## 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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