{"id":115523,"date":"2023-08-24T12:05:28","date_gmt":"2023-08-24T12:05:28","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=115523"},"modified":"2023-08-24T12:05:30","modified_gmt":"2023-08-24T12:05:30","slug":"test-bank-for-byrd-chens-canadian-tax-principles-2022-2023-1st-edition-volume-2-all-chapters-11-21-full-complete-2023","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2023\/08\/24\/test-bank-for-byrd-chens-canadian-tax-principles-2022-2023-1st-edition-volume-2-all-chapters-11-21-full-complete-2023\/","title":{"rendered":"Test Bank for Byrd &amp; Chen&#8217;s Canadian Tax Principles 2022 &#8211; 2023 1st edition Volume 2\/ All Chapters 11 &#8211; 21 \/ Full Complete 2023"},"content":{"rendered":"\n<p>Byrd &amp; Chen&#8217;s Canadian Tax Principles 2022 &#8211; 2023 1st edition<br>Volume 2 Test Bank<br>Canadian Tax Principles, 2022-2023 (Byrd\/Chen)<br>Chapter 11 Taxable Income and Tax Payable for Individuals Revisited<br>11.1 Online Exercises<br>1) ITA 110.2 provides for a deduction of &#8220;lump-sum payments&#8221;, for example a court ordered termination<br>benefit. What tax policy objective is served by this provision?<br>Answer: Such lump-sum payments often reflect compensation for services rendered over several years.<br>The fact that it is received in a single year can result in significant portions of it being subject to income<br>tax rates higher than would have been the case had it been received over the several years during which<br>it was earned. The deduction of such amounts provides the basis for an alternative income tax payable<br>calculation which attempts to adjust the amount paid to the amount that would have been paid if the<br>amount had actually been received over several years. The objective of such provisions is fairness or<br>equity.<br>Type: ES<br>Topic: Lump-sum payments &#8211; ITA 110.2<br>2) The carryover periods for losses varies with the type of loss. Briefly describe the carryover periods that<br>the ITA provides for the types of losses that it identifies.<br>Answer: The carryover periods for the various types of losses identified in the Income Tax Act and<br>covered in the text up to Chapter 11 are as follows:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Non-Capital Losses and Farm Losses (including restricted farm losses): 20 years forward and 3 years<br>back.<\/li>\n\n\n\n<li>Net Capital Loss: Unlimited forward and 3 years back<\/li>\n\n\n\n<li>Listed Personal Property Losses: 7 years forward and 3 years back.<\/li>\n\n\n\n<li>Allowable Business Investment Losses: 10 years, as a non-capital loss then converted to net capital loss<br>with unlimited carry forward in year 11.<\/li>\n\n\n\n<li>Foreign Tax Credits: 10 years forward and 3 years back.<br>Covered in Chapter 18 are limited partnership losses. They have no carry back and an unlimited carry<br>forward, but only against the partnership income to which they relate.<br>Type: ES<br>Topic: Loss carry overs &#8211; general concepts<br>3) When a business has several types of loss carry overs, why is it necessary to keep separate balances for<br>each type?<br>Answer: There are two reasons for having to track each type of loss carry forward separately. First,<br>different types of losses have different carryover periods (e.g., 20 years for farm losses vs. unlimited for<br>capital losses). Second, some types of losses can only be applied against the equivalent type of income<br>(e.g., capital losses can only be carried over and applied against capital gains).<br>Type: ES<br>Topic: Loss carry overs &#8211; general concepts<\/li>\n<\/ul>\n\n\n\n<p>4) Tax advisors will normally recommend that loss carry overs not be used to reduce taxable income to nil<br>for an individual. What is the basis for this recommendation?<br>Answer: This recommendation reflects the fact that most personal tax credits are non-refundable and<br>cannot be carried over to other years. This means that, unless an individual taxpayer has taxable income<br>and federal income tax payable, the value of these credits is simply lost. This, in effect, is what would<br>happen if various types of loss carry overs were used to reduce taxable income to nil.<br>Type: ES<br>Topic: Loss carry overs &#8211; individual<br>5) Briefly describe the income tax treatment of losses on listed personal property.<br>Answer: Losses on listed personal property can be deducted during the current year, but only against net<br>gains on listed personal property for the year. If the loss cannot be used during the current year, it can be<br>carried back three years or forward seven years.