mc tax questions

Multiple Choice QuestionsQuestion MC 1 (43 minutes) [Chapters 2 to 8]Determine the single most appropriate response to the following questions.

1) Carla lives in Detroit, Michigan, USA. She commutes daily to Windsor, Ontario, Canada, where she is employed by Ford Motor Company of Canada Limited. She works 9 am to 5 pm. Monday through Friday. Which one of the following best indicates Carla’s residency status for Canadian income tax purposes for 2008?

(a) A full-time resident(b) A part-year resident(c) A non-resident(d) A deemed resident (sojourner)

2) ABC Inc. provides Ginger Kelly with a company car. The car is leased for $500/month (including GST & PST and excluding insurance) and was made available to her for 8 months. ABC pays all of the operating costs which amounted to $3,500 in 2008. Ginger drove 13,000 kilometres in 2008 of which 8,000 were for business. What is the minimum taxable benefit that Ginger must include on her 2008 personal tax return?

(a) $2,200 rounded (b) $1,500 rounded (c) $3,517 rounded (d) $4,850 rounded

3) Which of the following is a taxable benefit?

(a) A cash Christmas gift to an employee from the employer valued at $450(b) Payment of the tuition for an employee completing a degree that will benefit the

employer(c) A 20% discount on the employer’s merchandise, available to all employees.(d) Subsidized meals offered to all employees of the company assuming the price is

approximately equal to the cost.

4) Scott Bicycle Manufacturing Ltd. is a CCPC. Brian Mills, one of the employees, was granted a stock option on October 11, 2000 for 10,000 shares at $3 per share. Brian exercised the stock option on September 30, 2003 when the market price was $6 per share. In February 2008, Brian purchased a new home and sold the shares for $7 each. The fair market value on October 11, 2000 was $4. What is the effect of the above on Brian’s income for tax purposes, assuming Brian wants to minimize taxes?

(a) $15,000 in 2003(b) $15,000 in 2008(c) $30,000 in 2003(d) $35,000 in 2008

5) Theresa Gain presents the following information with her 2008 tax return:

Capital Gains:Shares $1,500Personal-use property 750Listed personal property 600

Capital losses:Shares $820Personal use property 1,100

Listed personal property 240 Listed personal property losses of prior years 105

Net capital losses from 2006 310

What is the minimum taxable capital gain (rounded to the nearest dollar) to be reported on Theresa’s tax return?

(a) $468(b) $843(c) $1,264(d) $1,000

6) Sunny River purchased an unlimited life franchise (arm’s length transaction) at a cost of $100,000 during 2008. The maximum tax deduction related to the franchise for the taxation year ending December 31, 2008 is:

(a) $2,275(b) $10,000(c) $4,550(d) $5,250

7) On June 1, 2008 Beta Ltd, purchased a franchise for $91,000. The franchise has a limited life of 13 years. Which one of the following amounts represents the maximum amount of capital cost allowance that Beta can deduct for its year ended July 31, 2008?

(a) $4,778(b) $7,000(c) $3,500(d) $1,170

8) Lambda sold a capital property on October 31, 2008 for $200,000 with a cash down payment of $15,000. The balance of $185,000 is payable on October 31, 2012. The adjusted cost base of the property was $115,000 and the selling costs were $7,000. Which one of the following amounts represents the minimum taxable capital gain (rounded to the nearest dollar) in 2008?

(a) $39,000(b) $5,850(c) $7,800(d) $15,600

9) ABC Ltd. is a manufacturer with a December 31 year end. On January 1, 2008, the undepreciated capital cost for class 10.1 was $22,950. The Class 10.1 car was purchased in 2006 for $34,000. During 2008, it was sold for $21,000. A new automobile was purchased for $36,160, which included PST of $2,560 and GST of $1,600. ABC Ltd. is registered to collect and remit GST. What is the maximum CCA allowed combined (rounded to the nearest dollar) for the two cars for 2008?

