Taxation for Business Students
Exam Solutions
Course Introduction
This course introduces business students to the fundamental principles and practices of taxation, focusing on the structure and application of tax laws affecting individuals, partnerships, and corporations. Emphasis is placed on understanding the impact of taxation on business decision-making, compliance requirements, tax planning strategies, and ethical considerations. Through the analysis of current tax codes, case studies, and practical problems, students will gain the foundational knowledge needed to navigate the complexities of tax regulations and their effects on business operations.
Recommended Textbook Canadian Income Taxation 2018 2019 by William Buckwold
Available Study Resources on Quizplus
22 Chapters
196 Verified Questions
196 Flashcards
Source URL: https://quizplus.com/study-set/2794 Page 2
Chapter 1: Taxation-Its Role in Decision Making
Available Study Resources on Quizplus for this Chatper
10 Verified Questions
10 Flashcards
Source URL: https://quizplus.com/quiz/55675
Sample Questions
Q1) Explain what is meant by the statement that 'tax should be treated as a 'controllable cost''.
Answer: Just as decision makers in business must control costs such as product,occupancy,selling,and many others,so should tax costs be regarded as controllable.The actions and activities of the organization must be analyzed at all levels,and across departments,to determine the impact on the overall tax cost.
Q2) When assessing the value of a corporation,the most relevant information that decision-makers normally consider is
A)the potential for before-tax profits.
B)the potential for after-tax profits.
C)the current corporate tax rate.
D)cash flow before-tax.
Answer: B
Q3) Income tax is calculated for which of the following jurisdictional groups?
A)Municipal, provincial, and federal
B)Municipal, federal, and international
C)Provincial, federal, and international
D)Municipal, provincial, and international
Answer: C
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Fundamentals of Tax Planning
Available Study Resources on Quizplus for this Chatper
10 Verified Questions
10 Flashcards
Source URL: https://quizplus.com/quiz/55674
Sample Questions
Q1) Certain skills are necessary for successful tax planning.One of these skills is applying the time value of money.Which of the following is FALSE regarding this skill?
A)Applying the time value of money is a tool used for wealth accumulation.
B)If a taxpayer invests $1,000 at 8% and subsequently earns $48 in after-tax income on the investment at the end of the first year, the taxpayer's tax rate is 40%.
C)If a taxpayer earns an annual return of 12% and is subject to a 40% tax rate, the annual after-tax return is 4.8%.
D)If a taxpayer invests $1,000 for one year at a rate of return of 14% and is subject to a 45% tax rate, the after-tax value of the investment will be $1,077.
Answer: C
To view all questions and flashcards with answers, click on the resource link above.
4
Chapter 3: Liability for Tax, Income Determination, and Administration of the Income Tax System
Available Study Resources on Quizplus for this Chatper
9 Verified Questions
9 Flashcards
Source URL: https://quizplus.com/quiz/55673
Sample Questions
Q1) Which of the following type of payment is NOT subject to Canadian withholding tax when paid to a non-resident?
A)Dividends
B)Interest paid to an arm's length party
C)Pension benefits
D)Registered retirement income fund payments
Answer: B
Q2) Section 3(a)of the Income Tax Act includes which of the following?
A)Income from: employment, property, and capital transactions.
B)Income from: employment, property, business, and capital transactions.
C)Income from: business, other items, and capital transactions.
D)Income from: employment, property, business, and other items.
Answer: D
To view all questions and flashcards with answers, click on the resource link above.
5
Chapter 4: Income From Employment
Available Study Resources on Quizplus for this Chatper
9 Verified Questions
9 Flashcards
Source URL: https://quizplus.com/quiz/55672
Sample Questions
Q1) Which of the following,when provided by an employer,is NOT a tax-deferred or tax-free benefit for the employee?
A)Premiums for private health care plans providing extended health coverage beyond a public plan
B)Counselling services to prepare the employee for retirement
C)Contributions to the employee's registered pension plan
D)A near-cash gift for the employee's wedding
Q2) Sarah borrowed $25,000 from her employer at a rate of 1% interest.At the time the loan was made,CRA's prescribed rate of interest was 3%.Sarah is in a 40% income tax bracket.What is the actual cost (rate)of Sarah's loan? (Assume there are no fluctuations in the prescribed rate of interest.)
