MC Tax Questions
MC Tax Questions
MC Tax Questions
A full-time resident
A part-year resident
A non-resident
A deemed resident (sojourner)
2) ABC Inc. provides Ginger Kelly with a company car. The car is leased for $500/month
(including GST & PST and excluding insurance) and was made available to her for 8 months.
ABC pays all of the operating costs which amounted to $3,500 in 2008. Ginger drove 13,000
kilometres in 2008 of which 8,000 were for business. What is the minimum taxable benefit
that Ginger must include on her 2008 personal tax return?
(a)
(b)
(c)
(d)
$2,200 rounded
$1,500 rounded
$3,517 rounded
$4,850 rounded
$15,000 in 2003
$15,000 in 2008
$30,000 in 2003
$35,000 in 2008
5) Theresa Gain presents the following information with her 2008 tax return:
Capital Gains:
Shares
Personal-use property
Listed personal property
$1,500
750
600
Capital losses:
Shares
Personal use property
Listed personal property
Listed personal property losses of prior years
Net capital losses from 2006
$820
1,100
240
105
310
What is the minimum taxable capital gain (rounded to the nearest dollar) to be reported on
Theresas tax return?
(a) $468
(b) $843
(c) $1,264
(d) $1,000
6) Sunny River purchased an unlimited life franchise (arms length transaction) at a cost of
$100,000 during 2008. The maximum tax deduction related to the franchise for the taxation
year ending December 31, 2008 is:
(a)
(b)
(c)
(d)
$2,275
$10,000
$4,550
$5,250
7) On June 1, 2008 Beta Ltd, purchased a franchise for $91,000. The franchise has a limited life
of 13 years. Which one of the following amounts represents the maximum amount of capital
cost allowance that Beta can deduct for its year ended July 31, 2008?
(a) $4,778
(b) $7,000
(c) $3,500
(d) $1,170
8) Lambda sold a capital property on October 31, 2008 for $200,000 with a cash down payment
of $15,000. The balance of $185,000 is payable on October 31, 2012. The adjusted cost base
of the property was $115,000 and the selling costs were $7,000. Which one of the following
amounts represents the minimum taxable capital gain (rounded to the nearest dollar) in 2008?
(a)
(b)
(c)
(d)
$39,000
$5,850
$7,800
$15,600
9) ABC Ltd. is a manufacturer with a December 31 year end. On January 1, 2008, the
undepreciated capital cost for class 10.1 was $22,950. The Class 10.1 car was purchased in
2006 for $34,000. During 2008, it was sold for $21,000. A new automobile was purchased for
$36,160, which included PST of $2,560 and GST of $1,600. ABC Ltd. is registered to collect
and remit GST. What is the maximum CCA allowed combined (rounded to the nearest dollar)
for the two cars for 2008?
(a)
(b)
(c)
(d)
$8,327
$5,175
$8,303
$3,443
10) Greg Smith is self employed psychologist. He meets with all of his clients in his four hundred
square foot home office. The entire house has a square footage of twenty four hundred square
feet. Greg incurred the following costs:
Utilities
House insurance
Business liability insurance
House maintenance
Mortgage interest
Property tax
Office supplies
$1,600
700
500
1,000
3,700
1,100
500
$1,000
$1,350
$1,517
$2,350
11) K Corporation Inc. owns a restaurant business that it carries on in rented premises. The lease was
signed January 1, 2007 and expires on December 31, 2012 (6 years in total), and has two
successive renewal options for 2 years each. K Corporation Inc. had an opening balance in 2008
in Class 13 of $30,000 that resulted from $32,000 of leasehold improvements made during the
2007 taxation year. K Corp Inc. made an additional $14,000 of leasehold improvements to the
same premises during its 2008 taxation year end which ends December 31, 2008. What is the
maximum CCA that K Corp. Inc. can claim in 2008 for its Class 13 assets?
(a)
(b)
(c)
(d)
$1,000
$3,000
$5,000
$6,000
12) During the 12-month period ended December 31, 2008 ABC Co. purchased a $40,000
(including tax of GST of 5% and PST of 8%) passenger vehicle for use by its salesperson in
conducting his employment. What is the maximum capital cost allowance that ABC Co. can
claim for 2008, assuming that the company is a GST registrant (i.e., the company remits
GST)?
(a)
(b)
(c)
(d)
$6,000
$3,947
$4,860
$5,735
2) Kappa Limited paid $10,000 to purchase computer applications software on January 31,
2008. Kappa Limited has a December 31 year end. What is the maximum tax deduction that
Kappa Limited can claim in respect of the above expenditure for its taxation year ended
December 31, 2008?
(a)
(b)
(c)
(d)
$5,000
$1,500
$525
$263
3) Lambda Corporation sold an old warehouse on the waterfront in Toronto on August 15, 2008.