(a) $8,327(b) $5,175(c) $8,303(d) $3,443

10) Greg Smith is self employed psychologist. He meets with all of his clients in his four hundred square foot home office. The entire house has a square footage of twenty four hundred square feet. Greg incurred the following costs:

Utilities $1,600 House insurance 700 Business liability insurance 500 House maintenance 1,000 Mortgage interest 3,700 Property tax 1,100 Office supplies 500

What are the total expenses deductible from business income?

(a) $1,000 (b) $1,350 (c) $1,517 (d) $2,350

11) K Corporation Inc. owns a restaurant business that it carries on in rented premises. The lease was signed January 1, 2007 and expires on December 31, 2012 (6 years in total), and has two successive renewal options for 2 years each. K Corporation Inc. had an opening balance in 2008 in Class 13 of $30,000 that resulted from $32,000 of leasehold improvements made during the 2007 taxation year. K Corp Inc. made an additional $14,000 of leasehold improvements to the same premises during its 2008 taxation year end which ends December 31, 2008. What is the maximum CCA that K Corp. Inc. can claim in 2008 for its Class 13 assets?

(a) $1,000 (b) $3,000 (c) $5,000 (d) $6,000

12) During the 12-month period ended December 31, 2008 ABC Co. purchased a $40,000 (including tax of GST of 5% and PST of 8%) passenger vehicle for use by its salesperson in conducting his employment. What is the maximum capital cost allowance that ABC Co. can claim for 2008, assuming that the company is a GST registrant (i.e., the company remits GST)?

(a) $6,000 (b) $3,947 (c) $4,860 (d) $5,735

Question MC 2 (25 minutes) [Chapters 2 to 8]

Determine the single most appropriate response to the following questions.

1) In 2008, Alpha’s employer provided him with an employer-owned automobile costing $33,900 (including GST of $1,500 and PST of $2,400) for 12 months. His kilometres for personal use were 5,000 out of a total of 20,000 kilometres. Operating costs paid by his employer during 2008 were $3,503 (including GST of $155 and PST of $248). Which one of the following statements is true for 2008?

(a) Alpha’s minimum operating cost benefit is $1,017.(b) Alpha’s minimum operating cost benefit is $1,200.(c) Alpha cannot elect to use ½ of his standby charge as his operating cost benefit.(d) Alpha’s minimum standby charge is $4,000.

2) Kappa Limited paid $10,000 to purchase computer applications software on January 31, 2008. Kappa Limited has a December 31 year end. What is the maximum tax deduction that Kappa Limited can claim in respect of the above expenditure for its taxation year ended December 31, 2008?

(a) $5,000(b) $1,500(c) $525(d) $263

3) Lambda Corporation sold an old warehouse on the waterfront in Toronto on August 15, 2008. The City of Toronto purchased the property and intends to demolish the building and use the land as part of a waterfront bicycle trail. The total proceeds paid to Lambda Corporation were $420,000. The adjusted cost base of the land is $80,000. The capital cost of the building was $90,000 and the UCC of the building was $12,000. Lambda Corporation has allocated all of the proceeds to the land. What will be the impact on Division B income for Lambda Corporation for the above sale?

(a) $170,000(b) $110,000(c) $164,000(d) $125,000

4) Mu Mu made a permanent move to the United States on September 1, of this year after having lived in Canada all of her life. Mu is 22 years old. Which one of the following best indicates Mu’s residency status for Canadian income tax purposes for this year?

(a) A full-time resident(b) A part-time resident(c) A non-resident(d) A deemed resident (sojourner)

5) Xi Limited was incorporated in Nova Scotia on May 21, 1922. The corporation has never carried on business in Canada, but held its annual directors’ meeting in Nova Scotia each year from 1922 through 1932. Which one of the following best describes Xi Limited’s residency status for Canadian income tax purposes for 2008?

(a) A deemed resident (sojourner)(b) A full-time resident(c) A non-resident(d) A part-time resident

6) Pi has purchased a vacant lot. He hopes that someday, once he meets his future bride and settles down, he will build a home and raise his family on the property. This year, Pi paid $800 of property taxes and $1,000 of interest on the loan he obtained to purchase the lot. Which ONE of the following statements is TRUE?

