RSM 324 UToronto Income Taxation Business Law Worksheet

PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
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RECENT
RATE
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RULES
IN
THE
EXAM
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Gains and Losses on Capital
Property
Question 1
Giang Ngo sold a piece of land in 2019 for $500,000. The original cost of the land was $100,000. Selling
costs totaled $15,000. The7land
qualifies as capital property. The purchaser of 7the
land paid Giang
41 1
41 1
n
n
e
e
$80,000 in 2019
and
will
pay
$84,000
each
year
for
the
next
five
years.
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w
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aYi
a
y Xi
y Xi
y Xi
m
m
m
e
e
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d
d
d
ca
ca
Aca
EZ Required:
EZ A
EZ A
Calculate the minimum taxable capital gain that Giang will include in income for tax purposes for 2019
and 2020.
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cad
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cad
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1
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PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Question 2
Emily Spring sold the following items prior to moving to Europe:
Original Cost
Proceeds
Sports car
$24,000
$10,000
4171
4171
n
n
e
e
Antique cabinet
1,000
2,000
w
w
aYi
aYi
y Xi
y Xi
m
m
e
e
A
rare
coin
100
1,100
d
d
ca
ca
EZ AShares in a public corporation 4,000
EZ A
3,000
Canoe
500
600
Limited edition painting
800
2,500
Sculpture
1,100
900
a
y Xi
EZ
em
Acad
Require
4171
71
71
n
n 41
n 41
e
e
e
w
w
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i
i
i
aY
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XiaY
y Xi
emy
emy sales, identifying the appropriate categories
em
d
d
d
Determine
the
total
taxable
income
from
Emily’s
of
capital
a
a
a
c
c
c
EZ A
EZ A
EZ A
property.
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cad
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cad
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cad
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cad
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cad
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2
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PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
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i
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XiaY
XiaY
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emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Question 3
Julie Olsen purchased a home in 2012 for $150,000 and a cottage in 2016 for $100,000. Due to a
rise in real estate prices, Julie decided to sell both properties and backpack around the world for
two years. Both properties were sold in October of 2020. Julie received proceeds of $375,000 for
the house, and $250,00071for the cottage.
71
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en 4
1
en 4
iw
XiaY
my
Required:
cade
y
EZ A
EZ
em
Acad
iw
XiaY
a
y Xi
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em
Acad
Calculate the minimum taxable capital gain that Julie will report for the house and cottage on the
2020 tax return. Show all calculations, identifying the taxable capital gain for each property.
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cad
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cad
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3
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PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Question 4
Tiny Nurseries Ltd. is a Canadian controlled private corporation operating in your province. The
company has a December 31st year-end.
Three asset sales occurred
71 prior to the end of 2019.
en
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41
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4171
a
X
yBuilding
y X
y Xi
m
m
m
Asset
1:
e
e
e
d
d
d
ca
ca
Aca
EZ The
EZ A At the time of the sale in 2019, the
EZ A
building was previously purchased for $90,000.
accumulated amortization on the building was $10,000. The UCC balance was $65,000. The full
payment of $110,000 was received before the end of the year.
Asset 2: Land
The land 7was
purchased for $200,000 and sold in 2019 for
$250,000. The terms of the sale
71
41 1
4171
n
n
n 41
e
e
e
included
$60,000
which
was
received
in
2019,
with
eight
equal
installments
to
follow
beginning
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w
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i
i
i
XiaY
XiaY
XiaY
in 2020.
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d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Asset 3: Marketable Securities
The company sold its entire public portfolio in 2019. The adjusted cost base of the shares was
$100,000. The market value of the shares at the time of sale in 2019 was $135,000. Selling costs
on the sale were $5,000.
Required: iaYiwen
y X
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a
y Xi
y X
em
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em
Acad
Z
EZ A) Calculate Tiny Nurseries Ltd.’s minimumEtaxable
capital gain for 2019.
EZ
em
Acad
B) Calculate Tiny Nurseries Ltd.’s minimum taxable capital gain for 2020.
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4
4171
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
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d
d
d
a
a
a
c
c
c
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Question 5
Angel Ramos received the following income in 2020:
Employment income
Non-eligible dividends4171
iwen
Sale of capital
assets:
aY
i
X
my
cade in IMZ Co. (public corporation)
Shares
A
$ 75,000
$45,000
171
n
e
w
aYi Proceeds
y Xi
m
e
d
ca
$ 20,000
EZ
EZ A
Shares in BAR Co. (public corporation)
$ 3,000
Shares in TRI Inc. to arm’s-length party (small business
$ 2,000
corporation)
Stamp set
$ 1,500
Personal electronic
system
$ 3,000
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4171
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n
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e
$ 4,000
iw set
aYCoin
aYiw
y Xi
y Xi
m
m
e
e
cad
cad
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Required:
ACB
$ 12,000
$ 10,000
$ 7,500
a
y Xi
EZ
em
Acad
$ 2,500
$ 1,000
71
n 41
e
$ 800
w
i
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emy
d
a
c
EZ A
Determine Angel’s net income for tax purposes for 2020 in accordance with the aggregating formula of
Section 3 of the Income Tax Act. (CPP for enhanced contribution = $166.)
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5
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PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
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d
d
d
a
a
a
c
c
c
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Other Income and Deductions
Question 1
In 2020, Gael Villeneuve was transferred by COOL Co. to run a small branch of the company.
171new position. Gael
4171
4the
Gael moved 2874ekilometers
from Big-city to Small-town to takeeon
n
n
w
w
i
i
a
XiaYjob on October 1st. The new position pays
XiaY per month which is an increase
beganem
the
y new
y $5,100
y Xi
m
m
e
e
d
d
d
a you with the following information
ca
Aca $4,500 at the former position. Gael has Eprovided
Z Ac
EZ from
EZ A
pertaining to the moving costs:
Legal fees on purchase of new home
Payment to a national moving company for the cost
of the move
71
71
Payment
n 41to the moving company for container
n 41
e
e
w
w
i
i
XiaYstorage until Gael was able to take possession ofmy XiaY
emy
d
the new home
a
c
cade
EZ A
EZ A
Commission fees on sale of Big-city home
21 days accommodations at a hotel in Small-town
Meals for Gael, Gael’s spouse, and their child, on
the two-day trip from Big-City to Small-town.
Gas receipts for the two-day trip. (Assume CRA
vehicle rates are 55 cents/km
4171for the province of
4171
n
n
e
e
origin and 45 cents/km
for
the
province
of
w
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aYi
aYi
y Xi
y Xi
destination.)
dem
dem
$3,000
16,000
1,000
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cad
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10,000
2,100
200
450
ca
ca
EZ A
EZ A
Gael received a reimbursement of $15,000 from COOL Co. to assist with the moving expenses.
a
y Xi
EZ
em
Acad
Required
A. Calculate the maximum amount of moving expenses that Gael can deduct on the 2020 tax return.
71
71
71
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
iaY 2021 tax return?
XiaYB. Will the moving expenses have any effect
XiaY
onXGael’s
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emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
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cad
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cad
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X
en
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4171
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cad
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Acad
en
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X
6
4171
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Question 2
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.
71
Chris’s moving expenses
41included:
4171
n
n
e
e
w
w
aYi
aYi
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
a
1.c$7,000
for a moving van
ca
ca
EZ A
EZ A
EZ A
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
1
71
417not
n was
n 41
Chris
reimbursed for the move.
e
e
w
w
i
i
XiaYChris also received the following in 2020: my XiaY
emy
d
a
c
cade
EZ A
EZ A
emy
Support payments from a former spouse ($3,000 × 12)*
Inheritance
Scholarship for part-time tuition in a qualifying education program (used to cover tuition)
RRSP withdrawal (not withdrawn under the Lifelong Learning Plan or Home Buyer’s Plan)
Lottery winnings
1
1
cad
EZ A
en
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X
$36,000
25,000
2,000
15,000
500
17
417 calls for monthly
en 4are in accordance with Chris’s divorce agreement,
en which
*The support apayments
w
w
i
i
Y
Y
a
y Xi
y Xi
support
adempayments of $1,500 for Chris and $1,500 forAChris’s
ademchild.
c
c
A
EZ
EZ
Additional information:
a
y Xi
EZ
em
Acad
Assumed mileage rates:
New location:
Previous location:
50 cents per kilometer
47 cents per kilometer
71
71
71
Required:
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
Determine Chris’s minimum net income
Z A 3 of the
EZ A
EZ A for tax purposes for 2020 in accordance withESection
Income Tax Act. Show all calculations for the moving expenses and identify any amounts to be
carried-forward.
en
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4171
y X
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cad
EZ A
em
Acad
X
en
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en
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4171
a
y Xi
y X
EZ
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cad
EZ A
em
Acad
X
en
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EZ
4171
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cad
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em
Acad
en
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X
7
4171
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Question 3
Indicate whether or not the parties in the following situations are “related” for tax purposes. (Consider the
unrelated examples to be operating at arm’s length.)
A) An uncle and their nephew are negotiating an economic transaction. Are the uncle and nephew related
for tax purposes? en 4171
4171
n
e
w
w
aYi
aYi
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
B)ca
An individual is the sole shareholder of Corporation
caX, and the individual’s spouse is the sole
ca
EZ A
EZ A
EZ A
shareholder of Corporation Y. Are the two corporations related for tax purposes?
C) An individual owns seventy percent of the shares of ABC Co. Another individual owns the remaining
thirty percent. The two individuals are not related. Is the 30% shareholder related to ABC Co.?
D) An individual
owns thirty percent of the shares of Corporation
A. The individual’s spouse also owns
71
71
4171 of the shares of Corporation A. The remaining
41forty
n
n
n 41
thirty
percent
percent is owned by a friend of the
e
e
e
w
w
w
i
i
i
XiaYfamily. Is the first individual related to Corporation
XiaYA for tax purposes?
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
E) Individual A and their sibling’s spouse are negotiating an economic transaction. Are Individual A and
the sibling’s spouse related for tax purposes?
en
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4171
y X
EZ
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cad
EZ A
em
Acad
en
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4171
X
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cad
EZ A
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emy
cad
EZ A
X
en
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em
Acad
en
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a
y Xi
EZ
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emy
cad
EZ A
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y X
em
Acad
4171
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en
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en
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en
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en
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EZ
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cad
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X
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em
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cad
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em
Acad
en
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X
8
4171
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Question 4
Rainbow Corp. and Trout Co. are related for tax purposes. Rainbow operates as a retail outlet and Trout
Co. operates as a wholesale unit. During 2020, Rainbow Corp. purchased inventory for $5,000. The
inventory had a market value of $7,500 in the wholesale market, and a value of $11,000 in the retail
market. Rainbow sold the inventory to its sister corporation, Trout, for $5,000. Trout then sold the
171 for $11,000.
inventory to other retail
4outlets
4171
n
n
e
e
w
w
aYi
aYi
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
Aca
EZ Required:
EZ A
EZ A
A) Determine the total business income for tax purposes for both Rainbow and Trout in 2020 based on
the facts.
B) How would your answer in A) differ if Rainbow had sold the inventory to customers at the retail price
instead of7selling
the inventory to Trout?
71
71
41 1
n
n 41
n 41
e
e
e
w
w
w
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
en
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4171
y X
EZ
emy
cad
EZ A
em
Acad
en
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4171
X
emy
cad
EZ A
EZ
emy
cad
EZ A
X
en
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em
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en
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y Xi
EZ
4171
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emy
cad
EZ A
4171
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4171
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en
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en
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4171
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cad
EZ A
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en
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4171
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a
y Xi
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em
Acad
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4171
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cad
EZ A
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9
4171
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Question 5
For each of the following independent transactions, determine the amount of net income or loss for tax
purposes and the taxpayer to which it applies.
1.
An individual purchased a $10,000 bond for their 15-year-old daughter. During the year, the bond
paid interest e
ofn$1,000.
4171
4171
n
e
w
w
aYi
aYi
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
2.ca An individual paid $15,000 for shares of a public
cacorporation, which they later gifted to their spouse.
ca
EZ A
EZ A
EZ A
At the time of the gift, the shares had a value of $30,000. After receiving the gift, the spouse received
a dividend of $1,000 and then sold the shares for $26,000.
3.
A student who is 20 years old borrowed $20,000 from their parent and used the funds to purchase
shares in a public corporation. After receiving a dividend of $1,000, the student sold the shares for
$24,000.
(How would your answer change if the student were
17 years old?)
71
4171
4171
n
n
n 41
e
e
e
w
w
w
i
i
i
aY
XiaY4.
