Exam 7: Income From Property

When the holder of income trust units receives a distribution that contains a return of capital, the amount of the return of capital must be added to the adjusted cost base of the units.

On July 1, 2020 Esther borrowed $8,000 from the bank and purchased 400 shares in No Hope Ltd. for $20 per share. Esther felt that this was a safe investment because she read online in a blog that No Hope would be paying dividends of $1.50 per share during the last half of 2020. Unfortunately, this didn't happen and she only received eligible dividends totalling $100 during 2020. On December 31 she paid the bank loan interest of $240. On her 2020 tax return, Esther will report:

Which of the following statements is correct?

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

Describe the tax treatment of foreign non-business income when the foreign jurisdiction has withheld some portion of the income.

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

Sherry's marginal federal tax rate is 29 percent. She lives in a province where her provincial marginal tax rate is 17.5 percent and the provincial dividend tax credit is 31 percent of the dividend gross up. If Sherry receives an eligible dividend of $16,000 from a Canadian public corporation in 2020, how much will she pay in income tax?

With regard to debt securities, which of the following statements is correct?

During 2020, Ms. Marion Blatz receives $5,600 in non-eligible dividends from taxable Canadian corporations. Her income is such that this additional amount will be taxed at a 26 percent federal rate and a 10 percent provincial rate. On such non-eligible dividends, the province has a dividend tax credit equal to 38 percent of the gross up. Determine the total federal and provincial tax that will be payable on these dividends and her after tax retention.

When an investor receives a payment from a corporation, what characteristics determine whether it is an interest payment or a dividend payment?

Briefly explain the concept of integration.

Which of the following statements concerning the tax treatment of interest income is NOT correct?

A corporation issues debt with a maturity value of $1,000,000 for proceeds of $1,100,000. The debt matures in 10 years and pays annual interest at a rate of 10 percent. The issuer is not a money lender and there is no evidence that there was a deliberate creation of a premium. Which of the following statements is correct?

A corporation issues debt with a maturity value of $1,000,000 for proceeds of $900,000. The debt matures in 10 years and pays annual interest at a rate of 10 percent. Which of the following statements is correct?

Mutual funds can be organized as either corporations or trusts. How will the choice of organizational structure affect the taxation of income distributions from the fund?

Melific Ltd. has 4,500,000 common shares outstanding. Jerry Fry acquired 5 percent of these shares at a cost of $19 per share. During the current year, the Company declares a 6 percent stock dividend which it designates as eligible. At this time the shares are trading at $21 per share. The Company transfers the amount of the stock dividend to paid up capital. What are the tax consequences to Jerry Fry of this transaction? Your answer should include the adjusted cost base per share of Jerry's holding.

The tax rules for recognizing interest inclusions for individuals are different than they are for corporations. Briefly describe these differences.

On January 1, 2020, Jeanine Dorset acquires 1,700 units of Blackwell Income Trust at $37 per unit, a total cost of $62,900. During 2020, the trust distributes $2.75 per unit, $0.85 of which is a return of capital and $1.90 of which is a property income distribution. Jeanine has asked the trust to reinvest all distributions. The $2.75 per unit distribution was reinvested at a cost of $32 per additional unit. What are the tax consequences to Jeanine of the 2020 distribution and its reinvestment? What will be her adjusted cost base per unit after the reinvestment?

On June 1, 2020 Jerry Driggs acquires 2,500 units of the Belle Realty Trust at $12 per unit. During September, 2020, the trust makes a distribution of $1.50 per unit, of which $1.00 represents a return of capital. Mr. Driggs decides to reinvest the entire distribution at a cost of $12.50 per additional unit. What are the tax consequences to Mr. Driggs of the 2020 distribution and its reinvestment? What will be his adjusted cost base per unit after the reinvestment?

The federal dividend tax credit cannot be claimed if you receive: