Word Solutions Manual Chapters 11 - 21 (2019 ) PDF

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Solution to Assignment Problem Eleven - 1

Canadian Tax Principles 2019 / 2020 Solutions Manual – Chapters 11 to 21

Solutions Manual Table of Contents – Chapters 11 to 21 For a listing of the subjects covered and difficulty of each Assignment Problem, please refer to the .PDF version of the Solutions Manual that is available on the online catalogue listing for this book, at:

catalogue.pearsoned.ca Click on “Download resources” (shown below) in the upper right hand corner of the web page for this edition.

The table of contents is hyperlinked to the beginning of each Problem Solution. To go to a Solution, hold down the Control key and click on the solution listing. Control + Home will bring you back to this table of contents from anywhere in the document.

CHAPTER ELEVEN SOLUTIONS ..............................4 Solution to Assignment Problem Eleven - 1 ........................... 4 Solution to Assignment Problem Eleven - 2 ........................... 7 Solution to Assignment Problem Eleven - 3 ........................... 9 Solution to Assignment Problem Eleven - 4 ......................... 11 Solution to Assignment Problem Eleven - 5 ......................... 12 Solution to Assignment Problem Eleven - 6 ......................... 14 Solution to Assignment Problem Eleven - 7 ......................... 16 Solution to Assignment Problem Eleven - 8 ......................... 19 Solution to Assignment Problem Eleven - 9 ......................... 24 Solution to Assignment Problem Eleven - 10 ....................... 28 Solution to Assignment Problem Eleven - 11 ....................... 34 Solution to Problem Tax Software Eleven - 1 ....................... 39 Solution to Problem Tax Software Eleven - 2 ....................... 41 Solution to Problem Tax Software Eleven - 3 ....................... 44

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Canadian Tax Principles 2019/20 Edition – Solutions Manual

Solution to Assignment Problem Eleven - 1 CHAPTER TWELVE SOLUTIONS ...........................53 Solution to Assignment Problem Twelve - 1 ......................... 53 Solution to Assignment Problem Twelve - 2 ......................... 54 Solution to Assignment Problem Twelve - 3 ......................... 55 Solution to Assignment Problem Twelve - 4 ......................... 57 Solution to Assignment Problem Twelve - 5 ......................... 58 Solution to Assignment Problem Twelve - 6 ......................... 60 Solution to Assignment Problem Twelve - 7 ......................... 62 Solution to Assignment Problem Twelve - 8 ......................... 63 Solution to Assignment Problem Twelve - 9 ......................... 64 Solution to Assignment Problem Twelve - 10....................... 65

CHAPTER THIRTEEN SOLUTIONS ........................69 Solution to Assignment Problem Thirteen - 1 ....................... 69 Solution to Assignment Problem Thirteen - 2 ....................... 70 Solution to Assignment Problem Thirteen - 3 ....................... 72 Solution to Assignment Problem Thirteen - 4 ....................... 73 Solution to Assignment Problem Thirteen - 5 ....................... 75 Solution to Assignment Problem Thirteen - 6 ....................... 79 Solution to Assignment Problem Thirteen - 7 ....................... 85 Solution to Assignment Problem Thirteen - 8 ....................... 89 Solution to Assignment Problem Thirteen - 9 ....................... 95

CHAPTER FOURTEEN SOLUTIONS ....................101 Solution to Assignment Problem Fourteen - 1 .................... 101 Solution to Assignment Problem Fourteen - 2 .................... 103 Solution to Assignment Problem Fourteen - 3 .................... 105 Solution to Assignment Problem Fourteen - 4 .................... 106 Solution to Assignment Problem Fourteen - 5 .................... 107 Solution to Assignment Problem Fourteen - 6 .................... 109 Solution to Assignment Problem Fourteen - 7 .................... 110 Solution to Problem For Tax Software Chapter 14 ............. 112