XiaY
An individual loaned money to their
y Xi who used the borrowed funds to purchase
emy
emspouse,
emya rental
d
d
d
a
a
a
c
c
c
property. During the year, E
the
rental property earned net rentals of $7,000. TheEamount
of the loan,
ZA
ZA
EZ A
which is interest-free, is $60,000. (How would your answer change if the loan were subject to a
reasonable interest rate of 6% and was secured by a mortgage on the rental property?)
5.
An individual gifted common shares of a Canadian-controlled private corporation to their 16-yearold daughter. At the time of the gift, the shares were valued at $10,000. Their original cost was $6,000.
During the year, 4the
received a dividend of $1,000 from the4shares
1
17daughter
171 and then sold them for
n
n
e
e
w
w
$15,000.
small
i of the corporation’s income was subject to theia
Yi business deduction.
aYAll
a
y Xi
y X
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
Aca
EZ 6.
EZ A TFSA. The funds were invested in bonds earning
EZ A
An individual contributed $5,000 to their spouse’s
interest.
emy
cad
EZ A
en
iaYiw
4171
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cad
EZ A
en
iaYiw
en
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EZ
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EZ A
X
en
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cad
EZ A
4171
y X
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4171
en
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4171
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y X
EZ
4171
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cad
EZ A
em
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X
en
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4171
EZ
4171
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cad
EZ A
em
Acad
en
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X
10
4171
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Net Income for Tax Purpose
(Comprehensive)
Question 1
In 2021, Anita Poirier was transferred by her employer to Vancouver from Toronto. She has made a number
of financial transactions 1related
to the move. Anita has asked you for help in 1determining
her 2021 income
4 71
4 71
n
n
e
e
for tax purposes.
She
has
provided
the
following
information:
w
w
aYi
aYi
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
Aca Anita is divorced and supports her two children
EZ 1.
EZ A Lise (age 17) and Randy (age 19). In the summer,
EZ A
Randy earned net profits of $4,000 as a street vendor. Lise’s only source of income was from an
investment purchased for her by her mother. The investment, bonds of a Canadian public corporation,
paid interest of $1,000 during the year.
2.
Anita began work in Vancouver in February 2021 as a senior sales associate for a clothing
During the year, she received a grossnsalary
4171
4171of $110,000 as well as selling commissions en 4171
n manufacturer.
e
e
w
w
i
i
of $15,000. In addition, on June 30, her employer’s
year-end, she was awarded a bonus of $12,000
aY
aY
aYiw
y Xi
y Xi
y Xi
m
m
m
e
e
e
payable in 12 monthly instalments
cad
cadof $1,000 beginning July 31, 2021. She contributed
cad$3,700 to the
EZ A
EZ Aplan, and her employer contributed the same amount.
EZ A She also paid
company’s registered pension
$3,166 to the Canada Pension Plan and made Employment Insurance contributions of $890.
3.
Anita’s employer has certified that she is required to pay some of her own expenses as part of her
selling duties. She incurred the following costs:
4171
4171
Purchasewe
ofncomputer
n
e
w
i
aYi
XiaY
and promotion
yAdvertising
y Xi
m
m
e
e
d
d
ca
ca
Entertainment:
EZ A
EZ A
Meals and drinks
Golf club dues
Automobile—gas, repairs, and insurance
2,000
2,400
$ 3,000
a
1,800
y Xi
m
e
d
ca
EZ A
4,400
4,200
$13,400
Anita
uses her own car for business activities. At the end 7of1 2020, the car had an undepreciated capital
71
1
4171
n
nIn42021,
n 41
e
e
e
cost
of
$20,000
(original
cost
in
2020
$22,000).
she
drove
the
car
30,000
km,
of
which
w
w
w
i
i
i
XiaY
XiaY
XiaY
approximately 12,000 km was forapersonal
emy
emy use. She acquired a computer (see table),cwhich
emyshe uses
d
d
d
a
a
c
c
A and industry information. She estimates that E
Z Aof her computer
at home to maintain customer
90%
EZ A
EZ files
time is employment related.
4.
On January 15, 2022, Anita contributed $7,000 to an RRSP. On the same date she contributed $4,000
to a TFSA. For the 2020 taxation year, her earned income was $63,889. In 2020, the combined
(employer and employee) contribution to her employer RPP was $6,400.
4171
4171
n
n
e
e
w
w
aYi
aYi
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
ca
EZ A
EZ A
EZ A
emy
cad
EZ A
X
en
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4171
emy
cad
EZ A
X
en
iaYiw
4171
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cad
EZ A
en
iaYiw
X
11
4171
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
A children from Toronto to Vancouver. The 4,400-km
EZ A
EZ A trip took five
5.
Anita drove herself and herEZtwo
days and cost $400 for gasoline, $480 for accommodation (four nights), and $500 for meals (five
days). As well, she incurred the following relocation costs:
Real estate commission on sale of former home
Moving furniture
Legal fees to purchase
new home
4171
4171
n
n
e
e
w
w
i on sale of former home
Legal
aYfees
aYi
y Xi
y Xi
m
m
e
e
d
d
Temporary
lodging
and
meals,
in
Toronto
after
the
sale
ca
Aca
EZ A
EZbefore
of the former home and in Vancouver
taking
possession of the new home (20 days @ $300 per day)
$19,000
14,000
2,000
2,500
EZ
a
y Xi
em
Acad
6,000
$43,500
Her employer, in accordance with company policy, paid her the maximum $10,000 as a partial
reimbursement for transporting furniture to Vancouver.
71
71
71
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
Y fashion industry. It was published in a nationalXtrade
iaY
XiaY6.
Xiniathe
Anita wrote an article on selling strategies
emy
emy
emy
d
d
d
a
a
a
c
c
c
journal and received wide acclaim.
A having written
EZ A
EZ A In September, she was awarded a $2,000 prize
EZ for
the journal’s best article of the year.
7.
In January, Anita sold her home in Toronto for $300,000. She had acquired the home in 2018 for
$180,000 and had occupied it until the move to Vancouver.
8.
Five years ago, Anita
purchased 5% of the common shares of Prentice Ltd.
for $20,000. Prentice is a
4171
4171 In June 2018, when the
n
n
e
e
Canadian-controlled
private
corporation
manufacturing
specialized
furniture.
w
w
aYi
aYi
a
y Xi had cash-flow problems, Anita lent Prentice
y Xi The loan was unsecured and payable
y Xi
company
$10,000.
m
m
m
e
e
e
d
d
d
ca on demand. Although Anita has received noZinterest
ca to date, in 2019 and 2020, she included in Zher
ca
EZ A
E A
E A
taxable income interest of $1,500 ($750 x 2 y = $1,500) based on the agreed 7.5% interest rate on
each anniversary date. In 2021, she demanded payment of the loan and accrued interest, but the
company was unable to pay. The company’s only assets, other than the leased manufacturing
equipment, were inventory and receivables, which were pledged on a bank loan; these were
insufficient to meet even that obligation. In March 2022, Prentice closed operations and declared
bankruptcy.
71
71
71
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
9.
Anita
sold
the
following
properties:
d
d
d
a
a
a
c
c
c
A
EZ A
EZ A
Original EZ Selling price net
cost
of disposal costs
4,000 shares of Teulon Ltd. (a public corporation)
$22,000
$114,000
Oil painting
800
4,000
Commodity futures contract
16,000
28,000
4171
4171 transaction. In 2019, she
The sale of the
commodity
futures contract was Anita’s second commodity
n
n
e
e
w
w
aYi
a
iaYi
purchased
She
deducted
the full $14,000 when computing
y Xi and sold a similar contract but lost $14,000.
y X
y Xi
m
m
m
e
e
e
d
d
d
ca her 2019 taxable income.
ca
ca
EZ A
EZ A
EZ A
10.
Anita owns a residential rental property in Toronto. She acquired the property in 2020 for $414,000
(land – $54,000, building – $360,000). She incurred a substantial loss in 2020 as a result of an
unexpected vacancy. She found a new tenant in 2021. She received gross rents of $46,000 in 2021.
Expenses for utilities, taxes, insurance, interest, and maintenance were $47,100 that year. One of the
tenants
failed to pay their December 2021 rent of $2,000.
However, she received that payment on
71
4171 20, 2022.
4171
n
n
n 41
January
e
e
e
w
w
w
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
A
11. Anita received the following
amounts:
EZ A
EZadditional
EZ A
12
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Eligible dividends from taxable Canadian public corporations
$6,000
Interest on bank deposits
7,000
Winnings from a provincial lottery
800
12.
Anita hired an investment counsellor. On his recommendation, she used $40,000 of the $200,000
1 new home to acquire Canadian public securities.
mortgage loan on
417her
4171 Her mortgage interest
n
n
e
e
w
w
i
payments
$22,000. She paid the investment counsellor
aYtotalled
aYi$2,000 for his advice.
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
ca
Aca
Aca
EZ 13.
EZ charities.
EZ A
Anita made donations of $4,000 to registered
14.
During 2021, Anita’s 2019 tax return was reassessed. She hired a lawyer to prepare an appeal. The
legal fee was $1,200. The appeal was not successful.
Required:
71
71
71
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
iaYincome for tax purposes. Prepare the calculation
XiaYFor the 2021 taxation year, calculate Anita’s
X
XiaYin
net
emy
emy
emy
d
d
d
a
a
a
c
c
c
accordance with the net income formula,
EZ A
EZ A and organize the items of income by the categories
EZ A described in
that formula.
en
iaYiw
4171
y X
EZ
emy
cad
EZ A
em
Acad
en
iaYiw
4171
X
emy
cad
EZ A
EZ
emy
cad
EZ A
X
en
iaYiw
em
Acad
en
iaYiw
a
y Xi
EZ
4171
X
emy
cad
EZ A
4171
y X
em
Acad
4171
y X
EZ
en
iaYiw
en
iaYiw
en
iaYiw
en
iaYiw
EZ
4171
emy
cad
EZ A
X
en
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4171
X
4171
a
y Xi
y X
em
Acad
em
Acad
EZ
4171
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cad
EZ A
em
Acad
en
iaYiw
X
13
4171
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Question 2
A Review of Net Income for Tax Purposes
Alan Active holds a job, operates a small farm, and makes numerous investments. A description of his
financial activities for 2021 is given below.
4171
4171
n
n
e
e
w
w
i
aYi
a
1.
Alan
isiaaYlawyer
and is employed in the legal department
y X
y Xofi a large public corporation. He received
y Xi
m
m
m
e
e
e
d
d
d
ca a gross salary of $72,000. In addition, the corporation
ca provided the following items of remuneration:
ca
EZ A
EZ A
EZ A
• A car allowance of $400 a month to cover costs of travel in the performance of his duties; during
2021, Alan used his own car to travel from his home to work and back and rarely used it during
working hours on company business.
• A contribution of $3,000 to a deferred profit-sharing plan.
• A group term life insurance policy for $100,000 (premium cost, $800).
71
71
71
• 4A1 cash bonus of $3,000 that was awarded toiw
him
n
n in41the previous year and that he received in theiwen 41
e
e
w
i
XiaY
XiaY
XiaY
current year.
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
2.
Alan’s employer gives all senior executives the option to acquire a certain number of shares of the
corporation at a price that is guaranteed for two years. In 2020, the employer granted Alan an option
to purchase up to 5,000 of its shares for a price of $10 per share. At the time the option was granted,
the shares were valued at $10.75 per share. During 2021, Alan purchased 500 shares at a cost of $10
per share. At the date of purchase, the corporation’s shares were trading at $14 per share.
4171
4171
n
n
e
e
3.
Alan purchased
a
small
parcel
of
land
(20
hectares)
in
2021
and
began
raising goats. In 2021, he lost
w
w
i
aYi
a
Xifrom
XiaY
y
y
y Xi
m
m
m
$1,000
this
operation.
e
e
e
d
d
d
ca
ca
ca
EZ A
EZ A
EZ A
4.
In 2021, Alan purchased 1,000 shares of Canadian public corporation X for $20 per share and
received a stock dividend of 100 additional shares of the same class. During the year, he sold the 100
shares at $21 per share, for the same value as on their date of issue.
5.
Three years ago, Alan purchased three residential rental properties and has provided you with the
71
71
71
following
information:
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
iaY
XiaY
XiaY
my X 3
emy
emy
eProperty
d
d
d
Property
1
Property
2
a
a
a
c
c
c
ZA
EZ A
EZ A
Land cost
$10,000
$E
4,000
$ 8,000
Building cost
60,000
40,000
45,000
Building UCC (December 31, 2020)
52,000
37,000
40,000
2021 net rents (before CCA)
3,000
(5,000)
4,000
In 2021, Alan sold property 1 for $80,000 (land $12,000, building $68,000), and property 2 for
71
4171 building $44,000). Also, in 2021, he purchased
41property
$50,000 (landen$6,000,
4 for $90,000 (land
n
e
w
w
i
aYbuilding
aYi before capital cost allowance of
a
i
i
X
X
$30,000,
$60,000).