<br>Type: ES<br>Topic: Losses &#8211; listed personal property<br>6) If a taxpayer has both net capital and non-capital losses and does not have sufficient income in the<br>current and previous years to claim these amounts, which type of loss should be deducted first?<br>Answer: There is no clear cut answer to this question. Net capital losses have an unlimited life but can<br>only be carried over to the extent of net taxable capital gains in the carry over period.<br>This would suggest that, if net taxable capital gains are present in the current year, the use of net capital<br>losses should receive priority. This would be particularly true if additional net taxable capital gains are<br>not expected in future years. In contrast, non-capital losses can be deducted against any type of income.<br>However, the downside here is that their carry forward period is limited to 20 years. While no firm<br>conclusion is available, in most cases the lengthy carry forward period for non-capital losses, would<br>suggest using net capital losses first. However, this tentative conclusion would be altered if the taxpayer<br>commonly has net taxable capital gains.<br>Type: ES<br>Topic: Loss carry overs &#8211; general concepts<br>7) John Broley has a 2021 $50,000 non-capital loss and a $50,000 2021 net capital loss. In 2022 his only<br>income is a $50,000 taxable capital gain.<br>He has asked your advice as to which of the two loss carry forwards he should claim. What advice would<br>you give him?<br>Answer: The difference between the two loss carry forwards is that the non-capital loss balance is time<br>limited and will expire at the end of 20 years. In contrast, the net capital loss will never expire but can<br>only be applied against net taxable capital gains. If Mr. Broley is concerned about having sufficient<br>income to use the non-capital loss in the time remaining until it expires, he should claim that loss.<br>Alternatively, if he feels that he is likely to have sufficient income in that period, but that he is unlikely to<br>have further capital gains, he should claim the net capital loss. There is no clear answer to this question as<br>it involves estimates about the future.<br>Type: ES<br>Topic: Loss carry overs &#8211; general concepts<\/p>\n\n\n\n<p>8) If an individual dies and has a net capital loss in the year of the death or unused net capital losses from<br>previous years, these balances are subject to a different treatment than would be the case if the individual<br>were still alive. Briefly describe how this treatment is different.<br>Answer: ITA 111(2) contains a special provision with respect to both net capital losses from years prior to<br>death and to net capital losses arising in the year of death. Essentially, this provision allows these loss<br>balances to be applied against any type of income in the year of death, or the immediately preceding year,<br>as long as the capital gains deduction has not been claimed. If the capital gains deduction had been<br>claimed in previous years then the net capital losses that can be claimed against any type of income will<br>be reduced.<br>Type: ES<br>Topic: Losses &#8211; net capital losses at death<br>9) What is an Allowable Business Investment Loss (ABIL)? What special tax provisions are associated<br>with this type of loss?<br>Answer: An Allowable Business Investment Loss (ABIL) is the deductible portion of a capital loss<br>resulting from the disposition of shares or debt of a small business corporation. The special provisions<br>associated with this type of loss are:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>It can be deducted against any type of income in the year in which it occurs.<\/li>\n\n\n\n<li>To the extent it cannot be fully used it becomes part of a non-capital loss for that year and can be carried<br>over to other years as a non-capital loss for 10 years after which it becomes part of a net capital loss for<br>the eleventh year.<\/li>\n\n\n\n<li>It is disallowed as an ABIL (i.e., it becomes a regular allowable capital loss), to the extent that the<br>individual has previously used the capital gains deduction.<\/li>\n\n\n\n<li>The realization of an ABIL reduces the annual gains limit that is used to determine the maximum<br>capital gains deduction for the year.<br>Type: ES<br>Topic: Allowable business investment losses<br>10) What is a Small Business Corporation as defined in the ITA?<br>Answer: A small business corporation is defined in ITA 248(1) as a Canadian controlled private<br>corporation (CCPC) of which &#8220;all or substantially all&#8221;, of the FMV of its assets are used in an active<br>business carried on &#8220;primarily&#8221; in Canada. The term &#8220;substantially all&#8221; generally means 90% or more,<br>while &#8220;primarily&#8221; is generally interpreted to mean more than 50%.