the US (assume that no tax treaty exists between our two countries). He has indicated that he has no intention to return to Canada. He held the following assets when he moved from Canada.
Cost Fair Market Value
(September 30, 2002)
BCE shares $6,000 $10,000
Ski-chalet 80,000 120,000
His earned income for 2002 was as follows;
Salary - Delta, to September 30, 2002 $50,000
Salary - Bermco post September 30, 2002 40,000
BCE dividends ($250 received after (9/30/02) 1,000
Required:
1. Discuss the Canadian income tax implications to Mr. Ha Sleft of becoming a non-resident in 2003.
2. Discuss the Canadian taxation of his various sources of income.
Question 4
Mark works for Nortel, a public company. In January 1st 2000 he was awarded for his exemplary service in the form of stock options. Nortel granted him options (which extended for two years) to purchase 1,000 shares of Nortel for $10 per share (at this time shares on the market were worth $10.50).
- On December 15, 2002, when the shares were worth $12, Mark decided to exercise the options and bought the 1,000 shares; he spent $10,000 (ignore any fees).
- June 15, 2003 when the shares were worth $16 each Mark sold the shares.
Required:
1. Determine the amount and type of income received by Nortel and when that income was taxable.
2. How would your answer change if the value of the shares at the date the option was granted was $10.00 rather than $10.50?
3. How would your answer change if the employer was Irving, a Canadian Controlled private corporation?
Question 5
Ralph Jones has is very proud of himself. He has prepared his 2002 income tax return by himself (this is the first year that he has not gone to a professional preparer). Although proud, he's cautious and has decided to ask you to review his return before he files it.
He has provided you with the following information:
- Jones works at Omega Company, a Canadian public corp. Two years ago Omega granted Jones an option to purchase 1,000 of its common shares at $16 per shrare. At the time that the option was granted, Omega's shares were trading for $16 per share. On January 31, 2002, Jones purchased 1,000 shares of Omega (trading value at the purchase date - $22). On November 30, 20002 he sold all of the shares for $24.
- Omega requires that Jones work out of his house from time to time. Omega has supplied him with a computer and internet access for this purpose; however, Jones must pay for his own supplies. His house is 2,000 square feet and his work space is about 200 square feet. The room also doubles as a den and guest room. Utility costs for his home for 2002 were $1,200
- Jones travel out of town to Omega's manufacturing plant. His is reimbursed for all travel costs except for meals. The plant is 90 km for the head office and he always returns home (after working 8 hours) the same day.
- He received $92,000 in basic salary. He also received $6,000 in bonuses, which he received January 15th of 2003.
- The following amounts were deducted from his salary: CPP $660, EI premiums $893, RPP $4,400, Income tax 34,000, and Charitable donations $3,500
- Ralph has calculated his 2002 net income for tax purposes as follows:
|
Employment income
|
|
|
|
Salary and bonus
|
|
$ 98,000
|
|
Deductions
|
|
|
|
RPP
|
|
4,400
|
|
Employment expenses
|
|
|
|
Meals while out of town
|
(300 * 50%)
|
150
|
|
Office at home
|
|
|
|
Minor repairs
|
340
|
|
|
Utilities (200/2,000 * 1,200)
|
120
|
|
|
Office supplies and stationary
|
410
|
|
|
Computer software
|
220
|
1,090
|
|
Capital gains (Omega shares)
|
|
|
|
Selling price(1000 * 24)
|
24,000
|
|
|
Cost (1000 * 16)
|
16,000
|
|
|
Gain
|
8,000
|
|
|
Taxable portion
|
(1/2 of gain)
|
4,000
|
|
Net income
|
|
96,360
|
Required:
Advise Jones whether his 2002 calculation is correct. If not, recalculate a revised 2002 net income for tax purposes and let Ralph Jones know where he went wrong.
Question 6
At a recent C Suite meeting, Joey the CEO of ABC Company remarked "Our compensation package is a bit stale. Why do we only pay employees by salary or commission? There must be other ways to pay them"
Required:
Please advise the CEO by making a list of alternative compensation packages (your list should include at least 3 alternatives). For each, briefly describe the tax consequences to ABC and to the employee.
