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Byrd and Chens Canadian Tax Principles 2016-2017 Edition Solution

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  • ISBN-10 ‏ : ‎ 0134568397
  • ISBN-13 ‏ : ‎ 978-0134568393

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Byrd and Chens Canadian Tax Principles 2016-2017 Edition Solution

Canadian Tax Principles 2016 / 2017
Solutions Manual – Chapters 11 to 21

Solutions Manual Table of Contents – Chapters 11 to 21
For a listing of the subjects covered and difficulty of each Assignment Problem, please refer to the .PDF version of the Solutions Manual that is available at the Instructor’s Resource Centre on the online catalogue listing for this book, at

catalogue.pearsoned.ca

The table of contents is hyperlinked to the beginning of each Problem Solution. To go to a Solution, hold down the Control key and click on the solution listing. Control + Home will bring you back to this table of contents from anywhere in the document.

CHAPTER ELEVEN SOLUTIONS 227
Solution to Assignment Problem Eleven – 1 227
Solution to Assignment Problem Eleven – 2 230
Solution to Assignment Problem Eleven – 3 232
Solution to Assignment Problem Eleven – 4 234
Solution to Assignment Problem Eleven – 5 237
Solution to Assignment Problem Eleven – 6 239
Solution to Assignment Problem Eleven – 7 242
Solution to Assignment Problem Eleven – 8 247
Solution to Assignment Problem Eleven – 9 253
Solution to Assignment Problem Eleven – 10 256
Solution to Problem Tax Software Eleven – 1 261
Solution to Problem Tax Software Eleven – 2 263
Solution to Problem Tax Software Eleven – 3 265
CHAPTER TWELVE SOLUTIONS 274
Solution to Assignment Problem Twelve – 1 274
Solution to Assignment Problem Twelve – 2 275
Solution to Assignment Problem Twelve – 3 276
Solution to Assignment Problem Twelve – 4 278
Solution to Assignment Problem Twelve – 5 281
Solution to Assignment Problem Twelve – 6 284
Solution to Assignment Problem Twelve – 7 287
Solution to Assignment Problem Twelve – 8 288
Solution to Assignment Problem Twelve – 9 289
Solution to Assignment Problem Twelve – 10 291
CHAPTER THIRTEEN SOLUTIONS 295
Solution to Assignment Problem Thirteen – 1 295
Solution to Assignment Problem Thirteen – 2 296
Solution to Assignment Problem Thirteen – 3 297
Solution to Assignment Problem Thirteen – 4 300
Solution to Assignment Problem Thirteen – 5 305
Solution to Assignment Problem Thirteen – 6 308
Solution to Assignment Problem Thirteen – 7 314
Solution to Assignment Problem Thirteen – 8 319
CHAPTER FOURTEEN SOLUTIONS 327
Solution to Assignment Problem Fourteen – 1 327
Solution to Assignment Problem Fourteen – 2 329
Solution to Assignment Problem Fourteen – 3 332
Solution to Assignment Problem Fourteen – 4 333
Solution to Assignment Problem Fourteen – 5 334
Solution to Assignment Problem Fourteen – 6 336
Solution to Assignment Problem Fourteen – 7 337
Solution to Assignment Problem Fourteen – 8 339
Solution to Problem For Tax Software Chapter 14 347
CHAPTER FIFTEEN SOLUTIONS 348
Solution to Assignment Problem Fifteen – 1 348
Solution to Assignment Problem Fifteen – 2 349
Solution to Assignment Problem Fifteen – 3 351
Solution to Assignment Problem Fifteen – 4 352
Solution to Assignment Problem Fifteen – 5 353
Solution to Assignment Problem Fifteen – 6 356
Solution to Assignment Problem Fifteen – 7 359
Solution to Assignment Problem Fifteen – 8 361
Solution to Assignment Problem Fifteen – 9 363
Solution to Assignment Problem Fifteen – 10 364
CHAPTER SIXTEEN SOLUTIONS 366
Solution to Assignment Problem Sixteen – 1 366
Solution to Assignment Problem Sixteen – 2 367
Solution to Assignment Problem Sixteen – 3 369