CHAPTER FIFTEEN SOLUTIONS .........................113 Solution to Assignment Problem Fifteen - 1 ....................... 113 Solution to Assignment Problem Fifteen - 2 ....................... 114 Solution to Assignment Problem Fifteen - 3 ....................... 116 Solution to Assignment Problem Fifteen -4 ........................ 117 Solution to Assignment Problem Fifteen - 5 ....................... 118 Solution to Assignment Problem Fifteen - 6 ....................... 121 Solution to Assignment Problem Fifteen - 7 ....................... 124 Solution to Assignment Problem Fifteen - 8 ....................... 126 Solution to Assignment Problem Fifteen - 9 ....................... 128 Solution to Assignment Problem Fifteen - 10 ..................... 129 Solution to Assignment Problem Fifteen - 11 ..................... 131

CHAPTER SIXTEEN SOLUTIONS .........................134 Solution to Assignment Problem Sixteen - 1 ...................... 134 Solution to Assignment Problem Sixteen - 2 ...................... 135 Solution to Assignment Problem Sixteen - 3 ...................... 137 Solution to Assignment Problem Sixteen - 4 ...................... 139 Solution to Assignment Problem Sixteen - 5 ...................... 141 Solution to Assignment Problem Sixteen - 6 ...................... 144 Solution to Assignment Problem Sixteen - 7 ...................... 146 Solution to Assignment Problem Sixteen - 8 ...................... 148 Solution to Assignment Problem Sixteen - 9 ...................... 150 Solution to Assignment Problem Sixteen - 10 .................... 152 Solution to Assignment Problem Sixteen - 11 .................... 154 Solution to Assignment Problem Sixteen - 12 .................... 157 Solution to Assignment Problem Sixteen - 13 .................... 159

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Canadian Tax Principles 2019/20 Edition – Solutions Manual

Solution to Assignment Problem Eleven - 1 CHAPTER SEVENTEEN SOLUTIONS ..................160 Solution to Assignment Problem Seventeen - 1 ................. 160 Solution to Assignment Problem Seventeen - 2 ................. 162 Solution to Assignment Problem Seventeen - 3 ................. 164 Solution to Assignment Problem Seventeen - 4 ................. 167 Solution to Assignment Problem Seventeen - 5 ................. 171 Solution to Assignment Problem Seventeen - 6 ................. 172 Solution to Assignment Problem Seventeen - 7 ................. 173 Solution to Assignment Problem Seventeen - 8 ................. 175 Solution to Assignment Problem Seventeen - 9 ................. 179

CHAPTER EIGHTEEN SOLUTIONS ......................183 Solution to Assignment Problem Eighteen - 1 .................... 183 Solution to Assignment Problem Eighteen - 2 .................... 184 Solution to Assignment Problem Eighteen - 3 .................... 185 Solution to Assignment Problem Eighteen - 4 .................... 187 Solution to Assignment Problem Eighteen - 5 .................... 188 Solution to Assignment Problem Eighteen - 6 .................... 190 Solution to Assignment Problem Eighteen - 7 .................... 192 Solution to Assignment Problem Eighteen - 8 .................... 193 Solution to Assignment Problem Eighteen - 9 .................... 195 Solution to Assignment Problem Eighteen - 10 .................. 196

CHAPTER NINETEEN SOLUTIONS ......................197 Solution to Assignment Problem Nineteen - 1 .................... 197 Solution to Assignment Problem Nineteen - 2 .................... 199 Solution to Assignment Problem Nineteen - 3 .................... 200 Solution to Assignment Problem Nineteen - 4 .................... 201 Solution to Assignment Problem Nineteen - 5 .................... 203 Solution to Assignment Problem Nineteen - 6 .................... 204 Solution to Assignment Problem Nineteen - 7 .................... 206 Solution to Assignment Problem Nineteen - 8 .................... 207 Solution to Assignment Problem Nineteen - 9 .................... 208