A)1%
B)1.2%
C)1.8%
D)2%
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: Income From Business
Available Study Resources on Quizplus for this Chatper
10 Verified Questions
10 Flashcards
Source URL: https://quizplus.com/quiz/55671
Sample Questions
Q1) List the six general limitations to business profit determination and give an example for three of the items
Q2) Alice Smith has provided you with the following information pertaining to her 20x0 taxes:
The financial statements for Alice's dental practice reported a net income of $110,000.
Amortization of $15,000 was reported in the expenses.
Capital cost allowance has been accurately calculated at $12,500 and has not been accounted for in the financial statements.
Alice conducted scientific research and experimental development (SR&ED)in 20x0.She met with a CRA agent who verified that $40,000 of her expenditures were qualified SR&ED activities.These costs were treated as capital items on her financial statements.
Alice raises sheep on her land at her home in the country.She had a farming loss of $9,000 in 20x0.
Required:
Calculate Alice's minimum net income for tax purposes for 20x0.
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: The Acquisition, Use, and Disposal of Depreciable Property
Available Study Resources on Quizplus for this Chatper
10 Verified Questions
10 Flashcards
Source URL: https://quizplus.com/quiz/55670
Sample Questions
Q1) Ben incorporated Miller Co.in 20x7,which then purchased a small business.The incorporation costs were $3,500,and the goodwill acquired from the small business equaled $50,000.What is the ending Class 14.1 UCC balance in 20x8 (assuming there are no other intangible assets in the company)? (Rounded to 0 decimal places)
A)$46,776
B)$47,975
C)$49,554
D)$50,825
Q2) Green Gardens Inc.purchased a piece of Class 8 machinery in 20x0.The cost of the machine was $5,000.In 20x2,the machine was sold for proceeds of $2,000 and there were no other purchases or disposals during the year.The UCC in the Class 8 pool was $5,500 at the beginning of 20x2.What is the UCC of this class at the end of 20x2?
A)$700
B)$2,800
C)$3,500
D)$4,800
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Income From Property
Available Study Resources on Quizplus for this Chatper
9 Verified Questions
9 Flashcards
Source URL: https://quizplus.com/quiz/55669
Sample Questions
Q1) Jim Smith owns two rental properties which he purchased in 20x0.Property A cost $100,000 (land $60,000 and building $40,000)and property B cost $120,000 (land $75,000 and building $45,000).After all allowable expenses other than CCA,Jim's total rental income for the past two years was $1,000 in 20x0 and $10,000 in 20x1.Jim has chosen to deduct the maximum CCA allowed for both years.What is the UCC for his rental properties at the end of 20x1? (The properties are both Class 1 assets,amortized at 4%.)
A)$3,360
B)$79,968
C)$80,640
D)$206,976
Q2) Stella Flier has received an inheritance of $100,000.She is trying to decide what to do with this money and has come to you for some advice.She has an excellent credit rating and no outstanding debts.She would like to buy a $225,000 house and invest $100,000 in bonds as a safety net.
Required:
How could Stella minimize her tax liability,assuming only the facts given?
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Gains and Losses on the Disposition of Capital
Propertycapital Gains
Available Study Resources on Quizplus for this Chatper
10 Verified Questions
10 Flashcards
Source URL: https://quizplus.com/quiz/55668
Sample Questions
Q1) Anne Smith acquired her house in 20x0 for $150,000 and her cottage in 20x4 for $100,000.Due to a rise in real estate prices,she has decided to sell both properties and backpack around the world for two years.Both properties were sold in October of 20x8.Anne received proceeds of $375,000 for the house,and $250,000 for the cottage. Required:
Calculate the minimum taxable capital gain that Anne will report for her house and her cottage on her 20x8 tax return.Show all calculations,identifying the taxable capital gain for each property.