(a) Pi can deduct the $1,000 of interest but not the property taxes paid in this year on the basis that the land may generate a capital gain on the land some day.

(b) Pi could deduct all of the above expenditures if he were to rent the land to a farmer for the year for $2,000

(c) The property is a personal-use property and thus none of the above expenditures can ever be deducted, even if the property is rented in the year

(d) Pi can claim the principal residence exemption on any future sale of the land if he decides to sell the land without building a home.

7) Rho Limited is in the midst of constructing a new building to house its administrative staff. The building began construction on December 4, 2007, and will be completed for occupancy on January 31, 2009. Which of the following expenditures made during 2008 is DEDUCTIBLE to Rho Limited in computing its income from business for its taxation year ended December 31, 2008?

(a) CCA on new office furnishing in storage as of December 2008, pending occupancy of the building

(b) Cost paid to the security company to patrol and protect the property during 2008(c) Interest on the construction loan, related to the cost of the land on which the building is

significantly constructed.(d) The landscaping costs related to the building paid during 2008.



1) XYZ Ltd.’s income statement for accounting purposes for its year ended December 31, 2008 shows a profit of $180,000 from the sale of widgets to a valued customer. The gross proceeds were $300,000 and the cost of sales was $120,000. The gross proceeds of $300,000 are payable in four equal instalments of $75,000 due on June 1 each year, commencing June 1, 2008. The deduction necessary to reconcile accounting income to income for tax purposes for 2008 in respect of this transaction is:

(a) NIL (b) $135,000 (c) $144,000 (d) $225,000

2) On March 20, 2008, a personal residence owned by James Day, which originally cost $280,000, was converted into a rental property. At this time, the rental property had a fair market value of $340,000. What is the maximum capital cost allowance that could be claimed for 2008 on this rental property (assuming no restrictions)?

(a) $6,800(b) $5,600(c) $6,400(d) $6,200

3) On April 1, 1995, Catherine purchased a condominium in Horseshoe Valley, Ontario, for $30,000. She lived in the condominium until she married in August 1999. At that time, she moved into a rented apartment in north Toronto, Ontario with her new husband. She commenced to rent her condominium in late 1999. At this time it was valued at $45,000. In December 2008 she sold the condominium for $80,000 to generate some cash to pay for a new house. Assuming that Catherine elected under subsection 45(2) in respect of the condominium in 1999, what is the approximate minimum taxable capital gain that she will realize in 2008 on the sale?

(a) $50,000(b) $11,905(c) $7,143(d) $9,524

4) Mega Ltd., which has a May 31 year-end, had its factory vandalized in August 2008. The vandals managed to completely destroy a valuable piece of machinery. This was a custom-designed manufacturing asset included in class 43 and is the only asset in the class. The destroyed machinery had an original cost of $500,000 and an undepreciated capital cost of $71,430. Mega received insurance proceeds of $345,000 for the destroyed machinery. Due to advances in technology, a new machine cost only $280,000 and was in place for use by December 1, 2008. What is the impact on income for tax purposes to Mega for its taxation year ended May 31, 2009 in respect of the above machinery?

(a) $273,670(b) $965(c) $1,608(d) $70,000

5) Mr. T died on September 14, 2008. At the date of his death, he had the following capital assets, which were left to the beneficiaries indicated.

Asset ACB/Capital Cost UCC Fair market

value Beneficiary

Shares in publicly traded company $10,000 n/a $100,000 SpouseCar $40,000 $40,000 $10,000 SpouseRental building $45,000 $15,000 $150,000 Daughter

What is the minimum amount that must be included in Mr. T’s income for his final tax return in respect of the above assets?

(a) $100,000(b) $90,000(c) $135,000(d) $82,500

Question MC 4 (25 minutes) [Chapters 11, 12]Determine the single most appropriate response to the following questions.