The City of Toronto purchased the property and intends to demolish the building and use the
land as part of a waterfront bicycle trail. The total proceeds paid to Lambda Corporation were
$420,000. The adjusted cost base of the land is $80,000. The capital cost of the building was
$90,000 and the UCC of the building was $12,000. Lambda Corporation has allocated all of
the proceeds to the land. What will be the impact on Division B income for Lambda
Corporation for the above sale?
(a)
(b)
(c)
(d)
$170,000
$110,000
$164,000
$125,000
4) Mu Mu made a permanent move to the United States on September 1, of this year after
having lived in Canada all of her life. Mu is 22 years old. Which one of the following best
indicates Mus residency status for Canadian income tax purposes for this year?
(a)
(b)
(c)
(d)
A full-time resident
A part-time resident
A non-resident
A deemed resident (sojourner)
5) Xi Limited was incorporated in Nova Scotia on May 21, 1922. The corporation has never
carried on business in Canada, but held its annual directors meeting in Nova Scotia each year
from 1922 through 1932. Which one of the following best describes Xi Limiteds residency
status for Canadian income tax purposes for 2008?
(a)
(b)
(c)
(d)
6) Pi has purchased a vacant lot. He hopes that someday, once he meets his future bride and
settles down, he will build a home and raise his family on the property. This year, Pi paid
$800 of property taxes and $1,000 of interest on the loan he obtained to purchase the lot.
Which ONE of the following statements is TRUE?
(a) Pi can deduct the $1,000 of interest but not the property taxes paid in this year on the
basis that the land may generate a capital gain on the land some day.
(b) Pi could deduct all of the above expenditures if he were to rent the land to a farmer for
the year for $2,000
(c) The property is a personal-use property and thus none of the above expenditures can ever
be deducted, even if the property is rented in the year
(d) Pi can claim the principal residence exemption on any future sale of the land if he decides
to sell the land without building a home.
7) Rho Limited is in the midst of constructing a new building to house its administrative staff.
The building began construction on December 4, 2007, and will be completed for occupancy
on January 31, 2009. Which of the following expenditures made during 2008 is
DEDUCTIBLE to Rho Limited in computing its income from business for its taxation year
ended December 31, 2008?
(a) CCA on new office furnishing in storage as of December 2008, pending occupancy of the
building
(b) Cost paid to the security company to patrol and protect the property during 2008
(c) Interest on the construction loan, related to the cost of the land on which the building is
significantly constructed.
(d) The landscaping costs related to the building paid during 2008.
NIL
$135,000
$144,000
$225,000
On March 20, 2008, a personal residence owned by James Day, which originally cost
$280,000, was converted into a rental property. At this time, the rental property had a fair
market value of $340,000. What is the maximum capital cost allowance that could be claimed
for 2008 on this rental property (assuming no restrictions)?
(a)
(b)
(c)
(d)
$6,800
$5,600
$6,400
$6,200
$50,000
$11,905
$7,143
$9,524
4) Mega Ltd., which has a May 31 year-end, had its factory vandalized in August 2008.
The vandals managed to completely destroy a valuable piece of machinery. This was a
custom-designed manufacturing asset included in class 43 and is the only asset in the
class. The destroyed machinery had an original cost of $500,000 and an undepreciated
capital cost of $71,430. Mega received insurance proceeds of $345,000 for the
destroyed machinery. Due to advances in technology, a new machine cost only
$280,000 and was in place for use by December 1, 2008. What is the impact on income
for tax purposes to Mega for its taxation year ended May 31, 2009 in respect of the
above machinery?
(a)
(b)
(c)
(d)
$273,670
$965
$1,608
$70,000
5) Mr. T died on September 14, 2008. At the date of his death, he had the following capital
assets, which were left to the beneficiaries indicated.
Asset
Shares in publicly traded company
Car
Rental building
ACB/Capital
Cost
$10,000
$40,000
$45,000
UCC
n/a
$40,000
$15,000
Fair market
value
$100,000
$10,000
$150,000
Beneficiary
Spouse
Spouse
Daughter
What is the minimum amount that must be included in Mr. Ts income for his final tax return
in respect of the above assets?
(a)
(b)
(c)
(d)
$100,000
$90,000
$135,000
$82,500
$180,000
$232,500
$240,000
$243,000
2) The following types of income have been taxed in a foreign jurisdiction in the current year.
Which one of those types of foreign income can result in foreign tax credits that can be
applied to Canadian income tax payable in other taxation years?
(a)
(b)
(c)
(d)
Business income
Employment income
Property income
Taxable capital gain
3) Jonathan owns 100% of Carweb.com Ltd. and owns 100% of Taxman Inc. Hence they are
associated. Jonathan owns 10% of Internet Housefind Ltd. which is not an associated
company. Each of the three corporations has at least $400,000 of active business income
earned in Canada.
