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Buckwold and Kitunen, Canadian Income Taxation, 2010-2011 Ed.

CHAPTER 10
INDIVIDUALS: DETERMINATION OF TAXABLE INCOME
AND TAXES PAYABLE
Review Questions
1.

Briefly explain the difference, for individuals, between net income for tax purposes and taxable income.

2.

Explain the difference between an allowable capital loss and a net capital loss.

3.

Describe the tax treatment of net capital losses.

4.

Explain how a non-capital loss is created and how it is treated for tax purposes.

5.

Is it always worthwhile to utilize a net capital loss or a non-capital loss as soon as the opportunity arises? Explain.

6.

Is it possible for taxpayers to pay tax on more income than they actually earned over a period of years? Explain.

7.

How does the risk of not being able to utilize a business loss for tax purposes vary for each of the following individuals?
• Individual A operates the business as a proprietorship.
• Individual B is the sole shareholder of a corporation that owns the business. • Individual C is a 30% shareholder of a corporation that operates the business. • Individual D is a 30% partner in a business partnership.

8.

What can a taxpayer do to reduce the risk of not being able to utilize a net capital loss or a non-capital loss?

9.

Two separate taxpayers are considering investing in shares of the same public corporation. How is it possible that the risk associated with that investment may be greater for one taxpayer than for the other?

10.

If an individual has a net taxable capital gain in a year that qualifies for a capital gain deduction, is there any advantage to not claiming the applicable portion of the deduction in that year? Explain.

11.

If an individual is considering selling his business to a daughter, does it make any difference to him whether that business is a proprietorship or is housed within a corporation?

12.

What is the difference between the basic federal tax and the total federal tax?

Copyright © 2011 McGraw-Hill Ryerson Ltd.
Solutions Manual Chapter Ten

377

Buckwold and Kitunen, Canadian Income Taxation, 2010-2011 Ed.

13.

W hat is the difference between a tax deduction and a tax credit?

14.

An individual usually has taxable income in a year of $130,000 and pays federal and provincial taxes totalling $43,000. Would this information be relevant when the implications of investing in a partnership that operates a small retail business are considered?

15.

Does an individual who lives in Alberta and receives a $100 dividend obtain the same tax reduction from the dividend tax credit as an individual who resides in New Brunswick? Explain.

16.

In what circumstances may an individual be subject to provincial tax in more than one province in a particular year?

17.

An individual resides in Manitoba and operates a business that has no profit from its Alberta operations. Is it possible for that person to have a tax liability in Alberta in a particular year?

Copyright © 2011 McGraw-Hill Ryerson Ltd.
Solutions Manual Chapter Ten

378

Buckwold and Kitunen, Canadian Income Taxation, 2010-2011 Ed.

Solutions to Review Questions
R10-1.

Net income for tax purposes consists of the aggregate of a taxpayer's current year's income from employment, business, property, capital gains and other sources, taking into account the losses from those sources. Net income for tax purposes is not the base to which the tax rates are applied. Taxable income consists of net income for tax purposes minus certain reductions. For individuals, those reductions consist primarily of losses from other years that were unable to be used in the year incurred and the lifetime capital gain deduction on qualified property. Taxable income is the base to which the annual tax rates apply.

R10-2.

An allowable capital loss is one-half of the loss incurred on the sale of capital property in a particular year, and forms part of...
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