Solution to Assignment Problem Sixteen – 4 371
Solution to Assignment Problem Sixteen – 5 373
Solution to Assignment Problem Sixteen – 6 376
Solution to Assignment Problem Sixteen – 7 378
Solution to Assignment Problem Sixteen – 8 380
Solution to Assignment Problem Sixteen – 9 383
Solution to Assignment Problem Sixteen – 10 385
Solution to Assignment Problem Sixteen – 11 388
Solution to Assignment Problem Sixteen – 12 391
Solution to Assignment Problem Sixteen – 13 393
CHAPTER SEVENTEEN SOLUTIONS 394
Solution to Assignment Problem Seventeen – 1 394
Solution to Assignment Problem Seventeen – 2 396
Solution to Assignment Problem Seventeen – 3 398
Solution to Assignment Problem Seventeen – 4 401
Solution to Assignment Problem Seventeen – 5 405
Solution to Assignment Problem Seventeen – 6 406
Solution to Assignment Problem Seventeen – 7 407
Solution to Assignment Problem Seventeen – 8 409
Solution to Assignment Problem Seventeen – 9 412
CHAPTER EIGHTEEN SOLUTIONS 416
Solution to Assignment Problem Eighteen – 1 416
Solution to Assignment Problem Eighteen – 2 417
Solution to Assignment Problem Eighteen – 3 418
Solution to Assignment Problem Eighteen – 4 420
Solution to Assignment Problem Eighteen – 5 421
Solution to Assignment Problem Eighteen – 6 422
Solution to Assignment Problem Eighteen – 7 424
Solution to Assignment Problem Eighteen – 8 425
Solution to Assignment Problem Eighteen – 9 427
Solution to Assignment Problem Eighteen – 10 428
CHAPTER NINETEEN SOLUTIONS 429
Solution to Assignment Problem Nineteen – 1 429
Solution to Assignment Problem Nineteen – 2 431
Solution to Assignment Problem Nineteen – 3 432
Solution to Assignment Problem Nineteen – 4 433
Solution to Assignment Problem Nineteen – 5 435
Solution to Assignment Problem Nineteen – 6 436
Solution to Assignment Problem Nineteen – 7 438
Solution to Assignment Problem Nineteen – 8 439
Solution to Assignment Problem Nineteen – 9 440
CHAPTER TWENTY SOLUTIONS 442
Solution to Assignment Problem Twenty – 1 442
Solution to Assignment Problem Twenty – 2 443
Solution to Assignment Problem Twenty – 3 445
Solution to Assignment Problem Twenty – 4 446
Solution to Assignment Problem Twenty – 5 447
Solution to Assignment Problem Twenty – 6 448
Solution to Assignment Problem Twenty – 7 449
Solution to Assignment Problem Twenty – 8 450
Solution to Assignment Problem Twenty – 9 451
Solution to Assignment Problem Twenty – 10 453
Solution to Assignment Problem Twenty – 11 455
Solution to Assignment Problem Twenty – 12 456
Solution to Assignment Problem Twenty – 13 457
Solution to Assignment Problem Twenty – 14 459
Solution to Assignment Problem Twenty – 15 462
CHAPTER TWENTY-ONE SOLUTIONS 464
Solution to Assignment Problem Twenty-One – 1 464
Solution to Assignment Problem Twenty-One – 2 465
Solution to Assignment Problem Twenty-One – 3 466
Solution to Assignment Problem Twenty-One – 4 467
Solution to Assignment Problem Twenty-One – 5 468
Solution to Assignment Problem Twenty-One – 6 469
Solution to Assignment Problem Twenty-One – 7 471
Solution to Assignment Problem Twenty-One – 8 472
Solution to Assignment Problem Twenty-One – 9 473
Solution to Assignment Problem Twenty-One – 10 474
Solution to Assignment Problem Twenty-One – 11 475

 

 

 

 

CHAPTER ELEVEN SOLUTIONS
Solution to Assignment Problem Eleven – 1
2013 Analysis
The required information can be calculated as follows:

ITA 3(a)
Business Income $19,800
Taxable Dividends [(138%)($1,870)] 2,581 $22,381
ITA 3(b)
Taxable Capital Gains [(1/2)($1,320)] $ 660
Allowable Capital Losses [(1/2)($4,620)] ( 2,310) Nil
ITA 3(c) $22,381
ITA 3(d)
Farm Loss (See Note) ( 6,750)
Net Income For Tax Purposes And Taxable Income $15,631

