Review based on Canadian Tax Principles 2009-2010 Edition by Byrd & Chen

Chapter 1 Solutions
1- ITA 3(a)
Interest income
Employment income
Property income

150
96
62,000

62,246

73,000
(46,000)

27,000

ITA 3(b)
Taxable capital gains
Less: Allowable capital losses
ITA 3(c)
ITA 3(a) + ITA 3(b)
Less: subsection e deduction

89,246
(10,000)
79,246

ITA 3(d)
Business losses
Net income for tax purposes
Adjusted net income for tax purposes

(112,000)
(32,754)
0

Business loss carryover is $32,754

2- ITA 3(a)
Employment income
Interest income
Property income

23,000
27
112,000

135,027

Taxable capital gains

Less: Allowable capital losses

12,000
(73,000)

Nil

ITA 3(b)
ITA 3(c)
ITA 3(a) + ITA 3(b)
Less: subsection e deduction
ITA 3(d)
Business losses
Net income for tax purposes
The allowable capital loss carryover is $61,000

Chapter 2 Solutions
1- Jan 1 to June 30:
41,000 km total
6,100 km personal
Purchased for $65,000
Standby Charge= 2% x 65,000 x 6= 7,800
Operating cost benefit= 0.24 x 6,100= 1,464
Since the employment related use is over 50% a reduced standby charge is applicable.
Reduced standby charge= 7,800 x [6,100 / (1,667 x 6)] = 4,757

135,027
(13,500)
121,527
(60,000)
61,527

Review based on Canadian Tax Principles 2009-2010 Edition by Byrd & Chen

Alternative operating cost benefit = 1/2 x 4,757 = 2379

We will only use the lower of the 2 standby charges + the lower of the 2 operating cost benefits
Total minimum taxable car benefit = 4,757 + 1,464 = 6,221
2- 2009:

Fair market value

Option price
Taxable benefit

$42
$30
$12

Employment income = (15,000 x 12) / 2

= 180,000 / 2
= 90,000
The $90,000 will be added to Ms. Jane Deeres employment income for 2009.
2010:

Sell price
FMV when purchased
Gain on sale

$60
$42
$18

Capital gain = 15,000 x 18

= 270,000
Taxable capital gain = 270,000 x 1/2
= 135,000
Therefore Ms. Jane Deere will include $135,000 in her income as a taxable capital gain.

Chapter 3 Solutions
1-

Employment income
Inheritance

$72,000
$125,000 this amount is not taxable since an inheritance is nontaxable.
Therefore the taxable income is $72,000
Federal tax payable
40,726 x 15% = 6,109
(72,000 40,726) x 22% = 6,880
Federal tax payable = 6,109 + 6,880 = 12,989
Federal tax credits
Basic personal credit
Spousal
Child
Canada employment credit
Medical expenses*
EI
CPP
Subtotal
Federal rate
Total
Charitable donations (4,872 +30)
200 x 15% = 30
16,800 x 29% = 4,872

10,320
0
2,089
1,044
9,989
732
2,119
26,293
x 15%
3,944
4,902

Review based on Canadian Tax Principles 2009-2010 Edition by Byrd & Chen

Political donations (300 + 175 + 17)

400 x 3/4 = 300
350 x 1/2 = 175
50 x 1/3 = 17

492

Total federal credits

9,338

*calculation for medical expenses: Total medical expenses paid

12,000
Less: Lesser of: - 3% x 72,000
- 2,011
(2,011)
Medical expense credit
9,989
Net Federal tax payable = 12,989 9,338 = 3,651

Chapter 4 Solutions
1- Class 1

Beginning UCC Balance

No additions or dispositions
CCA Base
2009 CCA (4%) (425,000)
Jan 1, 2010 UCC Balance

Class 8

Beginning UCC Balance

Additions
Dispositions: lesser of:
-Capital cost (62,000)
-Proceeds of disposition (30,000)
Less: 1/2 net additions
CCA Base
2009 CCA (20%) (173,000)
1/2 net additions
Jan 1, 2010 UCC Balance

