Test bank for Byrd & Chen's Canadian Tax Principles, (Volume 2) By Gary Donell, Clarence -2023-202

11.1 Online Exercises 1) ITA110.2providesforadeductionof"lump-sum payments",forexampleacourtorderedtermination benefit.Whataxpolicyobjectiveisservedbythisprovision? Answer:Suchlump-sum paymentsoftenreflectcompensationforservicesrenderedoverseveralyears. Thefacthatitisreceivedinasingleyearcanresultinsignificantportionsofitbeingsubjectoincometax rateshigherthanwouldhavebeenthecasehaditbeenreceivedovertheseveralyearsduringwhichitwas earned.Thedeductionofsuchamountsprovidesthebasisforanalternativeincometaxpayable calculationwhichatemptstoadjustheamountpaidtotheamounthatwouldhavebeenpaidifthe amounthadactualybeenreceivedoverseveralyears.Theobjectiveofsuchprovisionsisfairnesor equity. Type:ES Topic:Lump-sum payments-ITA110.2 2) Thecaryoverperiodsforlosesvarieswiththetypeoflos.Brieflydescribethecaryoverperiodsthat theITAprovidesforthetypesoflosesthatitidentifies. Answer:ThecaryoverperiodsforthevarioustypesoflosesidentifiedintheIncomeTaxActand coveredinthetextuptoChapter11areasfolows: •Non-CapitalLosesandFarm Loses(includingrestrictedfarm loses):20yearsforwardand3years back. •NetCapitalLos:Unlimitedforwardand3yearsback •ListedPersonalPropertyLoses:7yearsforwardand3yearsback. •AlowableBusinesInvestmentLoses:10years,asanon-capitalosthenconvertedtonetcapitalos withunlimitedcaryforwardinyear11. •ForeignTaxCredits:10yearsforwardand3yearsback. CoveredinChapter18arelimitedpartnershiploses.Theyhavenocarybackandanunlimitedcary forward,butonlyagainsthepartnershipincometowhichtheyrelate. Type:ES Topic:Loscaryovers-generalconcepts 3) Whenabusineshasseveraltypesofloscaryovers,whyisitnecesarytokeepseparatebalancesfor eachtype? Answer:Therearetworeasonsforhavingtotrackeachtypeofloscaryforwardseparately.First, differentypesofloseshavedifferentcaryoverperiods(e.g.,20yearsforfarm itedfor capitaloses).Second,sometypesoflosescanonlybeap liedagainstheequivalentypeofincome (e.g.,capitalosescanonlybecariedoverandap liedagainstcapitalgains). Type:ES Topic:Loscaryovers-generalconcepts 4) Taxadvisorswilnormalyrecommendthatloscaryoversnotbeusedtoreducetaxableincometonil foranindividual.Whatisthebasisforthisrecommendation? Answer:Thisrecommendationreflectsthefacthatmostpersonaltaxcreditsarenon-refundableand can otbecariedovertootheryears.Thismeansthat,unles anindividualtaxpayerhastaxableincome andfederalincometaxpayable,thevalueofthesecreditsissimplylost.This,ineffect,iswhatwould hap enifvarioustypesofloscaryoverswereusedtoreducetaxableincometonil. Type:ES Topic:Loscaryovers-individual 5) Brieflydescribetheincometaxtreatmentoflosesonlistedpersonalproperty. Answer:Losesonlistedpersonalpropertycanbedeductedduringthecurentyear,butonlyagainstnet gainsonlistedpersonalpropertyfortheyear.Iftheloscan otbeusedduringthecurentyear,itcanbe cariedbackthreeyearsorforwardsevenyears. Type:ES Topic:Loses-listedpersonalproperty 6) Ifataxpayerhasbothnetcapitalandnon-capitalosesanddoesnothavesufficientincomeinthe curentandpreviousyearstoclaim theseamounts,whichtypeoflosshouldbedeductedfirst? Answer:Thereisnoclearcutanswertothisquestion.Netcapitaloseshaveanunlimitedlifebutcan onlybecariedovertotheextentofnetaxablecapitalgainsinthecaryoverperiod. Thiswouldsugesthat,ifnetaxablecapitalgainsarepresentinthecurentyear,theuseofnetcapital losesshouldreceivepriority.Thiswouldbeparticularlytrueifad itionalnetaxablecapitalgainsare notexpectedinfutureyears.Incontrast,non-capitalosescanbedeductedagainstanytypeofincome. However,thedownsidehereisthatheircaryforwardperiodislimitedto20years.Whilenofirm conclusionisavailable,in