Solved

Gurpreet Sandhu Received a $300,000 Inheritance in 2020

Question 1

Essay

Gurpreet Sandhu received a $300,000 inheritance in 2020.With the proceeds, Gurpreet purchased the following investments:
1) Two rental properties: Property A has a value of $85,000, of which $40,000 is allocated to the building.Property B has a value of $110,000, of which $60,000 is allocated to the building.The properties earned a total of $9,750 in rental income before CCA.Both buildings are Class 1 - 4% assets, and the maximum allowable CCA will be claimed each year.The capital growth of the two properties combined is expected to be 5%.
2) A bond: Valued at $50,000 with 10% annual interest paid at maturity
3) Portfolio shares: Worth $10,000 - Eligible dividends in the amount of $700 were paid to Gurpreet before the end of the year.The capital growth of the shares is expected to be 3%.
The remainder of the money was applied to the mortgage.
Gurpreet is in a personal marginal tax bracket of 45% for ordinary income, 30% for eligible dividends, and 23% for capital gains.
Required:
A) Calculate Gurpreet's minimum property income for 2020.
B) Calculate the annual pre-tax return (as a percentage) for each of the three investments.
C) Calculate the after-tax yield (as a percentage) for each of the three investments based on the information provided.
D) Briefly explain the tax benefit that Gurpreet could have realized if the inheritance had been used to pay off the mortgage, and the investments were then purchased using a bank loan.

Correct Answer:

verifed

Verified

Related Questions