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Chapter Seven Test Item File Problems TIF PROBLEM SEVEN ­ 1 Property Income - Essay Questions

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1. Indicate two differences between the tax treatment of business income and the tax treatment of property income. 2. One conceptual approach to determining whether interest should be deductible is to limit deductibility to situations where this interest paid is related to the production of income that is fully taxable in the taxation year in which it is earned. List two situations in which interest would not be deductible under this conceptual approach. 3. When an investor receives a payment from a corporation, what characteristics determine whether it is an interest payment or a dividend payment? 4. Briefly describe the “disappearing source” rules. 5. GAAP requires that any premium that is received on the issuance of debt securities be amortized as an adjustment of interest expense over the life of the debt. Explain briefly the tax treatment of premium that is received on the issuance of debt securities. 6. Briefly explain the tax treatment of corporate bonds that are issued at a discount. 7. The tax rules for recognizing interest inclusions for individuals are different than they are for corporations. Briefly describe these differences. 8. When publicly traded debt securities are purchased between interest payment dates, the purchaser pays for any accrued interest to the date of acquisition. Describe the tax treatment of interest received by the purchaser on the next interest payment date. 9. Each rental property that is owned by an individual that has a cost in excess of $50,000 must be placed in a separate CCA class. What is the objective of this requirement? 10. Briefly explain the concept of integration. 11. Briefly describe the application of the federal gross up and tax credit procedures for (1) eligible dividends and (2) non-eligible dividends. 12. How is the adjusted cost base of units in an income trust determined? 13. Mutual funds can be organized as either corporations or trusts. How will the choice of organizational structure affect the taxation of income distributions from the fund? 14. What is a stock dividend? How will such dividends be taxed? Describe the manner in which the adjusted cost base of an investor’s holding will be changed by a stock dividend. 15. Why are capital dividends received on a tax free basis? 16. Describe the tax treatment of foreign non-business income when the foreign jurisdiction has withheld some portion of the income. TIF PROBLEM SEVEN ­ 2

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TIF PROBLEM SEVEN ­ 1
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TIF PROBLEM SEVEN ­ 1

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