Question

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Section B - Multiple Choice

Where a calculation is required, 1 mark will be given for the correct answer and 1 mark for the correct calculation.

Question 8 (2 points)

A business acquires a rental property several years ago for $665,000, with $150,000 of this amount being the estimated value of the land. At the beginning of the current year the UCC for the property is $437,165. During the current year, the property is sold for $900,000, with $285,000 of this amount being allocated to the land. Which of the following statements is correct?

Question 8 options:

	a) The business will have recapture of $77,835 and a capital gain of $135,000.
	b) The business will have recapture of $77,835 and a capital gain of $235,000.
	c) The business will have recapture of $227,835.
	d) The business will have a taxable capital gain of $235,000.

Question 9 (2 points)

Raptors Inc. began operations on October 1 of the current year. It has chosen December 31 as its year end. On November 1 of the current year, the proprietorship purchased furniture and fixtures for $80,000. The maximum capital cost allowance on the furniture and fixtures for the current year ending December 31 will be:

Question 10 (2 points)

Claudette is the proprietor of a home-based business. She paid $30,000 to her administrative assistant, $7,000 to her daughter as her software technician, and $44,000 to herself as salary. How much can she deduct as a business expense on her income tax return?

Question 11 (2 points)

Hector has two residential rental properties that are mortgaged. Both properties are in Class 1 with a CCA rate of 4 percent. At the beginning of the year, Property A has a UCC of $650,000 and Property B has a UCC of $1,350,000. Before consideration of CCA, Property A earned net rental income of $61,000, and Property B had a net rental loss of $49,000. What is the maximum amount of CCA Hector will be able to claim this year?

Question 12 (2 points)

David sold the following assets during the current year:

Item	Sales Price	Cost
Painting	$2500	$800
Coin Collection	$800	$1200
Electric Mower	$700	$250
Antique Chair	$1100	$1700

Which one of the following amounts represents his taxable capital gain, net of allowable capital losses, for tax purposes during the current year?

Answer 1

Question 8:

b) The business will have recapture of $77,835 and a capital gain of $235,000.

Explanation: Land is not included in calculation of CCA as there is no depreciation.

Total Capital Gain: $235,000 ($135,000+ $ 100,000)

Land: $285,000 – $150,000 = $135,000

Building: $615,000 - $ 515,000 = $ 100,000

Recapture: Asset Cost – UCC

Only Building Cost: $665,000 - $ 150,000 = $ 515,000

Recapture: - $515,000 - $437,165 = $77,835

Question 9:

Capital Cost Allowance is a set of rates stating the amount you can claim each year on a depreciable property used for business activities. In the first year, you can only claim based on half the amount you paid. This rule is in place because if you acquired the equipment during the year, there is not a full year of depreciation.

RATE of CCA of Furniture: - 20%

First Year $ 40,000 (half of $80,000) x 20% = $8,000 expense claim. This leaves a value of $ 72,000 ( $ 80,000 – 8,000) next year.

Question 10:

Calculation of business Expense:

Admistration Salary: $30,000

Software Technician: $ 7,000

Salary: $ 44,000

Total Business Expense: $ 81,000

Question 11:

Property A:

UCC - $650,000

Rental Income: $61,000

Property B:

UCC- $1,350,000

Rental Loss: $49,000

Explanation: You own two rental properties. The net income for one property is $61,000, while the other property yielded a loss of $49,000. This means you suffered a loss of $12,000. Because you cannot increase your net rental loss by claiming CCA, you cannot claim any CCA on your rental Property.

Question 12:

Total Capital Gain: $ 1150

Painting: $ 1700 ( $2500 - $800)

Electric Mower: $ 450 ($700 - $250)

Less: Coin Collection: $ 400 ($800 - $1200)

            Antique Chair: $ 600 ($1100 - $1700)

Total: $1150