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Answer – 1 ACB = The premiums paid under the policy, less any dividends received
+ Interest paid on a policy loan if it was not deductible in computing income + Amounts included in income from non-exempt policy subject to the income accrual rules – The net cost of pure insurance.
Here = = $(5,000-200) + $1,000 – $1,300
= $(4,800) – $300
= $4,500
Therefore, the ACB of Janet’s policy is $4,500
Answer – 2
840+910+980
To calculate John's RRSP room for the year 2011, we need to consider his earned income for the previous year (2010) and any pension adjustments.
Given:
John's salary in 2008 was $60,000.
John's salary in 2009 was $65,000.
John's salary in 2010 was $70,000.
PSPA for year 2008 = [ 9 * ($60,000 * 1.4%) - 600] = $6,960
PSPA for year 2009 = [ 9 * ($65,000 * 1.4%) - 600] = $7,590
Since John did not join the pension plan until this year, he does not have a PA to reduce his RRSP contribution room for this year (i.e. he did not have any RPP contributions on his behalf last year to reduce his RRSP room). However, the PSPAs for purchasing credit for his service in the first two years of employment with the company will reduce his RRSP contribution room for this year:
His RRSP contribution limit for this year (2010) = $65,000 * 18% = $11,700
His RRSP contribution limit for this year (2010) = $11,700 - $6,960 - $7,590 = ($2,850)
John cannot contribute to the RRSP this year, so he must carry it forward to next year.
His RRSP contribution limit for this year (2011) = $70,000 * 18% = $12,600
PSPA for year 2011 = [ 9 * ($70,000 * 1.4%) - 600] = $8,220
His RRSP contribution limit for this year (2011) = $12,600 - $8,220 - $2,850(Carried forward
from last Year) = $1,530
Therefore, the RRSP contribution room for 2011 for John is $1,530
Answer – 3 To calculate the capital gain that Solomon has to report for each year from the year of sale, we need to first determine the adjusted cost base (ACB) of the property and then calculate the
capital gain for each year. 1. Adjusted Cost Base (ACB):
The ACB is the original purchase price of the property. Solomon bought the property for $150,000. 2. Capital Gain Calculation: The formula to calculate capital gain is Capital Gain = Selling Price - ACB - Year of Sale (Year 0): Selling Price = $100,000 (first installment) Capital Gain = Selling Price Income - ACB = $100,000 - $150,000 = -$50,000 Since the capital gain is negative, there is no capital gain to report for the year of sale. - Year 1: Selling Price = $40,000 (first installment)
Capital Gain = Selling Price Income - ACB = $40,000 – (-$50,000)Carried forward from last
year = $10,000 Since the capital gain is positive, there is a capital gain of $5,000 ($10,000*50%) reported for
this year.
- Year 2: Selling Price = $40,000 (second installment)
Capital Gain = Selling Price Income - ACB = $40,000 = $40,000 Since the capital gain is positive, there is a capital gain of $20,000 ($40,000*50%) reported for this year.
- Year 3: Selling Price = $40,000 (third installment) Capital Gain = Selling Price Income - ACB = $40,000 = $40,000 Since the capital gain is positive, there is a capital gain of $20,000 ($40,000*50%) reported for this year.
- Year 4: Selling Price = $40,000 (fourth installment)
Capital Gain = Selling Price Income - ACB = $40,000 = $40,000 Since the capital gain is positive, there is a capital gain of $20,000 ($40,000*50%) reported for this year.
Answer 4 – Given:
Roland's annual salary: $100,000
Roland's contribution rate: 4%
Company's matching: 50% of Roland's contributions
Current pension plan value: $250,000
Expected annual growth rate: 6.5%
Years until retirement: 10
Annuity rate: $95 per $1,000 of capital
Calculations:
Roland's Annual Contribution:
$100,000 times 4% = $4,000
Company's Matching Contribution:
$4,000 times 50% = $2,000
Total Annual Contribution:
$4,000 + $2,000 = $6,000
Future Value of the Pension Plan:
Where:
(P) is the current value of the plan ($250,000),
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