Question

The controller of Mesd Pipes Ltd. is completing the preparation of the corporation's 2020 tax return but is uncertain about the tex treatment of the following eight expense items: 1. Finder's fee to obtain a mortgage on the company's buildings $6,000 2. Property taxes on the company's new fishing lodge, which is used by employees 1,200 3. Interest for late payment of municipal property taxes for the warehouse 600 4. Brokers' fees for the purchase of publicly traded shares 1,400 5. Permanent landscaping of land around the head office buildings 4,800 6. Cost of investigating o site for a proposed warehouse, when the site was 2,000 rejected 7. Hockey tickets to entertain customers 1,800 8. Reserve for the possible costs for guarantees of products sold in the year 900 Required: Determine the amount by which the preceding items will reduce the net income for tax purposes of Mesd Pipes Ltdl. for 2020. Indicate expenses with a minus sign. If on item is totally excluded from your calculation, type 0. 1. Finder's fee - mortgage 2. Property taxes - fishing lodge 3. Interest for late payment of municipal property taxes 4. Brokers' fees for shares 5. Landscaping 6. Cost of site investigation 7. Entertainment expense 8. Reserve for product guarantees

Answer 1

+ 1 2 3 3 4 Finder's fee - mortgage (Note 1) Property taxes – fishing lodge (Note 2) Interest for late payment of municipal property taxes (Note 3) Brokers' fees for shares (Note 4) Landscaping (Note 5) Cost of site investigation (Note 6) Entertainment expense (Note 7) Reserve for product guarantees (Note 8) $1,200 0 $600 o $4,800 $2,000 $900 0 5 5 6 7 8 Notes: 1) This is on account of capital but it is specifically deductible at 1/5 per year as cost of borrowing [ITA 20(1)(e)] 2) Specifically denied as a deduction [ITA 18(1)(0) 3) Interest is specifically allowed on items used to earn income [ITA 20(1)(c)]. The property taxes are deductible and so is the interest. 4) Broker's fee - is a capital item and thus not deductible [ITA 18(1)(b)]. It is added to the cost of the shares. 5) Although this is a capital item, it is specifically allowed as a deduction in the year paid [ITA 20(1)(aa)] 6) This also is a capital item but is allowed as a deduction in the year paid [ITA 20(1)(dd)] 7) Deductible as a promotion expense but is limited to 50% of $1,800 [ITA 67.1] 8) Denied by the general rule that reserves are not permitted [ITA 18(1)(e)]. No exception is provided for this specific type of reserve.