Q2) John sold a piece of land in 20x9 for $350,000.The land was recognized as capital property.The original cost of the land was $75,000.The selling costs incurred in 20x9 were $5,000.The terms of the payment included an immediate down payment of $50,000,with the remainder of the cost to be paid over the next three years in three equal payments.John wishes to report the minimum taxable capital gain allowed each year.How much will he report in 20x9? (Round all numbers to zero decimal places.)
A)$0
B)$27,000
C)$135,000
D)$216,000
To view all questions and flashcards with answers, click on the resource link above. Page 10
Source URL: https://quizplus.com/quiz/55667
Sample Questions
Q1) 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)Mr.Grey and his sister's son,Matthew,are negotiating an economic transaction.Are Mr.Grey and Matthew related for tax purposes?
B)Mr.Field is the sole shareholder of Corporation X,and Mrs.Field,(Mr.Field's wife)is the sole shareholder of Corporation Y.Are the two corporations related for tax purposes?
C)Sarah owns seventy percent of the shares of ABC Co.Andrew owns the remaining thirty percent.Sarah and Andrew are not related.Is Andrew related to ABC Co.?
D)Glen owns thirty percent of the shares of Corporation A.Glen's wife also owns thirty percent of the shares of Corporation A.The remaining forty percent of the shares are owned by Steven,who is a friend of the family.Is Glen related to Corporation A for tax purposes?
E)Tammy and her brother's wife,Angela,are negotiating an economic transaction.Are Tammy and Angela related for tax purposes?
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: Individuals: Determination of Taxable Income and
Taxes Payable
Available Study Resources on Quizplus for this Chatper 10 Verified Questions 10 Flashcards
Source URL: https://quizplus.com/quiz/55666
Sample Questions
Q1) Which of the following accurately describes a requirement for a business to qualify as a 'qualified small business corporation' (QSBC)?
A)The corporation must be a CCPC that uses at least 50% of the fair market value its assets for active business purposes in Canada at the time the shares are sold.
B)More than fifty percent of the fair market value of the assets of the business must have been used for active business in the past 36 months.
C)The corporation must hire less than 5 full-time employees.
D)The shares must not have been owned by another non-related individual in the past 24 months.
Q2) Samantha received an eligible dividend in the amount of $2,000.She is in a 50% tax bracket for regular income.How much is Samantha's dividend tax credit? (Assume a dividend tax credit rate of 15%.)
A)$300
B)$414
C)$1,000
D)$2,760
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Corporationsan Introduction
Available Study Resources on Quizplus for this Chatper
10 Verified Questions
10 Flashcards
Source URL: https://quizplus.com/quiz/55665
Sample Questions
Q1) Coffee Co.began operations in 20x0 and recognized $37,000 in business income and $1,000 in taxable capital gains that year.In 20x1,the company incurred a business loss of $25,000,a taxable capital gain of $2,000,and an allowable capital loss of $5,000.Business income for 20x2 was $50,000,taxable capital gains were $4,000,and the company received $10,000 in dividends from a taxable Canadian corporation.Coffee Co.utilizes any unused losses in the earliest years possible,Which of the following taxable incomes are correct after all carry-over adjustments have been made?
A)20x0: $12,000; 20x1: $0; 20x2: $52,000
B)20x0: $38,000; 20x1: ($28,000); 20x2: $64,000
C)20x0: $13,000; 20x1: ($0; 20x2: $61,000
D)20x0: $37,000; 20x1: $0; 20x2: $27,000
Q2) Using general terms,explain how a change in control of a corporation can affect the net-capital losses and the non-capital losses.
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Organization, Capital Structures, and Income
Distributions of Corporations
Available Study Resources on Quizplus for this Chatper 10 Verified Questions 10 Flashcards
Source URL: https://quizplus.com/quiz/55664
Sample Questions
Q1) Which of the following scenarios would be appropriate for a section 85 rollover?
A)A shareholder of a corporation wishes to transfer his vehicle to his corporation.The vehicle originally cost $20,000 and has a market value of $12,000.
B)A corporation wishes to convert land owned by the company into a parking lot.
C)A taxpayer wishes to transfer property worth $200,000, with an ACB of $90,000, to her corporation.