Class 10

Beginning UCC Balance

Additions
Dispositions: lesser of:
-Capital cost (27,000)
-Proceeds of disposition (16,000)
Less: 1/2 net additions
CCA Base
2009 CCA (30%) (138,500)
1/2 net additions
Jan 1, 2010 UCC Balance

425,000
0
425,000
(17,000)
408,000
160,000
56,000
(30,000)

26,000
(13,000)
173,000
(34,000)
13,000
152,000
124,000

45,000
(16,000)

29,000
(14,500)
138,500
(41,550)
14,500
111,450

Class 13

Beginning UCC Balance

No additions or dispositions
CCA Base
2009 CCA (80,000 / 12)
Jan 1, 2010 UCC Balance

60,000
0
60,000
(6,667)
53,333

Class 44

Beginning UCC Balance

No additions or dispositions

100,000
0

Review based on Canadian Tax Principles 2009-2010 Edition by Byrd & Chen
CCA Base
2009 CCA (25%) (100,000)
Jan 1, 2010 UCC Balance

100,000
(25,000)
75,000

Class 50

Beginning UCC Balance

Additions
1/2 net additions
CCA Base
2009 CCA (55%) (28,000)
1/2 net additions
Jan 1, 2010 UCC Balance

17,000
22,000
(11,000)
28,000
(15,400)
11,000
23,600

CEC:

Beginning Balance
2009 CEC (7%) (200,000)
Jan 1, 2010 Balance

200,000
(14,000)
186,000

Chapter 5 Solutions
Accounting net income before taxes
Additions:
Amortization
Bond discount amortization
Meals and entertainment (1/2) (48,000)
Warranty liability
Unfunded pension expense (167,000-150,000)
Foreign advertising
Deductions:
CCA
Landscaping cost
Net income for tax purposes

1,263,000
240,000
5,000
24,000
20,000
17,000
20,000
(280,000)
(35,000)

326,000

(315,000)
1,274,000

Chapter 6 Solutions
1- Disposition of property B:
Beginning UCC balance
Less dispositions: Lesser of:
-Capital cost
- Proceeds of dispositions
(Recapture) or terminal loss
Disposition of property D:
Beginning UCC Balance
Less dispositions: Lesser of:
-Capital cost
-Proceeds of dispositions

96,000
120,000
120,000

(120,000)
(24,000)

202,000
275,000
250,000

(250,000)

Review based on Canadian Tax Principles 2009-2010 Edition by Byrd & Chen

(Recapture) or terminal loss

(48,000)

CCA calculation for property A (class 1):

Beginning UCC Balance
CCA for the year (4%)
Ending UCC balance

163,000
(6,520)
156,480

CCA calculation for property C (class 3):

Beginning UCC Balance
CCA for the year (5%)
Ending UCC Balance

127,000
(6,350)
120,650

CCA calculation for property E (class 1):

Beginning UCC Balance
CCA for the year (4%) (1/2) half year rule
Ending UCC Balance

170,000
(3,400)
166,600

Gross rents
Add: recapture of CCA on the disposition of a rental property
Less: Expenses other than CCA
Rental income before CCA
Less: CCA from Class 1
Less: CCA from Class 3
Net rental income

76,000
72,000
(36,000)
112,000
(9,920)
(6,350)
95,730

2- Amount of dividend received

22,000
Add: Gross up (25%)
5,500
Taxable dividend
27,000
Federal and provincial tax payable on taxable dividends
(23%) (27,000)
Federal and provincial dividend tax credit (2/3 +.2) (5,500)
Net federal and provincial tax payable on taxable dividends

6,210
(4,767)
1,443

3- Amount of dividend received

22,000
Add: Gross up (45%)
9,900
Taxable dividend
31,900
Federal and provincial tax payable on taxable dividends (43.5%) (31,900)
Federal and provincial dividend tax credit (11/18+.27) (9,900)
Net federal and provincial tax payable on taxable dividends

13,877
(8,723)
5,154

Chapter 7 Solutions
Proceeds of disposition
Less: Adjusted cost base
Capital gain

300,000
175,000
125,000

Taxable capital gain

62,500

(1/2) (125,000)