In
2021,
property
4
had
net
rentals
y
y
y Xi
m
m
m
e
e
e
d
d
d
ca $1,000.
ca
ca
EZ A
EZ A
EZ A
6.
During the year, Alan gifted 1,000 shares of Shell Canada Ltd. (a public corporation) to his daughter.
The shares had cost him $10 each and had a value at the time of the gift of $12 each. In 2021, his
daughter (16 years old) received dividends of $1,000; she then sold the shares for $30 each.
7.
In 2021,
Alan gifted 2,000 shares of Exxon Ltd. (a public
corporation) to his spouse. The shares had
71
171
171
4value
4$30
n
n
n 41
e
e
e
a
of
$40
each
at
the
time
of
the
gift.
He
had
paid
per
share
several
years
before.
His
spouse
w
w
w
i
i
i
XiaY
XiaY
XiaY
sold the shares in 2021 for $28 perdshare
emy
emy during a market slump.
emy
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
14
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
8.
Alan’s mother died in 2020 and left him her house. The house cost $40,000 at the time of purchase
and had a value in 2020 of $60,000. Alan sold the house in 2021 for $66,000.
9.
Three years ago, Alan purchased 15% of the shares of two private corporations. Each carried on an
active business. He sold the shares of both corporations in 2021. Information relating to the shares is
as follows:
4171
4171
n
n
e
e
w
w
PC 1
PC 2
aYi
aYi
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
Cost
$40,000
$35,000
ca
ca
ca
EZ A
EZ A
EZ A
Proceeds of sale
56,000
20,000
Terms of payment
$8,000/yr for 7 yrs
All cash
10.
In 2021, during a market slump, Alan sold 500 shares of public corporation A for $30,000; the shares
had cost him $40,000. Two weeks later, as the market began to strengthen; he purchased 500 shares
of the same corporation for $29,000.
71
71
71
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
XiaY11. Alan also sold the following assets inm
XiaY
XiaY
2021:
emy
e y
emy
d
d
d
a
a
a
c
c
c
Cost
Proceeds
A
EZ A
EZ A
EZ
Public corporation B shares
$10,000
$12,000
Public corporation C shares
47,500
20,000
Stamp collection
8,000
12,000
Jewellery
6,000
1,000
Boat
5,000
2,000
Stereo set
800
900
1
1
417
417
n
n
e
e
w
w
i
i
a
XiaYthe following additional receipts in 2021: my XiaY
y had
y Xi
12. deAlan
m
m
e
e
d
d
ca
ca
ca
EZ A
EZ A
EZ A
Dividends from Canadian public companies
$4,000
Interest on bonds
1,000
Lottery winnings
6,000
13.
Alan paid out the following in 2021:
1
1
To7purchase
a computer for use at home when working
7on
n 41
n 41
e
e
w
w
i
i
his
employer’s
business
XiaY
XiaY
emy
emy of public corporation
Interest
on
bank
loan
to
purchase
shares
d
d
a
a
c
c
A
EZ A
EZ(mortgage
Interest on house mortgage
funds of $60,000 were used
—$40,000 for the purchase of the house, $20,000 for the
purchase of shares)
Lump-sum alimony settlement to ex-spouse
Tuition fees for attending university
Donations
1
417federal
4171
Gift to a registered
political party
n
n
e
e
w
w
aYi to an RRSP
aYi
Contribution
y Xi
y Xi
m
m
e
e
d
d
ca Annual dues to the provincial law society Z Aca
EZ A
E
71
n 41
EZ
e
$1,900
iaYiw
X
y
em 2,000
Acad
6,000
9,000
1,000
4,000
1,000
a
2,800
y Xi
m
e
d
ca
1,000
EZ A
Required: Calculate Alan’s net income for tax purposes for 2021.
emy
cad
EZ A
X
en
iaYiw
4171
emy
cad
EZ A
X
en
iaYiw
4171
emy
cad
EZ A
en
iaYiw
X
15
4171
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Taxable Income and Federal
Tax Liability
Question 1
Shirin Gilani incurred the following income, disbursements, and losses in 2019 and 2020:
4171
4171
n
n
e
e
w
w
aYi
aYi
a
2019
2020
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
ca
Employment
income
$28,000
EZ A
EZ A $25,000
EZ A
Proprietorship income
0
5,000
Proprietorship loss
3,000
0
Dividend income (non-eligible
10,000
10,000
dividends)
Bond interest
1,000
1,100
71
71
71
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
0
XiaYBusiness investment loss on
XiaY 10,000
XiaY
emy
emy
emy
d
d
d
loan
made
to
a
qualified
small
a
a
a
c
c
c
EZ A
EZ A
EZ A
business corporation
RRSP contribution
2,000
2,000
Taxable capital gains from the
0
1,000
sale of public shares
Allowable capital losses from
2,000
0
1
1
7
7
the sale of public shares
1
1
en 4
en 4
aYiw
aYiw
a
i
i
Additional
information:
X
X
y
y
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
ca
EZ A
EZ A
EZ A
• 2018 was the first year that Shirin sold a capital asset.
• Shirin incurred a business loss of $5,000 from the proprietorship in 2018 (the first year of the business)
that was not needed to reduce net income for tax purposes in 2018.
• Shirin has never used the lifetime capital gains deduction.
Required:
71
71
71
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
aY
XiaYCalculate Shirin’s minimum taxable incomemfor
XiaY
y Xi
3 dof
the
emy
e y 2019 and 2020, in accordance with Sectionca
em
d
d
a
a
c
c
EZ A
EZ A contributions in your answers.)
EZ A
Income Tax Act. (Ignore CPP enhanced
(Marks will only be awarded for answers with work shown.)
en
iaYiw
4171
y X
EZ
emy
cad
EZ A
em
Acad
X
en
iaYiw
en
iaYiw
4171
a
y Xi
y X
EZ
4171
emy
cad
EZ A
em
Acad
X
en
iaYiw
EZ
4171
emy
cad
EZ A
em
Acad
en
iaYiw
X
16
4171
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Question 2
Diego Garcia is 32 years old. Diego earned $112,000 in 2020 while employed as a financial analyst. The
combined CPP and EI deduction during 2020 totaled $3,754. Of this amount, $166 was the CPP enhanced
contribution. The following information was also provided pertaining to the 2020 taxation year:
171of $1,500.
a) Diego enrolled inenpart-time
4171 studies at the local university, paying tuition
4fees
n
e
w
w
i
a
iaYi$800 to a federal political party.
b) Diego ydonated
XiaY $2,000 to a registered charity for tax purposes,
y Xand
y Xi
m
m
m
e
e
e
d
d
d
a
c)cDuring
the year, a total of $4,500 was spent on eyeglasses,
dental care, and prescriptions, and none of
ca
ca
EZ A
EZ A
EZ A
this amount was reimbursed.
d) Diego’s spouse did not work during 2020 while attending full-time post-secondary classes which cost
$8,000 in tuition. The maximum allowed amount was transferred to Diego for 2020 tax purposes. Diego’s
spouse had no other income during the year.
e) Diego ha a $2,000 non-capital loss from 2019.
f) The couple
does not have any children.
71
71
4171
n
n 41
n 41
e
e
e
w
w
w
i
i
i
XiaYRequired:
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
A. Calculate Diego’s taxable income for 2020.
B. Calculate Diego’s federal tax liability for 2020.
en
iaYiw
4171
y X
EZ
emy
cad
EZ A
em
Acad
en
iaYiw
4171
X
emy
cad
EZ A
EZ
emy
cad
EZ A
X
en
iaYiw
em
Acad
en
iaYiw
a
y Xi
EZ
4171
X
emy
cad
EZ A
4171
y X
em
Acad
4171
y X
EZ
en
iaYiw
en
iaYiw
en
iaYiw
en
iaYiw
EZ
4171
emy
cad
EZ A
X
en
iaYiw
4171
X
4171
a
y Xi
y X
em
Acad
em
Acad
EZ
4171
emy
cad
EZ A
em
Acad
en
iaYiw
X
17
4171
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Question 3
Harjot earned $85,000 in 2020 as a full-time teacher, and also generated revenues or $8,000 from a parttime farm on the family’s acreage. The farm expenses totaled $12,000.
The following information pertaining to Harjot’s 2020 tax return has also been provided to you:
4171
4171
n
n
e
e
w
w
aYi
a
iaYi from 2019 totaled $2,000, and
1) Net capital
y Xi losses from 2019 totaled $10,000, and non-capital
y Xlosses
y Xi
m
m
m
e
e
e
d
d
d
neither
ca could be carried back to previous years. Z Aca
ca
EZ A
E
EZ A
2) Harjot had the following amounts deducted from his pay during the year: CPP and EI of $3,754 (which
includes the CPP Enhanced Contribution of $166) and income tax of $19,000.
3) Harjot contributed $5,000 to a TFSA and $15,000 to a guaranteed investment certificate (GIC) which
pays 4% annual interest. The first interest receipt for the GIC will be on June 30, 2021.
4) Harjot received a $1,000 non-eligible dividend in 2020.
5) Harjot’s spouse
works full-time and earns $68,000 a year. 1
71
71
17 was $7,500 and Harjot did not receive
n 41had extensive dental work done in 2020. The
n 4cost
n 41
6)iwHarjot
total
e
e
e
w
w
i
i
XiaYany reimbursement for the cost.
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Required:
A. Calculate Harjot’s net income for tax purposes for 2020 in accordance with Section 3 of the Income
Tax Act.
B. Calculate Harjot’s taxable income for 2020.
C. Calculate Harjot’s minimum
4171 federal tax liability for 2020. (Round alleamounts
4171 to zero decimal places.
n
n
e
w
w
D. Identify carry
aYiover item(s) and related amount(s).
aYi
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
ca
EZ A
EZ A
EZ A
emy
cad
EZ A
en
iaYiw
4171
X
emy
cad
EZ A
en
iaYiw
en
iaYiw
X
EZ
emy
cad
EZ A
X
en
iaYiw
emy
cad
EZ A
4171
y X
em
Acad
4171
en
iaYiw
en
iaYiw
X
4171
a
y Xi
y X
EZ
4171
emy
cad
EZ A
em
Acad
X
en
iaYiw
4171
EZ
4171
emy
cad
EZ A
em
Acad
en
iaYiw
X
18
4171
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Question 4
Niko Takada reported several tax preference items in taxable income in 2019. The normal federal tax in
2019 was $35,000 and the alternative minimum tax (AMT) was $52,000. In 2020 Niko earned only
employment income, and the normal tax for the year was $25,000.
Required:
en
iaYiw
4171
en
iaYiw
4171
a
y Xi
y X
y X
adem
adem
A.
Determine
the
total
actual
taxes
paid
for
2019.
c
c
A
A
EZ
EZ
B. Determine the total actual taxes paid for 2020.
emy
cad
EZ A
en
iaYiw
4171
X
emy
cad
EZ A
en
iaYiw
en
iaYiw
EZ
emy
cad
EZ A
en
iaYiw
4171
X
emy
cad
EZ A
emy
cad
EZ A
X
en
iaYiw
em
Acad
en
iaYiw
X
a
y Xi
EZ
4171
emy
cad
EZ A
4171
en
iaYiw
EZ
4171
emy
cad
EZ A
X
en
iaYiw
em
Acad
en
iaYiw
4171
X
4171
a
y Xi
y X
em
Acad
4171
4171
X
y X
EZ
en
iaYiw
en
iaYiw
y X
4171
em
Acad
emy
cad
EZ A
EZ
en
iaYiw
4171
X
y X
em
Acad
EZ
em
Acad
EZ
4171
emy
cad
EZ A
em
Acad
en
iaYiw
X
19
4171
PLEASE4NOTE:
71 SOME TAX RATES AND RULE ARE CHANGING4EVERY
71 YEAR; YOU SHOULD APPLY THE MOST
71
n 1
n 1
n 41
e
e
e
w
w
w
RECENT
RATE
/
RULES
IN
THE
EXAM
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Question 5
Anita Lopez operates a full-time law practice in eastern Ontario. In her spare time, she maintains a small
rural acreage for the purpose of growing and selling Christmas trees. In addition, she derives income from
various investments and is an art collector. Below are her financial results for 2020.