Note Dale’s farm losses are restricted as follows:

Total Farm Loss $11,000
Deductible Amount:
First $2,500 ($2,500)
One-Half Of $8,500 ($11,000 – $2,500) ( 4,250) ( 6,750)
Restricted Farm Loss Carry Forward $ 4,250

As noted in the problem, none of the losses can be carried back before 2013. This would leave the following carry forward balances at the end of 2013:

• Restricted Farm Loss Carry Forward $4,250
• Net Capital Loss Carry Forward ($2,310 – $660) $1,650

 

2014 Analysis
The required information can be calculated as follows:

ITA 3(a)
Farm Income $ 2,200
Taxable Dividends [(138%)($2,351)] 3,244 $ 5,444
ITA 3(b)
Taxable Capital Gains [(1/2)($2,200)] $ 1,100
Allowable Capital Losses Nil 1,100
ITA 3(c) $ 6,544
ITA 3(d)
Business Loss ( 15,400)
Net Income For Tax Purposes Nil
2013 Net Capital Loss Carry Forward ($ 1,100)
Taxable Income (Loss) Nil

Since there are taxable capital gains this year, and the problem states that Dale would like to deduct the maximum amount of his net capital loss carry forwards, the net capital loss carry forward of $1,100 is added to the balance of the non-capital loss.
The non-capital loss carry over is calculated as follows:

Business Loss $15,400
2013 Net Capital Loss Deducted 1,100
ITA 3(c) Income ( 6,544)
Non-Capital Loss Carry Over For 2014 $ 9,956

The entire non-capital loss carry over could be carried back to 2013, but since Dale requires $15,400 in Taxable Income to fully utilize his tax credits, the maximum carry back to 2013 is $231, calculated as follows:

2013 Taxable Income (As Reported) $15,631
Non-Capital Loss Carry Back From 2014 ( 231)
2013 Amended Taxable Income (Minimum) $15,400

This carry back leaves Dale with his required $15,400 in Taxable Income. There would be the following carry forward balances at the end of 2014:

• Restricted Farm Loss Carry Forward (Unchanged) $4,250
• Net Capital Loss Carry Forward ($1,650 – $1,100)] $ 550
• Non-Capital Loss Carry Forward ($9,956 – $231) $9,725

2015 Analysis
The required information can be calculated as follows:

ITA 3(a)
Business Income $33,000
Farm Income 3,465
Taxable Dividends [(138%)($3,160)] 4,361 $40,826
ITA 3(b)
Taxable Capital Gains [(1/2)($4,400)] $2,200
Allowable Capital Losses Nil 2,200
Net Income For Tax Purposes $43,026
Restricted Farm Loss Carry Forward (Equal To Farm Income) ( 3,465)
Net Capital Loss Carry Forward (Less Than $2,200) ( 550)
Non-Capital Loss Carry Forward (All) ( 9,725)
Taxable Income $29,286

There would be the following carry forward balance at the end of 2015:

• Restricted Farm Loss Carry Forward ($4,250 – $3,465) $ 785

2016 Analysis
The required information can be calculated as follows:

ITA 3(a)
Taxable Dividends [(138%)($5,140)] $ 7,093
ITA 3(b)
Taxable Capital Gains [(1/2)($4,950)] $ 2,475
Allowable Capital Losses [(1/2)($15,950)] ( 7,975) Nil
ITA 3(c) $ 7,093
ITA 3(d)
Business Loss ($20,900)
Farm Loss ( 2,200) ( 23,100)
Net Income For Tax Purposes And Taxable Income Nil

The available non-capital loss can be calculated as follows:

Business Loss $20,900
Farm Loss (Unrestricted) 2,200 $23,100
ITA 3(c) Income ( 7,093)
Non-Capital Loss Carry Over For 2016 $16,007

