Pamela Dawes is a lawyer. She was employed by a major corporation until March 21, 2013. Subsequently, she started her own law practice on April 1, 2013. The fiscal period of her business will end on December 31.
Since Pamela has no tax knowledge, she has come to consult with you on a few matters:
a. Pamela needs $70,000 as working capital for her business. She also wants to buy an apartment for her personal use. The price of the apartment is $450,000. She presently has $170,000 at her disposal. Pamela asks if it would be better, from a tax point of view, to make a $170,000 down payment on the apartment and borrow $70,000 from a bank to supply the working capital for the business, or to personally supply the $70,000 working capital and put the balance as a down payment on the apartment. (5 marks)
b. To operate her business, Pamela purchased a small office building on Yonge Street. The building is old, and repairs will be needed to continue efficient operations. Pamela wants to know if the costs for additional repairs and other miscellaneous items for the building will be entirely deductible in the year they are made. The following costs are anticipated: (4 marks)
o landscaping cost paid for the front and back of the building
o replacing two broken windows
o electrical rewiring of the whole building
o painting the interior walls
c. On May 1, 2013, Pamela incurred legal fees in the amount of $4,000 for preparing and registering a mortgage loan on the office building. The mortgage loan is for a 7-year term. She would like to know if the legal fees can be claimed as a business expense and if so, how much can be deducted in 2013. (6 marks)
Required
Answer each query Pamela Dawes has submitted to you. Justify your answers and give the appropriate references to the ITA. Ignore effects of a leap year in your calculations.