Question 7
Albert is an engineer. He has come to your for help with the preparation of his tax return. He has calculated his net income as follows:
|
Gross employment income
|
|
30,000
|
|
Less:
|
|
|
|
Alimony
|
7,300
|
|
|
Legal fees incurred
|
1,100
|
|
|
Moving expenses incurred
|
2,000
|
10,400
|
|
Net Income
|
|
19,600
|
He also provides the following information:
- The amount of $73,00 in alimony includes the following three types of payments. First, in February 20-1, Albert and his spouse separated and agreed verbally that Albert would pay alimony of $300 per month; this was paid for three months. In May 20-1 Albert stopped all payments. Consequently his wife took legal action. Pursuant to the judgment rendered September 1, Albert had to pay a lump sum of $5,000, as compensation plus a monthly alimony of $350 starting in September.
- The legal expenses claimed are fees paid to his lawyer to object to his wife's legal action. The fees amounted to $1,600; it was agreed that $1,100 would be paid immediately and the balance would be paid in January 20-3.
In December 20-1, Albert was transferred and had to move from his apartment in Quebec City to a house in Montreal. He incurred $4,000 in moving expenses; only $2,000 was deducted in 20-1 because he was told that such a deduction could not exceed his new employment income (this is, $2,000 for the month of December 20-1). Albert asks you to examine his moving expenses, which are detailed as follows, in order to determine how much can be deducted in 20-2.
|
Meals and lodging from 12/1/20-1 to 12/23/20-1
|
690
|
|
Lease cancellation fee
|
250
|
|
Moving expenses
|
950
|
|
Cost of storing furniture from 12/1/20-1 to 12/23/20-1
|
460
|
|
Legal fees related to the purchase of his first residence in Montreal
|
500
|
|
Vet fees incurred when his dog was sick on arrival in Montreal
|
250
|
|
Expenses related to the setting up of his new residence
|
900
|
|
|
4,000
|
Required:
Based on the above information, determine Albert's income and deductions for 20-2 Show your calculations and explain your answer.
Question 8
Dr Smith lives in one side of a duplex. He owns the whole complex and his mother lives in the adjoining suite. She pays no rent. He purchased the property for $180,000, $80,000 for the land and $100,000 for the building. Each side of the duplex is identical to each other.
Dr Smith' mother is moving out and he is going to set up his practice in the vacant suite. The fair market value is $280,000, $100,000 for the land and $180,000 for the building. Dr Smith has no capital gains exemption available.
Required:
1. Determine the income consequences to DrSmith of the above for tax purposes
2. Would you answer change is DrSmith had rented the suite to a tenant he found by advertising in the classifieds (who he had not know before)?
Question 9
2002 was a bad year. Johnny Walker hoped to be more prosperous in 2003.
Johnny's 2002 income was as follows:
|
Net business income
|
$25,000
|
|
Gross salary
|
19,000
|
|
Interest income for Canadian sources
|
13,000
|
|
Taxable dividends from Canadian corporations
|
4,000
|
|
Net capital gain
|
30,000
|
In the past few years Johnny had incurred the following losses (all available for Carry forward). He intends to deduct the maximum amount for each loss available in the following order:
|
Non-capital loss
|
$70,000
|
|
Allowable capital loss
|
40,000
|
Johnny is single. He donated $10,000 to charities in 2002.
Required:
1. Compute Johnny Walker's net income and his minimum amount of taxable income for 2002.
2. Compute, as at December 31, 2002, the amount of losses that may be carried forward.
Question 10
Liz McClean gave her two children, aged 12 and 18, an equal number of Nortel shares that she'd owned for a few years. When she purchased the 5,000 shares she paid $25,000. The fair market value of the shares at the time of the transfer was $35,000. The shares pay annual dividends of $2,000 per year (i.e. Liz received $2,000 per year in dividends for ALL shares)
Required:
What are the tax implications as a result of the gift?
Question 11
1) Canadian Controlled Corporations (CCPCs) differ from public corporations in the rate of tax, the extent of double taxation, and the degree of secondary relationships with shareholders. Briefly describe these differences.
2) Indicate which would pay less tax (MAKE SURE YOU JUSTIFY YOU RESPONSE):
a. A CCPC that earns business income of $100,000 in year one and $300,000 in year two (total $400,000), or
b. A corporation earning $50,000 in year one and $350,000 in year two (total$400,000)
3) Why (for tax purposes) might a corporation pay an additional salary or bonus to its shareholder/manager even though additional funds are not required by the individual?