2009 capital gain reserve = lesser of:

125,000 (225,000/ 300,000)= 93,750
125,000 (20%) (4-0) = 100,000
Capital gain for 2009= 125,000- 93,750 = 31,250
Taxable capital gain = 31,250 x 1/2 = 15,625

Review based on Canadian Tax Principles 2009-2010 Edition by Byrd & Chen

Therefore the capital gain reserve for 2009 is 93,750 and the taxable capital gains for 2009 are 15,625.
2010 capital gain reserve = lesser of:
125,000 (225,000 / 300,000) = 93,750
125,000 (20%) (4-1) = 75,000
Capital gain = 93,750 75,000 = 18,750
Taxable capital gain = 18,750 x 1/2 = 9,375
Therefore the capital gain reserve for 2010 is 75,000 and the taxable capital gains for 2010 are 9,375.
2011 capital gain reserve = lesser of:
125,000 (225,000 / 300,000) = 93,750
125,000 (20%) (4-2) = 50,000
Capital gain = 75,000 50,000 = 25,000
Taxable capital gain = 25,000 x 1/2 = 12,500
Therefore the capital gain reserve for 2011 is 50,000 and the taxable capital gains for 2011 are 12,500
2012 capital gain reserve = lesser of:
125,000 (225,000 / 300,000) = 93,750
125,000 (20%) (4-3) = 25,000
Capital gain = 50,000 25,000 = 25,000
Taxable capital gain = 25,000 x 1/2 = 12,500
Therefore the capital gain reserve for 2012 is 25,000 and the taxable capital gains for 2012 are 12,500
2013 capital gain reserve = lesser of:
125,000 (225,000 / 300,000) = 93,750
125,000 (20%) (4-4) = 0
Capital gain = 25,000 0 = 25,000
Taxable capital gain = 25,000 x 1/2 = 12,500
Therefore the capital gain reserve for 2013 is 0 and the taxable capital gains for 2013 are 12,500
There is no capital gain reserve and no taxable capital gain for 2014 and 2015.

Chapter 8 Solutions
Maximum amount of child care expenses = lesser of:
Actual Costs
(175 x 40)
Annual expense limit ( 4,000 x 2 + 7,000)
Earned income for child care expenses
(2/3) (62,000)
(2/3) (57,000)

Mr. Deere
Mrs. Deere
7,000
7,000
15,000
15,000
41,333
38,000

Since Mrs. Deeres net income for tax purposes is lower than Mr. Deeres, only she can receive the child
care expense credit. Maximum base for this credit is $7,000.

Chapter 9 Solutions

Review based on Canadian Tax Principles 2009-2010 Edition by Byrd & Chen

1-

Earned income = 45,000 + 17,000 - 1,000 = 61,000

RRSP deduction limit:

RRSP deduction room
Add: lesser of: - RRSP dollar limit
- 18% of earned income 10,980
RRSP deduction limit
2-

17,000
21,000
10,980

10,980
27,980

Earned income = 73,000 + 10,000 = 83,000

RRSP deduction limit:

RRSP deduction room
Add: lesser of: - RRSP dollar limit
- 18% of earned income 14,940
Less: Pension Adjustment
RRSP deduction limit

6,000
21,000
14,940

14,940
(5,500)
15,440

Chapter 10 Solutions
2006
ITA 3(a)
Employment income
Business income
Taxable dividends
ITA 3(b)
Taxable capital gains
Allowable capital losses
ITA 3(c)
ITA 3(a) + ITA 3(b)
Less: subdivision 'e' deduction

20,000
12,000
2,000

34,000

1,000
(9,000)

nil
34,000
(500)
33,500

ITA 3 (d)
Farm loss*
Net income for tax purposes
Less: non-capital loss carryback from 2007
(this leaves 18,450-15,250= 3,200 from 2007)
Taxable income

(6,250)
27,250
(15,250)
12,000

Taxable income will be 12,000 as this is the amount of taxable income required to use his personal tax
credits.
*Farm loss calculation:
First 2,500
1/2 of (10,000-2,500)
Total farm loss for 2006 6,250