Net income
from
law practice
4171
4171
n
n
e
e
w
w
Yi tree farm operation
aYi
Xiaon
yLoss
y Xi
m
m
e
e
d
d
Gross rents received on rental property Z Aca
ca
EZ A
E
Operating expenses on rental property before capital
cost allowance
Gain on sale of shares of public corporations
Loss on sale of summer cottage
Gain on sale of oil painting
Gain
on sale of shares of a small business corporation 1
71
7
41Lump-sum
n
n 41settlement
payment to ex-spouse as part of idivorce
e
e
w
w
i
iaY
XiaY
Loss on sale of shares of a publicecorporation
my X
emy
d
d
a
a
c
c
EZ A
EZ A
At the end of 2019, the following tax accounts existed:
$ 97,000
a
(12,500)
y Xi
m
e
d
28,000
ca
EZ A
37,000
80,000
4,000
8,000
20,000
71
40,000 iwen 41
XiaY
my14,000
cade
EZ A
Net listed personal property losses forward from 2019
(represents the actual loss)
Undepreciated capital cost allowance on rental property
Net capital losses
4171
4171
n
n
e
e
w
w
Cumulative
net investment loss
aYi
aYi
y Xi
y Xi
m
m
e
e
d
d
a
Aca
Z Ac gain deduction.
EZ Anita
had not previously used any of her lifetimeEcapital
$ 4,000
160,000
7,000
14,000
EZ
a
y Xi
em
Acad
Required:
What is Anita’s taxable income for 2020?
emy
cad
EZ A
en
iaYiw
4171
X
emy
cad
EZ A
en
iaYiw
en
iaYiw
X
EZ
emy
cad
EZ A
X
en
iaYiw
emy
cad
EZ A
4171
y X
em
Acad
4171
en
iaYiw
en
iaYiw
X
4171
a
y Xi
y X
EZ
4171
emy
cad
EZ A
em
Acad
X
en
iaYiw
4171
EZ
4171
emy
cad
EZ A
em
Acad
en
iaYiw
X
20
4171
2020
RSM324
Final Review Practice Questions
4171
4171
iwen
iwen
iaY
my X
ade
Z Ac
E
iaY
my X
emy
ade
Z Ac
Question 6
cad
EZ A
E
en
iaYiw
4171
X
In 2020, William Barker, who is single, earned the following income and incurred the following losses:
employment income, $16,000; business loss, $4,000; taxable capital gains, $7,000; property income
(interest), $18,000; allowable capital loss from the sale of shares of public corporations, $9,000; allowable
capital loss from the sale of shares of a Canadian-controlled private corporation that qualifies as a small
business corporation, $2,000.
4171
4171
n
n
e
e
w
w
aYi
aYi
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
At the
caend of 2019, William had unused net capital Zlosses
ca of $16,000 and unused non-capital losses ofZ Aca
EZ A
E A
E
$37,000. William does not want to pay any federal tax in 2020. For 2020, William is entitled to a deduction
for CPP enhanced contributions of $38, the basic personal tax credit, the Canada employment credit, and a
CPP & EI credit amount of $872.
Required:
71
171
4171 of non-capital losses remaining for
n 4William’s
n amount
n 41
Assuming
wishes are met, what is the maximum
e
e
e
w
w
w
i
i
i
XiaY
XiaY
XiaY
emy carry-forward after 2020?
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
en
iaYiw
4171
y X
EZ
emy
cad
EZ A
em
Acad
en
iaYiw
4171
X
emy
cad
EZ A
EZ
emy
cad
EZ A
X
en
iaYiw
em
Acad
en
iaYiw
a
y Xi
EZ
4171
X
emy
cad
EZ A
4171
y X
em
Acad
4171
y X
EZ
en
iaYiw
en
iaYiw
en
iaYiw
en
iaYiw
EZ
4171
emy
cad
EZ A
X
en
iaYiw
4171
X
4171
a
y Xi
y X
em
Acad
em
Acad
EZ
4171
emy
cad
EZ A
em
Acad
en
iaYiw
X
21
4171
2020
RSM324
Final Review Practice Questions
4171
4171
iwen
iwen
iaY
my X
ade
Z Ac
E
Question 7
iaY
my X
ade
Z Ac
emy
cad
EZ A
E
en
iaYiw
4171
X
Avery Swan is 30 years old and single. She is employed as a middle-level manager with a national Canadian
company. After living and working for five years in Regina, Saskatchewan, she was transferred to her
employer’s office in Winnipeg on December 15, 2020.
1 2020 taxation year are shown below.
Her financial transactions
for
417the
4171
n
n
e
e
w
w
aYi
aYi
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
a
1. cAvery
received an annual salary of $70,000, but A
her
ca take-home pay for the year was only $53,246Z Aca
EZ A (see below).
EZ
E
Gross salary
Amounts withheld by employer:
Income tax
Company pension contribution
1
71
417Canada
Pension Plan (enhanced contribution
$166)
n
n 41
e
e
w
w
i
i
XiaY
XiaY
emy
emy
d
d
a
a
c
c
Employment InsuranceEZ A
EZ A
$70,000
(11,000)
(2,000)
71
(2,898) iwen 41
XiaY
emy
d
a
c
(856)
EZ A
$53,246
2.
During the current year, Avery purchased 1,000 shares of her employer’s company (a public
corporation) under a stock-option program. The shares cost $10 each and at the time of purchase had
a market value of $14 per share. When the stock option was granted two years ago, the share price
was $11.To fund the1purchase,
she borrowed $10,000 from her bank. During
the year, she paid
4 71
4171
n
n
e
e
interest of i$800
on
the
loan.
w
w
aYi
aYi
a
y X
y Xi
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
ca
E
EZinA commodity futures and lost a large portion of her
EZ A
3.Z A The previous year, Avery had unwisely invested
savings. She considered this loss to be a business loss but was unable to use the full amount for tax
purposes because her other income was not sufficient. Of the total loss, $6,000 was unused.
4.
As well, Avery had the following receipts for 2020:
71
71
Dividends
from taxable Canadian corporations (Eligible)
n 41
n 41
e
e
w
w
i
i
Dividends of $2,000 from a foreign corporation,
XiaY
XiaY
emy
emy
d
d
less
foreign
taxes
of
$200
a
a
c
c
ZA
EZ A
Cash received from RRSP E
withdrawal used to purchase home
Proceeds from the sale of public corporation shares
(originally purchased for $20,000)
5.
emy
en
iaYiw
X
26,000
In 2020, she made the following disbursements:
4171 payment (first home)
4171
Winnipeg home
down
n
n
e
e
w
w
aYi
aYi
Mortgage
y Xi payments on her new home
y Xi
m
m
e
e
d
d
ca Life insurance
ca
EZ A
EZ A
Charitable donations
Contribution to a federal political party
Tuition fees to a university (one-day course)
cad
EZ A
71
$ 4,000
n 41
e
w
i
aY
y Xi
em
d
1,800
a
c
EZ A
35,000
4171
emy
cad
EZ A
X
en
iaYiw
$60,000
1,000
400
800
800
300
a
y Xi
EZ
4171
emy
cad
EZ A
em
Acad
en
iaYiw
X
22
4171
2020
RSM324
Final Review Practice Questions
4171
4171
iwen
iwen
iaY
my X
Required:
iaY
my X
ade
Z Ac
E
emy
ade
Z Ac
cad
EZ A
E

en
iaYiw
4171
X
For the 2020 taxation year, determine the following for Avery:
a) net income for tax purposes
EZ
b) taxable income 4171
en
aYiw
i
X
emy
Ac)cadfederal tax liability
en
iaYiw
4171
a
y Xi
y X
EZ
em
Acad
EZ
em
Acad
To which province will Avery pay provincial tax?
emy
cad
EZ A
en
iaYiw
4171
X
emy
cad
EZ A
en
iaYiw
en
iaYiw
X
EZ
emy
cad
EZ A
en
iaYiw
4171
4171
X
emy
cad
EZ A
EZ
emy
cad
EZ A
X
en
iaYiw
em
Acad
en
iaYiw
X
a
y Xi
EZ
4171
emy
cad
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4171
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23
4171
2020
RSM324
Final Review Practice Questions
4171
4171
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Question 8
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4171
X
Charlotte Martin is a lawyer. For five years, until June 30, 2020, she had been employed by Roadhouse
Ltd., a national hotel chain. On July 1, 2020, she began to practice law as a sole proprietor from an office
in her home.
71
171
Charlotte has asked you
to
her 2020 income tax return. At a recent
you gathered the
41prepare
4meeting,
n
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Required:
a.
Determine Charlotte’s minimum income for tax purposes in accordance with the aggregating
formula of section 3 of the Income Tax Act and her minimum taxable income for the 2020 taxation
year.
71
71
4171on your answer to question 1, calculate Charlotte’s
n 41 federal income tax for the 2020 taxation iwen 41
b. iwenBased
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c.
Why did the CRA deny the deduction of Charlotte’s 2018 convention expenses? Can she obtain a
deduction for the proposed 2021 convention? If so, why?
EXHIBIT I
Work at Roadhouse and Law Practice (2020)
4171
4171
n
n
e
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w
w
1.
Charlotte’s
to June 30th, was $70,000. From this, Roadhouse
i
i deducted EI and CPP of $3,754
aYsalary
a
XiaY
y Xi CPP enhanced contributions of $166), income
ytax
y Xi
m
m
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(includes
of
$11,000,
and
$400
for
Charlotte’s
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d
d
ca
ca
Aca
EZ A portion of the private group medical insurance
EZpremium.
EZ A
An additional premium of $400 was paid
by Roadhouse. Also, Roadhouse paid the $800 premium for Charlotte’s group term life insurance
coverage of $100,000.
2.
On June 30th, Charlotte returned the company car that Roadhouse had provided her. The car had a
cost of $32,000, and Roadhouse’s undepreciated balance was $18,000. Roadhouse also had paid
71
71
4171 Charlotte had driven her car 16,000
nthe41operating costs for the car, which amountediwto
n$2,100.
n 41
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w
i
i
Y business use.
kilometres, of which 12,000 kilometres were
XiaY
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EZ A
EZ working
EZ credit
3.
Charlotte travelled by air when
for Roadhouse. Charlotte used her personal
card and
accumulated frequent-flyer points. She submitted monthly expense reports and was reimbursed by
Roadhouse for the travel costs. In March, she and her husband used some of her accumulated
frequent-flyer points to obtain free airline tickets for a vacation. As a result, they each saved the
$800 airfare.
71
171 at 1% on the loan.
41
4interest
In 2018, Charlotte
borrowed
$60,000
from
Roadhouse.
She
has
paid
n
n
e
e
w
w
aYi
a
iaYi
Charlotte
a rental property. The CRA’s
y Xi used the borrowed funds for the down payment
ytoXpurchase
y Xi
m
m
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d
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a
th
ca
ca
2020.
Z AcCharlotte repaid the loan on June 30 when her
EZ A prescribed interest rate was 3% throughout E
EZ A
employment ended.
4.
5.
On June 30th, Charlotte sold 500 shares of Roadhouse Ltd. for $20 per share to the company’s
controlling shareholder. Roadhouse had issued the shares to Charlotte at $10 in 2017. At that time,
the shares were appraised at $12. Roadhouse Ltd. is a Canadian-controlled private corporation. At
the time
used in an active business.
1
71 of the share sale, all of Roadhouse’s assets were
7being
71
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EZ A
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24
2020
RSM324
Final Review Practice Questions
4171
4171
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6.
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Z from her home office on July 1st and registered
EZ for HST. She
Charlotte began practising E
law
purchased the client list and files of a retiring lawyer for $50,000. She also purchased a computer
for $4,000 and a legal library for $5,600.
4171
7.
On July 4, Charlotte purchased an automobile for $34,000, plus HST. She used the car 60% of the
time for her law practice.
4171
4171
n
n
e
e
w
w
i
8.
For theXsix
ended December 31, 2020, the financialXstatements
of Charlotte’s law practice
aYmonths
aYi
a
y i
y i
y Xi
m
m
m
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d
d
showed
a
profit
of
$164,000.
The
gross
revenue
of
$194,000
consisted
of
the
following:
ca
ca
ca
EZ A
EZ A
EZ A
Fees billed and received
$170,000
Fees billed but received at the year end
24,000
$194,000
71
4171 expenses for the law practice included the
4171
9.
nOperating
nfollowing:
n 41
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Liability insurance
EZ A
EZ A
EZ A$ 2,200
Depreciation and amortization
9,100
Reserve for bad debts
1,200
Golf club dues—while attending the club, clients are
entertained approximately 30% of the time
1,600
Charitable donations
1,800
Promotion—client lunches
400
1
1
417
417
n
n
e
e
Secretarial
services
12,000
w
w
aYi
aYi
a
y Xi software—word processing and billing program
y Xi
y Xi
Computer
900
m
m
m
e
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d
d
d
ca
ca
ca
EZ A
EZ A
EZ A
10.
