Ch-02 Sample Questions

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AC251

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Feb 20, 2024

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CH-2 Sample Questions (AC251 - 2021) 13 Questions 1 Tax Planning No specific slide 2 B.) non-arms length Slide-19 3 12 x (1-40%) 12% 60% = 7.200% Hence 4.8% 2) Which of the following scenarios illustrates unacceptable tax planning? Faizan owns two corporations and undertakes legal steps in order to permit loss utilization betw Ben transfers property to his child at a value less than fair market value. Mr. A transfers his shares to his spouse and the dividends from the shares are included in Mr. A Property transferred between Stan and Reed (arm's-length parties) is valued at fair market valu tax avoidance. 1) The controller of Little Company Ltd. has decided to sell a piece of capital equipment after order to avoid paying tax on capital gains this year. The controller is engaging in GAAR. tax planning. tax evasion. tax avoidance. 3) Certain skills are necessary for successful tax planning. One of these skills is applying the tim of the following is FALSE regarding this skill? Applying the time value of money is a tool used for wealth accumulation. If Lou invests $1,000 for one year at a rate of return of 14% and is subject to a 45% tax rate, Lo interest will be $77. If Cindy invests $1,000 at 8% and subsequently earns $48 in after-tax income on the investme year, Cindy's tax rate is 40%. If Randy earns an annual return of 12% and is subject to a 40% tax rate, Randy's annual after-t

4 B) Slide-20 5 C) Slide-3 Slide-4 6 C.) ↑ No Specific Slide for this. Math question 7 This is a form of tax evasion and is not allowed. 5) The CEO at Big Co. has decided to sell a piece of capital equipment after the company's ye paying capital gains tax this year. Which tax planning method will the CEO be using? Converting the nature of income from one type to another. Transferring income to another entity. Shifting income from one time period to another. This is a form of tax evasion and is not allowed. 4) Which of the following statements regarding GAAR is true? The purpose of GAAR is to catch tax evaders. Canada Revenue Agency states that "A transaction will not be an avoidance transaction if the it is undertaken primarily for bona fide business, investment or family purposes." Individuals who organize their affairs in order to pay as little tax as possible will automatically When an avoidance transaction takes place, the anti-avoidance rule is automatically applied i 60% If Cindy invests $1,000 at 8% and subsequently earns $48 in after-tax income on the investme year, what is Cindy's tax rate? 4.8% 8% 40% 60% Fred decides that it is better if his corporation pays him a dividend rather than a salary. What t Fred using? Shifting income to another entity

↑ Slides 15, 16 B.) 8 A.) ↑ No specific slides. Cash flow is a topic form AC221 (ACCT201) 9 A.) ↑ Slides: 11,12, 13, 14 Hiding income to avoid paying taxes Shifting income to another entity Shifting income to another type Shifting income to another time period Hiding income to avoid paying taxes the amount of money coming in, the amount of money saved, and interest rates. The three key factors of cash flow are the amount of money coming in, the amount of money going out, and timing. the amount of money coming in, the amount of money going out, and interest rates. the amount of money coming in, the amount of money saved, and timing. the amount of money coming in, the amount of money saved, and interest rates. Converting income from one jurisdiction to another Rory has run a successful proprietorship for the past four years and has now decided to incorp category of tax planning has Rory applied? Transferring income from one entity to another Converting income from one type of income to another Shifting income from one time period to another Converting income from one jurisdiction to another

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10 B.) ↑ Slides 15, 16 11 B) ↑ Slides: 11,12, 13, 14 12 D.) ↑ Slide 20 Converting income from one jurisdiction to another The sole shareholder of ABC Co. purchased the shares of the company in 2016 for $25,000 an shares at $150,000. In preparation to sell the company to an arm's-length party, the sharehold the usual annual dividend of $20,000. What type of tax planning is the shareholder engaging i Transferring income from one entity to another Converting income from one type of income to another Shifting income from one time period to another Converting income from one jurisdiction to another This is tax avoidance because there is no business reason to incorporate Lee decides to incorporate their business to take advantage of the reduced tax rates for small What type of tax planning has Lee engaged in? Shifting income to another type Shifting income to another entity Shifting income to another time period This is tax avoidance because there is no business reason to incorporate What is the general anti-avoidance rule (GAAR)? Avoid paying taxes at all costs. Non-arm's length transactions are prohibited. All of taxpayer's transaction amounts must be reasonable. Taxpayers cannot enter into transactions where the sole purpose is to reduce taxes, without a What is tax planning? The legal arranging of transactions to minimize the impact of taxes on cash flow

13 A.) ↑ No specific slides. Very first Learning Objective. The definition is: "The legal arranging of transactions to minimize the impact of taxes on cas Avoid the payment of unnecessary taxes at all costs The legal arranging of transactions to minimize the impact of taxes on cash flow Making sure the least amount of tax is paid Filing taxes in an orderly fashion Avoid the payment of unnecessary taxes at all costs

TAX PAID Take Home 45% $1,000.00 14% $140.00 $63.00 $77.00 $ 1,000.00 8% $ 80.00 32 48 12% 40% 4.800% % is FALSE - ANS ue. ween the two companies. A's income. ue. r the company's year-end in tax rate of return is 4.8%. me value of money. Which ou's after-tax value of the ent at the end of the first tax rate of return is 4.8%.

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1,000 8% 80 48 keep 32 tax 40% Employment income (Salary) Business Income ear-end in order to avoid in all circumstances. e taxpayer establishes that y be subject to GAAR. in all circumstances. ent at the end of the first type of tax planning is