Question 12
John Walker has been employed as a graphic artist in Vancouver, BC. His employer is a large publicly traded Canadian company. During 2004, his gross salary was $82,500. In addition, he was awarded a $20,000 bonus to reflect his outstanding performance during the year. As he was in no immediate need of additional income, he arranged with his employer that none of this bonus would be paid until 2009, the year of his expected retirement.
Other information
For the 2004 taxation year, the following items were relevant.
1. Mr. Walker's employer withheld the following amounts from his income:
|
Federal income tax
|
16,000
|
|
CPP
|
1,832
|
|
EI
|
772
|
|
United Way donations
|
2,000
|
|
Registered pension plan contributions
|
3,200
|
|
Payments for personal use of company car
|
3,600
|
2. During the year, John was provided an auto by his employer. The cost of the car was $27,500. John drove the car a total of 10,000km, of which only 4,000 were related to the business of his employer. The car was available to John for ten months of the year. During the other two months, he was out of the country and left the car with one of the other employees of the corporation.
3. During the year, the corporation paid Mega Financial Planners a total of $1,500 for providing counselling services to John with respect to his personal financial situation.
4. In order to assist John in purchasing a ski chalet, the corporation provided him with a five year loan of $150,000. The loan was granted October 1. Assume that, at the time the loan was granted, the relevant prescribed interest rate was 3%. Mr Walker paid the corporation a total of $375 in interest during the year.
5. John Walker was required to pay professional dues of $1,800 during the year.
Required:
Calculate Mr. Walker's minimum net employment income for the year ending December 31, 2004. Provide reasons for omitting items that you have not included in your calculations. Ignore GST/PST considerations.
Question 13
Acme Corp. is incorporated on August 1, 2004. On September 15, 2004 the Company acquires $115,000 in class 8 assets. The Company has a December 31, 2004 year end.
Required:
Determine the maximum CCA for the year ending December 31, 2004.
Question 14
During 2003, the only building owned by Geo Inc., is destroyed by a meteorite. Its original cost was $1,500,000, its FMV was $1,400,000 (when it was destroyed), and the Class 1 UCC was $650,000. The Company receives $1,400,000 in insurance proceeds during 2003 and replaces the building at a cost of $2,300,000 in 2004. The Company makes the ITA 13(4) election to defer any recaptured CCA.
Required:
What is the CCA of the new building?
Question 15
For its taxation year ending December 31, 2004, Nix Ltd has determined that its operating net income for tax purposes before any deductions for CCA amounts to $53,000. For our purposes, assume that their net income for tax purposes is the same as their taxable income for the year.
On January 1,2004 the Company has the following UCC balances:
Class 1 $876,000
Class 8 220,000
Class 10 163,000
During 2004, the cost of additions to Class 10 amounted tp $122,000, while the proceeds from dispositions in this class totalled $87,000. In no case did the proceeds of disposition exceed the capital costs of the assets retired, and there were still assets in Class 10 on December 31, 2004.
There were no acquisitions or dispositions in either Class 1 or Class 8 during 2004. During the three preceding tax years, the Company reported taxable income totalling $46,000, each year. The Company anticipates that in the long run that it will consistently produce large amounts of income. However, it is faced with considerable uncertainty with respect to profits over the next 11 to 13 years.
Required:
4. Calculate the maximum CCA that could be taken by Nix for the taxation year ending December 31, 2004.
5. As Nix's tax advisor indicate how much CCA you would advise the Company to take for the 2004 tax year, and the specific class from which it should be deducted. Provide a brief explanation of the reasons for your recommendation. Ignore the possibility of any losses that might be available for carryover between years.
Question 16
During 2004, Jose Day acquired a four unit apartment building for $230,000. While it was her intention to operate the building as a rental property, one month after her purchase she received an unsolicited offer to purchase the building for $280,000. She accepts the offer.
Required:
Should the $50,000 gain be treated as a capital gain or as business income?.
Question 17
Ms. Jones is a very successful sales person. She pays all of her own business expenses and provides the following information related to her taxation year ended December 31, 2004.