Charlotte uses 12 square metres of her house exclusively as an office for her law practice. Expenses
for the entire 80-square-metre home for all of 2020 consist of the following:
Insurance
Mortgage interest
Property
71 taxes
71
n 41
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Utilities
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The financial statements do E
not
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$ 700
9,000
2,300
71
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25
4171
2020
RSM324
Final Review Practice Questions
4171
4171
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EXHIBIT II
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X
Other Financial Information (2020)
1.
Charlotte owns a residential rental property, which she had purchased in 2018. Details of the rent
and expenses in 2020 are as follows:
4171
4171
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$6,000
aYi
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and
maintenance
$1,200
ca
ca
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Property tax
900
Interest on first mortgage
3,300
(5,400)
$ 600
As of December 31, there were no unpaid rents from the tenant.
71 to a spousal RRSP during the year.
71
4171 contributed $11,000 to her RRSP and another
2.
$1,000
nCharlotte
n 41
n 41
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w
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She has contributed the same amount to
theXspousal
plan for the past four years. On December
20,
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her spouse withdrew $4,000Efrom
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3.
The following additional receipts and disbursements occurred during the year:
Paid dental fees
$2,900
Paid contributions to a registered federal political party
1,400
Paid interest on late
payment
of
2019
income
tax
240
1
1
417
417
n
n
e
e
Received
cash
dividends
(Non-eligible)
on
Roadhouse
shares
1,000
w
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aYi
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y Xi
Received
proceeds from the sale of a silver tea setde(original
1,100
m
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4.
Charlotte received 100 shares of TXE Ltd., a public corporation. The shares were a stock dividend
(Eligible) on the 2,000 shares she had purchased at $4 per share five year ago. At the time of the
stock dividend, the shares were trading at $8. She sold the 100 stock dividend shares in December,
at $7.
5.
Charlotte’s
spouse earned $110,000 in 2020.
71
71
71
n 41
n 41
n 41
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emCharlotte
emy
In
2018,
while
employed
at
Roadhouse,
attended
a
national
law
convention.
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d
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a
a
c
c
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Z Atime off from
EZ A
EZ2018
her expenses of $2,300 on her
tax return. Her employer willingly gave herEthe
work to attend the convention, even though it was not directly related to her work. In 2020,
Charlotte received a reassessment notice from the CRA disallowing the entire convention expense
deduction. Now that Charlotte is practicing law, she will attend the 2021 convention to upgrade her
skills.
4171 2019 tax return showed the following:
4171
A review of Charlotte’s
n
n
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w
w
aYi
aYi
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m
m
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d
d
ca Maximum RRSP deduction available in 2020
ca
EZ A
EZ A
Capital gain deductions claimed in past years
Net income from real estate rentals (after deducting a reserve for
uncollectible rents of $500)
Undepreciated capital cost—class 1 (rental property)
Reserve for unpaid rents
71
71
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26
4171
2020
RSM324
Final Review Practice Questions
4171
4171
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Question 9
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4171
X
Samuel Aalto is 63 years old and retired from his employment with Duplex Ltd., a Canadian public
corporation, on September 30, 2020.
Samuel has asked you to help him prepare his 2020, tax return and to advise him on certain other tax matters.
Information regarding his financial
activities for 2020 is summarized below. 4171
4171
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gross salary to September 30th, was $85,000.
From
this
amount,
Duplex
deducted
income
ca
ca
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EZ A
tax of $22,000 and EI & CPP of $3,754 (includes
to salary, Duplex paid $9,000 directly into Samuel’s RRSP at a local bank. Samuel paid the annual
RRSP administration fee of $100. Samuel had the use of the employer’s automobile until his
retirement. Duplex paid the monthly lease cost of $400 plus monthly operating expenses of
$200.Between January 1 and September 30, Samuel drove the car a total of 16,000 kilometres, of
which 4,000 kilometres was for personal use.
71
71
71
n 41
n 41
n 41
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Samuel suffered an illness during the early
part
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this period, the employer’s group
EZ A
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EZ A $4,000 for
lost salary. The entire premium of $500 was paid by Duplex. Due to his illness, Samuel incurred
and paid medical expenses of $3,000 in the year.
3.
In 2017, Duplex granted Samuel an option to acquire up to 5,000 of its shares at $8 per share. At
that time, the shares were trading at the same price. In January 2020, he purchased 2,000 shares
when they were trading
shares in July, when
1 at $10 per share. He purchased an additional 41,000
171
4at17
n
n
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they were Y
trading
$15
per
share.
In
November,
Samuel
sold
2,000
shares
at
$20 per share after
w
w
i
i
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receiving
m
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4.
Last year, as a sideline, Samuel began carving wooden bowls to sell. He hoped to generate a small
profit and keep himself occupied during his retirement. He made his first sales in 2020, which
resulted in a loss of $8,850. This excludes amortization but includes a deduction of $4,000 for the
full cost of woodworking equipment purchased last year.
5.
On January
2, Samuel gifted his stamp collection to his
grandson.
He had acquired the collection
71
71
71
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
over
the
past
15
years
at
a
cost
of
$7,000.
The
collection
has
recently
been
appraised
at
$12,000.
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purchased five years ago forE$16,000.
6.
On November 15, Samuel received $1,000 from an acquaintance in exchange for an option to
purchase a small piece of land he had acquired four years earlier with the intention of constructing
a rental property. For financial reasons, the construction plan had been terminated.
171lives with his spouse. His spouse retired last nyear,
4and
417at1 age 60, and will begin
Samuel is married
n
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a
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y Xi a pension in 2021. During 2020, his spouse
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27
4171
2020
RSM324
Final Review Practice Questions
4171
4171
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8.
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Samuel’s tax return from the previous year showed the following balances:
Listed personal property losses forwarded to 2020
Maximum RRSP deduction available in 2020
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11,000
Required:
4171
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purposes
in
accordance
with
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format
of
section
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(b)
Based on your answer to question 1, calculate Samuel’s minimum federal income tax liability for
the 2020 taxation year.
71
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71
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RSM324 FALL 2021 FINAL REVIEW
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71
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Disclaimer
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This complementary study package is provided by Easy Edu Inc. and its affiliated mentors. This
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substitute to course
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tests and other available
71
4171
4171
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We acknowledge that this package contains some materials provided by professors and staff of
the University of Toronto, and the sources of these materials are cited in detail wherever they
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171
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ThisEZ
package
is distributed for free to students E
participating
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4171
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you
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RSM324 FALL 2021 FINAL REVIEW
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SECTION 3 AGGREGATING FORMULA
Income Tax Act
Section
3(a)
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Descriptions
Worldwide income (positive amounts only) from non-capital
sources including:
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• Property
• Other source of income
Subtotal 1 (must be positive or 0)
3(b)
+
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Net gains from listed personal property
exceed
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4171
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Subtotal 3 (must be positive or 0)
3(d)
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Losses from non-capital source including:
• Employment losses
• Business losses
•171Property losses
171
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i
y Xi
y X
y Xi
m
m
m
e
e
e
d
d
d
Division
=
Net income for tax purpose
caB
ca
ca
EZ A
EZ A
EZ A
Income
−
Division C deductions
• Employee stock option
• Lifetime capital gain deduction
• Non-capital loss carryforwards
71
71
71
1
• Net capital loss carryforwards
4
n
n 41
n 41
e
e
e
w
w
w
i
i
i
• Social assistance y XiaY
XiaY
XiaY
emy
em
emy
d
d
d
a
a
a
c
c
c
=
Taxable E
Income
ZA
EZ A
EZ A
171
en 4
y
EZ
emy
cad
EZ A
em
Acad
X
en
iaYiw
171
en 4
iw
XiaY
y
EZ
4171
emy
cad
EZ A
em
Acad
X
en
iaYiw
iw
XiaY
4171
a
y Xi
EZ
em
Acad
en
iaYiw
y X
adem
c
A
EZUTSG 校区
AL EASY EDU
2
4171
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
RSM324 FALL 2021 FINAL REVIEW
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
GAINS AND LOSSES ON CAPITAL PROPERTY
cad
EZ A
en
iaYiw
4171
X
CATEGORIES OF CAPITAL PROPERTY
A. Personal use property (PUP)
4171
171
en
en 4
w
w
i
i
Y
Y
a
a
a
i
Xi
yowned
y Xuse
y Xi
m
m
m
e
e
e
Property
by
the
taxpayer
and
used
primarily
for
personal
or
enjoyment
and
does
not
general
d
d
d
ca
ca
ca
EZ Afinancial returns.
EZ A
EZ A
For example: a house, a cottage, a car, a boat, etc.
B. Listed personal property (LPP)
71
71
71
Property
element
n 41 that are for personal used but also have some
n 41 of investment value, limited to the
n 41
e
e
e
w
w
w
i
i
i
XiaYfollowing items:
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
• A print, etching, drawing, painting, or sculpture, or other similar works of art
• Jewelry
• A rare folio, rare manuscript, or rare book
• A stamp
• A coin
171
171
en 4
en 4
w
w
i
i
Y
Y
C. Financial property
a
a
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
ca
EZ A
EZ A
EZ A
Property acquired primarily to general a benefit through a financial reward.
For example: shares, bonds, loans, etc.
GENERAL RULES FOR CAPITAL GAINS AND LOSSES
71
71
71
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
taxable
is
iaY capital gains exceed total allowable capital losses
XiaYAccording to the Aggregating Formula, total
XiaY
mytaxXpurpose.
emy
efor
emy
d
d
d
included
in
the
calculation
of
net
income
a
a
a
c
c
c
EZ A
EZ A
EZ A
Capita losses can only be offset against capital gains
A. General calculation
Proceeds of disposition (POD)
171
Less:
en 4
w
i
Y
a
Xi base (ACB)
• Adjusted
y cost
adem
c
A
• Z Expense on disposition
E
Capital gain (loss)
XX
171
en 4
XX
XX
XX
y
EZ
em
Acad
iw
XiaY
a
y Xi
EZ
em
Acad
Only one-half of the capital gain is included in net income, referred as “taxable capital gain” (TCG).
emy
cad
EZ A
X
en
iaYiw
4171
emy
cad
EZ A
X
en
iaYiw
4171
en
iaYiw
y X
adem
c
A
EZUTSG 校区
AL EASY EDU
3
4171
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
RSM324 FALL 2021 FINAL REVIEW
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
B. Disposition and proceeds of disposition
en
iaYiw
4171
X
Property sold POD = Selling price
Property exchange POD = FMV of property received
Involuntary disposal POD = Compensation received
171
171
Deemed disposition
en 4
en 4
w
w
i
i
Y
Y
a
a
Xi
y Xi
emy
ad
adem
c
c
No
actual
proceeds
but
deemed
to
have
sold
for
A
A
EZ
EZ
• Gift: POD = FMV at time of sale
• Change in use: POD = FMV at time of change
• Giving up residency: POD = FMV when cease Canadian residency
• Dead: POD = FMV immediately prior to death
a
y Xi
EZ
em
Acad
C. Adjusted 4cost
171base (ACB)
71
71
n
n 41
n 41
e
e
e
w
w
w
i
i
i
aY
XiaY
XiaY
y Xi
emy
emy purchase price plus other costs incurred
em
d
d
d
Normally,
the
ACB
of
a
property
is
the
original
to
make
the
a
a
a
c
c
c
A
EZ A
EZ installation
EZ A
acquisition, such as brokerage fee,
fee and legal fees, etc.
D. Expense of disposition
All costs incurred to complete the disposition are deductible
• Legal fees to complete
the sales agreement
171
41or71commission to agents
n
e
en 4
• Brokerage
fees
w
w
i
i
Y
Y
a
a
y Xi
y Xi
ad•emAdvertising
adem
c
c
A
A
EZ
EZ
• Mortgage discharge fee
a
y Xi
EZ
em
Acad
E. Deferred proceeds
In order to facilitate a sale, seller may choose to accept payment over time
71
71
171over time based on receipt of proceeds,
Capital
n 41gains rules allow the seller to recognize the capital
n 4gain
n 41
e
e
e
w
w
w
i
i
i
XiaYsubject to a time limitation as:
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
• Deferred recognition is restricted to a maximum of five years, and
• A minimum of 20% of the capital gain must be recognized for each of the five years.
Formula to calculate the maximum reserve in any year is equal to the lesser of
•
(Deferred proceeds
/ Total proceeds) x Capital Gain, or
171
4171
n
e
en 4
w
w
i
i
Y
Y
a
a
a
i
y Xi of the gain in Year 1, 60% in Year 3, 40% inem
y X3,
y Xi
m
m
•
80%
Year
20%
in
Year
4,
and
zero
in
Year
5.
e
e
d
d
d
ca
ca
ca
EZ A
EZ A
EZ A
emy
cad
EZ A
X
en
iaYiw
4171
emy
cad
EZ A
X
en
iaYiw
4171
en
iaYiw
y X
adem
c
A
EZUTSG 校区
AL EASY EDU
4
4171
RSM324 FALL 2021 FINAL REVIEW
71
n 41
e
w
i
iaY
X
emy
Example
cad
EZ A
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
en
iaYiw
4171
X
John sells a piece of land with ACB of $150,000 for $200,000 in 2020. He receives $80,000 in cash at time of
sale, $30,000 in 2021 and $90,000 in 2019. What must be included in his income in 2020?
