Exam 2: Fundamentals of Tax Planning

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Certain skills are necessary for successful tax planning.One of these skills is applying the time value of money.Which of the following is FALSE regarding this skill?

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C

Which of the following statements regarding GAAR is true?

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C

Which of the following scenarios illustrates unacceptable tax planning?

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D

The controller of Little Company Ltd.has decided to sell a piece of capital equipment after the company's year-end in order to avoid paying tax on capital gains this year.The controller is engaging in

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The CEO at Big Co.has decided to sell a piece of capital equipment after the company's year-end in order to avoid paying capital gains tax this year.Which tax planning method will the CEO be using?

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For each of the three examples listed below, identify the category of tax planning (A-C) that has been applied.
Rory has run a successful proprietorship for the past four years and has now decided to incorporate the business.
Shifting income from one time period to another
The sole shareholder of ABC Co. purchased the shares of the company in 2016 for $25,000, and has recently valued the shares at $150,000. In preparation to sell the company to an arm's-length party, the shareholder decided not to issue the usual annual dividend of $20,000.
Transferring income from one entity to another
XYZ Inc. has chosen to delay the recognition of a discretionary reserve until the following year.
Converting income from one type of income to another.
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Rory has run a successful proprietorship for the past four years and has now decided to incorporate the business.
Shifting income from one time period to another
The sole shareholder of ABC Co. purchased the shares of the company in 2016 for $25,000, and has recently valued the shares at $150,000. In preparation to sell the company to an arm's-length party, the shareholder decided not to issue the usual annual dividend of $20,000.
Transferring income from one entity to another
XYZ Inc. has chosen to delay the recognition of a discretionary reserve until the following year.
Converting income from one type of income to another.
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Parker has $10,000 to invest.He wants to put his money in a one-year investment earning an annual interest rate of 12%.Parker is in a 42% tax bracket. Required: a) Calculate the total value of Parker's investment, after-tax, at the end of the year. b) Calculate the amount of tax Parker will pay on his investment.

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Quinn's proprietorship earned $160,000 in pre-tax profits this year.Quinn does not require personal funds from the business. Personal tax rates (federal plus provincial) in Quinn's province are: (All rates are assumed for this question.) The combined federal and provincial rate of tax for Canadian-controlled private corporations in Quinn's province is 13% on the first $500,000 of income. Quinn has been considering incorporating the business. Required: A.Calculate the after-tax profits for the business as i) a proprietorship, and ii) a corporation.Show all calculations. B.Name the type of tax planning that Quinn would be engaging in if the company was changed from a proprietorship to a corporation. On the first \ 49,000 20\% On the next \ 48,000 30\% On the next \ 54,000 40\% On the next \ 63,000 45\% On income over \ 214,000 50\% A.Calculate the after-tax profits for the business as i) a proprietorship, and ii) a corporation.Show all calculations. B.Name the type of tax planning that Quinn would be engaging in if the company was changed from a proprietorship to a corporation. A) After-tax profits as a proprietorship: \ 160,000.00 \ 160,000.00 Less Tax: 49.000.00 \times20\% \ 9,800.00 48,000.00 \times30\% \ 14,400.00 \ 54,000.00 \times40\% \ 21,600.00 \ 9,000.00 \times45\% \ 4,050.00 After-tax profits: \ 110,150.00 After-tax profits as a corporation: \ 160,000.00 \ 160,000.00 Less Tax: \ 160,000.00 \times13\% \ 20,800.00 After-tax profits: \ 139,200.00 B) Transferring income from one entity to another (individual to corporation)

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