Deck 9: Other Income, Other Deductions, and Special Rules for Completing Net Income for Tax Purposes

Question 1

Which of the following examples of income received from private corporations is subject to tax on split income (TOSI) for adult family members?

A)A capital gain from the sale of qualified small business corporation shares
B)Income received from a related business
C)Income received by the spouse of a 68-year-old business owner
D)Income received by an uncle

Answer 1

B

Question 2

Which of the following is FALSE regarding Tax Free Savings Accounts (TFSAs)?

A)There is no mandatory age by which a TFSA must be wound up.
B)TFSA contributions are tax deductible.
C)Any unused amounts not contributed in a year may be carried forward indefinitely to future years.
D)Capital gains earned within TFSAs are not taxed.

Answer 2

B

Question 3

Chris Nowicki was employed by REAL Co.in 2020.Chris earned $35,000 from January 1 to October 10 before transferring with the company to a town 1312 kilometres away.The new position began on November 1, 2020, and paid Chris a gross salary of $4000 per month.
The support payments are in accordance with Chris's divorce agreement, which calls for monthly support payments of $1,500 for Chris and $1,500 for Chris's child.
Additional information:
Assumed mileage rates:
$\begin{array}{|l|l|}\hline \text { New location: } & 50 \text { cents per kilometer } \\\hline \text { Previous location: } & 47 \text { cents per kilometer } \\\hline\end{array}$ Required:
Determine Chris's minimum net income for tax purposes for 2020 in accordance with Section 3 of the Income Tax Act.Show all calculations for the moving expenses and identify any amounts to be carried-forward.

Chris's moving expenses included:
1.$7,000 for a moving van
2.$300 for meals for Chris and Chris's 4-year-old child on the four-day drive
3.$700 for accommodations on the four-day trip
4.$3000 ($150 per day) for 20 nights of temporary lodging in the new location until an apartment was available
5.$550 in gas receipts
Chris was not reimbursed for the move.
Chris also received the following in 2020:
$\begin{array}{|l|l|}\hline \begin{array}{l}\text { Support payments from a former spouse } \\(\$ 3,000 \times 12)^{*}\end{array} & \$ 36,000 \\\hline \text { Inheritance } & 25,000 \\\hline \begin{array}{l}\text { Scholarship for part-time tuition in a } \\\text { qualifying education program (used to } \\\text { cover tuition) }\end{array} & 2,000 \\\hline \text { RRSP withdrawal (not withdrawn under } & 15,000 \\\text { the Lifelong Learning Plan or Home } & \\\text { Buyer's Plan) } & 500\\\hline\end{array}$

Answer 3

$\begin{array}{|l|l|l|}\hline\text { ITA 3(a) }& \text { Employment income: } & \\\hline &\$ 35,000+\$ 8,000 & \$ 43,000 \\\hline &\begin{array}{l}\text { Other income: }\end{array} & \\\hline& \begin{array}{l}18,000 \text { (support payments for Chris) }+\$ 15,000 \text { (RRSP } \\\text { withdrawal) }\end{array} & 33,000 \\\hline&&\$76,000\\\hline \text { ITA } 3 \text { (c) } & \text { Moving expenses restricted to income earned in new location* } & -\$ 8,000 \\\hline & \text { Total Net Income for Tax Purposes } & \$ 68,000 \\\hline & * \text { Moving expenses } &\\\hline& \text { Moving van } & \$ 7,000 \\\hline& 3 \times \$ 17 \times 2 \times 4 \text { meals (simplified method) } & \$ 40 \\\hline& \text { Accommodations } & \$ 700 \\\hline& 3,000 / 20 \times 15 \text { temporary lodging } & \$ 2,250 \\\hline&(47 \times 1312) \text { vehicle (simplified method - rounded) } & \$ 617 \\\hline& \text { Total Moving Expenses } & \$ 10,975 \\\hline &\text { Less } \$ 8,000 \text { in } 2020=\text { cary-forward to } 2021 & \$ 2,975\\\hline\end{array}$

Question 4

Asha Okoye is 35 and single, and had earned income of $57,000 in 2019 and $62,000 in 2020.Asha's pension adjustment (PA) in 2019 was $3,500 and in 2020 the PA was $4,000.Asha's 2019 Notice of Assessment showed unused RRSP room of $8,000.How much can Asha contribute to an RRSP for the 2020 taxation year?

A)$10,260
B)$14,760
C)$15,160
D)$27,230

Question 5

Which of the following deductions is allowed as an 'other' deduction for tax purposes?

A)Contributions to a child's RESP.
B)Lump sum support payments to a former spouse.
C)Support payments for a child.
D)Contributions to an individual's RRSP.

Question 6

Case One
Neta Burnstein had total income of $112,000 and earned income of $75,000 in 2019.Neta's 2019 Notice of Assessment reported unused RRSP contribution room of $12,000.Neta's T4 showed a pension adjustment of $5,000 in 2019.Neta anticipates a pension adjustment of $5,500 in 2020.
Required:
Calculate the maximum RRSP deduction that Neta can make for the 2020 taxation year.
Case Two (Independent of Case One)
Neta is 35 years old, and is considering investing $2,000 per year in a savings account at 8% or $2,000 in an RRSP at 8%, (both annual interest).The money will be invested for the next 30 years and will not be withdrawn until Neta retires.
Required:
Compare the valuation of each option (Savings vs.RRSP) net of taxes if Neta withdraws all of the money at age 65? Assume that the tax rate will be 35% every year until retirement.

Question 7

Car Co.is selling its land and building to Truck Co.for $340,000 (Land $200,000; Building $140,000).These values have not been officially appraised, and Truck Co.thinks that the land is only worth $150,000 and the building is worth $190,000.(Car Co.originally paid $100,000 for the land and constructed the building for $150,000.The UCC on the building is currently $130,000.) Which of the following statements is TRUE based on these facts?

A)Future CCA will be higher for Truck Co.if Car Co.'s terms are accurate
B)Car Co.will recognize higher net capital gains if Truck Co.'s terms are accurate
C)Car Co.will recognize higher recapture if Truck Co.'s terms are accurate.
D)The allocation of the costs is irrelevant for tax purposes as the total price is the same under both sets of terms.

Question 8

With respect to the death of a taxpayer, which of the following is false?

A)The representative of the deceased is referred to as the executor.
B)Income from all sources is accrued up until the date of death.
C)A surviving spouse or common-law partner who is the named beneficiary of an unmatured RRSP may avoid tax by transferring the unmatured RRSP to their own RRSP.
D)A surviving spouse or common-law partner who is the named beneficiary of a TFSA must transfer the income to their own TFSA.

Question 9

Identify whether the following sources of income and expenditures are included for the calculation of net income for tax purposes.
Old age security payments received from the Canadian government
Disability pension received by a member of the RCMP
Scholarship received by a student enrolled in a qualifying education program.
Babysitting costs for a child 16 years of age or younger if incurred so the taxpayer can pursue employment, a business, or research activities.
An inheritance received
Research grants covering only the expenses incurred to conduct related research
Support payments for a child
Foreign pension benefits

Question 10

A parent gifted shares in a public corporation to their fifteen-year-old child.The ACB of the shares was $10,000.During the year, the child received $500 in dividends from the shares.The child then sold the shares for $12,000.Which of the following is true for the parent and child?

A)The child will recognize the dividends and capital gain on their tax return.
B)The parent will recognize the dividends on their tax return and the child will recognize the capital gain on their tax return.
C)The parent will recognize the dividends and a capital gain on their tax return.
D)The child will recognize the dividends on their tax return and the parent will recognize the capital gain on their tax return.