Canadian Income Tax System Integration Case Study

Studocu is not sponsored or endorsed by any college or university MCs - Case study material Auditing II (George Brown College) Studocu is not sponsored or endorsed by any college or university MCs - Case study material Auditing II (George Brown College) 1. When an individual has significant income from operating a business(assume$150,000), the primaryreason(s)to incorporate are________. both legal benefits and tax benefits 2.When making the decision to incorporate, the additonal administratve costs of incorporaton ________. are ongoing costs and need to be carefully considered in the decision making process 3. ConsiderArt,an individual who operates as a proprietor. Art earns$450,000annually as a proprietor and is the only earner in his family of 4. His wife does not work and hischildren, Anna andSteven,are 18&20 years old and attending school. Which course of action would result in the largest overall tax savings while maintaining the same$450,000ofincome? Incorporate the business and pay each person withinArt'sfamily a reasonable salary. 4. The concept of"bonusingdown" involves________. paying additional bonuses to theowner-managerof the corporation to reduce acompany's taxable income to the amount eligible for the small business deduction 5.MKJ Company is 80% owned by David. On January 1 of the current year, MKJ makes a loan of $54,000to David. The loan carries an interest rate of 3%. The prescribed rate of interest at the tme of the loan is 5%. The loan requires that David make annual payments of $21,600, startng in the following taxaton year, untl the balance is repaid. How much will David recognize in Net Income for Tax purposes related to the loan in the current year? $54,000 6.The Small Business Deducton results in lower income tax rates for actve business earned in a small business corporaton (SBC). Tax deferral means theafter-taxincome retained in the SBC is not subject to tax until distributed to the shareholders. 7. XYZ Ltd. is a small business corporation and Mr. X is its sole shareholder. In which of the following situations would ITA15(1)apply? XYZ Ltd. pays for the purchase of a sailboat,used by Mr. X when he takes a break from his demanding work in the corporation. 8. The general rule of ITA15(2)is the full amount of a loan made to a shareholder is included in theshareholder'sincome.However,ITA15(2)includes several exceptions. Which of the following is NOT included as anexception? A loan made to a shareholder for personalpurposes,which is to be repaid in full in 3 years for the date of issue 9. ABC Ltd. made a$100,000loan to its sole shareholder on July 1 of the current year. The loan proceeds are used to purchase a dwelling for the shareholder. The loan is aninterest-free loan, to be repaid in annual instalments over the next ten years. Canada RevenueAgency's prescribed interest rate for the current year is2%.The imputed interest on the shareholder loan that is taxable to the shareholder in the current year is $1,000 10. Owner-managerremuneration to a shareholder often includes salaries and dividends. Which of the following is NOT a reason for including salaries in the remuneration of ashareholder? Salaries are always subject to lower tax rates than dividends.