Question

The controller of Mead Pipes Ltd. is completing the preparation of the corporation’s 2019 tax return but is uncertain about the tax treatment of the following eight expense items:
  

1. Finder’s fee to obtain a mortgage on the company’s buildings	$6,600
2. Property taxes on the company’s new fishing lodge, which is used by employees	1,300
3. Interest for late payment of municipal property taxes for the warehouse	700
4. Brokers’ fees for the purchase of publicly traded shares	1,500
5. Permanent landscaping of land around the head office buildings	5,300
6. Cost of investigating a site for a proposed warehouse, when the site was rejected	2,200
7. Hockey tickets to entertain customers	2,000
8. Reserve for the possible costs for guarantees of products sold in the year	1,000

Required:

Determine the amount by which the preceding items will reduce the net income for tax purposes of Mead Pipes Ltd. for 2019. Indicate expenses with a minus sign. If an item is totally excluded from your calculation, type 0.

Answer 1

1. Finder’s fee to obtain a mortgage on the company’s buildings	($1,320)
2. Property taxes on the company’s new fishing lodge, which is used by employees	0
3. Interest for late payment of municipal property taxes for the warehouse	-700
4. Brokers’ fees for the purchase of publicly traded shares	0
5. Permanent landscaping of land around the head office buildings	-5,300
6. Cost of investigating a site for a proposed warehouse, when the site was rejected	-2,200
7. Hockey tickets to entertain customers	-1,000
8. Reserve for the possible costs for guarantees of products sold in the year	0
Total	($10,520)

The items will reduce net income for tax purposes by:
Finder's fee: (it is  deductible at 1/5 per year as a cost of borrowing)[ITA 20(1)(e)]  (6600 x 1/5)	$1,320
Interest on late property taxes: [ITA 20(1)(c)]	700
Permanent landscaping:(it is allowed as a deduction in the year paid [ITA (20(1)(aa)]	5,300
Investigation of site: It is allowed as a deduction in the year paid [ITA 20(1)(dd)].	2,200
Hockey tickets: Deductible as a promotion expense but is limited to 50% of $2000 [ITA 67.1]	1000
Total	$10,520
The following items were excluded:
Property taxes on fishing lodge-specifically denied as a deduction [ITA18(1)(l)]
Broker's fee -is not deductible [ITA18(1)(b)].It is added to the cost of the shares.
Reserve for product guarantees reserves are not permitted [ITA 18(1)(e)]