Taxation Assignment: Rental Property, Tax Credits, and Income

This assignment solution delves into the complexities of Canadian income taxation, presenting detailed calculations for various scenarios. It begins by calculating the Capital Cost Allowance (CCA) and net rental income for a rental property, considering expenses such as condo fees, property taxes, and mortgage interest. The solution then determines the consequences of the property's sale on the owner's net income, including capital gains. Furthermore, the assignment calculates tax credits available to an individual, factoring in personal amounts, child-related credits, and medical expenses. The document also includes calculations of net income for tax purposes in case studies involving employment income, commissions, bonuses, and various deductions like spousal and child support. The assignment explores the taxability of different benefits, such as automobile benefits, and gift allowances, providing a comprehensive overview of Canadian income tax principles.

Running head: CANADIAN INCOME TAXATION
Canadian Income Taxation
Name of the Student:
Name of the University:
Authors Note:

1
CANADIAN INCOME TAXATION
Contents
Section 1:.........................................................................................................................................2
Answer 1:.....................................................................................................................................2
Answer 3:.....................................................................................................................................4
Section 2:.........................................................................................................................................5
Case 1:.........................................................................................................................................5
Case 2:.........................................................................................................................................8
References:....................................................................................................................................10

2
CANADIAN INCOME TAXATION
Section 1:
Answer 1:
Part a:
Calculation of CCA to be deducted on the property in 2018:
Capital cost allowance
Particulars Amount ($) Amount ($)
Cost of building 120,000.00
Condo fees 1,800.00
Property taxes 3,000.00
Interest on mortgage (90000 x 9%) 8,100.00
12,900.00
Total cost for CCA purpose 132,900.00
CCA (132900 x 50% x 4%) 2,658.00
The amount of CCA to be deducted for the year 2018 is $2,658.00 as can be seen from the above
calculation (Vaillancourt, Roy & Lammam, 2015).
Note:

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CANADIAN INCOME TAXATION
Capital cost allowance (CCA) is calculated by taking into consideration the value of the building
only in case of rental property. The value of land is not considered for calculation of CCA.
4% CCA on the value of the property after addition of necessary expenditure is allowed.
Accordingly, the calculation of CCA for the year of acquisition in case of rental property is
applicable by considering 50% value of the property. Value of the property for the purpose of
CCA is calculated below.
Particulars Amount
($)
Amount
($)
Cost of building 120,000.
00
Condo fees 1,800
.00
Property taxes 3,000
.00
Interest on mortgage (90000 x 9%) 8,100
.00
12,900.
00
Total cost for CCA purpose 132,900.
00

4
CANADIAN INCOME TAXATION
CCA is (132900 x 50% x 4%) = $2,658.
Part b:
Calculation of net rental income:
Net rental income
Particulars Amount ($) Amount ($)
Annual rent (1200 x 12) 14,400.00
Less:
Condo fees 1,800.00
Property taxes 3,000.00
Interest on mortgage 8,100.00
12,900.00
Net rental income without CCA 1,500.00
The amount of net rental income is $1,500 without deducting CCA as per the calculation
provided in the above table (Dunn, Zwicker & Submitter, 2018).
Part c:
Consequences to Mark’s net income for tax purposes:

5
CANADIAN INCOME TAXATION
Particulars Amount ($) Amount ($)
Sale proceeds 250,000.00
Less:
Cost base:
Land 50,000.00
Building 120,000.00
170,000.00
Capital gain 80,000.00
Add: Net rental income without CCA 1,500.00
Taxable income 78,500.00
Taxable income of Mark for the year 2018 is $78,500 after considering all deductions available
to Mark (Hambly & Lee, 2018).
Answer 3:
Calculation of tax credits available to Martin.
Particulars Amount ($)
Federal personal amount 11,635.00
Percentage of credit 15%

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CANADIAN INCOME TAXATION
Percentage allowed (11635 x 15%) 1,745.25
For each children below 18 @2150 4,300.00
Medical expenses of child aged 16 and below 4,070.00
Medical expenses on himself 2,450.00
Medical expenses on spouse 3,240.00
Total tax credits 15,805.25
The total tax credits is $15,805.25 of Mark as can be seen from the table calculation.
Note:
I. Tax credit of 15% on personal amount of $11,635 is allowed for a tax payer.
II. For each children below 18 years age $2,150 is allowed as tax credit apart from the child care
expenses.
III. Medical expenses of children below the age of 18 are allowed as deduction.
IV. Medical expenses of spouse and one’s own self are allowed as deduction.