1) Adam Inc. is a taxable Canadian corporation. In 2008, the corporation contributed $180,000 to a registered amateur athletic association. In 2007, the corporation was unable to deduct $63,000 of similar donations. In 2008, the income of the corporation for tax purposes consisted of $310,000 of active business income and $10,000 of property income.

The maximum charitable donation deduction for Adam Inc. in 2008 is:

(a) $180,000(b) $232,500(c) $240,000(d) $243,000

2) The following types of income have been taxed in a foreign jurisdiction in the current year. Which one of those types of foreign income can result in foreign tax credits that can be applied to Canadian income tax payable in other taxation years?

(a) Business income(b) Employment income(c) Property income(d) Taxable capital gain

3) Jonathan owns 100% of Carweb.com Ltd. and owns 100% of Taxman Inc. Hence they are associated. Jonathan owns 10% of Internet Housefind Ltd. which is not an associated company. Each of the three corporations has at least $400,000 of active business income earned in Canada.

What is the maximum small business deduction combined (i.e., total combined SBD deduction of all 3 companies) which the three corporations can claim on corporate income?

(a) $0(b) $400,000(c) $800,000(d) $1,200,000

4) Waterloo Wholesale Ltd. (WWL) is wholly owned by Barbara, a resident of Canada, who also owns all of the shares of Kitchener Klosets Ltd. (KKL). Both corporations have a March 31 year-end. KKL had both active business income and taxable income of $18,000 for its most recent taxation year. Barbara has decided to allocate as much of the small business limit as is needed to maximize the small business deduction for KKL.

Most of WWL’s income is from an active business carried on in Canada. The following additional information pertains to WWL:

• Recapture of CCA on sale of operating assets $2,500 • Net taxable capital gains 3,000 • Charitable donations 1,500 • Division B net income for tax purposes 180,000

What is the appropriate small business deduction for WWL for 2008?

(a) $27,920(b) $30,090(c) $28,560(d) $29,120

5) Robin Ltd. is a corporation whose only business is providing accounting services for a fee to Faith Ltd., a large, privately owned, arm’s length corporation. Shari and David are each 50% shareholders and the only employees of Robin Ltd. Prior to the incorporation of Robin Ltd., both Shari and David are employed by Faith Ltd. in the accounting department. What type of income is Robin Ltd. earning?

(a) Active business income(b) Property income(c) Specified investment business income(d) Personal services business income

6) Elaine Ltd. is a Canadian-controlled private corporation. Its refundable dividend tax on hand (RDTOH) account at December 31, 2007 was $35,000. For its 2008 taxation year, its refundable portion of Part I tax was $23,000. The corporation received no dividends in 2008. It paid taxable dividends of $60,000 in 2007 and $75,000 in 2008.

The balance in Elaine Ltd.’s (RDTOH) account at December 31, 2008 is:

(a) $13,000(b) $33,000(c) $35,000(d) $38,000

7) Jay is an employee and 15 per cent shareholder of Rick's Welding Shop Ltd. (Rick's). During the 2007 calendar year, Jay was having cash flow problems. Rick's gave Jay a loan of $5,000 on May 1, 2007 to help him out. Rick's also gave Jay's son, Jake, a loan of $2,000 on September 30, 2007 to help him meet expenses while at college. Rick's has said that Jay and Jake can repay the loans whenever they can afford it. The loans remain outstanding as at December 31, 2007. Rick's year end for accounting and taxation purposes is December 31.

How much, and in which taxation year, is Jay required to include in his taxable income as a result of the above transactions?

(a) $7,000 — 2007(b) $7,000 — 2008(c) $5,000 — 2007(d) $5,000 — 2008

Question MC 5 (28 minutes) [Chapters 14 to 18]Determine the single most appropriate response to the following questions.

1) Jim Bee filed his 2007 personal tax return on March 1, 2008. Neither he nor his spouse had income from the carrying on of a business in 2007. The CRA mailed a Notice of Assessment to Jim dated May 15, 2008 and Jim received it on May 30, 2008. If Jim disagrees with the Notice of assessment, he has until which one of the following dates to file a Notice of Objection?