What is the maximum small business deduction combined (i.e., total combined SBD
deduction of all 3 companies) which the three corporations can claim on corporate income?
(a)
(b)
(c)
(d)
$0
$400,000
$800,000
$1,200,000
4) Waterloo Wholesale Ltd. (WWL) is wholly owned by Barbara, a resident of Canada, who also
owns all of the shares of Kitchener Klosets Ltd. (KKL). Both corporations have a March 31
year-end. KKL had both active business income and taxable income of $18,000 for its most
recent taxation year. Barbara has decided to allocate as much of the small business limit as is
needed to maximize the small business deduction for KKL.
Most of WWLs income is from an active business carried on in Canada. The following
additional information pertains to WWL:
$2,500
3,000
1,500
180,000
What is the appropriate small business deduction for WWL for 2008?
(a)
(b)
(c)
(d)
$27,920
$30,090
$28,560
$29,120
5) Robin Ltd. is a corporation whose only business is providing accounting services for a fee to
Faith Ltd., a large, privately owned, arms length corporation. Shari and David are each 50%
shareholders and the only employees of Robin Ltd. Prior to the incorporation of Robin Ltd.,
both Shari and David are employed by Faith Ltd. in the accounting department. What type of
income is Robin Ltd. earning?
(a)
(b)
(c)
(d)
6) Elaine Ltd. is a Canadian-controlled private corporation. Its refundable dividend tax on hand
(RDTOH) account at December 31, 2007 was $35,000. For its 2008 taxation year, its
refundable portion of Part I tax was $23,000. The corporation received no dividends in 2008.
It paid taxable dividends of $60,000 in 2007 and $75,000 in 2008.
The balance in Elaine Ltd.s (RDTOH) account at December 31, 2008 is:
(a)
(b)
(c)
(d)
$13,000
$33,000
$35,000
$38,000
7) Jay is an employee and 15 per cent shareholder of Rick's Welding Shop Ltd. (Rick's). During
the 2007 calendar year, Jay was having cash flow problems. Rick's gave Jay a loan of $5,000
on May 1, 2007 to help him out. Rick's also gave Jay's son, Jake, a loan of $2,000 on
September 30, 2007 to help him meet expenses while at college. Rick's has said that Jay and
Jake can repay the loans whenever they can afford it. The loans remain outstanding as at
December 31, 2007. Rick's year end for accounting and taxation purposes is December 31.
How much, and in which taxation year, is Jay required to include in his taxable income as a
result of the above transactions?
(a)
(b)
(c)
(d)
$7,000 2007
$7,000 2008
$5,000 2007
$5,000 2008
2) Ken Kaye Ltd., a CCPC eligible for the small business deduction, has a January 31 year end.
Due to the untimely departure of a key employee, the tax return for the year ended January
31, 2006 was not filed until March 1, 2008. The unpaid tax on January 31, 2006 was $5,500.
In the past, all returns have been filed on time. What is the total penalty, excluding interest
that the corporation is required to pay?
(a)
(b)
(c)
(d)
Nil
$275
$660
$935
3) Alpha died on September 20, 2008 at the age of 97. By what date must the executrix of her
estate file Alphas final tax return?
(a)
(b)
(c)
(d)
4) Beta died on March 20, 2008. At the time of his death, Beta was employed as a secondary
school teacher. In addition, he operated technical writing consulting business as a
proprietorship with a December 31 year end. The amounts earned to the time of his death were:
Salary
January 1, 2007 to December 31, 2007
January 1, 2008 to March 20, 2008
$70,000
16,000
Business income
January 1, 2007 to December 31, 2007
January 1, 2008 to March 20, 2008
5,000
1,300
Interest income
January 1, 2007 to December 31, 2007
January 1, 2008 to March 20, 2008
2,000
500
What is the amount of Betas income that should be reported in his final return?
(a)
(b)
(c)
(d)
$16,000
$17,800
$22,800
$94,800
5) Chi is one of a large number of shareholders of Pubco Ltd., a public corporation. She has
received an offer from Taikit Inc., another public corporation, to exchange all of her shares in
Pubco Inc., which are valued at $10,000, have a PUC of $1,000 and have an adjusted cost
base to her of $6,000, in return for shares of Taikit Inc. The Taikit Inc. shares, also, have a
value of $10,000 and a legal stated capital of $10,000. Which of the following amounts
represents the adjusted cost base of the Taikit Inc. shares received by Chi under Section 85.1?
(a)
(b)
(c)
(d)
$1,000
$6,000
$9,000
$10,000
6) Delta is a member of a partnership with a December 31 year end. Deltas share of the 2008
partnership allocations was as follows: business loss of $25,000 and charitable donations of
$1,000. Delta took draws totalling $10,000 from the partnership during 2008. Deltas adjusted
cost base (ACB) at January 1, 2008 was $59,000. What is the ACB of Deltas partnership
interest at January 1, 2009?