1. Travel costs, largely airline tickets, food, and lodging on trips outside the area in which she resides, totalled $23,000. Included in this amount is $8,000 of business meals.
2. During the year she used 40 percent of her personal residence as an office. She has owned the property for two years. It Is her principal place of business and it is used exclusively for meeting clients on a regular basis throughout the year. Interest payment on the mortgage on this property totalled $13,500 and property taxes were $4,700. The UCC on the property is $120,000. Utilities paid for the house totalled $3,500 and house insurance paid for the year was $950. Other maintenance costs associated with the property amounted to $1,500.
3. She paid dues to the Salesperson's Association (a trade union) of $600.
4. She was billed a total of $12,000 by a local country club. Of this amount $2,500 was a payment for membership dues and the remaining $9,500 was for meals and drinks with clients.
Required:
Calculate the maximum amount of expenses that would be deductible by Ms. Jones for 2004, assuming: (NOTE THAT EACH OF THESE i AND ii SHOULD BE CONSIDERED SEPARATELY). Ignore HST.
i) She is am employee of a manufacturing company. Her employment income of $137,000 includes $15,000 in commissions.
ii) (Ignoring your thoughts in i) She represents a group of manufacturers with a diversified product line. During 2004, she earned total commissions of $137.000
Question 18
XYC has a fiscal year ending December 31. For the 2004 taxation year, XYZ's accounting income (under GAAP) was $596,000. Also consider the following:
1. The Company spent $95,000 on landscaping for its main office building. This amount was recorded as an asset in the accounting records and, because the work has an unlimited life, no amortization has been recorded for the asset.
2. XYZ spent $17,000 on advertisements in FortuneMagazine, a US publication. Approximately 90 percent of its non-advertising content is original editorial content. The ads were designed to promote sales in Canadian cities located on the Canada US border.
3. Included in travel costs deducted in 2004 were $12,000 for airline tickets and $41,400 for business meals and entertainment.
4. XYZ paid and deducted for accounting purposes a $2,500 initiation fee for a corporate membership in the Highland golf and Country Club
5. XYZ paid and deducted property taxes of $15,000 on vacant land that was being held for possible future expansion of the company's headquarters.
Required:
1. Calculate XYZ's minimum Net Income for Tax Purposes for the 2004 taxation year.
Question 19
Tommy Jones is employed by TTC Inc in a management position. Because of an outstanding performance in his division of the Company, he is about to receive a promotion accompanied by a large increase in compensation. He is discussing various possible ways in which his compensation might be increased without incurring the same amount of taxation as would be assessed on an increase to his salary. As he is currently in the process of acquiring a large new residence in a prestigious neighbourhood, he has suggested that it might be advantageous for the Company to provide him with a five year interest free loan in the amount of $200,000 as part of any increase in compensation. Other relevant information is as follows:
- Given his current salary level, any additional salary will be taxed at 45%
- TTC Inc is able to invest funds at a before tax rate of 18%, It is subject to tax at a 40% rate.
- Assume the current rate for 5 year residential mortgages is 5%
- Assume that the current prescribed interest rate is 3%
- The loan will not qualify as a home relocation loan.
Required:
Evaluate Mr. Jones' suggestion of providing him with an interest free loan in lieu of salary from the point of view of cost to the company.
Question 20
For it's taxation year ending December 31, 2004, Acme Co has determined that its operating Net Income for Tax Purposes before any deduction for CCA amounts to $50,000. (Assume that it will also be their Taxable Income for the year)
On January 1, 2004, the Company has the following UCC balances:
Class 14 $876,000
Class 10 $220,000
Class 8 $163,000
During 2004, the cost of additions to Class 8 amounted to $122,000, while the proceeds from dispositions in this class totalled $87,000. In no case did the proceeds of disposition exceed the capital costs of the assets retired and there were still assets in Class 8 on December 31, 2004.
There were no acquisitions or dispositions in either Class 4 or Class 10 during 2004. During the preceding three taxation years, the Company reported Taxable income of $23,000 a year for each of the three years. The Company anticipates that in the long run, it will consistently produce large amounts of Taxable Income. However, it is faced with considerable uncertainty with respect to profits over the next 10 years.
Required:
a) Calculate the maximum CCA that could be taken by Acme for the taxation year ending December 31, 2004.
b) As Acme's tax advisor, indicate how much CCA you would advise them to take for the 2004 year and from which classes.
