Quiz 7: Income From Property

Which of the following statements concerning the tax treatment of interest income is true? A)Individuals must accrue interest on a daily basis. B)The anniversary day accrual method of recognizing interest income requires that interest income received by a corporation be recognized for tax purposes for every twelve-month period from the date the investment is made. C)Foreign interest income and Canadian interest income are recognized under different sets of tax rules. D)The anniversary day accrual method of recognizing interest income requires that interest income received by an individual be recognized for tax purposes for every twelve-month period from the date the investment is made.

Jim Smith owns two rental properties which he purchased in 20x0.Property A cost $100,000 (land $60,000 and building $40,000)and property B cost $120,000 (land $75,000 and building $45,000).After all allowable expenses other than CCA,Jim's total rental income for the past two years was $1,000 in 20x0 and $10,000 in 20x1.Jim has chosen to deduct the maximum CCA allowed for both years.What is the UCC for his rental properties at the end of 20x1? (The properties are both Class 1 assets,amortized at 4%.) A)$3,360 B)$79,968 C)$80,640 D)$206,976

Which of the following is true concerning dividends? A)The scheme to eliminate double taxation assumes that the corporate tax rate is 27.5% when eligible dividends are grossed-up to include 138% of the dividend. B)Dividends received from a CCPC's business income that is not subject to the small business deduction are typically grossed-up to include 116% of the dividend. C)Dividends received from a CCPC's business income that is subject to the small business deduction are typically grossed-up to include 138% of the dividend. D)Eligible dividends require a 116% gross-up.

Pear Corporation earned $150,000 of pre-tax income in 2018.The tax rate for the company is 13%.The sole shareholder received all of the net earnings in the form of a non-eligible dividend in 2018.The shareholder,has a personal tax rate of 50%.Supposing the shareholder is entitled to a total (federal + provincial)dividend tax credit equal to $20,000,what is the net personal tax owing on the dividend (ignoring all other tax implications)? (Round all numbers to zero decimal places.) A)$20,000 B)$19,500 C)$39,500 D)$55,690

Joanne owns a rental property,which she purchased in 20x0 for $150,000 (land $50,000 and building $100,000).In the same year,her rental income before CCA was $8,000.In 20x1 the rental income before CCA was $3000.Joanne chose to expense the CCA on her rental property both years.Which of the following statements is true? (The rental property is a Class 1,4% asset.) A)Joanne has a rental loss in 20x1 of $2,880. B)Joanne has a rental loss in 20x1 of $920. C)Joanne's rental income in 20x1 is $0. D)Joanne's rental income in 20x0 was $5,000.

Martha Shine owned the following in 20x8: Rental properties originally valued at $275,000 (Property 1: land $70,000,building $55,000)(Property 2: land $90,000,building $60,000) -Net rental income before CCA was $11,000. -The UCC on building 1,as of January 1,20x8 was $50,000. -The UCC on building 2,as of January 1,20x8 was $40,000. -Property 2 was sold in 20x8 for $250,000 (land $200,000,building $50,000) Shares in ABC Inc.(a CCPC)valued at $50,000 -Non-eligible dividends paid to Martha in 20x8 totaled $5,000. Savings of $30,000 -Interest earned in 20x8 was $1,000. Martha also worked full-time as a baker in 20x8,earning a gross salary of $45,000. Martha is in a 45% tax bracket. Required: Calculate Martha's net income for tax purposes in 20x8 in accordance with Section 3 of the Income Tax Act.Martha will take the maximum CCA allowed this year on her rental properties.

Stella Flier has received an inheritance of $100,000.She is trying to decide what to do with this money and has come to you for some advice.She has an excellent credit rating and no outstanding debts.She would like to buy a $225,000 house and invest $100,000 in bonds as a safety net. Required: How could Stella minimize her tax liability,assuming only the facts given?

A public corporation earns $500,000 in pre-tax profits and pays out all of its after-tax earnings in dividends.The corporate tax rate is 27.5% and the sole shareholder is in a 50% tax bracket.The dividend gross-up rate is 1.38 and the total dividend tax credit (federal and provincial)is 27.5%. Required: A)Calculate the tax liability for (1)the corporation and (2)the shareholder. B)Briefly explain how this tax structure illustrates the theory of integration.

On March 1,20x1,Notes Inc.purchased a two-year guaranteed investment certificate (GIC)for $15,000.The interest compounds annually at 8% and will be received at the end of the full term.Notes Inc.has a marginal tax rate of 30%,which will increase to 34% for 20x2 and 20x3.Notes Inc.uses the calendar year as its fiscal year.(These tax rates are used here for illustration purposes only.) Angela Major also invested $15,000 in a GIC with an 8% annual return,on March 1,20x1,with interest to be paid at the end of each annual period.Angela's marginal tax rate is 40%. (Assume there are no leap years in this time period.) Required: Calculate the after-tax interest income for each year for Notes Inc.and for Angela.(Round all numbers.)