CHAPTER TWENTY SOLUTIONS .........................210 Solution to Assignment Problem Twenty Solution to Assignment Problem Twenty Solution to Assignment Problem Twenty Solution to Assignment Problem Twenty Solution to Assignment Problem Twenty Solution to Assignment Problem Twenty Solution to Assignment Problem Twenty Solution to Assignment Problem Twenty Solution to Assignment Problem Twenty Solution to Assignment Problem Twenty

- 1....................... 210 - 2....................... 211 - 3....................... 212 - 4....................... 213 - 5....................... 215 - 6....................... 217 - 7....................... 218 - 8....................... 219 - 9....................... 221 - 10..................... 224

CHAPTER TWENTY-ONE SOLUTIONS................226 Solution to Assignment Problem Twenty-One - 1............... 226 Solution to Assignment Problem Twenty-One - 2............... 227 Solution to Assignment Problem Twenty-One - 3............... 228 Solution to Assignment Problem Twenty-One - 4............... 229 Solution to Assignment Problem Twenty-One - 5............... 230 Solution to Assignment Problem Twenty-One - 6............... 231 Solution to Assignment Problem Twenty-One - 7............... 233 Solution to Assignment Problem Twenty-One - 8............... 235 Solution to Assignment Problem Twenty-One - 9............... 236 Solution to Assignment Problem Twenty-One - 10............. 237 Solution to Assignment Problem Twenty-One - 11............. 238

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Canadian Tax Principles 2019/20 Edition – Solutions Manual

Solution to Assignment Problem Eleven - 1

CHAPTER ELEVEN SOLUTIONS Solution to Assignment Problem Eleven - 1 2016 Analysis The required information can be calculated as follows: ITA 3(a) Business Income Taxable (Grossed Up) Dividends ITA 3(b) Taxable Capital Gains [(1/2)($1,200)] Allowable Capital Losses [(1/2)($4,200)] ITA 3(c) ITA 3(d) Farm Loss (See Note) Net Income For Tax Purposes And Taxable Income

$18,000 2,360

$20,360

$ 600 ( 2,100)

Nil $20,360 ( 6,250)

$14,110

Note Ms. Breau’s farm losses are restricted as follows: Total Farm Loss Deductible Amount: First $2,500 One-Half Of $7,500 ($10,000 - $2,500) Restricted Farm Loss Carry Forward

$10,000 ($2,500) ( 3,750)

( 6,250) $3,750

As noted in the problem, none of the losses can be carried back before 2016. This would leave the following carry forward balances at the end of 2016: • •

Restricted Farm Loss Carry Forward Net Capital Loss Carry Forward [(1/2)($4,200 - $1,200)]

$3,750 $1,500

2017 Analysis The required information can be calculated as follows: ITA 3(a) Farm Income Taxable (Grossed Up) Dividends ITA 3(b) Taxable Capital Gains [(1/2)($2,000)] Allowable Capital Losses ITA 3(c) ITA 3(d) Business Loss Net Income For Tax Purposes 2016 Net Capital Loss Carry Forward Taxable Income (Loss)

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$ 2,000 2,950 $ 1,000 Nil

$ 4,950

1,000 $ 5,950 ( 14,000) Nil ($ 1,000) Nil

Canadian Tax Principles 2019/20 Edition – Solutions Manual

Solution to Assignment Problem Eleven - 1 Since there are taxable capital gains this year, and the problem states that Ms. Breau would like to deduct the maximum amount of her net capital loss carry forwards, the net capital loss carry forward of $1,000 is added to the balance of the non-capital loss. The non-capital loss carry over is calculated as follows: Business Loss 2016 Net Capital Loss Deducted ITA 3(c) Income Non-Capital Loss Carry Over For 2017

$14,000 1,000 ( 5,950) $ 9,050

The entire non-capital loss carry over could be carried back to 2016, but since Ms. Breau requires $14,000 in Taxable Income to fully utilize her tax credits, the maximum carry back to 2016 is $110, calculated as follows: 2016 Taxable Income (As Reported) Non-Capital Loss Carry Back From 2017 2016 Amended Taxable Income (Minimum)

