Tax Module Essay

1818 words - 8 pages

MODULE 8 – CAPITAL GAINS/LOSSES – FUNDAMENTALS & INTEGRATION CAPITAL GAINS/LOSSES – FUNDAMENTALS
Text Coverage – Chapters 7 & 8 You are NOT responsible for the following paragraphs: 7,240 – 7,260.20 7,306 7,370 7,380 7,500 7,600 7,720 8,000 – 8,300 Change in use of a principal residence Special relief for tax-deferred elections made prior to March 4, 2010 Capital gains deferral Certain shares deemed to be capital property Death of a taxpayer Leaving and entering Canada Allowable business investment losses All of Chapter 8

Income for the year = (a) + (b) – (c) – (d) (a) Income from: + + + + Plus: (b) Net TCG for the year (cannot be negative) Taxable net gain from listed personal property ...view middle of the document...

, a Canadian public company. She would like you, as her tax adviser, to explain the tax consequences to her of each of the following transactions:
Date Jan 15/13 Feb 20/13 Transaction Purchase Purchase Price / Number share of Shares $ 35 37 1,000 200 120 1,320 15 13 100 200 75 125 Broker Fees $ 700 150 1 2 Notes

April 5/13 Stock dividend - 10% Sept 16/13 Stock split Nov 30/13 Sold Dec 12/13 Purchase

Notes: 1. 2. 3. The April 5, 2013 stock dividend resulted in an increase in paid-up capital of $30 per share. The stock split gave Rachael 1 share for every share she held at the time. On December 15th she received a cash dividend of $10 per share.

Module 8 – Capital Gains/Losses
Module 8 – Problem 2

AFM 362 – Taxation 1

4

Once again, you have just been asked for advice on employee stock options by two different clients. This is a continuation of problem Module 4-2. 1. Omer is part of the management team of a Canadian public company and is eligible for the employee stock option plan. A few years ago he received an option on 1,000 shares. The option required him to pay the option price of $30 (the value at the time the option was granted) for the shares at the time he exercises his option. Omer exercised the option three years ago when the shares were worth $35 and is now selling the shares for $45. He has asked you to tell him the amount of income he will have to report in 2013.

2.

Hilda is part of the management team of a Canadian-controlled private company and is eligible for the employee stock option plan. A few years ago she received an option on 1,000 shares. The option required her to pay the option price of $30 (the value at the time the option was granted) for the shares at the time she exercises her option. Hilda exercised the option three years ago when the shares were worth $35 and is now selling the shares for $45. She has asked you to tell her the amount of income she will have to report in 2013.

Module 8 – Capital Gains/Losses
Module 8 – Problem 3

AFM 362 – Taxation 1

5

It’s now March 2013 and Ivy Jackson is confused so she has asked you for your advice. She invested $2,000 on April 1, 2012 in Growth Mutual Fund (GMF) which is sold by a major financial institution. Her investment purchased 72.788 units of the fund. On December 31, 2012 the fund allocated $96.37 of capital gains to her account. As a result, the $96.37 was reinvested in the fund to purchase 3.774 units at the market value of $25.535 per unit. She doesn’t understand what GMF reported to her in December and has asked you to explain it to her and see if they made a mistake. She is also thinking of selling 25 units at $28.72 per unit and wants to know how much tax she will have to pay, if any.

Module 8 – Capital Gains/Losses
Module 8 – Problem 4

AFM 362 – Taxation 1

6

Mr. Norman, who lives in Ontario, is contemplating moving to British Columbia to retire. He came to you to discuss the tax consequences of disposing of both of his residences in April 2013. He...

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