(a) August 12, 2008(b) August 29, 2008(c) March 1, 2009(d) April 30, 2009

2) Ken Kaye Ltd., a CCPC eligible for the small business deduction, has a January 31 year end. Due to the untimely departure of a key employee, the tax return for the year ended January 31, 2006 was not filed until March 1, 2008. The unpaid tax on January 31, 2006 was $5,500. In the past, all returns have been filed on time. What is the total penalty, excluding interest that the corporation is required to pay?

(a) Nil(b) $275(c) $660(d) $935

3) Alpha died on September 20, 2008 at the age of 97. By what date must the executrix of her estate file Alpha’s final tax return?

(a) January 20, 2009(b) March 20, 2009(c) March 31, 2009(d) April 30, 2009

4) Beta died on March 20, 2008. At the time of his death, Beta was employed as a secondary school teacher. In addition, he operated technical writing consulting business as a proprietorship with a December 31 year end. The amounts earned to the time of his death were:

SalaryJanuary 1, 2007 to December 31, 2007 $70,000January 1, 2008 to March 20, 2008 16,000

Business incomeJanuary 1, 2007 to December 31, 2007 5,000January 1, 2008 to March 20, 2008 1,300

Interest incomeJanuary 1, 2007 to December 31, 2007 2,000January 1, 2008 to March 20, 2008 500

What is the amount of Beta’s income that should be reported in his final return?

(a) $16,000(b) $17,800(c) $22,800(d) $94,800

5) Chi is one of a large number of shareholders of Pubco Ltd., a public corporation. She has received an offer from Taikit Inc., another public corporation, to exchange all of her shares in Pubco Inc., which are valued at $10,000, have a PUC of $1,000 and have an adjusted cost base to her of $6,000, in return for shares of Taikit Inc. The Taikit Inc. shares, also, have a value of $10,000 and a legal stated capital of $10,000. Which of the following amounts represents the adjusted cost base of the Taikit Inc. shares received by Chi under Section 85.1?

(a) $1,000(b) $6,000(c) $9,000(d) $10,000

6) Delta is a member of a partnership with a December 31 year end. Delta’s share of the 2008 partnership allocations was as follows: business loss of $25,000 and charitable donations of $1,000. Delta took draws totalling $10,000 from the partnership during 2008. Delta’s adjusted cost base (ACB) at January 1, 2008 was $59,000. What is the ACB of Delta’s partnership interest at January 1, 2009?

(a) $23,000(b) $24,000(c) $25,000(d) $33,000

7) A partnership interest was sold in 2008 by Epsilon for $13,000. The adjusted cost base of the partnership interest was negative $2,000. Expenses of disposition were $1,000. Which one of the following amounts represents the taxable capital gain realized on the sale?

(a) $5,000(b) $6,000(c) $7,000(d) $8,000

8) Which one of the following statements pertaining to the tax implications of a partnership is incorrect?

(a) Salaries to partners are not deductible by the partnership in the computation of its income.

(b) Charitable donations made by a partnership are not deductible by the partnership, despite the fact that partnerships are not taxable entities and, therefore, cannot obtain a tax credit.

(c) Business losses of a partnership can be allocated to the partners for them to deduct from their other sources of income.

(d) Dividends received by a partnership are grossed up by the partnership in the calculation of its income which is allocated to the partners.

9) Which one of the following items does not affect the calculation of the adjusted cost base of a partnership interest?

(a) Interest on funds borrowed by a partner to make a capital contribution.(b) Drawings made by partners(c) The non-allowable fraction of a capital loss(d) A political donation made by the partnership

10) Gamma’s will provide for the creation of a trust on her death which occurred in 2007. Income from the trust is to be distributed equally to each of her four children. In 2008, the trust earned $50,000 in cash dividends from Canadian-resident public corporations and $20,000 in interest on Canadian bonds. The trust incurred interest expense of $2,000 on funds borrowed to buy the investments. All of the dividends and $18,000 of the interest on the bonds was distributed to the beneficiaries and the interest expense was claimed by the trust. Which one of the following amounts represents the taxable income of one of the children from the trust for 2008?

