Finance- Tax Exam
Solution to Assignment Problem One - 12
Case One
The Case One solution would be calculated as follows:
Income Under ITA 3(a):
Net Employment Income $62,350
Income Under ITA 3(b):
Taxable Capital Gains
[(1/2)($97,650)] $48,825
Allowable Capital Losses
[(1/2)($5,430)] ( 2,715) 46,110
Balance From ITA 3(a) And (b) $108,460
Subdivision e Deduction:
Deductible RRSP Contribution ( 4,560)
Balance From ITA 3(c) $103,900
Deduction Under ITA 3(d):
Net Business Loss ( 115,600)
Net Income For Tax Purposes (Division B Income) Nil
In this Case, Karla has an unused business loss carry over of $11,700 ($103,900 - $115,600).
Case Two
The Case Two solution would be calculated as follows:
Income Under ITA 3(a):
Net Employment Income $45,600
Net Business Income 27,310 $72,910
Income Under ITA 3(b):
Taxable Capital Gains
[(1/2)($31,620)] $15,810
Allowable Capital Losses
[(1/2)($41,650)] ( 20,825) Nil
Balance From ITA 3(a) And (b) $72,910
Subdivision e Deduction:
Spousal Support Payments [(12)($600)] ( 7,200)
Balance From ITA 3(c) $65,710
Deduction Under ITA 3(d):
Net Rental Loss ( 4,600)
Net Income For Tax Purposes (Division B Income) $61,110
In this Case, Karla has an unused allowable capital loss carry over of $5,015 ($20,825 - $15,810). As Karla’s gambling activity does not appear to be substantial enough to be considered a business, the $46,000 in winnings would not be taxable.