Dr
Subject:LawPrice: Bought3
Dr. Julianne Hutchins has hired your professional services to file her income tax return. Dr.
Hutchins is a retired surgeon. Due to her failing? eyesight,
Julienne was required to retire from her occupation at a younger age than normal.? Fortunately,
Julienne has more than enough income to support herself as a result of years of receiving a very large salary as a surgeon and a family inheritance.
Julienne has invested most of her past employment earnings into a large portfolio which paid the following amounts during 2020?,
the current year.
Part 1:
Item
Amount
Dividends from public Canadian corporations? (subject to high corporate tax? rates):
?$23,000
Dividends from private Canadian corporations? (subject to low corporate tax? rates):
32,500
Interest income received from Canadian? sources:
17,800
Dividends from foreign corporations? (translated into Canadian? dollars):
12,700
?Note: Total foreign dividends earned was $14,100 less foreign tax withheld of $1,400.
Julienne?'s portfolio of investments includes a? five-year investment contract purchased three years ago on September 1. The investment contract has a maturity value of $155,000 and an annual interest rate of 3%. The total interest earned on the investment contract will be paid on maturity on September? 1, 2022?,
two years from now. Julienne did not receive any interest? (cash) from this investment contract in 2020.
Julienne?'s portfolio of investments is managed by a large Canadian brokerage firm called Top Shelf
Investments Inc. ("Top Shelf?") Top Shelf charges Julienne investment counsel fees of $5,400 during 2020.
Part 2
In 2019?, the previous? year, Julienne
received a large family? inheritance, which she invested into a rental property. The property was purchased in 2019?, and Julienne has claimed the maximum amount of capital cost allowance? (CCA) on the property in 2019. In 2020?, the opening UCC balance in CCA Class 1 for the rental building is $355,000 and Julienne would like to claim the maximum CCA deduction on the rental income in 2020.
The rental income and expense information for 2020 is as follows.
Item
Amount
Rental? income:
?$2,500
per month
Property? tax:
4,800 for the year
Property? insurance:
130 per month
Property management? fees:
160 per month
?Utilities:
620 per month
Repair of a leaky faucet and water? damage:
1,200
To assist with filing her tax? return, Julienne provides you with detailed records from her bank. The documents indicate that Julienne has borrowed the following amounts from her bank.
•
?$210,000 mortgage on the rental property with principal repayments totalling $13,500 and interest payments of $6,600 for 2020
•
?$385,000 mortgage on Dr. Hutchins?'s personal home with principal repayments totalling $18,500 and interest payments of $7,600 for 2020
•
?$165,000 loan used to purchase mutual funds with Top Shelf Investments Inc. Julienne paid interest of ?$5,100 on this loan during 2020.
•
?$48,500 loan used to purchase Julienne?'s personal use vehicle. Julienne paid ?$2,380 of interest on this loan during 2020.
Required:
1. Compute Dr. Hutchins's net property income for 2020. 2. has reviewed your calculation of net property income and she is confused. does not understand why the dividend income included in your calculation is different than the amounts she received in the year. Describe for the concept of integration and how this impacts the taxation of Canadian source dividends as well as the tax consequences of foreign source dividends received by an individual in Canada. Julienne Julienne Julienne 3. informs you that she plans on selling her rental property in the near future and using a portion of the proceeds from the sale to pay off some of her debt with the bank. would like your advice on which loans she should pay back first in order to achieve the most favourable tax consequences. Julienne Julienne 4. 4. Prior to selling the rental property, plans on upgrading the wood siding on the house to vinyl siding.
5. Explain to the difference between capitalizing and expensing costs, and indicate which treatment the siding cost should receive. Julienne Julienne 5. Explain to the tax consequences that could occur if she sells the rental property due to the fact that she has claimed the maximum CCA on the rental property since acquisition.
Property Income
Eligible dividends
Ineligible dividends
Interest income
Foreign dividends
Net rental income
Carrying Charges
Net property income
Requirement 2.
Julienne
has reviewed your calculation of net property income and she is confused.
Julienne
does not understand why the dividend income included in your calculation is different than the amounts she received in the year. Describe for
Julienne
the concept of integration and how this impacts the taxation of Canadian source dividends as well as the tax consequences of foreign source dividends received by an individual in Canada.
Select all that apply.
A.
The? "gross-up" refers to the procedure where dividend income earned by an individual from a Canadian corporation must be inflated by dividing the actual dividend by a certain fraction.
B.
The taxable dividend income reported on
Julienne
tax return will be equal to the inflated or? "gross-up" dividend calculated as the actual dividend multiplied by a certain fraction.
C.
The taxable dividend income reported on
Julienne
tax return will be equal to the inflated or? "gross-up" dividend calculated as the actual dividend divided by a certain fraction.
D.
The? "gross-up" refers to the procedure where dividend income earned by an individual from a Canadian corporation must be inflated by multiplying the actual dividend by a certain fraction.
Requirement 3.
Julienne
informs you that she plans on selling her rental property in the near future and using a portion of the proceeds from the sale to pay off some of her debt with the bank.
Julienne
would like your advice on which loans she should pay back first in order to achieve the most favourable tax consequences.
Choose the correct answer.
A.
Julienne
should use the proceeds from the sale of the rental property to repay her personal car loan rather than the loan she used to purchase mutual funds or her personal mortgage.
B.
Julienne
should use the proceeds from the sale of the rental property to repay her personal mortgage and the loan she used to purchase mutual funds rather than her personal car loan.
C.
Julienne
should use the proceeds from the sale of the rental property to repay her personal mortgage or her personal car loan rather than the loan she used to purchase mutual funds.
D.
Julienne
should use the proceeds from the sale of the rental to repay the loan she used to purchase mutual funds rather than her personal car loan or her personal mortgage.
Requirement 4. Prior to selling the rental? property,
Julienne
plans on upgrading the wood siding on the house to vinyl siding. Explain to
Julienne
the difference between capitalizing and expensing? costs, and indicate which treatment the siding cost should receive.
Select all that apply.
A.
Since repairs and maintenance expenses are fully deductible against rental? income, capital expenditures are also deductible.
B.
Repairs and maintenance expenses are larger but less frequent costs that improve the value of the property.
C.
In
Julienne?'s
?case, the cost of upgrading the wood siding to vinyl siding on the rental property would be considered a capital expenditure as siding will have enduring value? (it will last for several taxation? years) and it improves the quality of the rental property beyond its original condition.
D.
Capital expenditures are any expense that have an enduring? value, increase the useful life of the rental? property, or relate to the purchase of a separate asset.
E.
Although repairs and maintenance expenses are fully deductible against rental? income, capital expenditures are not deductible.
F.
?Generally, repairs and maintenance expenses are? smaller, more? frequent, expenses that restore the property to its previous condition but do not materially improve the property.
Requirement 5. Explain to
Julienne
the tax consequences that could occur if she sells the rental property due to the fact that she has claimed the maximum CCA on the rental property since acquisition.
Select all that apply.
A.
The sale of the property could trigger recapture? (in addition to a capital? gain) if the property was sold for proceeds of disposition that exceed the capital cost of the property.
B.
Recapture on the disposition of rental property would not be included as taxable income on the
Julienne?'s
income tax return.
C.
Since the real estate property is decreasing in? value,
Julienne
will trigger recapture on the sale of her rental property because the value of the property is less than the high UCC balance.
D.
Since real estate property has the potential to increase in value over? time,
Julienne
could likely trigger recapture and capital gains on the sale of her rental property.
Enter any number in the edit fields and then continue to the next question.
