ADMS 4562 Lecture Notes - Lecture 2: Fide, Small Business, Capital Gain
11 May 2018
School
Department
Course
Professor
1
ADMS 4562
Summer 2013
Midterm 1 (June 9, 2013)
Solutions
Question 1 (MAX 14 marks; 15 marks available)
(a) (3 marks available)
AI Inc. is a resident of Canada for tax purposes (1 mark)
Since its central management and control is exercised in Canada (1 mark)
The majority (i.e., 7/12) of its BOD meetings are in Canada (1 mark)
(b) (12 marks available)
Macy must include in her 2012 income:
$50,000 as a shareholder benefit, and (1 mark)
$1 million due to the shareholder loan rules (1 mark)
If Macy repays the principal in full by October 31, 2013 she will
have to include an interest benefit at 3% in income (1 mark)
And will not have to include $1 million in income (1 mark)
S.15(2.4) Tests
1) Macy meets the employment reason test (1 mark)
Since other (senior) employees are eligible for similar loans in similar amounts (1 mark)
2) Macy is a specified employee/specified shareholder (1 mark)
Since she owns more than 10% (i.e. 40%) of the shares of AI Inc. (1 mark)
And the loan meets the specified purpose test (1 mark)
Since the loan was used to buy a dwelling (1 mark)
3) There are not bona fide arrangements for repayment of the principal (1 mark)
Since the principal does’t eed to e repaid util 2047/util she retires,
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2
leaves and there is no mortgage as security (normal commercial terms) (1 mark for
either; Max. 1 mark)
[Note: since principal is included in her income she will not have a low-interest benefit
and she will be able to deduct repayments in the year made]
Question 2 (MAX 15 marks; 15 marks available)
Note: minus 1 mark for every incorrect association claimed
Smithy Inc. and Yu Inc. are associated (1 mark)
ITA reference: 256(1)(e) (1 mark)
Each corporation is controlled by a related group (1 mark)
Mr. and Mrs. Smith control (i.e. own 60% of) Smithy Inc. (1 mark)
Mr. ad Mrs. Sith ad Mr. Sith’s other otrol
(i.e., own 63% of) Yu Inc. (1 mark)
Mr. and Mrs. Smith are related by marriage (1 mark)
Mr. Smith is related to his mother by blood (1 mark)
Mrs. Smith is related to her mother-in-law by marriage (1 mark)
ITA reference (re: related) 251(2)(a) (1 mark)
Each member of one related group is related to all members
of the other related group (1 mark)
Mr. and Mrs. Smith are deemed to be related to themselves (1 mark)
ITA reference re: related to yourself: 256(1.5) (1 mark)
And, one or more persons who are members of both related groups alone or together
own 25% or more of each corporation (1 mark)
Mr. and Mrs. Smith (are members of both groups) and together own more than
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Document Summary
Question 1 (max 14 marks; 15 marks available) (a) (3 marks available) Ai inc. is a resident of canada for tax purposes. Since its central management and control is exercised in canada (1 mark) (1 mark) The majority (i. e. , 7/12) of its bod meetings are in canada (1 mark) (b) (12 marks available) million due to the shareholder loan rules. If macy repays the principal in full by october 31, 2013 she will have to include an interest benefit at 3% in income. And will not have to include million in income. S. 15(2. 4) tests: macy meets the employment reason test (1 mark) (1 mark) (1 mark) (1 mark) (1 mark) Since other (senior) employees are eligible for similar loans in similar amounts (1 mark: macy is a specified employee/specified shareholder. Since she owns more than 10% (i. e. 40%) of the shares of ai inc. And the loan meets the specified purpose test.