D)A corporation is selling its equipment to another corporation and does not wish to own shares in the other corporation.
Q2) Tony Brown sold 5000 of his shares back to ABC Co.for $25,000 during the current fiscal year.He purchased these shares from Carrie White three years ago for $15,000.Carrie had originally purchased the shares from the corporate treasury for $10,000.Which of the following tax consequences will Tony recognize?
A)He will recognize a deemed dividend of $10,000 and no capital gain or loss.
B)He will recognize a deemed dividend of $15,000 and a capital loss of $5,000.
C)He will recognize a deemed dividend of $15,000 and a capital gain of $10,000.
D)He will recognize a deemed dividend of $10,000 and a capital gain of $10,000.
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: The Canadian-Controlled Private Corporation
Available Study Resources on Quizplus for this Chatper
8 Verified Questions
8 Flashcards
Source URL: https://quizplus.com/quiz/55663
Sample Questions
Q1) Which of the following scenarios are not associated corporations (in a de jure context)? (There is no specified corporate income in any of the scenarios.)
A)Blue Corp.owns 90% of the shares of White Corp.
B)Yellow Corp.is wholly owned by Mrs.Smith.James Smith (Mrs.Smith's son), owns 65% of the shares of Green Corp.His mother owns the remaining 35% of the shares.
C)Kelly Booker owns 100% of the shares of Read Co.His mother and father each own 30% of the shares of Write Co.A friend, Mr.Words, owns 10% of Write Co., and Kelly owns the remaining shares.
D)Mr.and Mrs.Field each own 50% of the shares of Green Co.Their children, Sue and Tim, each own 40% of Brown Co., and Mrs.Field owns the remaining 20% of the shares.
Q2) Which of the following types of corporate income are subject to the special refundable tax of 10 2/3%,and a tax reduction of 30 2/3% upon distribution of the income to shareholders?
A)Business income and net property income.
B)Specified investment income and dividend income.
C)Specified investment income and taxable capital gains.
D)Dividend income and net taxable capital gains.
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Multiple Corporations and Their Reorganization
Available Study Resources on Quizplus for this Chatper
8 Verified Questions
8 Flashcards
Source URL: https://quizplus.com/quiz/55662
Sample Questions
Q1) The shareholders of Parent Co.and Sub Co.wish to combine the business activities of the two companies through a business combination.Both companies have assets that have appreciated in value above their capital cost.Parent Co.owns 85% of the shares of Sub Co.
Required:
Suggest a business combination (amalgamation or wind-up)that would defer the tax consequences associated with the increased value of the assets,and explain why you did not choose the other option.
Q2) John Green began a group of companies in 20x0 which he refers to as the 'Green Group'.The companies earn only active business income.The parent company of the group is Green Co.,which is a successful CCPC with $300,000 of taxable income in 20x1.Green Co.has two wholly owned subsidiaries; Black Co.(with taxable income of $50,000 in 20x1),and Red Co.(with a loss of $20,000 in 20x1 and unused losses from 20x0 of $15,000).Green Co.and Black Co.did not incur losses in 20x0.The corporate tax rate is 13%.What is the combined tax liability for the Green Group corporations in 20x1?
A)$39,000
B)$40,950
C)$42,900
D)$45,500
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: Partnerships
Available Study Resources on Quizplus for this Chatper
8 Verified Questions
8 Flashcards
Source URL: https://quizplus.com/quiz/55661
Sample Questions
Q1) Sharon is a 40% partner in Green Nursery.She also works full-time as an engineer,earning a gross salary of $100,000 annually.Green Nursery's net income for tax purposes in 20x0 was $210,000.During 20x0,Green Nursery received $10,000 in non-eligible dividends from a CCPC.Green Nursery also sold a capital asset and recognized a gain of $16,000 in 20x0.(The dividend income and taxable capital gain income have been included in the net income for tax purposes.)Sharon withdrew $20,000 from the partnership during 20x0.The ACB of Sharon's partnership interest was $75,000 at the beginning of 20x0.(Use tax rates and rules applicable for 2019.)
Required:
A)Calculate the partnership's business income for 20x0.