(a)
(b)
(c)
(d)
$23,000
$24,000
$25,000
$33,000
7) A partnership interest was sold in 2008 by Epsilon for $13,000. The adjusted cost base of the
partnership interest was negative $2,000. Expenses of disposition were $1,000. Which one of
the following amounts represents the taxable capital gain realized on the sale?
(a)
(b)
(c)
(d)
$5,000
$6,000
$7,000
$8,000
8) Which one of the following statements pertaining to the tax implications of a partnership is
incorrect?
(a) Salaries to partners are not deductible by the partnership in the computation of its
income.
(b) Charitable donations made by a partnership are not deductible by the partnership, despite
the fact that partnerships are not taxable entities and, therefore, cannot obtain a tax credit.
(c) Business losses of a partnership can be allocated to the partners for them to deduct from
their other sources of income.
(d) Dividends received by a partnership are grossed up by the partnership in the calculation
of its income which is allocated to the partners.
9) Which one of the following items does not affect the calculation of the adjusted cost base of a
partnership interest?
(a)
(b)
(c)
(d)
10) Gammas will provide for the creation of a trust on her death which occurred in 2007. Income
from the trust is to be distributed equally to each of her four children. In 2008, the trust
earned $50,000 in cash dividends from Canadian-resident public corporations and $20,000 in
interest on Canadian bonds. The trust incurred interest expense of $2,000 on funds borrowed
to buy the investments. All of the dividends and $18,000 of the interest on the bonds was
distributed to the beneficiaries and the interest expense was claimed by the trust. Which one
of the following amounts represents the taxable income of one of the children from the trust
for 2008?
(a) $14,500
(b) $19,625
(c) $20,125
(d) $23,625
11) The country of residence of a discretionary trust and, hence, its liability for income tax in
Canada is determined, generally, by which one of the following criteria?
(a) The country in which the settlor of the trust resided at the time the trust was created.
(b) The country in which the majority of the beneficiaries are resident.
(c) The country in which all or substantially all of the assets of the trust are situated.
(d) The country in which the majority of the trustees reside.
12) Alan Emm Inc. (AEI) has owned all of the shares of Sub Ltd. since the incorporation of the
latter in 1982. The shares of Sub Ltd. have an adjusted cost base of $100,000 to AEI and a
value of $900,000 now. Retained earnings in Sub Ltd., computed on a tax basis amount to
$600,000. AEI wants to sell the shares of Sub Ltd. and Grabit Ltd. is interested in purchasing
the shares. Sub Ltd. has $800,000 of cash that it does not need for its operations and Grabit
Ltd. does not need. AEI will cause Sub Ltd. to pay a dividend of the excess cash and then AEI
will sell the shares of Sub Ltd. to Grabit Ltd. For $100,000. Which one of the following
choices represents the tax consequences of the transactions described to AEI assuming that
the appropriate designation is made?
(a) A tax-free dividend of $600,000 and a capital gain of $200,000.
(b) A tax-free dividend of $600,000 and a capital gain of $400,000.
(c) A tax-free dividend of $800,000 and a capital gain of nil.
(d) A tax-free dividend of $600,000 and a capital gain of $800,000.
13) Ms. Lambda, a Canadian resident owned all of the common shares of Lambda Enterprises
Ltd. (LEL). The shares have a paid-up capital value and a cost of $75,000. She
transferred these shares under section 85 to a holding company, Holdco Inc., which her
two Canadian-resident adult children control, at a time when the value of the LEL shares
was $800,000. As consideration for the LEL shares transferred, she received from Holdco
Inc. a note with a principal amount of $500,000 and preferred shares with a fair market
value of $300,000, such that an elected amount of $500,000 was possible under
section 85. Ms. Lambda intended to offset all of the resultant $425,000 of capital gain
with her available QSBCS capital gains exemption. Which one of the following
statements is false?
(a)
(b)
(c)
(d)
14) Mr. Pi is the sole beneficiary of a trust that arose on the death of his mother. She died on
March 15, 2007. March 15, the anniversary of the date of death, was chosen as the year-end
of the trust. Which one of the following statements is false?
(a) The trusts tax return for the taxation year ended March 15, 2008 is due on June 12,
2008.
(b) The trust will pay federal tax on any of its income not distributed or payable to Mr. Pi
like at the top federal personal rate of tax.
(c) Mr. Pi must report, in his 2008 tax return, the income that is distributed to him out of
the trust for the trusts taxation year ended March 15, 2008.
(d) Mr. Pi must include in his income amounts declared by the trust to be payable, but not
paid, to him at the end of the trusts taxation year.