Reference no: EM132940102

Assignment 1

Question-1
Pacific coast seafood Ltd was established in1995 and has been Canadian controlled private corporation since its incorporation, its head office is located in Vancouver, and it has branches in both Seattle, Washington, and Portland, Oregon, its taxation year ends on December 31. All income of the company is derived from the sale of seafood in local markets.

During the 2019 taxation year, the company's net income for tax purpose and taxable income amounted to$3,26,000 This amount includes $73,000(Canadian)earned by the two branches operating in the united states. The $73,000 earned by these branches is before the deduction of any US or Canadian income tax. As a result of earning this amount in the US, the company was required to pay $13,800(Canadian) in US federal income tax and $7,600(Canadian) in state income taxes.

For 2018 and 2019, its adjusted aggregate investment income was nil. Its taxable capital employed in Canada was less than $10 million for both years.

Required:
A. Calculate pacific coast seafood Ltd.'s federal part 1 tax payable for the 2019 taxation year. For the purpose of calculating the small business deduction, assume the foreign business income tax credit is equal to the foreign tax withheld
B. Using your results from part a, verify that the foreign business income tax credit is equal to the foreign tax withheld.

Question 2

Part 2
Lax inc.is Canadian controlled private corporation, for the fiscal year ending December 31,2019, its net income for tax purpose and taxable income is made up of active business income of $2,85,000,plus adjusted aggregate investment income of $95,000, for 2018,its adjusted aggregate investment income was $75,000, its taxable capital employment in Canada was $7 million for 2019 and $6 million for 2018, because of its association with Slax inc. its 2019 allocation of the annual business limit is $200,000. Slax's taxable capital employment in Canada was $1,000,000 for 2019 and for 2018. It has no adjusted aggregate investment income I either year.

Required:
Determine the amount of the 2019 small business deduction for Lax inc.

Question 3
Part 1
Joan Barkin is going to transfer the depreciable assets of her unincorporated business to a corporation in which she will be the sale shareholder, Relevant information on the assets is as follows:

	Class 1	Class 8
Fair Market Value of the Property	$263,000	$46,000
UCC of Class(Last Asset in calss)	122,000	52,000
Coast of the Property	201,000	81,000
Fair Market Value of the Boot	100,000	46,000

Required:
Joan would like to defer as much current taxation as possible. At what value she transfer each of the assets? Justify your conclusion. If she elects that value< what are the tax consequences for joan in each case?

Question 4

Part 2
Several year ago, Fox acquired a small apartment building for total consideration of $950,000, this total was allocated on the basis of $225,000 of the land and $725,000 for the building,

At present the property has affair market value of $1,200,00, with $300,00 of this total attributable to the land Ms. Fox would like to transfer the property to a corporation using a section 85 rollover. At the beginning of the current year, the building had a UCC of $582,000. The value elected for the transfer is $807,000($225,000+$582,000). The consideration given to Ms. Fox for the property is 12,000 common shares.

Shortly after the section 85 rollover is completed, Ms, Fox sells all of the common shares she received as a result of the transfer to Ms. Hound, an arm's length party, for proceeds of $1,200,00.

Required:
A. Describe the tax consequences for Ms, Fox using section 85 and selling the common shares.
B. How do these results compare with the tax consequences of simply the building directly to Mr. Hound for $1,200,00?

Question 5

Part 3
Mr. McNeal believes that the real estate market is overpriced, and that correction is imminent. Therefore, he decided to sell his cottage, which he owned since 2000 and acquired at a coat of $850,000, along with his condominium, which he acquired in 2008 at a cost of $625,000. The cottage was sold for $1,200,00 in June 2019, and the condominium sold in July 2019 for $900,000. Real estate commissions of 5% of the sales price were charged on both transactions. Mr. McNeal has been the only individual to use these properties, and either one could be designated as the principal residence for the relevant years. Mr. McNeal wishes to minimize any capital gains resulting from the sale of the two properties.

Required:
Describe hoe the residences should be designated in order to accomplish Mr. McNeal's goals. In addition, calculate the amount of the gain that would arise under the designation that you have recommended.

Question 6
After spending years in a minimum wage job, Bob Conley received an inheritance from his father 2 years ago. He started taking night school courses and completed his Bachelor of Business Administration at Thompson River University. He received a job offer on graduation last year and has been working for a large publicly traded corporation since then. His earning for the current year are listed below along with his withholding amounts.

	2019	Prior Year
Gross Salary	60,000	48,000
Commissions	35,000	28,000
Deduction Expenses relating to commission income	4,000	3,200
Federal and provincial income taxes	26,000	18,000
CPP contributions	2,749	2,594
EI Premiums	860	858
Disability insurance Premiums	300	240
Registered pension plan (RPP) Contributions	1,800	1,440

The registered pension plan is a money purchase plan. The employer makes RPP contributions and pays disability insurance premium equal to those amounts withheld from the employee earnings for these items. Additionally, Bob informs you of the following tax information.

