Mr. Active holds a job, operates a small farm, and makes numerous investments. A description of his

Question:

Mr. Active holds a job, operates a small farm, and makes numerous investments. A description of his financial activities for 20X1 is given below.

1. Active is a lawyer and is employed in the legal department of a large public corporation. In 20X1, he received a gross salary of $72,000. In addition, the corporation provided the following items of remuneration:

• A car allowance of $400 a month to cover costs of travel in the performance of his duties. During 20X1, Active used his own car to travel from his home to work and back. Rarely was the car used during working hours on company business.

• A contribution of $3,000 to a deferred profit-sharing plan.

• A group term life insurance policy for $100,000 (premium cost, $800).

• A cash bonus of $3,000 that was awarded to him in the previous year and that he received in the current year.

2. Active’s employer gives all senior executives the option to acquire a certain number of shares of the corporation at a price that is guaranteed for two years. In 20X0, the employer granted Active an option to purchase up to 5,000 of its shares for a price of $10 per share. At the time the option was granted, the shares were valued at $10.75 per share. During 20X1, Active purchased 500 shares at a cost of $10 per share. At the date of purchase, the corporation’s shares were trading at $14 per share.

3. Active purchased a small parcel of land (20 hectares) in 20X1 and began raising goats. In 20X1, he lost $1,000 from this operation.

4. In 20X1, Active purchased 1,000 shares of Canadian public corporation X for $20 per share and received a stock dividend of 100 additional shares of the same class. During the year, he sold the 100 shares at $21 per share, for the same value as on their date of issue.

5. Three years ago, Active had purchased three residential rental properties and has provided you with the following information:

Mr. Active holds a job, operates a small farm, and

In 20X1, Active sold property 1 for $80,000 (land $12,000, building $68,000), and property 2 for $50,000 (land $6,000, building $44,000). Also, in 20X1, he purchased property 4 for $90,000 (land $30,000, building $60,000). In 20X1, property 4 had net rentals before capital cost allowance of $1,000.
6. During the year, Active gifted 1,000 shares of Shell Canada Ltd. (a public corporation) to his daughter. The shares had cost him $10 each and had a value at the time of the gift of $12 each. In 20X1, his daughter (16 years old) received dividends of $1,000; she then sold the shares for $30 each.
7. In 20X1, Active gifted 2,000 shares of Exxon Ltd. (a public corporation) to his wife. The shares had a value of $40 each at the time of the gift. He had paid $30 per share several years before. His wife sold the shares in 20X1 for $28 per share during a market slump.
8. Active's mother died in 20X0 and left him her house. The house cost $40,000 at the time of purchase and had a value in 20X0 of $60,000. Active sold the house in 20X1 for $66,000.
9. Three years ago, Active purchased 15% of the shares of two private corporations. Each carried on an active business. He sold the shares of both corporations in 20X1. Information relating to the shares is as follows:

10. In 20X1, during a market slump, Active sold 500 shares of public corporation A for $30,000; the shares had cost him $40,000.Two weeks later, as the market began to strengthen, he purchased 500 shares of the same corporation for $29,000.
11. Active also sold the following assets in 20X1:

12. Active had the following additional receipts in 20X1:

Dividends from Canadian public companies……….. $4,000

Interest on bonds ……………………………………. 1,000

Lottery winnings ……………………………………. 6,000

13. Active paid out the following in 20X1:

To purchase a computer for use at home when working on

his employer’s business………………………………………. $ 700

Interest on bank loan to purchase shares of public corporation…… 2,000

Interest on house mortgage (mortgage funds of $60,000 were used

—$40,000 for the purchase of the house, $20,000 for the

purchase of shares) ………………………………………………. 6,000

Lump-sum alimony settlement to ex-wife …………………………… 9,000

Tuition fees for attending university ……………………………….. 1,000

Donations …………………………………………………. 4,000

Gift to a registered federal political party……………………………. 1,000

Contribution to an RRSP……………………………………………. 2,800

Annual dues to the provincial law society……………………………… 1,000

Required:

Calculate Active’s net income for tax purposes for 20X1.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...