Test Bank for Byrd & Chen's Canadian Tax Principles, , (Volume 2) By Gary Donell, Clarence

Test Bank for Byrd & Chen's Canadian Tax Principles, , (Volume 2) By Gary Donell, Clarence-ITA110.2providesforadeductionof"lump-sum payments",forexampleacourtorderedtermination benefit.Whataxpolicyobjectiveisservedbythisprovision? Answer:Suchlump-sum paymentsoftenreflectcompensationforservicesrenderedoverseveralyears. Thefacthatitisreceivedinasingleyearcanresultinsignificantportionsofitbeingsubjectoincometax rateshigherthanwouldhavebeenthecasehaditbeenreceivedovertheseveralyearsduringwhichitwas earned.Thedeductionofsuchamountsprovidesthebasisforanalternativeincometaxpayable calculationwhichatemptstoadjustheamountpaidtotheamounthatwouldhavebeenpaidifthe amounthadactualybeenreceivedoverseveralyears.Theobjectiveofsuchprovisionsisfairnesor equity. Type:ES Topic:Lump-sum payments-ITA110.2 Thecaryoverperiodsforlosesvarieswiththetypeoflos.Brieflydescribethecaryoverperiodsthat theITAprovidesforthetypesoflosesthatitidentifies. Answer:ThecaryoverperiodsforthevarioustypesoflosesidentifiedintheIncomeTaxActand coveredinthetextuptoChapter11areasfolows: •Non-CapitalLosesandFarm Loses(includingrestrictedfarm loses):20yearsforwardand3years back. •NetCapitalLos:Unlimitedforwardand3yearsback •ListedPersonalPropertyLoses:7yearsforwardand3yearsback. •AlowableBusinesInvestmentLoses:10years,asanon-capitalosthenconvertedtonetcapitalos withunlimitedcaryforwardinyear11. •ForeignTaxCredits:10yearsforwardand3yearsback. CoveredinChapter18arelimitedpartnershiploses.Theyhavenocarybackandanunlimitedcary forward,butonlyagainsthepartnershipincometowhichtheyrelate. Type:ES Topic:Loscaryovers-generalconcepts Whenabusineshasseveraltypesofloscaryovers,whyisitnecesarytokeepseparatebalancesfor eachtype? Answer:Therearetworeasonsforhavingtotrackeachtypeofloscaryforwardseparately.First, differentypesofloseshavedifferentcaryoverperiods(e.g.,20yearsforfarm itedfor capitaloses).Second,sometypesoflosescanonlybeap liedagainstheequivalentypeofincome (e.g.,capitalosescanonlybecariedoverandap liedagainstcapitalgains). Type:ES Topic:Loscaryovers-generalconcepts Taxadvisorswilnormalyrecommendthatloscaryoversnotbeusedtoreducetaxableincometonil foranindividual.Whatisthebasisforthisrecommendation? Answer:Thisrecommendationreflectsthefacthatmostpersonaltaxcreditsarenon-refundableand can otbecariedovertootheryears.Thismeansthat,unles anindividualtaxpayerhastaxableincome andfederalincometaxpayable,thevalueofthesecreditsissimplylost.This,ineffect,iswhatwould hap enifvarioustypesofloscaryoverswereusedtoreducetaxableincometonil. Type:ES Topic:Loscaryovers-individual Brieflydescribetheincometaxtreatmentoflosesonlistedpersonalproperty. Answer:Losesonlistedpersonalpropertycanbedeductedduringthecurentyear,butonlyagainstnet gainsonlistedpersonalpropertyfortheyear.Iftheloscan otbeusedduringthecurentyear,itcanbe cariedbackthreeyearsorforwardsevenyears. Type:ES Topic:Loses-listedpersonalproperty Ifataxpayerhasbothnetcapitalandnon-capitalosesanddoesnothavesufficientincomeinthe curentandpreviousyearstoclaim theseamounts,whichtypeoflosshouldbedeductedfirst? Answer:Thereisnoclearcutanswertothisquestion.Netcapitaloseshaveanunlimitedlifebutcan onlybecariedovertotheextentofnetaxablecapitalgainsinthecaryoverperiod. Thiswouldsugesthat,ifnetaxablecapitalgainsarepresentinthecurentyear,theuseofnetcapital