,DOWNLOAD THE Test Bank for Canadian Income Taxation 19th Edition
Buckwold
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) The manager at Big Company Corporation has decided to sell a piece of capital equipment after the
company's year-end in order to avoid paying capital gains tax this year. Which tax planning method
will the manager be using?
A) This is a form of tax evasion and is not allowed.
B) Converting the nature of income from one type to another.
C) Shifting income from one time period to another.
D) Transferring income to another entity.
Answer: C
2) Which of the following scenarios illustrates a potential tax avoidance scheme?
A) A man transfers property to his child at a value less than fair market value.
B) Property transferred between arm's-length parties is valued at fair market value.
C) A shareholder owns two corporations and undertakes legal steps in order to permit loss
utilization between the two companies.
D) Dividends received from shares transferred from a wife to her husband are taxed in the hands
of the wife.
Answer: A
3) The manager of Little Company Ltd. has decided to sell a piece of capital equipment after the
company's year-end in order to avoid paying tax on capital gains this year. The manager is engaging
in
A) tax avoidance.
B) tax evasion.
C) GAAR.
D) tax planning.
Answer: D
4) Certain skills are necessary for successful tax planning. One of these skills is applying the time
value of money. Which of the following is FALSE regarding this skill?
A) If a taxpayer earns an annual return of 12% and is subject to a 40% tax rate, the annual after-tax
return is 4.8%.
B) If a taxpayer invests $1,000 at 8% and subsequently earns $48 in after-tax income on the
investment at the end of the first year, the taxpayer's tax rate is 40%.
C) Applying the time value of money is a tool used for wealth accumulation.
D) If a taxpayer invests $1,000 for one year at a rate of return of 14% and is subject to a 45% tax
rate, the after-tax value of the investment will be $1,077.
Answer: A
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,DOWNLOAD THE Test Bank for Canadian Income Taxation 19th Edition
Buckwold
5) Which of the following statements regarding GAAR is true?
A) The Canada Revenue Agency states that "A transaction will not be an avoidance transaction if
the taxpayer establishes that it is undertaken primarily for bona fide business, investment or
family purposes."
B) Individuals who organize their affairs in order to pay as little tax as possible will automatically
be subject to GAAR.
C) When an avoidance transaction takes place, the anti-avoidance rule is automatically applied in
all circumstances.
D) The purpose of GAAR is to catch tax evaders.
Answer: A
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
6) Steven James earned $150,000 this year in profits from his proprietorship, which placed him in a 45%
tax bracket. The rate of tax for Canadian-controlled private corporations in his province is 15% on the
first $500,000 of income. Personal tax rates (federal plus provincial) in James' province are:
On the first $45,000 24%
On the next $45,000 32%
On the next $50,000 40%
On the next $60,000 45%
On income over $200,000 50%
(All rates are assumed for this question.)
Steven withdraws $3,000 per month for his personal living expenses. All remaining profits are used to
pay taxes and to expand the business. Steven expects the same business after-tax profits next year.
Steven is considering incorporating his business next year. If he incorporates, he will pay himself a
gross salary of $48,000.
Required:
A. Determine the increase in Steven's cash flow if he incorporates his company? Show all
calculations.
B. Name the type of tax planning that Steve would be engaging in if he incorporated his company.
2
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, DOWNLOAD THE Test Bank for Canadian Income Taxation 19th Edition
Buckwold
Answer: A) Excess cash as a proprietorship:
Profits $150,000
Tax:
24% 45,000 $10,800
32% 45,000 14,400
40% 50,000 20,000
45% 10,000 4,500 (49,700)
(Assume federal plus provincial rates)
$100,300
Living expenses (36,000)
Available for expansion $64,300
Excess cash as a corporation:
Profits $150,000
Salary (48,000)
Corporate business profits 192,000
Tax: 15% / 102,000 (15,300)
Available for expansion $86,700
Excess cash ($86,700 - $64,300) $22,400
C) Transferring income from one entity to another
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Buckwold
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) The manager at Big Company Corporation has decided to sell a piece of capital equipment after the
company's year-end in order to avoid paying capital gains tax this year. Which tax planning method
will the manager be using?