<br>Type: ES<br>Topic: Small business corporation &#8211; ITA 248(1)<\/li>\n<\/ul>\n\n\n\n<p>11) With respect to the deductibility of their losses, farmers fall into three categories. What are these three<br>categories and how are losses treated in each category?<br>Answer: The three categories, along with the treatment of their losses, are as follows:<br>Hobby Farmer &#8211; This is an individual who runs a farming operation on a part time basis as a hobby or as<br>a way of enhancing his or her lifestyle. The operation has no reasonable expectation of a profit and<br>therefore it is not a business and not a source of income. As a result its losses are not recognized for<br>income tax purposes.<br>Part Time Farmer &#8211; This is an individual for whom farming is subordinate to some other source of<br>income. However, if there is a reasonable expectation of a profit and therefore a business, the individual<br>farmer is allowed to deduct a portion of their farm losses. In each year, the portion of the farm loss that<br>can be deducted against any source of income is limited to the first $2,500, plus one-half of the next<br>$30,000, to a maximum amount of $17,500. Losses in excess of this deductible amount are referred to as<br>restricted farm losses and, when they are carried over to earlier or later years, they can only be deducted<br>to the extent of any farm income in that year.<br>Full Time Farmer &#8211; This is an individual for whom farming is their principal source of income and<br>activity. For this category of farmer, farm losses are fully deductible against any other source of income.<br>Type: ES<br>Topic: Losses &#8211; farming<br>12) The capital gains deduction is available when an individual taxpayer has a gain on the disposition of<br>shares in a &#8220;qualified small business corporation&#8221; (QSBC shares). What are the conditions that must be<br>met for the shares to qualify as QSBC shares?<br>Answer: In order to be shares of a QSBC for the purposes of the capital gains deduction, the corporation<br>must be a &#8220;small business corporation&#8221; at the time of the disposition of the shares. This means that<br>substantially all (90% or more) of the FMV of its assets must be used to produce active business income,<br>primarily (more than 50%) in Canada. If the small business corporation test is met, two other conditions<br>must be met for the shares to qualify.<br>These are as follows:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>the shares must not be owned by anyone other than the individual or a related person for at least 24<br>months preceding the disposition; and<\/li>\n\n\n\n<li>throughout that 24 month period, more than 50% of the FMV of the corporation&#8217;s assets must be used in<br>an active business carried on primarily in Canada.<br>Type: ES<br>Topic: Capital gains deduction &#8211; shares of a QSBC<br>13) An individual has a capital gain on qualified farm property (QFP). The individual has no other capital<br>gains during the year. Explain how the annual gains limit would be calculated in determining the<br>individual&#8217;s capital gains deduction for the year.<br>Answer: In these circumstances, the annual gains limit is equal to the taxable capital gain on the QFP,<br>less:<\/li>\n\n\n\n<li>Allowable capital losses realized during the current year.<\/li>\n\n\n\n<li>Net capital loss carry overs from previous deducted in the current year.<\/li>\n\n\n\n<li>Allowable Business Investment Losses realized during the current year.<br>Type: ES<br>Topic: Capital gains deduction &#8211; annual gains limit<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Byrd &amp; Chen&#8217;s Canadian Tax Principles 2022 &#8211; 2023 1st editionVolume 2 Test BankCanadian Tax Principles, 2022-2023 (Byrd\/Chen)Chapter 11 Taxable Income and Tax Payable for Individuals Revisited11.1 Online Exercises1) ITA 110.2 provides for a deduction of &#8220;lump-sum payments&#8221;, for example a court ordered terminationbenefit. What tax policy objective is served by this provision?Answer: Such lump-sum [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-115523","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/115523","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=115523"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/115523\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=115523"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=115523"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=115523"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}