Dr. Julienne Hutchins has hired your professional services to file her income tax return. Dr. Hutchins...
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Dr. Julienne Hutchins has hired your professional services to file her income tax return. Dr. Hutchins is a retired surgeon. Due to her failing eyesight, Julienne was required to retire from her occupation at a younger age than normal. Fortunately, Julienne has more than enough income to support herself as a result of years of receiving a very large salary as a surgeon and a family inheritance. Julienne has invested most of her past employment earnings into a large portfolio which paid the following amounts during 2020, the current year. (Click on the icon to view Part 1 of the additional information.) (Click on the icon to view Part 2 of the additional information.) Required Requirement 1. Compute Dr. Hutchins's net property income for 2020. Fill in the table below to compute the net property income. (Round amounts to the nearest cent. Enter deductions with parentheses or a minus sign.) Property Income Eligible dividends Ineligible dividends Interest income Foreign dividends Net rental income Carrying Charges Net property income Item Dividends from public Canadian corporations (subject to high corporate tax rates): Dividends from private Canadian corporations (subject to low corporate tax rates): Interest income received from Canadian sources: Dividends from foreign corporations (translated into Canadian dollars): Amount $23,500 32,500 18,000 12,400 Note: Total foreign dividends earned was $13,900 less foreign tax withheld of $1,500. Julienne's portfolio of investments includes a five-year investment contract purchased three years ago on September 1. The investment contract has a maturity value of $160,000 and an annual interest rate of 3%. The total interest earned on the investment contract will be paid on maturity on September 1, 2022, two years from now. Julienne did not receive any interest (cash) from this investment contract in 2020 Julienne's portfolio of investments is managed by a large Canadian brokerage firm called Top of the Hill Investments Inc. ("Top of the Hill) Top of the Hill charges Julianne investment counsel fees of $5,350 during 2020 In 2019, the previous year, Julienne received a large family inheritance, which she invested into a rental property. The property was purchased in 2019, and Julienne has claimed the maximum amount of capital cost allowance (CCA) on the property in 2019. In 2020, the opening UCC balance in CCA Class 1 for the rental building is $355,000 and Julienne would like to claim the maximum CCA deduction on the rental income in 2020. The rental income and expense information for 2020 is as follows. Item Rental income: Property tax: Property insurance: Property management fees: Utilities: Repair of a leaky faucet and water damage: Amount $2,450 per month 5,100 for the year 180 per month 220 per month 610 per month 1,450 To assist with filing her tax return, Julienne provides you with detailed records from her bank. The documents indicate that Julienne has borrowed the following amounts from her bank. • $210,000 mortgage on the rental property with principal repayments totalling $13,000 and interest payments of $6,700 for 2020 • $390,000 mortgage on Dr. Hutchins's personal home with principal repayments totalling $17,000 and interest payments of $8,400 for 2020 • $170,000 loan used to purchase mutual funds with Top of the Hill Investments Inc. Julienne paid interest of $5,050 on this loan during 2020. • $49,000 loan used to purchase Julienne's personal use vehicle. Julienne paid $2,320 of interest on this loan during 2020. 1. Compute Dr. Hutchins's net property income for 2020. 2. Julienne has reviewed your calculation of net property income and she is confused. Julienne does not understand why the dividend income included in your calculation is different than the amounts she received in the year. Describe for Julienne the concept of integration and how this impacts the taxation of Canadian source dividends as well as the tax consequences of foreign source dividends received by an individual in Canada. 3. Julienne informs you that she plans on selling her rental property in the near future and using a portion of the proceeds from the sale to pay off some of her debt with the bank. Julienne would like your advice on which loans she should pay back first in order to achieve the most favourable tax consequences. 4. Prior to selling the rental property, Julienne plans on upgrading the wood siding on the house to vinyl siding. Explain to Julienne the difference between capitalizing and expensing costs, and indicate which treatment the siding cost should receive. 