Question 21
On June 1, 2004 Katydid Inc., loans it's principal shareholder $162,000, to cover some of her personal expenses. Katydid has a year end date of June30th. The loan bears interest at 2%. Assume that, during all periods, the relevant prescribed rate is 5%.
Required:
a) What are the tax consequences to the shareholder if the loan is repaid on January 1, 2005?
b) What about if the loan was repaid December 31, 2005?
Question 22
2004 could have been a better year. Elmer Eue planned to be more prosperous in 2005. His 2004 income was as follows:
|
Net business income
|
$25,000
|
|
Gross salary
|
19,000
|
|
Interest income form Canadian sources
|
13,000
|
|
Taxable dividends from Canadian corporations
|
4,000
|
|
Net capital gain
|
30,000
|
Elmer has had more than just one bad year, he has provided you with a list of his loss carryforward balances. He intends to deduct the maximum amount for each loss available in the following order:
|
Non-capital loss
|
$70,000
|
|
Allowable capital loss
|
40,000
|
Elmer has never married; therefore he has a lot of disposable income, he donated $10,000 to a number of different charities in 2004.
Required:
1. Compute Elmer's net income and his minimum amount of taxable income for 2004.
2. Compute, as at December 31, 2004, the amount of losses that may be carried forward.
Question 23
Maggie Maebee retired in 2000, from CEO position at a publicly traded high tech firm, but continues to sit on the board of directors of several companies. She has provided you with a summary of her finances for the 2004 taxation year.
|
Interest on a number of investments
|
20,000
|
|
Gain on sale of Nortel shares
|
22,000
|
|
Legal fees incurred while disputing a Notice of Reassessment
|
1,500
|
|
Legal fees incurred on collecting a bonus from her former employer
|
2,000
|
|
Loss on the sale of her shares in her brothers small business operation (a CCPC which qualifies for the small business deduction)
|
8,000
|
|
Director's fees
|
22,000
|
|
Qualified moving expenses
|
1,000
|
Required:
Determine Ms. Maebee's income for tax purposes, please show and justify your calculations.
Question 24:
For the 2015 tax year ....
Jon Jones is employed by Eastern Corp. he earned a of salary of $67,000 in 2015. Among other things, the company provides him with a car. The car cost the company $29,000 when it was purchased in 2010. Jon is required to reimburse the company for all operating expenses pertaining to personal use. He drove 30,000 kms during the year, approximately one-half on company business. Jon's medical insurance is $225 a month (through Blue Cross), Eastern withholds it from his salary.
Jon has dabbled in investing over the years, a summary of his securities transactions are as follows:
|
Number of shares bought (sold)
|
Stock
|
Date purchased (sold)
|
Cost (proceeds)
|
|
100
|
ACME Corp
|
June 30, 2010
|
4,000
|
|
(100)
|
"
|
June 30, 2015
|
(8,000)
|
|
|
|
|
|
|
100
|
Buynow.com
|
February 1, 2015
|
1,000
|
|
(100)
|
"
|
September 15, 2015
|
(500)
|
|
200
|
"
|
September 30, 2015
|
600
|
|
|
|
|
|
|
50
|
Altco
|
January 1, 2015
|
5,000
|
|
50
|
"
|
January 15, 2015
|
5,000
|
|
(100)
|
"
|
August 27, 2015
|
7,000
|
In 2015, eligible dividends received on the above securities totaled $3,600. Jon's only other investment income was $224 interest on his savings account and $1,000 interest on treasury bills where the rate averaged 3% in 2015.
Medical expenses - 2015 (mostly from a skiing accident)
|
Paid by Blue Cross
|
$5,000
|
|
Paid by Jon personally
|
4,500
|
Charitable donations - 2015
|
Red Cross
|
$1,000
|
|
United Appeal
|
1,400
|
|
Federation of Catholic Charities
|
1,500
|
|
Boy Scouts
|
500
|
|
Local church
|
2,000
|
|
Easter Seals
|
93
|
|
|
6,493
|
Jon also paid $931 in unemployment insurance premiums, $2,480 to the Canada Pension Plan (which are the required contributions for 2015) and he contributed $1,500 to his registered retirement savings plan in November.
