Exam 7: Income From Property

Income for 2018 is nil, 2019 income is $900, and 2020 income is $300.

On January 1 of the current year, Dryer Inc. issues 8 year bonds payable with a maturity value of $1,500,000. The bonds have a coupon rate of 14 percent, pay interest on January 1 of each year, and are sold for $1,750,000. The Company has a December 31 year end. Determine the current year tax consequences under each of the following assumptions: • Dryer is in the business of lending money. • Dryer is not in the business of lending money and the CRA does not believe that they made a deliberate effort to create a premium on the issuance of the bonds. • Dryer is not in the business of lending money and the CRA believes that they made a deliberate effort to create a premium on the issuance of the bonds.

John Bordy owns 2,200 units of the DRC Growth Fund, a mutual fund trust. These units were purchased at a price of $8.15 per unit, for a total value of $17,930. His adjusted cost base for these units has not changed since their acquisition. On December 12 of the current year, the Fund has an income distribution of $0.27 per unit, resulting in an addition of $594 to John's account. All of this distribution is reinvested at a purchase price per unit of $10.40. What will be his adjusted cost base per unit after the reinvestment?

In considering whether interest will be deductible, the direct use of the borrowed money is the relevant consideration.

Jupiter Inc. has 1,800,000 common shares outstanding. Harry Keller acquired 8 percent of these shares at a cost of $11 per share. During the current year, the Company declares an 8 percent stock dividend which it designates as eligible. At this time the shares are trading at $12 per share. The Company transfers the amount of the stock dividend to paid up capital. What are the tax consequences to Harry Keller of this transaction? Your answer should include the adjusted cost base per share of Harry's holding.

On July 1, 2020, Jon Laxtor acquires a newly issued investment contract with a maturity value of $100,000. It matures on June 30, 2025, with interest accruing at 8 percent per annum. Interest is paid for the first one and one-half years on December 31, 2021. The remaining interest will be paid at maturity. With respect to the minimum amount of interest that Jon must recognize for tax purposes, which of the following statements is correct?

Which of the following will provide the lowest amount of after-tax income for an individual in the top federal tax bracket?

During the current year, Pearlene Monroig earns business income in the U.K. of €10,000 from which the British government withholds €2,000. Assume that the relevant exchange rate was €1.00 = $1.70 for the year. Which of the following statements is correct?

Ms. Marilyn Lox invests in a newly issued debt instrument on April 1, 2020. It has a maturity value of $50,000, matures on March 31, 2024, and pays interest at an annual rate of 5 percent. The terms of the instrument call for payment of interest for the first two and one-half years on September 30, 2022. The remaining interest is paid at the maturity date of the instrument. What amount of interest will Ms. Lox have to include in her tax returns for each of the years 2020 through 2024?

Julio has a savings account in a foreign country. The account earned $5,000 interest during 2020 but he only received $4,500 since $500 for foreign taxes was withheld by the bank. All amounts are stated in Canadian dollars. The effect on Julio's 2020 tax return is:

Why are capital dividends received on a tax free basis?

Which of the following statements with respect to rental properties is NOT correct?

Which of the following statements is correct for both income trusts that are not specified investment flow-through trusts (i.e., not SIFTs)and mutual fund trusts?

Mr. Martin Pabst owns publicly traded shares which, during 2020, paid eligible dividends of $10,200. His Taxable Income for this year exceeds $300,000 and he lives in a province where the maximum individual tax rate is 16 percent. The provincial tax credit on eligible dividends is equal to 29 percent of the gross up. Determine the total federal and provincial tax that will be payable on these dividends and his after tax retention.

During 2020 Rolf received eligible dividends of $900 and non-eligible dividends of $600. His 2020 federal dividend tax credit is:

On May 1, 2020, Mrs. Anna White purchases bonds with a maturity value of $40,000 at par. These bonds pay semi-annual interest of $2,000 on June 30 and December 31 of each year. She purchases the bonds for $41,326, including interest accrued to the purchase date. She 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 Mrs. White's 2020 tax return?

During 2020 Thelma Evatt receives eligible dividends of $23,000. She has no other source of income in that year. What would be the amount of federal Tax Payable or refund on these dividends?

Briefly describe the application of the federal gross up and tax credit procedures for (1)eligible dividends and (2)non-eligible dividends.

What is a stock dividend? How will such dividends be taxed? Describe the manner in which the adjusted cost base of an investor's holding will be changed by a stock dividend.

On January 1, 2020, Desay Inc. issues 5 year bonds payable with a maturity value of $900,000. They have a coupon rate of 12 percent, pay interest on January 1 of each year, and are sold for $1,200,000. The Company has a December 31 year end. Determine the current year tax consequences under each of the following assumptions: • Desay is in the business of lending money. • Desay is not in the business of lending money and the CRA does not believe that they made a deliberate effort to create a premium on the issuance of the bonds. • Desay is not in the business of lending money and the CRA believes that they made a deliberate effort to create a premium on the issuance of the bonds.