Instructor’s Solutions Manual Chapter 11 – Solutions to Assignment Problems Solution to AP 11-1 2019 Analysis The required information can be calculated as follows: ITA 3(a) Business Income $18,000 Taxable (Grossed Up) Dividends 2,360 $20,360 ITA 3(b) Taxable Capital Gains $ 600 Allowable Capital Losses (2,100) Nil ITA 3(c) ITA 3(d) Unrestricted Farm Loss (See Note) $20,360 (6,250) 2019 Net Income and Taxable Income $14,110 Note Ms. Breau’s farm losses are restricted as follows: Total Farm Loss Unrestricted Amount: First $2,500 $10,000 ($ 2,500) One-Half of $7,500 ($10,000 – $2,500) (3,750) (6,250) 2019 Restricted Farm Loss $ 3,750 As noted in the problem, none of the losses can be carried back before 2019. This would leave the following 2019 loss carry over balances: • 2019 Restricted Farm Loss $3,750 • 2019 Net Capital Loss [($2,100 (ITA 3(b)(ii)) – $600 (ITA 3)(b)(i))] $1,500 In this first year the taxable income is less than the required $15,000 to fully utilize available tax credits; however, there is no choice to limit any of the ITA 3 amounts to a smaller amount so as to achieve the $15,000 taxable income. 2020 Analysis The required information can be calculated as follows: ITA 3(a) Farm Income $ 2,000 Taxable (Grossed Up) Dividends 2,950 $4,950 ITA 3(b) Taxable Capital Gains Allowable Capital Losses $ 1,000 Nil 1,000 Instructor’s Solutions Manual, Byrd & Chen’s Canadian Tax Principles 2022/23 Edition Copyright © 2023 Pearson Education Inc. 11-2 ITA 3(c) ITA 3(d) Non-Farming Business Loss $5,950 (14,000) 2020 Net Income 2019 Net Capital Loss Nil ($1,000) 2020 Taxable Income Nil Since there are $1,000 of net taxable capital gains this year, and the problem states that Ms. Breau would like to deduct the maximum amount of net capital losses, the net capital loss of $1,000 is applied against the ITA 3(b) amount of $1,000, which effectively increases the 2020 non-capital loss. The 2020 non-capital loss is calculated as follows: Business Loss $14,000 Add: 2019 Net Capital Loss Deducted 1,000 ITA 3(c) Income (5,950) 2020 Non-Capital Loss $ 9,050 The entire 2020 non-capital loss could be carried back to 2019, but since Ms. Breau requires $15,000 in taxable income to fully utilize her tax credits, no carry back is contemplated. There would be the following loss balances at the end of 2020: • 2019 Restricted Farm Loss (Unchanged) $3,750 • 2019 Net Capital Loss ($1,500 – $1,000)] $ 500 • 2020 Non-Capital Loss $9,050 2021 Analysis The required information can be calculated as follows: ITA 3(a) Non-Farming Business Income $30,000 Farm Income 3,150 Taxable (Grossed Up) Dividends 3,963 $37,113 ITA 3(b) Taxable Capital Gains $ 2,000 Allowable Capital Losses Nil 2,000 2021 Net Income $39,113 2019 Restricted Farm Loss (Equal to Farm Income) (3,150) 2019 Net Capital Loss (Less than $2,000) (500) 2020 Non-Capital Loss Carry Forward (All) ( 9,050) 2021 Taxable Income $26,413 There would be the following loss balances at the end of 2021: • 2019 Restricted Farm Loss ($3,750 – $3,150) $ 600 2022 Analysis The required information can be calculated as follows: