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:
Instructor’s Solutions Manual, Byrd & Chen’s Canadian Tax Principles 2022/23 Edition
Copyright © 2023 Pearson Education Inc. 11-3
ITA 3(a)
Taxable (Grossed Up) Dividends $ 6,450
ITA 3(b)
Taxable Capital Gains $ 2,250
Allowable Capital Losses (7,250) Nil
ITA 3(c)
ITA 3(d)
Non-Farming Business Loss
$ 6,450
($19,000)
Farm Loss (2,000) (21,000)
2022 Net Income and Taxable Income Ni
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