Question

Assignment Problem One - 12

(Net Income For Tax Purposes - Two Cases)

The following two Cases make different assumptions with respect to the amounts of income and deductions for the current year for Christina Szabo, a Canadian resident.

Case A Christina had employment income of $46,200, as well as income from an unincorporated business of $13,500. A rental property owned by Christina experienced    a net loss of $2,350. Dispositions of capital property during the current year had the following results:

Taxable Capital Gains                                                            $14,320

Allowable Capital Losses                                                       23,460

Christina paid deductible spousal support of $4,800 during the current year. While gambling was an unusual pastime for Christina, a recent trip to Las Vega resulted in roulette winnings of $123,000. The expenses of the trip were $8,450.

Case B Christina had employment income of $64,000, interest income of $2,600, and   net rental income of $4,560. Christina had a 50 percent interest in a partnership. During the current year the partnership had a business loss of $144,940. Dispositions of capital property during the current year had the following results:

Taxable Capital Gains                                                           $32,420

Allowable Capital Losses                                                       29,375

Deductible contributions of $12,480 were made to Christina’s RRSP.

Required: For both Cases, calculate Christina’s Net Income For Tax Purposes (Division B income). Indicate the amount and type of any loss carry overs that would be available at the end of the current year.

Answer 1

      Calculation of Net Income (Division B income)

Case A

I) ITA 3a Income from employment, business and House property and other sources

Income from employment $ 46200

Income from business 13500

   $ 59,700

2) ITA 3b Net taxable capital gain

Taxable capital gain $ 14,320

Allowable capital loss 23,460 Nil

59,700

3) ITA3(c)

Less: Deductable spousal support 4,800   

$54,900

4) ITA3(d) Deduct losses incurred in the year

Property Loss $2,350

   Net income for tax purpose         $ 52,550

(Division B income)

Roulette winnings excluded from calculation of Division B Income. Because tax deducted from the amount.

Case B

I) ITA 3a Income from employment, business and House property and other sources

Income from employment   $ 64,000

Income from Property     4560

Interest Income 2,600   $ 71,160

2) ITA 3b Net taxable capital gain

Taxable capital gain $ 32,420

Allowable capital loss 29,375 3045

-------------

$ 74,205

3) ITA3(c)

Less: Deductable contribution to RRSP 12,480

$ 61,725

4) ITA3(d) Deduct losses incurred in the year

Business Loss ( 144,940*50/100) $ 72470

- $ 10,475 Net income for tax purpose $ 0

  If the total amount is negative, then Net income for Tax Purposes (Division B income) is $0, and the difference becomes a non-capital loss that can be deducted from net income for tax purposes in other taxation years.