(a) $14,500

(b) $19,625

(c) $20,125

(d) $23,625

11) The country of residence of a discretionary trust and, hence, its liability for income tax in Canada is determined, generally, by which one of the following criteria?

(a) The country in which the settlor of the trust resided at the time the trust was created.

(b) The country in which the majority of the beneficiaries are resident.

(c) The country in which all or substantially all of the assets of the trust are situated.

(d) The country in which the majority of the trustees reside.

12) Alan Emm Inc. (AEI) has owned all of the shares of Sub Ltd. since the incorporation of the latter in 1982. The shares of Sub Ltd. have an adjusted cost base of $100,000 to AEI and a value of $900,000 now. Retained earnings in Sub Ltd., computed on a tax basis amount to $600,000. AEI wants to sell the shares of Sub Ltd. and Grabit Ltd. is interested in purchasing the shares. Sub Ltd. has $800,000 of cash that it does not need for its operations and Grabit Ltd. does not need. AEI will cause Sub Ltd. to pay a dividend of the excess cash and then AEI will sell the shares of Sub Ltd. to Grabit Ltd. For $100,000. Which one of the following choices represents the tax consequences of the transactions described to AEI assuming that the appropriate designation is made?

(a) A tax-free dividend of $600,000 and a capital gain of $200,000.

(b) A tax-free dividend of $600,000 and a capital gain of $400,000.

(c) A tax-free dividend of $800,000 and a capital gain of nil.

(d) A tax-free dividend of $600,000 and a capital gain of $800,000.

13) Ms. Lambda, a Canadian resident owned all of the common shares of Lambda Enterprises Ltd. (LEL). The shares have a paid-up capital value and a cost of $75,000. She transferred these shares under section 85 to a holding company, Holdco Inc., which her two Canadian-resident adult children control, at a time when the value of the LEL shares was $800,000. As consideration for the LEL shares transferred, she received from Holdco Inc. a note with a principal amount of $500,000 and preferred shares with a fair market value of $300,000, such that an elected amount of $500,000 was possible under section 85. Ms. Lambda intended to offset all of the resultant $425,000 of capital gain with her available QSBCS capital gains exemption. Which one of the following statements is false?

(a) The PUC of the Holdco Inc. preferred shares is nil.(b) Ms. Lambda is deemed to receive a dividend of $425,000 from Holdco Inc.(c) Ms. Lambda’s ACB of the Holdco Inc. preferred shares is nil.(d) Ms. Lambda is deemed to receive proceeds of disposition of $500,000 for the LEL

shares.

14) Mr. Pi is the sole beneficiary of a trust that arose on the death of his mother. She died on March 15, 2007. March 15, the anniversary of the date of death, was chosen as the year-end of the trust. Which one of the following statements is false?

(a) The trust’s tax return for the taxation year ended March 15, 2008 is due on June 12, 2008.

(b)The trust will pay federal tax on any of its income not distributed or payable to Mr. Pi like at the top federal personal rate of tax.

(c) Mr. Pi must report, in his 2008 tax return, the income that is distributed to him out of the trust for the trust’s taxation year ended March 15, 2008.

(d)Mr. Pi must include in his income amounts declared by the trust to be payable, but not paid, to him at the end of the trust’s taxation year.



1) On incorporation in 2003, a corporation issued 100 shares from treasury for $10 per share to the owner-manager. In 2007, the owner-manager sold half of her shares to another individual for $14 per share. In 2008, an employee purchased 20 shares from treasury for $16 per share. All shares are of the same class. Which one of the following amounts represents the per-share paid-up capital? An election under subsection 85(1) was not made?

(a) $10(b) $11(c) $12.67(d) $13.33

2) Alpha contributed an asset worth $15,000 to a corporation in return for shares with a paid-up capital value and a retraction value of $20,000. Which one of the following will result from the exchange?