Analysis
171
en 4
w
i
Y
a
Capital gain
y Xi
adem in 2020, lesser of
ReserveAclaimed
c
EZ $50,000 x (120,000/200,000) = $30,000
4/5 x 50,000 = $40,000
Capital gain recognized in 2020
Taxable capital gain (@50%)
$50,000 y
m
cade
A
Z
E
171
en 4
iw
XiaY
a
y Xi
EZ
em
Acad
$(30,000)
$20,000
$10,000
UNIQUE ASPECTS
OF CAPITAL LOSSES
171
71
71
n 4
n 41
n 41
e
e
e
w
w
w
i
i
i
iaY
XiaY
XiaY
my X
emy
edisposition
emy
d
d
d
Capital
losses
are
recognized
only
when
a
occurs
a
a
a
c
c
c
EZ A
EZ A
EZ A
They can only be deducted only to the extent that capital gains realized in the same year
If a capital loss cannot be used in the current year
•
It can be carried forward indefinitely and used against future capital gains, or
171
171
en 4
en 4
w
w
i
i
Y
Y
a
a
a
Xi be carried back to the previous three years m
• mIt
provided
y can
y Xi that capital gains were incurred in
y Xi
m
e
e
e
d
d
d
ca
ca
ca
those years.
EZ A
EZ A
EZ A
A. Allowable business investment losses (ABIL)
ABIL incurred on the disposition of
• A71loan to a small business corporation (SBC), or 4171
71
n 41
n
n 41
e
e
e
w
w
w
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
•
Sales
of
that
corporation’s
shares
a
a
a
c
c
c
EZ A
EZ A
EZ A
SBC is a private corporation that is Canadian-controlled and uses all or substantially all of its assets (at
least 90%) to conduct an active business.
An ABIL can offset against all other sources of income
171
en 4
y
EZ
emy
cad
EZ A
em
Acad
X
en
iaYiw
171
en 4
iw
XiaY
y
EZ
4171
emy
cad
EZ A
em
Acad
X
en
iaYiw
iw
XiaY
4171
a
y Xi
EZ
em
Acad
en
iaYiw
y X
adem
c
A
EZUTSG 校区
AL EASY EDU
5
4171
emy
cad
EZ A
RSM324 FALL 2021 FINAL REVIEW
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
en
iaYiw
4171
X
B. Deemed disposition on loans and shares
Deemed disposition rules permit the loss could be recognized before an actual disposition occurs:
•
Loan to SBC
171
171
en 4
en 4
w
w
i
i
Y
Y
a
a
a
i The loan could be deemed to be disposed of yforXai value of nil at the time it is established
y Xo
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
ca
that it is a bad debt.
EZ A
EZ A
EZ A
•
Share of SBC
The share is deemed to be disposed of for a value of nil at the time the corporation has
become legally bankrupt.
71
71
71
n 41 property
n 41
n 41
e
e
e
C. Depreciable
w
w
w
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
A
EZ A
EZ A
EZthrough
No capital loss is allowed on depreciable
property as the original cost is written off
CCA
system. Therefore, any further loss if price sold is less than its original cost, would have been already
captured by terminal loss.
o
D. Superficial losses
1
171
Seller is an individual en 417
en 4
w
w
i
i
Y
Y
a
a
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
ca
EZ AIf a taxpayer disposes of an asset and then reacquires
EZ A the same asset within 30 days of the sale, the EZ A
resulting loss resulted from the original disposal is denied and it is referred as “superficial losses”.
The actual loss is not permanently denied but added to the ACB of the required asset.
The superficial losses also applied when the asset is sold to a spouse, or a corporation controlled by the
taxpayer 7or1 spouse, or transferred to a RRSP or TFSA.
71
71
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
aY
XiaY
XiaY
y Xi
emExample
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
John sold 500 shares of Corp A for $8,000 with ACB of $10,000 on December 31, 2020. On January 10, 2021, he
reacquires 500 shares of Corp A for $7,500.
Analysis
Shares sold on December 31,42020
171
en
w
i
Y
a
y Xi
POD
adem
c
A
EZ
ACB
Capital loss
Superficial loss deemed to be nil
emy
cad
EZ A
X
en
iaYiw
171
en 4
$8,000
$(10,000)
$(2,000)
$nil
y
EZ
4171
emy
cad
EZ A
em
Acad
X
en
iaYiw
iw
XiaY
4171
a
y Xi
EZ
em
Acad
en
iaYiw
y X
adem
c
A
EZUTSG 校区
AL EASY EDU
6
4171
RSM324 FALL 2021 FINAL REVIEW
71
n 41
e
w
i
iaY
71
n 41
e
w
i
iaY
X
y X
emy
adem
c
A
EZ
ACB of shares purchased on Jan 10, 2021
cad
EZ A
Original purchase price
Denied loss [53(1)(f)]
New ACB
emy
cad
EZ A
en
iaYiw
4171
X
$7,500
$2,000
$9,500
171
171
Seller is a corporation
en 4
en 4
w
w
i
i
Y
Y
a
a
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
Denied
loss is retained by the selling corporation and
ca
cisa not transferred to the cost base of the new Z Aca
EZ Aproperty.
EZ A
E

The selling corporation defers the recognition of the capital loss until the affiliated person sells the
property or asset sold under deemed disposition rules.
Affiliated 1persons:
7
71
n 41
n 41
e
e
w
w
i
i
XiaY
XiaY
• Taxpayer & spouse
emy
emy
d
d
a
a
c
c
A or both of the taxpayer and spouse
• Corporation controlled by
EZ A
EZeither
• Taxpayer and his/her RRSP or TSFA
emy
cad
EZ A
en
iaYiw
4171
X
E. Personal use property
Losses are deemed to be nil, but gains are taxable
171
171
en 4
en 4
w
w
i
i
Y
Y
a
a
Deemedyminimum
POD
=
$1,000
and
minimum
ACB
=
$1,000
Xi
y Xi
adem
adem
c
c
A
A
EZ
EZ
a
y Xi
EZ
F. Listed personal property
em
Acad
Losses on LPP can be offset only against capital gains from LPP
Unused losses can be
71
171
n• 41Carried back three years or forward seven years,
n 4and
e
e
w
w
i
i
XiaY
XiaY
• Only deducted against LPP gains.
emy
emy
d
d
a
a
c
c
EZ A
EZ A
Deemed minimum POD = $1,000 and minimum ACB = $1,000
171
en 4
y
EZ
emy
cad
EZ A
em
Acad
X
en
iaYiw
emy
cad
EZ A
en
iaYiw
4171
X
171
en 4
iw
XiaY
y
EZ
4171
emy
cad
EZ A
em
Acad
X
en
iaYiw
iw
XiaY
4171
a
y Xi
EZ
em
Acad
en
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y X
adem
c
A
EZUTSG 校区
AL EASY EDU
7
4171
emy
cad
EZ A
RSM324 FALL 2021 FINAL REVIEW
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
UNIQUE ASPECTS OF SPECIFIC CAPITAL PROPERTIES
cad
EZ A
en
iaYiw
4171
X
A. Identical properties
The ACB of each identical property acquired is the weighted average cost of all the identical properties
acquired up to the point.
171
171
en 4
en 4
w
w
i
i
Y
Y
a
a
a
Xi
y Xi
y Xi
m
m
Examplecademy
e
e
d
d
ca
ca
EZ A
EZ A
EZ A
Share acquired as follows:
Year
# of shares
Cost per share
Total
2019
100
$6
$600
2020
200
$8
$1,600
71
71
1
2021
80
$10
$800
4
n
n 41
e
e
w
w
i
i
aY
aY
380
Xi3,000
y Xi
emACB
emy
d
d
a
a
per
share
$3,000
/
380
=
$7.89
c
c
EZ A
EZ A
emy
cad
EZ A
en
iaYiw
4171
X
If sell 150 share for $1,350, capital gain = $1,350 – (150 x $7.89) = $167
B. Principal residence
A principal residence is owned
and ordinarily inhabited for personal use
171
4171
n
e
en 4
w
w
i
i
Y
Y
a
a
Xi
y aXicapital loss
It may
bey subject
to a capital gain on sale, but it cannot realize
adem
adem
c
c
A
A
EZ
EZ
The capital gain realized on the sale is reduced by
a
y Xi
EZ
em
Acad
1 + # of years designated as principal residence
x Gain
Number of years owned
71
71
n 41
n 41
e
e
w
w
i
i
Only
one
property
can
be
designated
for
each
family
for
any
particular year
aY
aY
y Xi
y Xi
m
m
e
e
cad
cad
EZ A
EZ A
Example
emy
cad
EZ A
en
iaYiw
4171
X
John acquired a house in 2016 for $100,000. In 2018, he acquired a vacation home for $50,000. In 2020, he sold
both properties for $150,000 (house) and $95,000 (vacation home)
Analysis
171
en 4
iw
1) Vacation home
XiaY
y
m
cade
EZ A
Capital gain
Exemption:
(2+1) / 3 x $45,000
Capital gain
emy
cad
EZ A
X
en
iaYiw
171
en 4
y
EZ
$45,000
em
Acad
iw
XiaY
a
y Xi
EZ
em
Acad
(45,000)
0
4171
emy
cad
EZ A
X
en
iaYiw
4171
en
iaYiw
y X
adem
c
A
EZUTSG 校区
AL EASY EDU
8
4171
71
n 41
e
w
i
iaY
X
emy
2) House
cad
EZ A
RSM324 FALL 2021 FINAL REVIEW
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
en
iaYiw
4171
X
Capital gain
$50,000
Exemption:
(3+1) / 5 x $50,000
(40,000)
Capital gain
10,000
71
1
171
Taxable capita gain
$5,000
en 4
en 4
w
w
i
i
Y
Y
a
a
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
a complex when more than one property is owned.
a
Designation
is made at time of sale. Also, designation
is
ca
Z Ac
Z Ac
EZ AThe property resulted with a higher capital gain E
per year should be designated as principal residenceEfirst.
D. Mutual funds
An investor acquires units of a particular mutual fund at a specific cost. As the units are capital property,
the ACB7=1the purchase price + reinvested income
71
71
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
Y
XiaYDistributions retain characteristics of the income
Xiaearned
XiaY
by the mutual fund:
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
• Capital gains
• Dividends
• Interest
• Ordinary income
71 still taxable when made and the distribution is4added
1are
171 to the ACB of the
Reinvested distributions
en 4
en
w
w
i
i
Y
Y
a
a
a
investment
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
ca
EZ A
EZ A
EZ A
A disposition occur whenever all or some of the units are redeemed for cash or transferred to another
mutual fund.
The disposition will result in a capital gain or loss if redemption price varies from the ACB.
171
4
ensmall
E. Eligible
business investments
aYiw
i
my X
cade
EZ A
en
iaYiw
4171
en
iaYiw
4171
y X
y X
adem
adem
c
c
A
A
Z business corporation, individual who dispose E
To improve access to capital forEsmall
a Zsmall business
investment can defer the gain if
•
Proceeds are used to reinvest in another eligible small business, and
•
New investment must be newly issued treasury common shares and must be owned for at least
171
185 days. n 4171
e
en 4
w
w
i
i
Y
Y
a
a
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
Deferral
applied to capital gains realized on the sale
of
ca
cashares of an “eligible small business
ca
EZ A
EZ A
EZ A
corporation”
•
A CCPC with more than 90% of its assets used in an active business carried on primarily in
Canada
• Total assets of corporation cannot be greater than $50 million after the investment
• Timing
– replacement investment must be made during
the year of sale of the former shares or no
71
71
171
41later
4
n
n
n 41
e
e
e
than
120
days
after
the
end
of
its
taxation
year.
w
w
w
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
A
EZ A
EZ A
EZUTSG
AL EASY EDU
校区
9
emy
cad
EZ A
RSM324 FALL 2021 FINAL REVIEW
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
en
iaYiw
4171
X
Example
In 2021, John disposes of shares in an eligible small business for $1,000,000. The ACB is $400,000. Within the
qualifying period reinvests $900,000 in treasury shares of another eligible small investment
Analysis
171
171
en 4
en 4
w
w
i
i
Y
Y
a
a
a
Capital gain
$600,000
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
Deferral:
ca
ca
ca
EZ A / 1,000,000) x $600,000
EZ A
EZ A
(900,000
(540,000)
Capital gain recognized in 2018
Taxable capita gain
$60,000
$30,000
ACB of new investment: $900,000 – $540,000 = $360,000
71
n 41gifts and capital gains
F. Charitable
Yiwe
ia
my X
cade
EZ A
en
iaYiw
4171
y X
adem
c
A
Z
Canadian public company sharesEtransferred
directly to public charity as a gift
•
emy
cad
EZ A
en
iaYiw
4171
X
The unrealized gain is deemed to be nil, and no income tax payable
Taxpayer still receives a donation receipt for full value and claim tax credit.
