Chapter 7

Question 1

Interest Deduction

Answer 1

for tax, interest should be calculated on a day-to-day basis (on a principal sum)

12(1)(c) provision for the inclusion of interest
20(1)(c) a deduction is available on the interest paid on an amount borrowed
* for the purpose of earning income from business or property
* to purchase property for business purposes
* to acquire an investment contract?
80.5 is a provision for deemed interest
12(4) requires modified accrual method on long-term debt securities on the “anniversary” (one year after the day before the date of issue)

Question 2

Rental Income

Answer 2

the CCA rate applied to buildings must be exclusive of land; to prevent avoidance of recapture on property sales,
Reg. 1101(1ac) required each rental property valued over $50,000 to be placed in its own class, and
Reg. 1100(11) denies CCA from creating or increasing a loss on a rental property asset class,
and there is no pro rata CCA deduction for a short fiscal period

Question 3

Integration

Answer 3

the goal of integration is to ensure that the amount of taxes paid remains the same no matter how cash flows to an individual

Question 4

Divident “Gross Up”

Answer 4

the gross up of dividends addresses the double taxation that happens on earning as they are passed from corporations to individuals in the form of dividends

82(1)(b)(i) non -eligible dividend gross up (*15%)
121(a) non-eligible dividend tax credit for the gross up amount * 9/13

82(1)(a.1) eligible dividend gross up (dividends*38%)
121(b) eligible dividend tax credit for the gross up amount * 6/11

NOTE that dividend tax credits may NOT be carried forward