5. Explain to Julienne the tax consequences that could occur if she sells the rental property due to the fact that she has claimed the maximum CCA on the rental property since acquisition. Dr. Julienne Hutchins has hired your professional services to file her income tax return. Dr. Hutchins is a retired surgeon. Due to her failing eyesight, Julienne was required to retire from her occupation at a younger age than normal. Fortunately, Julienne has more than enough income to support herself as a result of years of receiving a very large salary as a surgeon and a family inheritance. Julienne has invested most of her past employment earnings into a large portfolio which paid the following amounts during 2020, the current year. (Click on the icon to view Part 1 of the additional information.) (Click on the icon to view Part 2 of the additional information.) Required Requirement 1. Compute Dr. Hutchins's net property income for 2020. Fill in the table below to compute the net property income. (Round amounts to the nearest cent. Enter deductions with parentheses or a minus sign.) Property Income Eligible dividends Ineligible dividends Interest income Foreign dividends Net rental income Carrying Charges Net property income Item Dividends from public Canadian corporations (subject to high corporate tax rates): Dividends from private Canadian corporations (subject to low corporate tax rates): Interest income received from Canadian sources: Dividends from foreign corporations (translated into Canadian dollars): Amount $23,500 32,500 18,000 12,400 Note: Total foreign dividends earned was $13,900 less foreign tax withheld of $1,500. Julienne's portfolio of investments includes a five-year investment contract purchased three years ago on September 1. The investment contract has a maturity value of $160,000 and an annual interest rate of 3%. The total interest earned on the investment contract will be paid on maturity on September 1, 2022, two years from now. Julienne did not receive any interest (cash) from this investment contract in 2020 Julienne's portfolio of investments is managed by a large Canadian brokerage firm called Top of the Hill Investments Inc. ("Top of the Hill) Top of the Hill charges Julianne investment counsel fees of $5,350 during 2020 In 2019, the previous year, Julienne received a large family inheritance, which she invested into a rental property. The property was purchased in 2019, and Julienne has claimed the maximum amount of capital cost allowance (CCA) on the property in 2019. In 2020, the opening UCC balance in CCA Class 1 for the rental building is $355,000 and Julienne would like to claim the maximum CCA deduction on the rental income in 2020. The rental income and expense information for 2020 is as follows. Item Rental income: Property tax: Property insurance: Property management fees: Utilities: Repair of a leaky faucet and water damage: Amount $2,450 per month 5,100 for the year 180 per month 220 per month 610 per month 1,450 To assist with filing her tax return, Julienne provides you with detailed records from her bank. The documents indicate that Julienne has borrowed the following amounts from her bank. • $210,000 mortgage on the rental property with principal repayments totalling $13,000 and interest payments of $6,700 for 2020 • $390,000 mortgage on Dr. Hutchins's personal home with principal repayments totalling $17,000 and interest payments of $8,400 for 2020 • $170,000 loan used to purchase mutual funds with Top of the Hill Investments Inc. Julienne paid interest of $5,050 on this loan during 2020. • $49,000 loan used to purchase Julienne's personal use vehicle. Julienne paid $2,320 of interest on this loan during 2020. 1. Compute Dr. Hutchins's net property income for 2020. 2. Julienne has reviewed your calculation of net property income and she is confused. Julienne does not understand why the dividend income included in your calculation is different than the amounts she received in the year. Describe for Julienne the concept of integration and how this impacts the taxation of Canadian source dividends as well as the tax consequences of foreign source dividends received by an individual in Canada. 3. Julienne informs you that she plans on selling her rental property in the near future and using a portion of the proceeds from the sale to pay off some of her debt with the bank. Julienne would like your advice on which loans she should pay back first in order to achieve the most favourable tax consequences. 4. Prior to selling the rental property, Julienne plans on upgrading the wood siding on the house to vinyl siding. Explain to Julienne the difference between capitalizing and expensing costs, and indicate which treatment the siding cost should receive. 5. Explain to Julienne the tax consequences that could occur if she sells the rental property due to the fact that she has claimed the maximum CCA on the rental property since acquisition.
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Answer rating: 100% (QA)
If you recently sold a home and earned a substantial profit it may be subject to capital gains taxes However if the home is your primary residence you may be off the hook at least up to an amount spec... View the full answer
Related Book For
Concepts In Federal Taxation
ISBN: 9780324379556
19th Edition
Authors: Kevin E. Murphy, Mark Higgins, Tonya K. Flesher
Posted Date:
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