171
en 4
y
EZ
emy
cad
EZ A
em
Acad
en
iaYiw
171
en 4
iw
XiaY
y
EZ
4171
X
emy
cad
EZ A
em
Acad
en
iaYiw
y
EZ
emy
cad
EZ A
X
en
iaYiw
a
y Xi
EZ
4171
X
emy
cad
EZ A
171
en 4
em
Acad
iw
XiaY
em
Acad
en
iaYiw
4171
X
171
en 4
iw
XiaY
y
EZ
4171
emy
cad
EZ A
em
Acad
X
en
iaYiw
iw
XiaY
4171
a
y Xi
EZ
em
Acad
en
iaYiw
y X
adem
c
A
EZUTSG 校区 10
AL EASY EDU
4171
emy
cad
EZ A
RSM324 FALL 2021 FINAL REVIEW
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
OTHER INCOME AND OTHER DEDUCTION
en
iaYiw
4171
X
OTHER SOURCES OF INCOME
A. Major source of other income
4171
171
en
en 4
w
w
i
i
Y
Y
a
a
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
RRSP
ca and RRIF benefits
ca
ca
EZ APension benefits from employer’s pension plan EZ A
EZ A
OAS, CPP, EI
DPSP benefits
Foreign pension benefits
Scholarship, fellowship, bursaries
• Not
taxable only if enrolled in a qualifying education program,
otherwise, such receipts are
71
71
41exempted
4171
only
to
the
extent
of
$500
annually.
n
n
n 41
e
e
e
w
w
w
i
i
i
XiaYResearch grants
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
• Total grant received in excess
EZ A
EZ A of expenses incurred is taxable
EZ A
Support payments
• Taxable only to the extent that they are for a former spouse
• Payment received for the support of a child are not taxable
CERB, CESB, CRB, CRSB, (Covid-19 related supports)
Home buyer’s plan (HBP)
Lifelong learning plan4(LLP)
171
171
en
en 4
w
w
i
i
Y
Y
a
a
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
a
B. Items
are not subject to tax under the Canadian
cthat
ca tax system
ca
EZ A
EZ A
EZ A
Receipt of a gift
Winning a lottery
Receipt of an inheritance
Life insurance proceeds on the death of an individual
Profit from1 gambling
7
71
71
n 41 from accident, disability, sickness, or income
n 41
n 41
Proceeds
maintenance
insurance
policies
if
e
e
e
w
w
w
i
i
i
XiaYemployee has paid all of the premiums my XiaY
XiaY
emy
e
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
• However, if an employer has paid all or part of the premiums for such policies, the proceeds
received from a claim are taxable as employment income to the extent that they exceed any
premiums paid in the past years by the employee.
171
en 4
y
EZ
emy
cad
EZ A
em
Acad
X
en
iaYiw
171
en 4
iw
XiaY
y
EZ
4171
emy
cad
EZ A
em
Acad
X
en
iaYiw
iw
XiaY
4171
a
y Xi
EZ
em
Acad
en
iaYiw
y X
adem
c
A
EZUTSG 校区 11
AL EASY EDU
4171
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
OTHER DEDUCTIONS
RSM324 FALL 2021 FINAL REVIEW
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
en
iaYiw
4171
X
A. Major items included are:
RRSP contributions
Support payment to a former
order
171 spouse if periodic and by virtue of a court
171
en 4 for a child are not deductible
en 4
w
w
i
i
• Support
payments
Y
Y
a
a
y Xi for objection or appeal of a tax assessment
y Xi
Fees
expenses
ade/ m
adem
c
c
A
A
EZ Moving expenses*
EZ
Childcare expense, claimed by lower income spouse*
CPP enhanced contribution*
Covid-19 benefit repayments
a
y Xi
EZ
em
Acad
B. Moving expenses
71
71
n 41
n 41
e
e
w
w
i
i
XiaYDeductible if
XiaY
emy
emy
d
d
a
a
c
c
EZ A
EZ A
• To relocate to commerce a business or employment, or
• To attend a university or other post-secondary school
emy
cad
EZ A
en
iaYiw
4171
X
Deductible expenses include
• Travel costs (meal,
171 lodging and automobile)
171
en 4and storage of belongings
en 4
w
w
i
i
• Transportation
Y
Y
a
a
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
•
Temporary
board
and
lodging
(up
to
15
days)
ca
ca
ca
EZ A • Costs of cancelling a lease for the old residence
EZ A
EZ A
• Selling costs of the old residence
• Legal fees and land transfer tax for purchase of a new residence if an old residence is sold
• Cost of maintaining a vacant former residence (up to max $5,000)
• Cost of re-visiting legal documents, i.e. driver’s license, etc
1
71
171
417actual
n the
n 4do
n 41
e
e
e
Only
move
qualifies,
house-hunting
travel
costs
not
qualify.
w
w
w
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
A
ZA
Deduction is only eligible if newEresidence
location is at least 40 KM closer to the new
location
EZ A
EZ work
than the previous residence.
Deduction is limited to the extent of income earned in the new location, and unused portion can be
carried forward and deducted in following year.
A simplified methodn could
171be chosen to determine the meal and vehiclenexpense
171 without providing the
e 4
e 4
w
i
Y
receipts XiaYiw
a
a
y
y Xi
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
ca
EZ A • Meal, $23 / meal, to a max of $69/day including
EZ A
EZ A
taxes per person
• Vehicle expense, cent/km x number of km driven (Ontario $0.55 per km)
emy
cad
EZ A
X
en
iaYiw
4171
emy
cad
EZ A
X
en
iaYiw
4171
en
iaYiw
y X
adem
c
A
EZUTSG 校区 12
AL EASY EDU
4171
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
RSM324 FALL 2021 FINAL REVIEW
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
en
iaYiw
4171
X
Example
In December 2021, John’s employer transferred him from Toronto to Ottawa. The following costs were incurred
to move his family to Ottawa
171to the sale of his former residence
171
1) Real estate commission
$7,000
en 4
en 4
w
w
i
i
Y
Y
a
a
2) Interest,
taxes, and utility cost for maintaining former
i
y Xproperty
y Xi
dem
aresidence
adem
for two months prior to sale
6,000
c
c
A
A
EZ 3) Transpiration of household effects
EZ
6,000
4) Automobile expense – travelling to Ottawa
300
5) Hotel accommodation and meals for 20 days in Ottawa
4,000
6) Land transfer tax on purchase of new residence
2,000
7) Legal fees to sell former residence
800
8) Legal fees
to
purchase
new
residence
1,000
71
71
$27,100
n 41
n 41
e
e
w
w
i
i
iaY
iaY
X
X
y
y
m
adem7,000 was earned at in Ottawa
cade John received a salary in 2021 of $90,000,ZofAcwhich
EZ A
E
a
y Xi
EZ
emy
cad
EZ A
em
Acad
en
iaYiw
4171
X
Analysis
1) Real estate commission to the sale of his former residence
$7,000
2) Interest, property taxes, and utility cost for maintaining former
residence for two months
prior to sale (up to $5,000)
5,000
4171
4171
n
n
e
e
3) Transpiration
of
household
effects
6,000
w
w
i
i
Y
Y
a
a
a
i
y Xi
y Xi
my X expense – travelling to Ottawa
m
m
4) aAutomobile
300
e
e
e
d
d
d
c
ca
Aca
EZ A5) Hotel accommodation and meals for 20 days E
EZ A
inZOttawa
(4,000/20 x 15 days)
3,000
6) Land transfer tax on purchase of new residence
2,000
7) Legal fees to sell former residence
800
8) Legal fees to purchase new residence
1,000
$25,100
1
1
7
7
71
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
TheXdeduction
in 2021 is limited to income earned in Ottawa,
aY
XiaY which is $7,000 and the unused portion ofm$18,100
XiaY
y i
emcan
emy
e y
d
d
d
for
carried
to
following
year.
a
a
a
c
c
c
EZ A
EZ A
EZ A
Note that the meal and automobile expense can be calculated by simplified method without receipts
C. Childcare expenses
Includes cost of babysitting,
day care, or lodging at a boarding school
71
1
171
4
en
en 4
w
w
i
i
Y
Y
a
a
Xi of age or younger (age limit does not apply m
Childe16
ifytheXichild is a dependent because of mental or emy Xia
yyears
m
e
d
d
ca
ca
cad
EZ Aphysical infirmity.)
EZ A
EZ A
Provided that the expenses were incurred to that the taxpayer could pursue employment, business, or
research activities.
emy
cad
EZ A
X
en
iaYiw
4171
emy
cad
EZ A
X
en
iaYiw
4171
en
iaYiw
y X
adem
c
A
EZUTSG 校区 13
AL EASY EDU
4171
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
RSM324 FALL 2021 FINAL REVIEW
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
en
iaYiw
4171
X
Limit to the lesser of:
1. Amount paid in the year and limit to
$5,000 per child for 7 to 16 age, $8,000 per child under 7, $11,000 for child with mental or
171
171
physicaln disability,
or
e 4
en 4
w
w
i
i
Y
Y
a
a
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
2.ca 2/3 of the taxpayer’s “earned” income for the year,
ca “earned income” is the total of
ca
EZ A
EZ A
EZ A
o
o Employment income
o Business income
o Research grant
o Taxable portion of bursaries and scholarship
o Government disability pension
71
71
4171
n
n 41
n 41
e
e
e
w
w
w
i
i
i
XiaY3. Actual amount paid
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
Camp fees qualify as childcare expenses if the camp provides sufficient degree of childcare services.
Amount is limited to
o $125 per week per child from 7 to 16 age
o $200 per week
per child under 7
171
4171
n
e
en 4
o $275
per
week
per
child
if
mental
or
physical
disable
w
w
i
i
Y
Y
a
a
y Xi
y Xi
adem
adem
c
c
A
A
EZ Deduction must be claimed by the lower incomeEZ
spouse
a
y Xi
EZ
em
Acad
D. CPP enhance contribution
CPP contributions have two parts: base CPP contributions and enhanced CPP contributions
71
71
4171
Base
are calculated at 4.95% and the
enhanced
contributions is calculated as
n contributions
n 41
n 41
e
e
e
w
w
w
i
i
i
XiaY(5.45% – 4.95%) x (pensionable earnings*
XiaY
XiaY
emy
emy – basic exception $3,500), which is deductible
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
*The maximum pensionable earnings for 2021 are $61,600
E. Taxable retiring allowances
The retiring allowances can be transferred to an RRSP or a RPP and deducted from income within limits
171
171
en 4
en 4
w
w
i
i
Y
Y
a
a
a
• m$2,000
y Xi for each year employed prior to 1996
y Xi
y Xi
m
m
e
e
e
d
d
d
ca
ca
Aca
EZ A • Increased by $1,500 for each year employed
EZ Aprior to 1989 if RPP contributions for those year
EZare
unvested.
emy
cad
EZ A
X
en
iaYiw
4171
emy
cad
EZ A
X
en
iaYiw
4171
en
iaYiw
y X
adem
c
A
EZUTSG 校区 14
AL EASY EDU
4171
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
RSM324 FALL 2021 FINAL REVIEW
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
Registered Retirement Savings Plans (RRSP)
en
iaYiw
4171
X
An RRSP is a private, tax-sheltered retirement savings program initiated and controlled by the individual
taxpayer for his or her exclusive use.
A. Benefits of investing in an
1
17RRSP
171
en 4
en 4
w
w
i
i
Y
Y
a
a
a
Xi
y Xi to an RRSP are deductible from income, which
y reduces
y Xi
m
m
m
Contributions
the
tax
payable
e
e
e
d
d
d
ca
ca
ca
EZ A
EZ A
EZ A
Investment return accumulated in RRSP are not taxed until withdrawn, therefore, generate higher return
B. Contribution limits
Individual 1does not belong to an employer’s RRP or DPSP, the1annual limit is equal to
7
7
71
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
aY
XiaY
XiaY
y Xi
• 18% of the individual’s prior year’s
income”
emy
em“earned
emy
d
d
d
a
a
a
c
c
c
• Up to a max $27,830 (2021)
EZ A
EZ A
EZ A
“Earned income” includes:
• Employment income
• Business income
171
171
• Rental income
en 4
en 4
w
w
i
i
Y
Y
a
a
• Royalty
income
y Xi
y Xi
ad•emSpousal support
adem
c
c
A
A
EZ
EZ
• Research grants net of related expenses
a
y Xi
EZ
em
Acad
Reduced by:
emy
cad
EZ A
• Business losses
• Rental
71 losses
n• 41Spousal support payment
e
w
i
iaY
X
en
iaYiw
4171
en
iaYiw
4171
y X
y X
adem
adem
c
c
A
A
EZ
EZ with those plans.
