University Taxation 1A Final Assessment Exam Solution

This document presents a comprehensive solution to a Taxation 1A final assessment exam. It includes detailed calculations of taxable income for a business (Duncan Ltd), tax advice on interest-free loans and gifts, and an analysis of tax implications for business owners. The solution further addresses the tax implications of the disposition of assets (van), including capital cost allowance (CCA) calculations. The document also covers maximum CCA claims, ending UCC balances, gain/loss on asset sales, and the taxability of various employee benefits such as parking, gifts, and company-paid dues. Finally, it addresses GST registration requirements and the calculation of income from property, including the sale of property and rental income.

Running head: TAX
Tax
Name of the Student:
Name of the University:
Authors Note:

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Contents
Answer 1:.........................................................................................................................................2
Answer 2:.........................................................................................................................................3
Answer 3:.........................................................................................................................................4
Answer 4:.........................................................................................................................................6
Answer 5:.........................................................................................................................................7
Answer 6:.......................................................................................................................................14
Answer 7:.......................................................................................................................................14
Answer 8:.......................................................................................................................................15

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Answer 1:
Computation of taxable income from business of Duncan Ltd for the year ended June 30:
Particulars Amount ($) Amount ($)
Gross revenue 6,000,000.00
Less: Expenditures allowed
Cost of goods sold for earning taxable income (4,000,000 -
50,000)
3,950,000.00
Accounting and leagl expenses 60,000.0
0
Advertising e3xluding financing cost 70,000.0
0
Personal expenses of Mr. Duncan is not allowed
-
Bad debts 20,000.0
0
Business taxes and licenses 10,000.0
0
Amortization 80,000.0

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0
Interest (90000 -5000) 85,000.0
0
Meals and entertainment expenses 40,000.0
0
Rent and lease (220000 - (100000 x 6/60) 210,000.0
0
Office 100,000.0
0
Salaries and wages excluding bonus as it would be paid on
January
520,000.0
0
Capital cost allowance 14,210.0
0
5,159,210.00
Income from business for tax purposes 840,790.0
0
Answer 2:
Tax advice:

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1. Interest free loans are non-taxable to lender as well as borrower hence, giving loan of $100,000 to
her husband at 0% interest which is effectively an interest free loan though would not taxable to
both but the same can also not be deducted from the income of Donna to reduce her tax bracket.
Thus, the objective of Donna will not be achieved by giving an interest free or 0% interest rate
loan to her husband to invest in 3% bond.
2. Gifts without special occasion taxable in the hands of the recipient hence, the $100,000 that
Donna would give to her husband will be added to the income of Don for computing his taxable
income and will be deducted from the gross income of Donna thus, the income tax rate of Donna
would reduce significantly with the reduction in her taxable income. Thus, this is a good strategy
to reduce the high rate of tax bracket that Donna is in at present to reduce her overall income tax
liability.
3. Again giving loan at 0% interest to her daughter would not be beneficial to Donna as her tax
bracket will stayed there as her income will not reduce as the interest free and 0% interest rate
loans are non-taxable for both borrowers and lenders.
4. Giving $100,000 as gift to her 15 year old daughter would be great strategy as she has no taxable
income at present thus, her income would only this gift as a result she will end up paying lowest
tax on the amount. Thus, the overall tax on the taxable income of Donna would reduce as her
income will be reduced by the gift of $100,000.
5. Again giving loan at 0% interest to her 25 year old daughter would not be beneficial to Donna as
her tax bracket will stayed there as her income will not reduce as the interest free and 0% interest
rate loans are non-taxable for both borrowers and lenders.
Answer 3:
To:
Andy Greene and Sue Greene.
Ref.: Tax implications of the owners and the business of Kingston Carpets Inc.
Dear sir and madam,
The purpose of this letter is to illustrate the tax implications of the financial transactions that you
have entered in your personal capacity as well as from business perspectives. Firstly, it is
important to understand that Kingston Carpets Inc. is separate legal entity different from you.
Thus, the financial transactions of business will have impact only on business and similarly
personal transactions of yours will have implication on personal taxes of you two.

