Finance- Tax Exam

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.