AFM202 Chapter Notes - Chapter 4: Net Income, Foula, Capital Loss

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cyanbat359

16 Oct 2016

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM202

Professor

Linda Robinson

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Document Summary

Income from business or property is considered together with other sources of income (such as employment income) when computing ta(cid:454)pa(cid:455)e(cid:396)"s (cid:374)et i(cid:374)(cid:272)o(cid:373)e. Losses from business and property will be netted against income from other sources. Can be carried forward 20 years: can also be carried back, which will result taxpayer receiving refund from government (if there is taxable income in past) Generally better to carry back as far as possible so you receive money now: thus, best to claim maximum cca and all deductions to get most non-capital loss possible. Taxable income is after additional deductions (such as loss carryovers) which are subtracted from net income to obtain taxable income. When taxpayer disposes capital property, capital gain/loss will likely result. Any property that if disposed of for a gain or loss would result in capital gain or loss (ex. If taxpayer sells capital asset for more than its adjusted cost base (acb), capital gain will result.

Related Questions

The following cases makes different assumptions with respect tothe amounts of income and deductions of Mr. Michel Daigle for thecurrent taxation year under the various subdivisions of Division Bof the Income Tax, and the last two previous yearsâ taxespayable:

Case 2-A

Employment Income	$35,000
Income (Loss) From Business	(10,000)
Income From Property	12,000
Taxable Capital Gains	42,000
Allowable Capital Losses	(18,000)
Subdivision E Deductions (Spousal Support)	(4,000)

Taxable Income Previous Years:

2016: $10,000

2017: nil

Case 2-B

Employment Income	$33,000
Income (Loss) From Business	(39,000)
Income From Property	14,000
Taxable Capital Gains	36,000
Allowable Capital Losses	(42,000)
Subdivision E Deductions (Spousal Support)	(7,000)

Taxable Income Previous Years:

2016: $10,000

2017: $8,000

Required: For Both cases, calculate Mr.Daigleâs Net Income for tax purposes, indicate any possible losscarryovers from the current year, taxes payable for current year,and calculate require installment payment for current year.

(assume Federal rate of 15% and Provincial Rate of 7%)

burgundybat217

Problem 17-37 (LO. 2)

During 2017, Gorilla Corporation has net short-term capitalgains of $15,000, net long-term capital losses of $105,000, andtaxable income from other sources of $460,000. Prior years'transactions included the following:

2013 net short-term capital gains	$40,000
2014 net long-term capital gains	18,000
2015 net short-term capital gains	25,000
2016 net long-term capital gains	20,000

If an amount is zero, enter "0".

a. How much is Gorilla's net capital loss for2017?
$

What is the amount of the capital loss deduction on Gorilla's2017 tax return?
$

Any excess net capital loss is carried back or forward as a.

b. Of the excess 2017 net capital loss, howmuch is carried back to the previous years?
$

c. Compute the amount of capital loss carryoverto 2018 and future years.
$

Indicate the years to which the loss may be carried. Select"Yes" or "No", which ever is appropriate.

2018
2019
2020
2021
2022

d. If Gorilla is a sole proprietorship, ratherthan a corporation, how would the owner report these transactionson her 2017 tax return?

Gorilla offsets $ of capital gains against her losses and anadditional $ in capital . The remaining $ is .

e. Assume that Gorilla Corporationâs capitalloss carryfoward in part (c) is $27,000 and that Gorilla will beable to use $11,000 of the carryover to offset capital gains in2018 and the remaining $16,000 to offset capital gains in 2019.

Assume the following:

A discount rate of 5%.

Present value factors - 1.000 for 2014-2016; 0.952 for 2018 and0.907 for 2020.

Gorilla Corporationâs marginal income tax rate is 34% for alltax years.

Round your computations to the nearest dollar.

In present value terms, determine the tax savings of the$105,000 long-term capital loss recognized in 2017.
$

Maxitech is a Canadian company. It has always used a December 31 year end. On January 1, 2016, the company had the following carry forward balances:

- Net Capital Losses 75,600

- Non-Capital Losses 51,400

- Unused Charitable Donations 4,600

During the 2016 taxation year, Maxitech's records show the following results (all amounts are based on the relevant tax rules):

- Net Business Loss 142,000

- Taxable Capital Gains 21,400

- Allowable Capital Losses 6,500

- Charitable Donations 3,200

- Dividends from Taxable Canadian Corporations 30,400

Required: Calculate the Corporation's minimum net income for tax purposes and taxable income for it's 2016 taxation year. Indicate any balances available for carry forward to subsequent years under each of the following assumptions:

A. It is the policy of the company to minimize net capital loss balances prior to using any other type of carry over balance.

B. It is the policy of the company to minimize non-capital losses prior to using any other type of carry over balance.

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AFM202 Chapter Notes - Chapter 4: Net Income, Foula, Capital Loss

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