$14,110 ( 110) $14,000

This carry back leaves Ms. Breau with her required $14,000 in Taxable Income. There would be the following carry forward balances at the end of 2017: • • •

Restricted Farm Loss Carry Forward (Unchanged) Net Capital Loss Carry Forward ($1,500 - $1,000)] Non-Capital Loss Carry Forward ($9,050 - $110)

$3,750 $ 500 $8,940

2018 Analysis The required information can be calculated as follows: ITA 3(a) Business Income Farm Income Taxable (Grossed Up) Dividends ITA 3(b) Taxable Capital Gains [(1/2)($4,000)] Allowable Capital Losses Net Income For Tax Purposes Restricted Farm Loss Carry Forward (Equal To Farm Income) Net Capital Loss Carry Forward (Less Than $2,000) Non-Capital Loss Carry Forward (All) Taxable Income

$30,000 3,150 3,963

$37,113

$2,000 Nil

2,000 $39,113 ( 3,150) ( 500) ( 8,940) $26,523

There would be the following carry forward balance at the end of 2018: •

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Restricted Farm Loss Carry Forward ($3,750 - $3,150)

$ 600

Canadian Tax Principles 2019/20 Edition – Solutions Manual

Solution to Assignment Problem Eleven - 1 2019 Analysis The required information can be calculated as follows: ITA 3(a) Taxable (Grossed Up) Dividends ITA 3(b) Taxable Capital Gains [(1/2)($4,500)] Allowable Capital Losses [(1/2)($14,500)] ITA 3(c) ITA 3(d) Business Loss Farm Loss Net Income For Tax Purposes And Taxable Income

$ 6,450 $ 2,250 ( 7,250)

Nil $ 6,450

($19,000) ( 2,000) Nil

( 21,000)

The available non-capital loss can be calculated as follows: Business Loss ITA 3(c) Income Non-Capital Loss Carry Over Farm Loss (Unrestricted) Total Loss Carry Over For 2019

$19,000 ( 6,450) $12,550 2,000 $14,550

Although technically, the farm loss is accounted for separately from the non-capital loss, since the farm loss is less than $2,500 it is treated as an unrestricted farm loss and can be applied against all types of income. Given the carry over rules are the same, we have treated this farm loss as part of the non-capital loss carry over. The preceding loss carry over of $14,550 is available for carry back to 2018. With respect to the net capital loss of $5,000 [(1/2)($10,000)], there are $1,500 ($2,000 - $500) in taxable capital gains left in 2018 as the basis for a carry back. This means that $1,500 of this year’s allowable capital loss can be carried back, leaving $3,500 ($5,000 - $1,500) to be carried forward as a net capital loss balance. If both the $14,550 non-capital loss and the $1,500 net capital loss were carried back to 2018, the result would be a Taxable Income of $10,473, less than the $14,000 that is required to fully utilize Ms. Breau’s available tax credits. As the net capital loss can only be deducted to the extent of taxable capital gains, it would be advisable to claim the full amount of this loss carry back. Based on this view, the non-capital loss deduction will be limited to $11,023 ($26,523 - $14,000 - $1,500), an amount that will provide for full use of Ms. Breau’s 2018 tax credits: 2018 Taxable Income (As Reported) Non-Capital Loss Carry Back From 2019 Net Capital Loss Carry Back From 2019 2018 Amended Taxable Income

$26,523 ( 11,023) ( 1,500) $14,000

These carry backs leave Ms. Breau with her required $14,000 in 2018 Taxable Income. There would be the following carry forward balances at the end of 2019: • • •

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Restricted Farm Loss Carry Forward (Unchanged) Net Capital Loss Carry Forward ($5,000 - $1,500)] Non-Capital Loss Carry Forward (Nil + $14,550 - $11,023)

$ 600 $3,500 $3,527

Canadian Tax Principles 2019/20 Edition – Solutions Manual

Solution to Assignment Problem Eleven - 2

Solution to Assignment Problem Eleven - 2 Before consideration of any carry backs, Lucinda would have 2018 Taxable Income as follows: Net Rental Income Interest Income Taxable Capital Gains Net Income For Tax Purposes And Taxable Income