Jon acquired an apartment building on November 1st, 2015 from his father who had died. Financial statements for the two months ended December 31, 2015 are as follows:
|
Rental income
|
|
|
$63,000
|
|
|
|
|
|
|
Less expenses:
|
|
|
|
|
Maintenance and repairs
|
$5,000
|
|
|
|
Management fees
|
4,000
|
|
|
|
Heat, lights, power, etc.
|
10,000
|
|
|
|
Property taxes and mortgage interest
|
12,000
|
|
31,000
|
|
|
|
|
|
|
Net income
|
|
|
$32,000
|
At the time of his father's death, the land and building which had been acquired in 1976 for $600,000 (of this amount $100,000 was allocated to the land), had a fair market value of $960,000. An inspection of his late father's accounts revealed that the undepreciated capital costs of the building at the end of the previous year was $430,000, after CCA at 5%, as permitted for Class 3 assets.
Joe fell in love with, and married his secretary, Miss Joan, on December 1st. Due to the suddenness of the romance, his wife continued working until the end of the year, when an unattractive replacement was found. Miss Joan's annual salary was $12,000 and was her only source of income.
Required:
Compute Jon's net income, taxable income and basic federal taxes payable for 2015. Use a basic FLAT federal tax rate of 25%.
*** Please indicate the taxing authority for your calculations (i.e. quote the Income Tax Act where appropriate) ***
Question 25:
You have been asked by the controller of one of your clients, Utah Inc., to assist in the preparation of a schedule of capital costs allowances and other tax write-offs for the year ended October 31, 2015. You have obtained the following information:
1. The undepreciated capital costs on November 1, 2014 for the various classes of assets was:
|
Class 3
|
Manufacturing Building
|
$307,000
|
|
Class 8
|
Office Furniture
|
80,000
|
|
Class 10
|
Delivery trucks
|
62,000
|
|
Class 13
|
Leasehold Improvements
|
21,000
|
|
Class 29
|
Manufacturing equipment (acquired in 1987)
|
250,000
|
2. The following acquisitions of assets were made during the year:
|
Leasehold improvements (see note 5)
|
$14,000
|
|
Truck
|
12,000
|
|
Small tools
|
15,000
|
|
Manufacturing equipment (acquired in Marhc 1994)
|
113,693
|
3. The following disposals of assets occurred during the year.
Office furniture and other equipment, purchased in 1987 for $18,000, was sold for $26,000.
A truck, originally purchased for $11,000 was sold for $3,800.
4. A delivery van originally purchased in 2010 for $19,000 was wrecked in an accident. Due to a lapse in the company's insurance policy, there was no insurance. The fair market value of the truck at that time was $3,500 and this amount has been charged in the accounts as an expense.
5. In addition to a manufacturing building which is owned by the company (see note 1) the company also leases warehouse space at a rent of $17,500 per annum on a ten year lease which started November 2015. There are also two five year renewal options on the lease. The company spent $45,000 on leasehold improvements to the property on 2005 and another $14,000 in the current fiscal year.
Required:
a) Prepare a schedule showing the calculation of the maximum tax write-offs and/or required income inclusions in income for the above capital assets for the 2015 fiscal year of the company.
b) In general, where to you look in the legislation to determine the asset classification and CCA rate?
Question 26:
a) Mr Ax Avoidance has come to your CPA firm for tax advice. he has recently been informed by a friend about the general anti-avoidance rule ("GAAR") and is concerned that it might apply to him. Ax owns an unincorporated business which employs his wife and two minor children. His intentions for setting up the corporation which employs his family was to lessen his income tax burden and to income split with them. He pays each family member $29,580 for work performed.
Required:
Briefly explain GAAR (DO NOT COPY IT FROM THE TEXT BOOK - if you do not explain it in your own words you will get zero). Would the GAAR apply to his arrangement? Why or why not?
Question 27
b) Your client Sue, has just received a Notice of Re-Assessment for her 2011 taxation year, dated February 10, 2013. The original Notice of Assessment with respect to this return was dated June 30, 2012. Your client disagrees with the Canada Revenue Agency's assessment.
Required:
Is the Notice of Assessment valid? Why or why not? If so, when must a Notice of Objection be filed? What happens if a settlement cannot be reached between the Agency and your client?