B)Calculate Sharon's net income for tax purposes for 20x0.
C)Calculate the ACB of Sharon's partnership interest for the beginning of 20x1.
Q2) Which of the following statements regarding partnerships is TRUE?
A)Partnership income is taxed in the partnership.
B)Partnership losses cannot be offset against the partners' other income.
C)Partnership income does not have to be reported to Canada Revenue Agency.
D)Partnerships may earn business income, property income, and capital gains.
To view all questions and flashcards with answers, click on the resource link above.
Page 17
Chapter 16: Limited Partnerships and Joint Ventures
Available Study Resources on Quizplus for this Chatper
8 Verified Questions
8 Flashcards
Source URL: https://quizplus.com/quiz/55660
Sample Questions
Q1) Wayne and Wendy are equal partners in ABC Windows.Wayne is a general partner and Wendy is a limited partner.Each partner invested $20,000 in the company.ABC Windows experienced a loss of $50,000 this year.Which of the following statements regarding this loss is TRUE?
A)Wayne may claim a loss for tax purposes of $25,000 this year.
B)Wendy may claim a loss for tax purposes of $25,000 this year.
C)Wayne may claim a loss for tax purposes of $50,000 this year.
D)Wendy may claim a loss for tax purposes of $50,000 this year.
Q2) Steven invested $25,000 as a limited partner in a partnership in 20x7.His partnership interest is 30%.The partnership reported a business loss of $100,000 in 20x7.Steven is in a 45% tax bracket.What is the net cash cost of Steven's investment in 20x7?
A)$-0-
B)$11,500
C)$13,750
D)$25,000
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Trusts
Available Study Resources on Quizplus for this Chatper
8 Verified Questions
8 Flashcards
Source URL: https://quizplus.com/quiz/55659
Sample Questions
Q1) Briefly answer the following questions: With regard to non-spousal trusts:
A)What is the purpose of the 21-Year Rule?
B)What event occurs on the 21<sup>st</sup> anniversary of a trust?
C)What types of properties are subject to the 21-Year Rule?
D)How can the consequences of the 21-Year Rule be avoided? With regard to spousal trusts:
E)What is the exception to the 21-Year Rule for spousal trusts?
Q2) Which of the following statements is TRUE regarding trusts?
A)Losses that exceed income in a trust are allocated to the beneficiary at the end of the year.
B)From a tax perspective, there is little benefit to structuring a business as a royalty trust.
C)Income that is payable to a beneficiary cannot be deducted from the trust's income.
D)The residence of a trust is determined by the residence of the trustees.
To view all questions and flashcards with answers, click on the resource link above.
19
Chapter 18: Business Acquisitions and Divestituresassets
Versus Shares
Available Study Resources on Quizplus for this Chatper
8 Verified Questions
8 Flashcards
Source URL: https://quizplus.com/quiz/55658
Sample Questions
Q1) A purchaser has agreed to purchase the shares of a qualified small business corporation.Which of the following is not applicable?
A)The seller may be eligible for the capital gains deduction.
B)The purchaser may try to discount the value of the shares if a future sale of the assets may result in a tax liability.
C)The sale will result in the immediate taxation of the corporation, and the after-tax proceeds will be paid to the seller.
D)The purchaser will assume the corporation's current UCC values.
Q2) A purchaser has agreed to purchase all of the shares of Tee Co.,a CCPC.Tee Co.owns fifteen significant capital assets,all of which have appreciated in value.Which of the following is TRUE?
A)The purchaser will obtain a cost base of the assets equal to their fair market values.
B)Capital cost allowance will be based on higher asset values for the purchaser than was the case for the vendor.
C)The sale will result in business income for the vendor.
D)The purchaser will be responsible for the liabilities of Tee Co.
To view all questions and flashcards with answers, click on the resource link above.
Page 20
Chapter 19: Business Acquisitions and
Available Study Resources on Quizplus for this Chatper
8 Verified Questions
8 Flashcards
Source URL: https://quizplus.com/quiz/55657
Sample Questions
Q1) Which of the following is not a common feature of closely held corporations?
