Reference no: EM132910934
Question 1 - Bob Best owned 100,000 shares of ABC Ltd., a publicly-traded Canadian corporation. These shares, including brokerage fees, were acquired at a cost of $600,000. Based on current trading values, these shares are now worth $900,000.
The following four cases make different assumptions as to the identity of the purchaser, the circumstances of the sale, and the proceeds of disposition. In each case, assume that the purchaser immediately resold the shares for their fair market value of $900,000.
Case 1: Bob Best sold the shares to his brother for $200,000 to create a loss, since Bob Best had realized significant capital gains during the current year. Since his brother had no other source of income, Bob's brother would be taxed on the gain from the resale at the minimum federal rate.
Case 2: Bob Best's mother had realized a large amount of capital gains during the current year. To help his mother, Bob Best sold the shares to her for $1,800,000. Bob's mother planned to use the loss on the immediate resale to offset her capital gains.
Case 3: Because Bob Best needed funds to acquire a house for his grandmother, he sold the shares to an arm's length party for $900,000.
Case 4: Bob Best gifted the shares to his 17-year-old daughter.
Required - For each of the cases, advise Bob Best of the tax consequences that will result from the disposition, and indicate the tax consequences to the purchaser of the shares when they are resold. In addition, in Cases 1 and 2, indicate whether the stated tax planning objective was achieved.
Question 2 - Case A: Julia Jones had 2019 Net Income for Tax Purposes of $98,000, none of which was employment income or income from self-employment. In 2019, her spouse had $5,500 Net Income for Tax Purposes. Their daughter is 15 years old, lives with them, and had 2019 Net Income for Tax Purposes of $1,000. Their son is 22 years old and, because of a physical disability, continued to live with them. He had no income of his own. His disability was not severe enough to qualify for the disability tax credit.
Case B: Mary Mild had 2019 Net Income for Tax Purposes of $185,000, all of which was rental income. Her husband had 2019 Net Income for Tax Purposes of $2,000. They have three children, ages 12, 14, and 19. All of these children are in good health and continue to live at home. The 19-year-old child had 2019 Net Income for Tax Purposes of $6,100. During the current year, Mary Mild paid the following medical expenses:
Case C: Andrew North had 2019 Net Income for Tax Purposes of $140,000, all of which is employment income. He was married to Annette, whose 2019 Net Income for Tax Purposes was $4,100. They have three children aged 6, 7, and 12. All of the children are in good health, and none of them have income of their own in 2019.
Case D: Mike Bond has been divorced for several years. He has custody of their four children, ages 5, 7, 9, and 15. His $63,000 Net Income for Tax Purposes for 2019 consisted of spousal support payments. The children are all in good health. In 2019, the oldest child had $7,500 Net Income for Tax Purposes.
Case E: Sue Sands is 75 years old and has 2019 Net Income for Tax Purposes of $75,000. This total was made up of OAS payments and pension income from her former employer. Her husband is 58 years old and had 2019 Net Income for Tax Purposes of $3,300.
Required - For each of the above independent cases, determine the maximum amount of 2019 personal non-refundable tax credits, including transfers from a spouse or dependant, that can be applied against federal income tax payable by the taxpayer. Ignore, where relevant, the possibility of pension income splitting. A calculation of tax payable is NOT required, only the applicable credits.