losesshouldreceivepriority.Thiswouldbeparticularlytrueifad itionalnetaxablecapitalgainsare notexpectedinfutureyears.Incontrast,non-capitalosescanbedeductedagainstanytypeofincome. However,thedownsidehereisthatheircaryforwardperiodislimitedto20years.Whilenofirm conclusionisavailable,inmostcasesthelengthycaryforwardperiodfornon-capitaloses,would sugestusingnetcapitalosesfirst.However,thistentativeconclusionwouldbealteredifthetaxpayer commonlyhasnetaxablecapitalgains. Type:ES Topic:Loscaryovers-generalconcepts JohnBroleyhasa2021$50,000non-capitalosanda$50,netcapitalos.In2022hisonly incomeisa$50,000taxablecapitalgain. Hehasaskedyouradviceastowhichofthetwoloscaryforwardsheshouldclaim.Whatadvicewould yougivehim? Answer:Thedifferencebetweenthetwoloscaryforwardsisthathenon-capitalosbalanceistime limitedandwilexpireatheendof20years.Incontrast,thenetcapitaloswilneverexpirebutcanonly beap liedagainstnetaxablecapitalgains.IfMr.Broleyisconcernedabouthavingsufficientincometo usethenon-capitalosinthetimeremaininguntilitexpires,heshouldclaim thatlos. Alternatively,ifhefeelsthatheislikelytohavesufficientincomeinthatperiod,butthatheisunlikelyto havefurthercapitalgains,heshouldclaim thenetcapitalos.Thereisnoclearanswertothisquestionasit involvesestimatesabouthefuture. Type:ES Topic:Loscaryovers-generalconcepts Ifanindividualdiesandhasanetcapitalos intheyearofthedeathorunusednetcapitalosesfrom previousyears,thesebalancesaresubjectoadifferentreatmenthanwouldbethecaseiftheindividual werestilalive.Brieflydescribehowthistreatmentisdifferent. Answer: ITA111(2)containsaspecialprovisionwithrespectobothnetcapitalosesfrom yearspriorto deathandtonetcapitalosesarisingintheyearofdeath.Esentialy,thisprovisionalowstheselos balancestobeap liedagainstanytypeofincomeintheyearofdeath,ortheimmediatelyprecedingyear,as longasthecapitalgainsdeductionhasnotbeenclaimed.Ifthecapitalgainsdeductionhadbeenclaimedin previousyearsthenthenetcapitalosesthatcanbeclaimedagainstanytypeofincomewilbereduced. Type:ES Topic:Loses-netcapitalosesatdeath WhatisanAlowableBusinesInvestmentLos(ABIL)?Whatspecialtaxprovisionsareasociated withthistypeoflos? Answer:AnAlowableBusinesInvestmentLos(ABIL)isthedeductibleportionofacapitalos resultingfrom thedispositionofsharesordebtofasmalbusinescorporation.Thespecialprovisions asociatedwiththistypeoflosare: •Itcanbedeductedagainstanytypeofincomeintheyearinwhichitocurs. •Totheextentitcan otbefulyuseditbecomespartofanon-capitalosforthatyearandcanbecaried overtootheryearsasanon-capitalos for10yearsafterwhichitbecomespartofanetcapitalos for theeleventhyear. •ItisdisalowedasanABIL(i.e.,itbecomesaregularalowablecapitalos),totheextenthathe individualhaspreviouslyusedthecapitalgainsdeduction. •TherealizationofanABILreducesthean ualgainslimithatisusedtodeterminethemaximum capitalgainsdeductionfortheyear. Type:ES Topic:Alowablebusinesinvestmentloses WhatisaSmalBusinesCorporationasdefinedintheITA? Answer:AsmalbusinescorporationisdefinedinITA248(1)asaCanadiancontroledprivate corporation(CCPC)ofwhich"alorsubstantialyal",oftheFMVofitsasetsareusedinanactive businescariedon"primarily"inCanada.Theterm "substantialyal"generalymeans90% ormore, while"primarily"isgeneralyinterpretedtomeanmorethan50%. Type:ES Topic:Smalbusinescorporation-ITA248(1)