Although technically, the farm loss is accounted for separately from the non-capital loss, since the farm loss is less than $2,500 it is treated as an unrestricted farm loss and can be applied against all types of income. ITA 31 states that any loss allowed under that provision is considered an unrestricted loss from a farming business for the year for the purposes of calculating the non-capital loss carryover. As a result, the preceding loss carry over of $16,007 is available for carry back to 2015 to be applied against any type of income.
With respect to the net capital loss of $5,500 ($7,975 – $2,475), there are $1,650 ($2,200 – $550) in taxable capital gains left in 2015 as the basis for a carry back. This means that $1,650 of the 2016 net capital loss can be carried back, leaving $3,850 ($5,500 – $1,650) to be carried forward as a net capital loss balance.
If both the $16,007 non-capital loss and the $1,650 net capital loss were carried back to 2015, the result would be a Taxable Income of $11,629 ($29,286 – $16,007 – $1,650), less than the $15,400 that is required to fully utilize Dale’s available tax credits. As the net capital loss can only be deducted to the extent of taxable capital gains, it would be advisable to claim the full amount of this loss carry back. Based on this view, the non-capital loss deduction will be limited to $12,236 ($29,286 – $15,400 – $1,650), an amount that will provide for full use of Dale’s 2015 tax credits:

2015 Taxable Income (As Reported) $29,286
Non-Capital Loss Carry Back From 2016 ( 12,236)
Net Capital Loss Carry Back From 2016 ( 1,650)
2015 Amended Taxable Income $15,400

These carry backs leave Dale with his required $15,400 in 2015 Taxable Income. There would be the following carry forward balances at the end of 2016:

• Restricted Farm Loss Carry Forward (Unchanged) $ 785
• Net Capital Loss Carry Forward ($5,500 – $1,650)] $3,850
• Non-Capital Loss Carry Forward (Nil + $16,007 – $12,236) $3,771

 

Solution to Assignment Problem Eleven – 2
Before consideration of any carry backs, Lucinda would have 2015 Taxable Income as follows:

Net Rental Income $ 91,450
Interest Income 38,275
Taxable Capital Gains 17,300
Net Income For Tax Purposes And Taxable Income $147,025

The loss on Recovery Inc. is a Business Investment Loss (BIL) However, because of her use of the lifetime capital gains deduction in 2014, $156,000 of this amount would be disallowed. Given this, the available Allowable Business Investment Loss (ABIL) would be calculated as follows:

Total Loss $675,000
Disallowed By Lifetime Capital Gains Deduction Use ( 156,000)
Balance $519,000
Inclusion Rate 1/2
Allowable Business Investment Loss (ABIL) $259,500

Using this value, Lucinda’s 2016 Taxable Income is calculated as follows:

Income Under ITA 3(a)
Net Rental Income $86,300
Interest Income 27,438 $113,738

Income Under ITA 3(b)
Taxable Capital Gains $18,620
Allowable Capital Loss (Disallowed ABIL)
[(1/2)($156,000)] (Note 1) ( 78,000) Nil
Balance Under ITA 3(c) $113,738

Deduction Under ITA 3(d)
ABIL (Note 2) ( 259,500)
Net Income For Tax Purposes And Taxable Income Nil

Note 1 As the $156,000 disallowed BIL becomes an ordinary capital loss, it must be deducted against the 2016 capital gain. This leaves a net capital loss carry over of $59,380 ($78,000 – $18,620) of which $17,300 can be carried back to 2015.

Note 2 As the ABIL was realized in 2016, it must be used to reduce that year’s income to Nil. Note that, because of this rule, Lucinda cannot deduct a smaller amount in order to have sufficient income to absorb her basic personal tax credit. After this deduction, a carry over of $145,762 ($259,500 – $113,738) remains.

The amount that should be carried back is calculated as follows:

2015 Net Income For Tax Purposes (As Originally Calculated) $147,025
Net Capital Loss Carried Back ( 17,300)
Optimum Taxable Income = 2015 Basic Personal Amount ( 11,327)
Non-Capital Loss Carried Back ($118,398)

As planned, these deductions would leave a Taxable Income of $11,327 ($147,025 – $17,300 – $118,398). The taxes on this amount will be eliminated by Lucinda’s basic personal credit. Since there was no 2014 Tax Payable, there would be no carry back to that year. The following carry forwards remain after the carry back amounts are deducted:

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