7
CANADIAN INCOME TAXATION
Section 2:
Case 1:
Calculation of Jordon’s net income for 2018 for income tax purposes.
Scenario 1
Particulars Amount
($)
Amount
($)
Salary 136,000.
00
Commission 43,000.
00
Performance bonus (22000 x 1/2) 11,000.
00
Concession loan (100000 x 3% x 7/12) 1,750.
00
Automobile benefits (working note 1) 8,980.
00
Food and travelling allowance is taxable (5400 -
3700)
1,700.
00

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CANADIAN INCOME TAXATION
Capital gain (38000 -800) 37,200.
00
Capital gain on shares (62000 - 45000) 17,000.
00
Winning from casion is not taxable -
Gross taxable income 256,630.
00
Less: Deductions
Spouse support (500 x 7) 3,500.
00
Child support (800 x 7) 5,600.
00
9,100.
00
Net taxable income 247,530.
00
As per the above calculation, Jordon’s net income for tax purposes in 2018 is $247,530.00
(Greszler, Dayaratna & Sargent, 2017).
Note:

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CANADIAN INCOME TAXATION
I. Salary is fully taxable.
II. Commissions is fully taxable.
III. Bonus up-to the amount received in a tax year is liable to income tax thus, only half of the
bonus amount shall be taxable.
IV. Interest free loan and concession loan is taxable. Since the rate of interest prescribed is 5%
however, the employer has provided the loan at the rate 2% hence, the differentia rate of
interest shall be taxable.
(100000 x 3% x 7/12) =$1750.
V. Automobile benefits provided in working note.
VI. The excess food allowance provided over expenditure is liable to be taxed, i.e. (5400 – 3700)
= $1700 is taxable allowance.
VII. He capital gain on sale of glass sculpture (39000 -800) = $38200 is taxable capital gain.
VIII. The share of securities given as gift to his wife shall be subjected capital gain tax (62000 –
45000) = $17000. Dividend on same shares will not be taxable in the hands of Jordon as it
has been transferred to his wife.
IX. The child support and spousal support after divorce are allowed as deductions for income tax
purpose.
X. The lottery and winnings from are not liable to be taxed in Canada.
Working note:
Automobil benefits
Stand by charge (42000 x 2% x275/30) 7,700.
00
Operating expenses benefit (8000 x 0.25) 2,000.

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CANADIAN INCOME TAXATION
00
Total benefits of automobile 9,700.
00
Less: Employee reimbursement 720.
00
Automobile benefits 8,980.
00
Case 2:
Net income for tax purpose of Kayla:
Particulars Amount ($) Amount ($)
Salary 250,000.00
Commission 12,000.00
Bonus paid (32000/2) 16,000.00
Gross income 278,000.00
Less: Deductions
Pension plan contribution 7,500.00
El premium 836.00

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CANADIAN INCOME TAXATION
CPP contributions 2,564.00
Child care deduction (11000 +5000) 16,000.00
26,900.00
Net taxable income before standard deduction 251,100.00
Thus, the net income of Kayla is not $210,557 as provided at the beginning of the case rather it is
$251,100.00.
Note:
I. Salary and commission fully taxable.
II. Only the portion of bonus receipt in the year shall be liable to income tax in the year of
receipt.
III. Pension plan contribution, El premium and CPP contributions are allowed as deduction to
compute taxable income.
IV. Disable deduction for child is allowed up-to $11,000 and for child above the age of 7 but
below the age of 16 deduction up-to $5,000 allowed.
Federal tax Amount
($)
Up-to first $46,605 @15% 6,990
.75
Next $46603 @20.5% 9,554