Exam 7: Income From Property

During 2020, Mr. Franz Schlitz receives $23,500 in eligible dividends from Canadian public corporations. His income is such that this additional amount will be taxed at a 29 percent federal rate and a 14 percent provincial rate. On eligible dividends, the province has a dividend tax credit equal to 25 percent of the gross up. Determine the total federal and provincial tax that will be payable on these dividends and his after tax retention.

When publicly traded debt securities are purchased between interest payment dates, the purchaser pays for any accrued interest to the date of acquisition. Describe the tax treatment of interest received by the purchaser on the next interest payment date.

Ravinder's marginal federal tax rate is 29 percent. He has a foreign investment that earns $50,000 (Canadian)of non-business income. The government of the foreign country withholds $10,000 of this amount, with the remaining $40,000 being remitted to Ravinder during 2020. By what amount will Ravinder's 2020 federal Tax Payable increase as a result of this transaction?

Arial Horton owns 3,400 units of the Canadian Growth Fund, a mutual fund trust. The total cost of the 3,400 units was $17,000. Her adjusted cost base for these units has not changed since she acquired them. In June of the current year, the fund has an income distribution of $0.45 per unit. All of this distribution is reinvested at a unit price of $5.10. What will be Arial's adjusted cost base per unit after the reinvestment?

Briefly explain the tax treatment of corporate bonds that are issued at a discount.

Briefly describe the "disappearing source" rules.

The federal dividend tax credit for eligible dividends can be expressed as 6/11 of the gross up, 20.73 percent of dividends received, or 15.02 percent of grossed up dividends.

For tax purposes, neither premium nor discount on long-term debt is ever amortized by the issuer as an adjustment of interest expense.

Martin held 2 percent of the outstanding shares of a Canadian public corporation. The corporation issued an eligible stock dividend in 2020 and capitalized $800,000 of its retained earnings. By how much will Martin's Taxable Income increase as a result of the dividend?

Bernadette owns 1,000 shares of a German public corporation. The corporation paid dividends of $1.50 per share during 2020 but Bernadette only received $1,275 since 15% tax was withheld in Germany. All amounts are stated in Canadian dollars. Bernadette's 2020 net property income from this investment is:

GAAP requires that any premium that is received on the issuance of debt securities be amortized as an adjustment of interest expense over the life of the debt. Explain briefly the tax treatment of premium that is received on the issuance of debt securities.

Income for 2018 is nil, 2019 income is $1,200, and 2020 income is nil.

On January 1, 2020 Bernard borrowed $5,000 by signing a 1-year note payable at 6% interest and used the money to purchase 2,000 common shares of Import Ltd., a Canadian public corporation for $2.50 per share. During 2020 Import Ltd. paid eligible dividends of $0.35 per share. On January 1, 2021 Bernard repaid the $5,000 he borrowed plus $300 in interest. On his 2020 tax return, Bernard will report:

Which of the following is NOT a characteristic of interest?

During 2020 Erin received eligible dividends of $800, non-eligible dividends of $600 and foreign dividends of $900 (10% foreign tax was withheld at source). Her 2020 net property income for tax purposes is:

Shahrukh owns a residential rental building which he purchased for $200,000 in 2020. In that year, his rental income before CCA was $5,000. In 2021, his rental income before CCA was $8,000. Sharukh always minimizes his tax liability. Which of the following statements is correct?

When calculating taxable property income for a rental property owned by an individual, which of the following should never be included in the calculation?

Lexor Inc. has bonds outstanding with a maturity date of December 31, 2028. The bonds pay semi-annual interest at an annual rate of 5 percent. Payments of $2,500 are made on June 30 and December 31 of each year. The bonds are currently trading at their maturity value. On April 1, 2020, Arnold Wexler acquires some of these bonds. He pays $101,243, including an amount for accrued interest, for bonds with a maturity value of $100,000. He holds the bonds for the remainder of the year, receiving both the June 30 and December 31 interest payments. What amount of interest will be included in Mr. Wexler's 2020 tax return?

An individual purchased a warehouse as an investment property two years ago. During the current year, he received rents of $8,000 and paid the following expenses; interest of $6,000, property taxes of $2,000, heat, light and power of $500, and maintenance of $300. The UCC of this Class 1 asset was $60,000 on January 1 of the current year. He cannot claim a rental loss in the current year.

Rosa owns a duplex and rents both units to tenants. Which one of the following expenditures is not a deduction for tax purposes?