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Question content area top Part 1 Ms . Madison Lawson owns 6 0 % of the outstanding shares of Lawson ' s Luges Ltd .
Question content area top
Part
Ms Madison Lawson owns of the outstanding shares of Lawsons Luges Ltd a CCPC with an August taxation yearend. Ms Lawsons commonlaw partner, Jakob Bodnar owns the remaining shares of this company.
Lawsons Luges has been extremely successful and, as a result, has accumulated over $ comma comma in cash that is not needed in the business. Because of this, the company has a very generous policy with respect to making loans to employees
Loan policy
Under this policy, any employeeincluding both shareholders who are also employees is entitled to:
bullet A loan of up to $ comma to acquire a principal residence at an interest rate of Loan to be repaid over a fiveyear period in equal annual instalments plus interest.
bullet An interestfree loan of up to $ comma to purchase an automobile if used to carry out employment duties. This loan is to be repaid over a maximum of five years.
In Ms Lawson took advantage of the loan policy as follows.
bullet Principal Residence Loan On July Ms Lawson borrowed $ comma from the company. The loan will be repaid over a fiveyear period in equal instalments of $ comma plus interest on January of each year beginning January
bullet Automobile Loan On September Ms Lawson borrowed $ comma interestfree to purchase an automobile she will use in carrying out her employment duties. She is not sure when she will be able to repay this loan.
In addition to these loans that are available to all of the employees of Lawsons Luges Ltd Ms Lawson receives several other loans that will be used for various personal expenditures.
bullet February: Ms Lawson borrows $ comma at interest. This loan will be repaid on December
bullet July: Ms Lawson borrows $ comma on an interestfree basis. This loan will be repaid on August
bullet December: Ms Lawson borrows $ comma at interest. It will be repaid on July
All repayments are made as scheduled. Assume the prescribed interest rate is for all years.
Describe the income tax consequences of Madison Lawson receiving the principal residence loan. Complete the below sentences.
As such loans are available to all employees, Ms Lawson can claim that she has received the loan in
a shareholder capacity.
an employee capacity.
a management capacity.
This means that the loan being included in her income as income from property for
does not apply to ITA
applies to ITA
The rate on the loan is
greater than the prescribed interest rate.
the same as the prescribed interest rate.
less than the prescribed interest rate.
There will be an interest benefit that will be included in her income as income from employment
as long as the loan is outstanding.
in only.
in only.
in only.
Part
Now calculate the interest benefit for Round your answer to the nearest whole dollar.
Loan principal
times
Prescribed interest rate
Company interest rate
times
Fraction of year
Interest benefit,
times
times
Part
Now calculate the interest benefit for Round your answer to the nearest whole dollar.
Loan balance,
times
Prescribed interest rate
Company interest rate
times
Fraction of year
Interest benefit,
times
times
Part
Now calculate the interest benefit for Round your answer to the nearest whole dollar.
Loan balance,
times
Prescribed interest rate
Company interest rate
times
Fraction of year
Interest benefit,
times
times
Part
Describe the income tax consequences of Madison Lawson receiving the automotive loan. Complete the below sentences.
The motor vehicle exception
applies.
does not apply.
This is because the repayment date is
less than one year.
less than two years.
more than two years.
not known.
The twoyear limitation establishes the deadline of
August
December
August
December
August
December
Amounts that are repaid will not be required to be included in income but will be subject to an interest benefit through ITA as employment income if repaid by
August
December
August
December
August
December
Any amounts repaid after this date will be included in Madisons income as income from property under ITA in
Subsequent repayments related to amounts included in her income are
eligible for a deduction under ITA j in the year of repayment.
not eligible for a deduction under ITA j in the year of repayment.
Part
Describe the income tax con
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