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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.1)The manager at Big Company Corporation has decided to sell a piece of capital equipment after the company's year-end in order to avoid paying capital gains tax this year. Which tax planning method will the manager be using?A)This is a form of tax evasion and is not allowed.B)Converting the nature of income from one type to another.C)Shifting income from one time period to another.D)Transferring income to another entity.
Answer:C
2)Which of the following scenarios illustrates a potential tax avoidance scheme?A)A man transfers property to his child at a value less than fair market value.B)Property transferred between arm's-length parties is valued at fair market value.C)A shareholder owns two corporations and undertakes legal steps in order to permit loss utilization between the two companies.D)Dividends received from shares transferred from a wife to her husband are taxed in the hands of the wife.
Answer:A
3)The manager of Little Company Ltd. has decided to sell a piece of capital equipment after the company's year-end in order to avoid paying tax on capital gains this year. The manager is engaging in A)tax avoidance.B)tax evasion.
C)GAAR.
D)tax planning.
Answer:D
4)Certain skills are necessary for successful tax planning. One of these skills is applying the time value of money. Which of the following is FALSE regarding this skill?A)If a taxpayer earns an annual return of 12% and is subject to a 40% tax rate, the annual after-tax return is 4.8%.B)If a taxpayer invests $1,000 at 8% and subsequently earns $48 in after-tax income on the investment at the end of the first year, the taxpayer's tax rate is 40%.C)Applying the time value of money is a tool used for wealth accumulation.D)If a taxpayer invests $1,000 for one year at a rate of return of 14% and is subject to a 45% tax rate, the after-tax value of the investment will be $1,077.
Answer:A
1 Canadian Income Taxation Canadian 19th Edition Buckwold Test Bank Visit TestBankDeal.com to get complete for all chapters
5)Which of the following statements regarding GAAR is true?A)The Canada Revenue Agency states that "A transaction will not be an avoidance transaction if the taxpayer establishes that it is undertaken primarily for bona fide business, investment or family purposes." B)Individuals who organize their affairs in order to pay as little tax as possible will automatically be subject to GAAR.C)When an avoidance transaction takes place, the anti-avoidance rule is automatically applied in all circumstances.D)The purpose of GAAR is to catch tax evaders.
Answer:A
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.6)Steven James earned $150,000 this year in profits from his proprietorship, which placed him in a 45% tax bracket. The rate of tax for Canadian-controlled private corporations in his province is 15% on the first $500,000 of income. Personal tax rates (federal plus provincial) in James' province are: On the first $45,00024% On the next $45,00032% On the next $50,00040% On the next $60,00045% On income over $200,00050% (All rates are assumed for this question.) Steven withdraws $3,000 per month for his personal living expenses. All remaining profits are used to pay taxes and to expand the business. Steven expects the same business after-tax profits next year.Steven is considering incorporating his business next year. If he incorporates, he will pay himself a gross salary of $48,000.
Required:
- Determine the increase in Steven's cash flow if he incorporates his company? Show all
- Name the type of tax planning that Steve would be engaging in if he incorporated his company.
calculations.
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Answer:A) Excess cash as a proprietorship: Profits$150,000
Tax:
24% 45,000 $10,800
32% 45,000 14,400
40% 50,000 20,000
45% 10,000 4,500
(Assume federal plus provincial rates)
(49,700)
$100,300
Living expenses(36,000) Available for expansion $64,300
Excess cash as a corporation:
Profits$150,000 Salary(48,000) Corporate business profits192,000
Tax: 15% / 102,000 (15,300)
Available for expansion $86,700 Excess cash ($86,700 - $64,300)$22,400
- Transferring income from one entity to another
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7)Part A: List the three key factors of cash flow.
Part B: List the six skills required for tax planning as suggested in the textbook.
Answer:Three key factors of cash flow
- Amount of money coming in
- Amount of money going out
- Timing
- Anticipation
- Flexibility
- Speculation
- Applying the 8
- Perspective
- Global approach
Six skills required for tax planning
th Wonder of the World
8)Andrew has $10,000 to invest. He wants to put his money into an investment earning an annual interest rate of 12%. Andrew is in a 42% tax bracket.
Required:
a) Calculate the value of Andrew's investment, after-tax, at the end of the year.
b) Calculate the amount of taxes Andrew will have to pay on his investment.
Answer:a) ($10,000 × 1.12) × (1 - .42) = $10,696
- $10,000 × .12 × .42 = $504
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