A)The corporations have only one, or relatively few, shareholders.
B)The business of these corporations is often sold due to the owner's wish to retire.
C)The sale of these corporations may be structured in a way that allows family members or employees with minimal funds to buy the business.
D)These corporations pay regular dividends to their public shareholders.
Q2) Brian Snow owns all of the common shares of Treeline Boots Ltd.,a Canadian-controlled private corporation.The shares have a fair market value of $150,000,an ACB of $30,000,and a PUC of $5,000.Brian would like to retire soon,so he has offered the company to his son,Walter.Walter is young and does not have a lot of disposable income,and as such,a Section 86(1)reorganization of share capital has been recommended to Brian.Brian's common shares will be converted to preferred shares,redeemable for $150,000.Walter will then purchase a new class of common shares at a nominal value.
Required:
Discuss the immediate tax consequences of the reorganization of share capital for Brian,indicating the ACB and the PUC of the new preferred shares.
To view all questions and flashcards with answers, click on the resource link above.
Page 21
Chapter 20: Domestic and International Business Expansion
Available Study Resources on Quizplus for this Chatper
7 Verified Questions
7 Flashcards
Source URL: https://quizplus.com/quiz/55656
Sample Questions
Q1) In the Canada-U.S.tax treaty,the definition of a 'permanent establishment' does not include
A)a place of management.
B)a factory.
C)a storage facility.
D)an office.
Q2) The Sweater Corp.is a Canadian corporation which plans to expand internationally.The company has decided to establish a wholly-owned foreign subsidiary corporation in another country.Which of the following is FALSE?
A)The subsidiary will be subject to taxes in the foreign country.
B)The subsidiary's profits will be included in the Canadian corporation's worldwide income.
C)Dividends received by the Canadian corporation from the foreign subsidiary are excluded from the Canadian corporation's taxable income.
D)Dividends received by the Canadian corporation from the foreign subsidiary are most often subject to a withholding tax in the foreign jurisdiction.
To view all questions and flashcards with answers, click on the resource link above.
22
Chapter 21: Tax Aspects of Corporate Financing
Available Study Resources on Quizplus for this Chatper
8 Verified Questions
8 Flashcards
Source URL: https://quizplus.com/quiz/55655
Sample Questions
Q1) Jet Dry Inc.is undergoing a sale/leaseback arrangement on a piece of its excavating equipment.The equipment is a class 38 (30%)asset,with a fair market value of $250,000 (which is lower than the original cost).The equipment currently generates $75,000 in annual pre-tax revenue.Jet Dry Inc.will sell the equipment at FMV. Under the leasing terms,the lease agreement will be for five years,with no residual value at the end of the term.The annual leasing cost will be $55,000 per year.
The UCC relating to this piece of equipment is $150,000.Other assets will remain in the asset pool,and there is sufficient UCC in the class that recapture will not occur as a result of the sale.
The company is subject to a corporate tax rate of 27% and achieves a 12% after-tax rate of return.
Required:
Calculate the net present value of the cash flow that will result from this sale-and-leaseback arrangement.(Round all numbers to zero decimal places.)
To view all questions and flashcards with answers, click on the resource link above.
Page 23
Chapter 22: Gsthst Overview
Available Study Resources on Quizplus for this Chatper
8 Verified Questions
8 Flashcards
Source URL: https://quizplus.com/quiz/55654
Sample Questions
Q1) Green Co.earned $20,000 in revenue and paid $15,000 in expenses (that do not include meals and entertainment).How much GST will Green Co.remit using the simplified ITC calculation? (Green Co.is in a province with 5% GST.)
A)$0
B)$238
C)$250
D)$652
Q2) With respect to GST/HST,supplies fall under different categories with different sets of rules.Which of the following is FALSE with regard to exempt supplies?
A)Exempt supplies are not included in the determination of the mandatory reporting period.
B)GST/HST is not applicable.
C)Childcare services and music lessons are examples of exempt supplies.
D)Input tax credits may be claimed on expenditures made to provide the exempt supplies.
To view all questions and flashcards with answers, click on the resource link above.
24