	2019	Prior Year
Net rental Income (Loss)	1,400	(2,500)
Taxable Spousal Support Received	2,600	2,400
Deductible Spousal Support Paid	(3,600)	(3,500)
Capital Gains (Losses)	(2,200)	1,750
Royalties on patent created by Bob's father	875	920
Interest Income	273	496

When Bob received his inheritance 3 years ago, he made a $7,500 contribution to an RRSP. In his tax course, he learned that he should not use this deduction until he was out of the minimum tax bracket, so he has not yet deducted this amount. He has Unused RRSP Deduction Room of $25,000 at the end of last year.

Bob still has $198,620 in cash remaining from the funds he inherited from his father. He would like to put as much of this amount as possible into his RRSP to be applicable to the 2019 year.

Required:
Determine Bob's RRSP Deduction Limit for 2019.

Question 7:

Tiffany Case has a business that produces annual income of approximately $150,000. She is planning to incorporate this business in the current year, and if she does, none of the income will be eligible for the small business deduction because she controls a corporation that fully utilizes the $500,000 small business deduction. As a result, all dividends paid will be designated eligible. In her province, such corporate income is taxed at a combined federal/provincial rate of 26 per cent. Tiffany has income from other sources that places her in the top personal bracket of 45 per cent where this income is currently taxed. The provincial dividend tax credit rate on eligible dividends is equal to 27 per cent of the gross up.

Required:
Calculate the loss in after-tax retention that Tiffany Case would have if she incorporates this stream of Income.

Question 8
JJX Inc is a Canadian-Controlled private corporation. However, It is not a qualified small business corporation. All of the shares of the company are held by individuals resident in Canada. On December 31,2019, its condensed balance sheet is as follows:

Total Assets                                                                             $790,000

Total Liabilities                                                                       $110,000

Shareholder's Equity:

  20,000 Preferred Shares            $150,000

 185,000 Common Shares             370,000

Retained Earnings                           160,000                         680,000

Total Equities                                                                         $790,000

There are 20,000 Preferred shares outstanding and they were issued at a price of $7.50 per share. The paid-up capital (PUC) of these shares is equal to their carrying value of $150,000.

There are 185,000 common shares outstanding, and they have been issued at various prices. The PUC of these shares is equal to their carrying value of $370,000.

Any taxable dividends paid or deemed to be paid by JJX Inc. would be non-eligible.
Mr. Jones owns 10,000 of the outstanding preferred shares. His adjusted cost base for the shares is $72,000. The Company redeems these shares, providing him with a payment of $78,000.
Mr. Smith owns 25% of the common shares. The company declares a dividend of $.50 per share on the outstanding common shares. The total amount of the dividend is less than the balance in the capital dividend account, and the company makes the appropriate election under ITA 83(2)

Required:
Indicate the tax consequences to Mr. Smith and Mr. Jones

Question 9
Three years ago, Pam Bouvier, Paris Carver, and Vesper Lynd formed a partnership programming services in the computer gaming industry. The partners each contributed $150,000 and agreed that all income and losses are to be shared equally. The fiscal year for the partnership is established to end on December 31.
For the beginning of the partnership to December 31,2018, the following information is available:
1. The partnership earned net business income of $492,000.
2. The partnership realized a capital gain of $30,000(this amount is not included I the net business income figure)
3. The partnership made a number of charitable donations during the period. The total amount involved was$21,000, and this total was allocated equally to each of the three partners (this amount is not included I the net business income figure)
4. During this period, Vesper Lynd made withdrawals from the partnership totaling $75,000.
5. Additional capital was required to expand the memory and storage capacity of the computers and, as a consequence, each partner contributed an additional $23,000 in cash.
Vesper Lynd decided to withdraw from the partnership effective January 1,2019. After some negotiations, each of the other partner agreed to pay her $163,000 in cash for one half of her interest in the partnership, a total of $326,000. The payments are made on February 1, 2019. Vesper Lynd incurred legal and accounting fees in conjunction with this transaction totaling $2,000.
Required:
A. Calculate the adjusted coast base of vesper Lynd's partnership interest as of January 1,2019.
B. Determine the amount of gain or loss for Vesper Lynd on the disposition of her partnership interest. Explain hoe this amount, and any other amounts related to the partnership, will be taxed in her hands during 2019.
C. Indicate hoe the adjusted coast base of Pam Bouvier and Paris Carver will be affected by the withdrawal of Vesper Lynd from the partnership.

Question 10:
In the process of planning an estate freeze, Ronald Frump to transfer a significant amount of publicly traded common stocks to a trust. The terms of the trust will require annual distributions to his wife Marina Frump totaling 50 percent of the annual income, and 25 percent each to their son Eric and their daughter Marsha, Eric is 22 years old with employment income of $25,000 per year.
The trust will have the following types of income: capital gains, interest, and dividends.
The terms of the trust require that the entire assets of the trust will be distributed 17years from the date the trust is established using the same allocation amounts as the annual distributions.

Required:
A. identify the type of trust that is being used, and what date the trust's year end should be.
B. indicate the person(s) that will have to include the trust's income in their Net income for tax purposes. would your answer change if Marsha was 16 years old? Provide detail of any differences that would result from this.
C. how would you answer part b. if Mr. Frump formed the trust by the settlement of a nominal amount of cash? Then after creating the trust, Mr. Frump lends money to the trust to purchase portfolio investments from him at their current fair market value.
Based on this, provide your response to the following independent scenarios;
1. the loan is an interest free loan.
2. The trust pays interest at the prescribed rate on the loan.