A) This is a form of tax evasion and is not allowed.
B) Converting the nature of income from one type to another.
C) Shifting income from one time period to another.
D) Transferring income to another entity.
Answer: C
2) Which of the following scenarios illustrates a potential tax avoidance scheme?
A) A man transfers property to his child at a value less than fair market value.
B) Property transferred between arm's-length parties is valued at fair market value.
C) A shareholder owns two corporations and undertakes legal steps in order to permit loss
utilization between the two companies.
D) Dividends received from shares transferred from a wife to her husband are taxed in the hands
of the wife.
Answer: A
3) The manager of Little Company Ltd. has decided to sell a piece of capital equipment after the
company's year-end in order to avoid paying tax on capital gains this year. The manager is engaging
in
A) tax avoidance.
B) tax evasion.
C) GAAR.
D) tax planning.
Answer: D
4) Certain skills are necessary for successful tax planning. One of these skills is applying the time
value of money. Which of the following is FALSE regarding this skill?
A) If a taxpayer earns an annual return of 12% and is subject to a 40% tax rate, the annual after-tax
return is 4.8%.
B) If a taxpayer invests $1,000 at 8% and subsequently earns $48 in after-tax income on the
investment at the end of the first year, the taxpayer's tax rate is 40%.
C) Applying the time value of money is a tool used for wealth accumulation.
D) If a taxpayer invests $1,000 for one year at a rate of return of 14% and is subject to a 45% tax
rate, the after-tax value of the investment will be $1,077.
Answer: A
1
mynursytest.store
,DOWNLOAD THE Test Bank for Canadian Income Taxation 19th Edition
Buckwold
5) Which of the following statements regarding GAAR is true?
A) The Canada Revenue Agency states that "A transaction will not be an avoidance transaction if
the taxpayer establishes that it is undertaken primarily for bona fide business, investment or
family purposes."
B) Individuals who organize their affairs in order to pay as little tax as possible will automatically
be subject to GAAR.
C) When an avoidance transaction takes place, the anti-avoidance rule is automatically applied in
all circumstances.
D) The purpose of GAAR is to catch tax evaders.
Answer: A
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
6) Steven James earned $150,000 this year in profits from his proprietorship, which placed him in a 45%
tax bracket. The rate of tax for Canadian-controlled private corporations in his province is 15% on the
first $500,000 of income. Personal tax rates (federal plus provincial) in James' province are:
On the first $45,000 24%
On the next $45,000 32%
On the next $50,000 40%
On the next $60,000 45%
On income over $200,000 50%
(All rates are assumed for this question.)
Steven withdraws $3,000 per month for his personal living expenses. All remaining profits are used to
pay taxes and to expand the business. Steven expects the same business after-tax profits next year.
Steven is considering incorporating his business next year. If he incorporates, he will pay himself a
gross salary of $48,000.
Required:
A. Determine the increase in Steven's cash flow if he incorporates his company? Show all
calculations.
B. Name the type of tax planning that Steve would be engaging in if he incorporated his company.
2
mynursytest.store
, DOWNLOAD THE Test Bank for Canadian Income Taxation 19th Edition
Buckwold
Answer: A) Excess cash as a proprietorship:
Profits $150,000
Tax:
24% 45,000 $10,800
32% 45,000 14,400
40% 50,000 20,000
45% 10,000 4,500 (49,700)
(Assume federal plus provincial rates)
$100,300
Living expenses (36,000)
Available for expansion $64,300
Excess cash as a corporation:
Profits $150,000
Salary (48,000)
Corporate business profits 192,000
Tax: 15% / 102,000 (15,300)
Available for expansion $86,700
Excess cash ($86,700 - $64,300) $22,400
C) Transferring income from one entity to another
3
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