2,500
3,750

Carryforwards: Net capital loss carryforward= 9,000-1,000= 8,000

Restricted farm loss carryforward= 10,000-6,250= 3,750
2007

Review based on Canadian Tax Principles 2009-2010 Edition by Byrd & Chen

ITA 3(a)
Employment income
Farming income
Taxable dividends
ITA 3(b)
Taxable capital gains
Allowable capital losses
ITA 3(c)
ITA 3(a) + ITA 3(b)
Less: subdivision 'e' deduction

15,000
15,000
2,300

32,300

12,000
(1,000)

11,000
43,300
(1,000)
42,300

ITA 3 (d)
Business loss
Net income for tax purposes
Less: net capital loss carryforward from 2006
Less: restricted farm loss carryforward from 2006
Taxable income

(37,000)
5,300
(8,000)
(3,750)
(6,450)

(18,550)
23,750
(8,000)
(3,750)
12,000

Since Mr. Happee would like to use the maximum amount of carryforwards each year, we will lower the
amount of business loss being used for this year. This will cause a non-capital loss carryforward. Taxable
income will be 12,000 as this is the amount of taxable income required to use his personal tax credits.
Carryforwards/carrybacks: non-capital loss carryforward or carryback= 37,000-18,550= 18,450
non-capital loss carryforward after the carryback= 18,450-17,250= 1,200

2008
ITA 3(a)
Employment income
Farming income
Taxable dividends
ITA 3(b)
Taxable capital gains
Allowable capital losses
ITA 3(c)
ITA 3(a) + ITA 3(b)
Less: subdivision 'e' deduction
ITA 3 (d)
Business loss
Net income for tax purposes
Less: non-capital loss carryforward from 2007
Taxable income
There are no carryforwards or carrybacks at the end of 2008.

Chapter 14 Solutions
1- Yes, installments are required for John Doe.
Option 1:

Installment 1- 7,500 / 4 = 1,875

Installment 2- 7,500 / 4 = 1,875
Installment 3- 7,500 / 4 = 1,875
Installment 4- 7,500 / 4 = 1,875

25,000
6,000
700

31,700

6,000
(4,000)

2,000
33,700
(700)
33,000
(10,000)
23,000
(1,200)
21,800

Review based on Canadian Tax Principles 2009-2010 Edition by Byrd & Chen

Option 2:

Installment 1- 2,500 / 4 = 625

Installment 2- 2,500 / 4 = 625
Installment 3- 2,500 / 4 = 625
Installment 4- 2,500 / 4 = 625

Option 3:

Installment 1- 4,000 / 4 = 1,000

Installment 2- 4,000 / 4 = 1,000
Total for installments 3 and 4 = 2,500 (1,000 + 1,000) = 500
Installment 3- 500 / 2 = 250
Installment 4- 500 / 2 = 250

2- No, installments are not required for Jane Doe.

3- Yes, installments are required for Harper Happee.
Option 1Installment 1- 3,000 / 4 = 750
Installment 2- 3,000 / 4 = 750
Installment 3- 3,000 / 4 = 750
Installment 4- 3,000 / 4 = 750
Option 2-

Installment 1- 800 /4 = 200

Installment 2- 800 /4 = 200
Installment 3- 800 /4 = 200
Installment 4- 800 /4 = 200

Option 3-

Installment 1- 9,200 / 4 = 2,300

Installment 2- 9,200 / 4 = 2,300
Total for installments 3 and 4 = 800 (2,300 + 2,300) = (3,800)
Since we get a negative amount for the total for installments 3 and 4 payment is required for those two
installments. Therefore,
Installment 3- 0
Installment 4- 0

Chapter 20 Solutions
1- She is a deemed resident since she is dependent on her father who is a deemed resident
2- He would be a non-resident since he does not live in Canada. He is not a resident and he would not
be considered a sojourner, so he is not a deemed resident. He would still have to pay Canadian taxes on
his Canadian income.
3- John Deere is a part-year resident. He would be taxed on his income from January 1 until the day that
he no longer was a Canadian resident which was September 22. He would not be taxed on any of his
income earned after September 22.