(a) Alpha will be deemed to have realized a capital gain of $5,000.(b) Alpha will be deemed to have received a stock dividend of $5,000.(c) Alpha will be deemed to have received a dividend of $5,000.(d) Alpha will have no immediate tax consequences. However, the adjusted cost base of the

shares will be reduced by $5,000, resulting in a capital gain of $5,000 on the ultimate disposition of the shares.

3) Beta is the sole shareholder of a corporation which was capitalized with $100,000 of common shares on incorporation. In 2006, Beta needed $30,000 and decided to reduce the paid-up capital of the corporation by that amount on withdrawing the $30,000 in cash. In 2007, when the shares were valued at $400,000, Beta caused the corporation to redeem 20% of the shares. Which one of the following determines the tax consequences to Beta of the redemption of the common shares?

(a) Beta will be deemed to realize a capital gain of $60,000.(b) Beta will be deemed to receive a dividend of $60,000.(c) Beta will be deemed to receive a dividend of $66,000 and realize a capital gain of nil.(d) Beta will be deemed to receive a deemed dividend of $66,000 and realize a capital loss of

$6,000.

4) Delta is the sole shareholder of a corporation that has just completed a liquidation of all of its assets. Delta will cause the corporation to wind up on the distribution of the net cash of $500,000 after the payment of all liabilities in the corporation. The common shares of the corporation have a paid-up capital value of $40,000 and Delta's adjusted cost base is also $40,000. The capital dividend account balance of the corporation is $90,000. Which one of the following represents the tax consequences to Delta?

(a) A deemed dividend of $370,000 and a capital gain of nil.(b) A deemed dividend of $370,000 and a capital gain of $50,000.(c) A deemed dividend of $460,000 and a capital gain of nil.(d) A deemed dividend of $500,000 and a capital gain of $90,000.

5) Gamma transferred some equipment from his proprietorship to a corporation in which he owned all of the shares. The capital cost of the equipment was $20,000, its UCC before the transfer was $16,000 and it was valued at $40,000 at the time of the transfer. In order to utilize some losses of the proprietorship that were about to expire, Gamma elected a transfer price of $35,000 under subsection 85(1). Which one of the following amounts represents the capital cost of the property to the corporation?

(a) $16,000(b) $20,000(c) $27,500(d) $35,000

(6) Chi transferred a non-depreciable capital property to her wholly owned corporation, electing under subsection 85(1). The property was valued at $25,000 and had an adjusted cost base to Chi of $15,000. The property was mortgaged for $5,000. As consideration for the transfer, Chi received cash of $20,000 and a preferred share worth $1,000. The corporation assumed the mortgage. Which one of the following choices represents the elected transfer price that will result on the transfer and the adjusted cost base of the share, respectively?

(a) $15,000 and nil(b) $25,000 and nil(c) $26,000 and $5,000(d) $25,000 and $24,000

(7) Pi owns 75% of the common shares of an investment holding corporation and the remainder of the shares is owned by his daughter. In this year, Pi transferred portfolio shares that cost him $11,000 and were worth $17,000, electing at $11,000 under subsection 85(1). As consideration for the transfer, he received a promissory note for $11,000 and preferred shares with a retraction value of $4,000. Which one of the following choices represents the elected transfer price and the adjusted cost base of the preferred shares, respectively?

(a) $13,000 and nil(b) $11,000 and $4,000(c) $11,000 and $6,000 (d) $13,000 and $4,000

(8) Lambda transferred a non-depreciable capital property to a corporation. The fair market value of the property was $130,000 and its adjusted cost base to him was $40,000. As consideration for the property, he received a promissory note for $20,000, 10 preferred shares with a total retraction value of $70,000 and 100 common shares worth a total of $40,000. On the transfer, he elected under subsection 85(1) at $40,000. Which one of the following choices represents the adjusted cost base of the preferred and common shares, respectively?

(a) nil and $20,000(b) $12,727 and $7,273(c) $20,000 and nil(d) $70,000 and $40,000

mc tax questions

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