If individual belongs to an employer’s
RRP or DPSP, the contribution limit is integrated
Unused contribution room can be carried forward indefinitely
RRSP contribution limit calculation
Prescribed dollar limit
(2020)
$27,830
171
171 (A)
en 4
en 4
w
w
i
i
Y
Y
a
a
18% x earned
$xx,xxx (B)
y Xi income of the previous year
y Xi
ademof A and B above
adem
Lesser
$xx,xxx
c
c
A
A
EZ Add:
EZ
Accumulated unused RRSP contribution limit at the end of pervious year $x,xxx
Deduct:
Pension adjustment from the previous year, if any
$(x,xxx)
Maximum deduction for the current year
$xx,xxx
emy
cad
EZ A
X
en
iaYiw
4171
emy
cad
EZ A
X
en
iaYiw
4171
a
y Xi
EZ
em
Acad
en
iaYiw
y X
adem
c
A
EZUTSG 校区 15
AL EASY EDU
4171
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
C. Spousal RRSP
RSM324 FALL 2021 FINAL REVIEW
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
en
iaYiw
4171
X
An individual can contribute all or any part of his/her contribution limit to the RRSP of a spouse
Contributor is still entitled to tax deduction and this does not affect the normal contribution limit of the
spouse
171
171
en 4
en 4
w
w
i
i
Y
Y
a
a
a
i future income splitting opportunity as the income
This allows
y Xfor
y Xi to be taxed in the spouse’s hand rather
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
ca
EZ Athan the contributor
EZ A
EZ A
Limitation – any contributions withdrawn from such a plan by the spouse within two taxation years of
the contribution year are included in the contributor’s income.
Registered Education Savings Plan (RESP)
71
n 41
e
w
i
iaY
A. Contribution
to a RESP
my X
4171
en
iaYiw
4171
y X
y X
adem
adem
c
c
A
A
EZ
EZ
An individual can contribute funds to a RESP prior to a child turning 31 years old
e
cad
EZ A
en
iaYiw
There is no annual contribution limit, but there is a lifetime contribution limit of $50,000
Annual earnings from investment returns are not taxed when earned within the plan but will be taxed
when funds are withdrawn
171
171
en 4
en 4
w
w
i
i
Y
Y
a
a
a
y Xi to the plan are not tax deductible
y Xi
y Xi
Contributions
m
m
m
e
e
e
d
d
d
ca
ca
ca
EZ A
EZ A
EZ A
Canada education savings grands (CESG)
Children 17 or under can receive the grant
•
Annual – 20% of contribution up to $2,500 or $500
71
71
71
n 41
n 41
n 41
e
e
e
w
w
w
i
i
i
Y
o The annual limit of $500 may be
to $1,000 if maximum grant was not received
XiaY
Xiaincreased
XiaY
emy
emy
emy
d
d
d
in
the
prior
years.
a
a
a
c
c
c
EZ A
EZ A
EZ A
•
Lifetime limit per child is $7,200
If the child does not pursue post-secondary education, the CESG must be returned
Home Buyers Plan (HBP)
4171
171
en
en 4
w
w
i
i
Y
Y
a
a
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
Withdraw
from
RRSP
to
purchase
a
home
ca
ca
ca
EZ AMaximum withdrawal is $35,000 per person EZ A
EZ A
Available to first time home buyers and buyers who have not owned a house within the past 5 years
Repayment over 15 years, in equal instalments into RRSP
First payment due in second calendar year, subject to the regular RRSP contribution deadline for that year
emy
cad
EZ A
X
en
iaYiw
4171
emy
cad
EZ A
X
en
iaYiw
4171
en
iaYiw
y X
adem
c
A
EZUTSG 校区 16
AL EASY EDU
4171
emy
cad
EZ A
RSM324 FALL 2021 FINAL REVIEW
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
Lifelong Learning Plan (LLP)
en
iaYiw
4171
X
Withdraw $10,000 per year ($20,000 cumulative maximum amount over 4 years)
Amount used for full time post-secondary education for at least 3 months program
Repayable over 10 years into RRSP after graduation
4171
171
en 4
iwen
Tax-Free Saving
(TFSA)
aYAccounts
y Xi
EZ
y
em
Acad
EZ
Contribution limit
Years
2009-2012
2013-2014
71
2015
n 41
e
w
i
XiaY 2016-2018
emy
d
a
c
2019
EZ A
2020
2021
em
Acad
iw
XiaY
a
y Xi
EZ
Annual Limit
$5,000
$5,500
71
$10,000
n 41
e
w
i
Y
$5,500 emy Xia
d
a
c
A
EZ$6,000
$6,000
$6,000
em
Acad
Cumulative Total
$20,000
$31,000
71
$41,000
n 41
e
w
i
XiaY
$57,500
emy
d
a
c
$63,500
EZ A
$69,500
$69,500
•
•
The contributions are not tax deductible
Any unused portion
of the annual limit can be carried forward indefinitely
171
4171
n
e
en 4
w
w
i
i
Y
Y
a
a
i
y Xincome
y Xi
Investment
and withdraws from the fund are notdtaxable
adem
a em
c
c
A
A
EZ
EZ
Withdraws added to accumulated contribution limit in the following year
a
y Xi
EZ
em
Acad
Individual can contribute to their own or a spouse’s TFSA without attribution consequences
emy
cad
EZ A
en
iaYiw
4171
X
emy
cad
EZ A
en
iaYiw
4171
X
emy
cad
EZ A
171
en 4
y
EZ
emy
cad
EZ A
em
Acad
X
en
iaYiw
en
iaYiw
4171
X
171
en 4
iw
XiaY
y
EZ
4171
emy
cad
EZ A
em
Acad
X
en
iaYiw
iw
XiaY
4171
a
y Xi
EZ
em
Acad
en
iaYiw
y X
adem
c
A
EZUTSG 校区 17
AL EASY EDU
4171
emy
cad
EZ A
RSM324 FALL 2021 FINAL REVIEW
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
en
iaYiw
4171
X
SPECIAL RULES FOR NET INCOME DETERMINATION
The special rules may be in conflict with the previous established principles, when they are, the special
rules take precedence.
1
171
en 4
17
A. Transactions withiw
inadequate
consideration
en 4
iw
XiaY
XiaY
a
y
y
y Xi
m
m
m
e
e
e
d
d
d
ca
ca
ca
(related) parties, special rules apply that
EZ AWhen taxpayers enter into a transaction with non-arm’s-length
EZ A
EZ A
prevent the elimination or reduction of tax by selling at a price other than fair market value.
•
Selling price
FMV
d
d
a
a
c
c
EZ A
EZ A
o Vendor: no adjustment
o Purchaser: ACB is deemed to be equal to the FMV
•
emy
cad
EZ A
en
iaYiw
4171
X
Gifting
171
171
o Vendor:
en 4 deemed to have sold at FMV
en 4
w
w
i
i
Y
Y
a
a
i Purchaser: ACB is deemed to be equal to they FMV
Xi
y Xo
adem
adem
c
c
A
A
EZ
EZ
a
y Xi
EZ
B. Non-arm’s length defined
em
Acad
Individuals are related to each other if they are direct-line descendants:
• Grandparents
• Parents
71
n• 41Children
e
w
i
XiaY
emy
d
• Grandchildren, etc.
a
c
EZ A
Or they are:
emy
cad
EZ A
en
iaYiw
4171
X
emy
cad
EZ A
•
•
•
•
Brothers
Sisters
Spouses, or
71
In-laws iwen 41
Y
a
y Xi
dem
a
c
A
EZ Individuals is related to a corporation if:
•
•
•
emy
cad
EZ A
X
en
iaYiw
en
iaYiw
4171
X
171
en 4
y
EZ
em
Acad
iw
XiaY
a
y Xi
EZ
em
Acad
He or she controls the corporation
He or she is a member of a related group that controls the corporation
He or she is related to an individual who controls the corporation
4171
emy
cad
EZ A
X
en
iaYiw
4171
en
iaYiw
y X
adem
c
A
EZUTSG 校区 18
AL EASY EDU
4171
emy
cad
EZ A
RSM324 FALL 2021 FINAL REVIEW
71
n 41
e
w
i
iaY
X
71
n 41
e
w
i
iaY
y X
adem
c
A
EZcorporation if:
Corporation is related to the other
emy
cad
EZ A
en
iaYiw
4171
X
•
•
•
One corporation controls the other corporation
Both corporations are controlled by the same person
One corporation is controlled by a person who is related to the person who controls the other
corporation
171
171
en 4
en 4
w
w
i
i
Y
Y
a
a
a
C. Propertyetransferred
to a child or spouse
y Xi
y Xi
y Xi
m
m
m
e
e
d
d
d
ca
ca
ca
EZ A
EZ A
EZ A
Property transferred to a child
Deemed to be sold at FMV
Exception: farm property may be sold at less than FMV
71
71
71
n 41
n 41
n 41
e
e
e
w
w
w
Property
transferred
to
a
spouse
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
d
d
d
a
a
a
c
c
c
EZ A
EZ Ato have been sold and acquired at its cost amount
EZ A
Whether sold or gifted, it is deemed
•
•
Capital property is deemed to be sold at ACB
Depreciable property is deemed to be sold at UCC
The result is that no taxable income is created on the transfer of property between spouse
171
171
en 4
en 4
w
w
i
i
Y
Y
a
a
Alternatively,
on
Xi transfer
y Xi the taxpayer may choose to recognize a gain
y the
adem
adem
c
c
A
A
EZ
EZ
D. The attribution rules – income splitting
a
y Xi
EZ
em
Acad
Income from property transferred to a spouse
Subsequent income received by spouse on transferred property is included in income of original owner
as long41as71the couple remains married.
71
71
n
n 41
n 41
e
e
e
w
w
w
i
i
i
XiaY
XiaY
XiaY
emy
emy
emy
Attribution rules do not apply
d
d
d
a
a
a
c
c
c
EZ A
EZ A
EZ A
• If property is transferred to a spouse in a manner equivalent to an arm’s-length transfer, or
• When individual transfers money to a TFSA owned by a spouse
Property transferred to a minor child
4171
4171
Income on property
to a child attributes to the parent until the
the child turns 18.
entransferred
en year
w
w
i
i
Y
Y
a
a
i
i
X
X
y
my
adem
cade gains or losses are not subject to attribution
crules
Capital
A
A
Z
Z
E
E
a
y Xi
EZ
em
Acad
Attribution rules do not only apply to children, may also apply when property transferred to other minors,
i.e. nieces and nephews.
emy
cad
EZ A
X
en
iaYiw
4171
emy
cad
EZ A
X
en
iaYiw
4171
en
iaYiw
y X
adem
c
A
EZUTSG 校区 19
AL EASY EDU
4171
emy
cad
EZ A
RSM324 FALL 2021 FINAL REVIEW
71
n 41
e
w
i
iaY
X
emy
E. Tax on Split Income (TOSI)
cad
EZ A
71
n 41
e
w
i
iaY
X
emy
cad
EZ A
en
iaYiw
4171
X
Dividend received by a minor child
Dividend received by minor from private Canadian or foreign corporations are not subject to the
attribution rules, instead, those specific dividends are taxed at the top marginal tax rate in the child’s tax
171
171
return.
en 4
en 4
w
w
i
i
Y
Y
a
a
a
y Xi
y Xi
y Xi
m
m
m
e
e
e
d
d
d
caof TOSI Rules
ca
ca
Extension
EZ A
EZ A
EZ A
TOSI rules are extended to dividend and interest received from private corporations by adult family
members who do not contribute a reasonable amount of labour or capital to the business.
Exclusion from the TOSI rules:
emy
cad
EZ A
71
71
171
41Excluded
n 4owner’s
n 41
amount: income received by a business
spouse
where
the
business
owner
is
65
e
e
w
w
i
i
XiaY
XiaY
years of age or older;
emy
emy
d
d
a
a
c
c
EZ A
EZ A
• Excluded business: Amount received by adults age 18 or older who work more than 20 hours a
week in the business;
en•
iaYiw
X
•
Excl…
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