Canadian Income Tax

Canadian Income Tax Chapter 1 Comprehensive Question – The text book lists four fundamental tax variables which a manager needs to consider when making business decisions. List the relevant variables within these four categories. These variables are listed below. A. primary types of income entities subject to taxation on income alternative forms of business structures used by taxable entities tax jurisdictions Chapter 2 Comprehensive Question – Steven James earned $150,000 this year in profits from his proprietorship. The rate of tax for Canadian-controlled private corporations in his province is 13% on the first $500,000 of income. Personal tax rates (federal plus provincial) in James’ province are: On the first $47,000 24% On the next $47,000 32% On the next $51,000 40% On the next $61,000 45% On income over $206,000 50% Steven withdraws $3,000 per month for his personal living expenses. All remaining profits are used to pay taxes and to expand the business. Steven expects the same business after-tax profits next year. Steven is considering incorporating his business next year. If he incorporates, he will pay himself a gross salary of $48,000. Required: Determine the increase in Steven’s cash flow if he incorporates his company? Name the type of tax planning that Steve would be engaging in if he incorporated his company. Chapter 3 Comprehensive Question – A taxpayer has the following financial results for a particular year: Business profit – A Enterprise $10,000 Business loss – B Enterprise (3,000) Other sources of income – pension 12,000 Property income – interest 5,000 Allowable capital losses on sale of land (20,000) Allowable business investment loss (2,000) Taxable capital gains on sale of securities 15,000 Other deductions – alimony payments (spousal support) (3,000) Employment income from part time job 30,000 Required: Determine the taxpayer’s net income for tax purposes. Chapter 4 Comprehensive Question – Pasqual Melo is employed by a public corporation. On January 1, 2018, she was given an option to purchase 1,000 shares of the public corporation for $8 per share (the option extended for two years). On December 15, 2018, she exercised her option and bought 1,000 shares at $8 per share. On June 15, 2021, she sold the 1,000 shares. The fair market value of the shares at the particular dates was as follows: Date option granted $ 8.50 Date option exercised 10.00 Date shares sold 14.00 Required: Determine the amount and type of income, and when that income is taxable. (Hint: Options are in the money) Determine the amount and type of income, and when that income is taxable if the option to purchase was for $8.50 per share instead of $8.00. (Hint: Options are same price as fair value at time options granted) Determine the amount and type of income, and when that income is taxable if the employer is a Canadian Controlled Private Corporation (CCPC).

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