Assignment Problem 1 (Short Cases On Capital Gains)
Each of the following independent Cases describes a situation with a proposed tax treatment.
1. Herbert Nash has owned a 200 acre parcel of land for a number of years. He had acquired this land for 5250,000 with the intention of eventually building a home on the property. However, he received an offer of $425,000 for 75 acres of the property, Because this 75 acres has waterfront and better road access, he believes that the fair market value of the remaining 125 acres is only $175,000. He accepts the offer and plans to use an adjusted cost base of $177.083 {$250,000][$425,000/($425,000 + $175,000)]} in calculating his gain or loss.
2. Gregory Hayes sells a capital property with an adjusted cost base of $85,000 for $135,000. The $135,000 price includes a warranty on the property which he anticipates will cost him 55,000 to service. He does not anticipate any of the warranty costs will be incurred in the current taxation year. He plans to recognize a capital gain on the transitions of $45,000.
3. During the current year Ms. Kristy Stone sold her sailboat to an arm's length party for $71,000. She had purchased the boat several years ago for $51,000. Also during the year she sold securities with an adjusted cost base of $22,000 for $12,000. She intends to deduct the loss on the securities against the gain on the sailboat.
4. Nellie Ward has owned a cottage for a number of years, having acquired it for $125,000. It is currently worth more than $500,000. While she has rarely used it, preferring to stay in her penthouse in the city, she believes that it will continue to increase in value. Given this, she decides to convert it to a rental property. While she plans to report her future rental income to the CRA, she does not plan to recognize a gain or loss on the conversion of the property since no disposition has taken place.
5. During the current year, Ignacio Rogers sells a non-depreciable capital asset for $216,000. The adjusted cost base of the asset was $184,000, resulting in a capital gain& $32,000. Under the terms of the sale, he will receive 10 percent ($21,6001 of the proceeds in the current year, with the remainder being due early in the following year. As a result, he will recognize $3,200 of the capital gain in the current year.
Required: In each of the preceding Cases, indicate whether or not you believe that theta' treatment being proposed is the correct one. Explain your conclusion.
Assignment Problem 2 (Other Income And Deductions Including RESP)
Viva Houde's divorce settlement resulted in her having custody of her two children. Her daughter Lacy is 8 years old and her son Mark is 10 years old. They are both in good health.
The agreement calls for her to receive child support payments of $2,000 per month, as well as spousal support of $1,500 per month. During 2017, she received all of these payments.
In order to get a fresh start in life, she enrolled in a co-op program at Western University in London, Ontario. She was very successful during the winter term (January through April, 2017). The program requires her to work in her field during the summer, with her first placement being Timmins, Ontario during the period May to August, 2017. Her employment income for this period was $8,000.
In late August she returned to London and resumed full time studies during the fall term (September through December, 2017). She was also able to obtain a part time job in her field in London. During these four months she had employment income of $1,600.
The eligible moving costs associated with moving herself and her children to Timmins for the summer work term totaled $1,200. The costs for the move back to London were $1,350.
In addition to her support payments and employment income, Viva received the following amounts:
Scholarship Granted By University For The Fall Semester 4,300
Eligible Dividends Received 2,600
Inheritance From Rich Uncle 22,000
TFSA Withdrawal 4,000
Throughout the year, Viva required assistance with her children. During the period January through April, the costs in London totaled $1,950. In Timmins, she incurred costs of $1,725.
After returning to London for the fall term, her costs for the September through December period were $2,175. During 2017, Viva establishes RESPs for both of her children. She contributes $1,500 to each of these plans.
Required: Determine the minimum Net Income For Tax Purposes that Viva will report for the 2017 taxation year Provide reasons for omitting items that you have not included in your calculations. Also, indicate any amounts that can be carried forward to future years.
Textbook " 2017-2018 edition Byrol&Chen''s Canadian Tax Principles Volume 1"