$ 91,450 38,275 17,300 $147,025

The loss on Recovery Inc. is a Business Investment Loss (BIL) However, because of her use of the lifetime capital gains deduction in 2017, $156,000 of this amount would be disallowed. Given this, the available Allowable Business Investment Loss (ABIL) would be calculated as follows: Total Loss Disallowed By Lifetime Capital Gains Deduction Use Balance Inclusion Rate Allowable Business Investment Loss (ABIL)

$675,000 ( 156,000) $519,000 1/2 $259,500

Using this value, Lucinda’s 2019 Taxable Income is calculated as follows: Income Under ITA 3(a) Net Rental Income Interest Income

$86,300 27,438

Income Under ITA 3(b) Taxable Capital Gains Allowable Capital Loss (Disallowed ABIL) [(1/2)($156,000)] (Note 1) Balance Under ITA 3(c)

$113,738

$18,620 ( 78,000)

Deduction Under ITA 3(d) ABIL (Note 2) Net Income For Tax Purposes And Taxable Income

Nil $113,738 ( 259,500) Nil

Note 1 As the $156,000 disallowed BIL becomes an ordinary capital loss, it must be deducted against the 2019 capital gain. This leaves a net capital loss carry over of $59,380 ($78,000 $18,620) of which $17,300 can be carried back to 2018. Note 2 As the ABIL was realized in 2019, it must be used to reduce that year’s income to Nil. Note that, because of this rule, Lucinda cannot deduct a smaller amount in order to have sufficient income to absorb her basic personal tax credit. After this deduction, a carry over of $145,762 ($259,500 - $113,738) remains. The amount that should be carried back is calculated as follows: 2018 Net Income For Tax Purposes (As Originally Calculated) Net Capital Loss Carried Back Optimum Taxable Income = 2018 Basic Personal Amount Non-Capital Loss Carried Back

$147,025 ( 17,300) ( 11,809) $117,916

As planned, these deductions would leave a Taxable Income of $11,809 ($147,025 - $17,300 $117,916). The taxes on this amount will be eliminated by Lucinda’s basic personal credit. Since there was no Tax Payable prior to 2018, there would be additional carry backs. The following carry forwards remain after the carry back amounts are deducted:

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Canadian Tax Principles 2019/20 Edition – Solutions Manual

Solution to Assignment Problem Eleven - 2 Net Capital Loss Carry Forward ($59,380 - $17,300)

$42,080

Non-Capital Loss Carry Forward ($145,762 - $117,916)

$27,846

For the next 10 years, the ABIL will be treated as a non-capital loss carry forward that can be deducted against other sources of income. If it has not been utilized within the 10 years, it then becomes a net capital loss carry forward, deductible for an unlimited number of future periods, but only against net taxable capital gains.

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Canadian Tax Principles 2019/20 Edition – Solutions Manual

Solution to Assignment Problem Eleven - 3

Solution to Assignment Problem Eleven - 3 To the extent that there has been use of the lifetime capital gains deduction in previous years, business investment losses (BILs) are disallowed. When they are disallowed, they become ordinary capital losses that must be deducted against the current year’s taxable capital gains. Given this, the non-disallowed portion of the BIL would be calculated as follows: 2019 BIL Realized ($295,000 - $71,000) BIL Disallowed By Previous Use Of ITA 110.6 ($78,500 + $39,000) Remaining Business Investment Loss Inclusion Rate Allowable Business Investment Loss

$224,000 ( 117,500) $106,500 1/2 $ 53,250

Dirk’s Net Income For Tax Purposes would be calculated as follows: Net Rental Income Allowable Business Investment Loss Net Taxable Capital Gains: Taxable Capital Gain [(1/2)($360,000 - $57,000 - $2,000)] Allowable Capital Loss (Disallowed ABIL) [(1/2)($1...