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All the taxable revenue earned by Kingston Carpets shall be considered for calculation of taxable
income of the business. The expenditures incurred to generate the revenue including the
entertainment expenses at the golf club including meal and other expenses shall be allowed as
deduction since these have contributed in generating revenue for the business. However, illegal
commissions, bribery and other expenditures which are not allowed as business expenses will not
be allowed as deduction. Contribution or donation to political parties to get contracts is not
eligible business expenditures hence, such donations are not allowed as deduction hence, and
these payments shall not be considered in calculation of taxable income of Kingston Carpets.
Repairing and maintenance expenditure incurred on building purchased across the street even if
quite significant is allowed as deduction from revenue to compute the taxable income of business
as it is directly related to the generation of revenue of the company. Individual insurance policies
taken by the owners are not allowed as deduction as these are personal insurance and not related
to business. The loan provided to one of the employees by borrowing funds is absolutely against
the policy of a company hence, the amount of loan provided to the employee is not allowed as
deduction for taxable purpose.
Date:
Place:
Regards.

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Answer 4:
To,
Sylvia Fields.
Ref.: Income tax implications of disposition of Van.
Respected mam,
This letter is in reference to the above subject matter. Considering that the van has a UCC
balance of $14,280 at the beginning of the year (January 1) and it has been sold for $10,300.
Thus, with the asset belonging in class 10 which attracts 30% rate for CCA purpose the income
tax implications for disposition of the van is calculated below.
Particulars Amount ($)
UCC balance at the beginning in class 10 asset 14,2
80.00
Less: CAA for the portion of te year van is used (14280 x
30% x 2/12)
7
14.00
Net book value of the asset 13,5
66.00
Sale proceeds 10,3

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00.00
Loss on sale (3,26
6.00)
Thus, the loss of $3,266 on the disposition of van can be deducted from the gross income from
self-employment of Sylvia to ascertain her taxable income for the year ending on December 31
and resultant tax liability of her for the year.
Date:
Place:
Regards,
Accounting
Associate.
Answer 5:
Part 1:
The maximum amount of CCA that can be claimed is $29,400 assuming that all the assets from
different classes have been sold on the last date of the financial year. Calculations are provided
below.
Class Note Rate Balance
($)

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1 Single building 1 6% 225,000.
00
Maximum CCA (225000 x 6%) 13,500.
00
Class Note Rate Balance
($)
8 Multiple assets 2 20% 30,000.
00
Maximum CCA (30000 x 20%) 6,000.
00
Class Note Rate Balance
($)
10 Multiple assets 3 30% 20,000.
00
Maximum CCA (20000 x 30%) 6,000.
00

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Class Note Rate Balance
($)
10.1 Passenger vehicle 4 30% 13,000
.00
Maximum CCA (13000 x 30%) 3,900
.00
Part 2:
Ending UCC balances are shown below in each class:
Class Note Rate Balance
($)
1 Single building 1 6% 225,000.
00
Maximum CCA (225000 x 6%) 13,500.
00
211,500.
00
Less: Net book value of asset sold 180,000.

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00
Ending UCC balance 31,500.
00
Class Note Rate Balance
($)
8 Multiple assets 2 20% 30,000.
00
Maximum CCA (30000 x 20%) 6,000.
00
24,000.
00
Less: Net book value of asset sold 3,600.
00
Ending UCC balance 20,400.
00
Class Note Rate Balance
($)

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10 Multiple assets 3 30% 20,000.
00
Maximum CCA (20000 x 30%) 6,000.
00
14,000.
00
Less: Net book value of asset sold 5,500.
00
Ending UCC balance 8,500.
00
Class Note Rate Balance ($)
10.1 Passenger vehicle 4 30% 13,000.
00
Maximum CCA (13000 x 30%) 3,900.
00
9,100.
00
Less: Net book value of asset sold 35,000.