Barbara Legault operates a full-time law practice in southwestern Ontario. In her spare time, she creates...

 

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Barbara Legault operates a full-time law practice in southwestern Ontario. In her spare time, she creates and sells crystal necklaces at various fairs and festivals. In addition, she derives income from various investments and is an art collector. Below are her financial results for 2020. Net income from law practice $ 97,000 Income from crystal business 12,500 Gross rents received on rental property 28,000 Operating expenses on rental property before capital cost allowance Eligible dividends received from public corporations (38%) Interest paid in the year on a loan used to invest in shares 37,000 4,000 2,000 Gain on sale of shares of public corporations 80,000 Loss on sale of shares of a small business corporation Loss on sale of shares of a public corporation 20,000 14,000 At the end of 2020, the following tax accounts existed: Net capital losses 7,000 Required: i) What is Legault's taxable income for 2020? ii) Compute Legault's Federal Tax Payable before credits G M Q 1 MGMT 7031 F20 Assignment #1 Template 2 3 QUESTION 1 (20 marks) 4 5 Paragraph 3(A) Income from sources: 6 7 8 9 10 11 12 Paragraph 3(B) Net taxable gains: 13 14 15 16 17 Paragraph 3(C.) Other deductions: 18 19 20 21 22 Paragraph 3(D) Loss from sources: 23 24 25 26 27 Net income for tax purposes 28 29 Division C deductions: 30 31 32 33 Taxable income 34 35 36 Federal Tax Payable before Credits: 37 38 39 40 41 42 43 L. 1 MGMT 7031 F20 Assignment #1 Template 2 3 QUESTION 2 (30 marks) 4 5 All of the issues in this case have been examined in depth in problems of previous chapters and therefore the following tax rates are assumed to be: 6 - dividends (eligible) - dividends (ineligible) 7 Individual 35% 8 43% 9 - other income 50% 10 11 Corporation - SBD income 13% 12 - ABI over $500,000 27% 13 - investment income 50.67% 14 15 16 17 18 19 20 21 22 23 24 25 Styles Pane PROBLEM TWO (30 marks) Charles Court owns and operates the Seacourt Restaurant as a proprietorship. The restaurant has gained a reputation for offering quality food, good service, and moderate prices in a cozy, relaxed setting. It is a distinctive restaurant well known to the people of Winnipeg. Charles often brags about the competence of his bar and restaurant staff and about the efficiency of his kitchen. Profits in the past year amounted to $180,000 before draws by Charles, who lives modestly and requires only about $70,000 before tax for living expenses. Over the years, he has invested excess profits in public securities, so he has substantial investment income, which in itself puts him in the maximum tax bracket (50%). Charles has asked you whether he should incorporate. He is aware that incorporation has some advantages but has also read in the newspapers that double taxation occurs when a corporation structure is used. Required: i) Outline the benefits that may be achieved by incorporation of this business and provide Charles with information that will help him to understand the relationship between corporations and their shareholders based on the applicable tax rates. ii) Outline the Advantages and Disadvantages of Incorporation Barbara Legault operates a full-time law practice in southwestern Ontario. In her spare time, she creates and sells crystal necklaces at various fairs and festivals. In addition, she derives income from various investments and is an art collector. Below are her financial results for 2020. Net income from law practice $ 97,000 Income from crystal business 12,500 Gross rents received on rental property 28,000 Operating expenses on rental property before capital cost allowance Eligible dividends received from public corporations (38%) Interest paid in the year on a loan used to invest in shares 37,000 4,000 2,000 Gain on sale of shares of public corporations 80,000 Loss on sale of shares of a small business corporation Loss on sale of shares of a public corporation 20,000 14,000 At the end of 2020, the following tax accounts existed: Net capital losses 7,000 Required: i) What is Legault's taxable income for 2020? ii) Compute Legault's Federal Tax Payable before credits G M Q 1 MGMT 7031 F20 Assignment #1 Template 2 3 QUESTION 1 (20 marks) 4 5 Paragraph 3(A) Income from sources: 6 7 8 9 10 11 12 Paragraph 3(B) Net taxable gains: 13 14 15 16 17 Paragraph 3(C.) Other deductions: 18 19 20 21 22 Paragraph 3(D) Loss from sources: 23 24 25 26 27 Net income for tax purposes 28 29 Division C deductions: 30 31 32 33 Taxable income 34 35 36 Federal Tax Payable before Credits: 37 38 39 40 41 42 43 L. 1 MGMT 7031 F20 Assignment #1 Template 2 3 QUESTION 2 (30 marks) 4 5 All of the issues in this case have been examined in depth in problems of previous chapters and therefore the following tax rates are assumed to be: 6 - dividends (eligible) - dividends (ineligible) 7 Individual 35% 8 43% 9 - other income 50% 10 11 Corporation - SBD income 13% 12 - ABI over $500,000 27% 13 - investment income 50.67% 14 15 16 17 18 19 20 21 22 23 24 25 Styles Pane PROBLEM TWO (30 marks) Charles Court owns and operates the Seacourt Restaurant as a proprietorship. The restaurant has gained a reputation for offering quality food, good service, and moderate prices in a cozy, relaxed setting. It is a distinctive restaurant well known to the people of Winnipeg. Charles often brags about the competence of his bar and restaurant staff and about the efficiency of his kitchen. Profits in the past year amounted to $180,000 before draws by Charles, who lives modestly and requires only about $70,000 before tax for living expenses. Over the years, he has invested excess profits in public securities, so he has substantial investment income, which in itself puts him in the maximum tax bracket (50%). Charles has asked you whether he should incorporate. He is aware that incorporation has some advantages but has also read in the newspapers that double taxation occurs when a corporation structure is used. Required: i) Outline the benefits that may be achieved by incorporation of this business and provide Charles with information that will help him to understand the relationship between corporations and their shareholders based on the applicable tax rates. ii) Outline the Advantages and Disadvantages of Incorporation

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Answer 21 1 Protect your personal assets from creditors Theres no doubt that starting your own business is exciting But with that excitement comes the reality that accidents happen and unfortunately b... View the full answer