PROBLEM 3:

Parcel 1
The sale of parcel 1 is a capital transaction, and the resulting gain on sale is a capital gain,
whereby 50% is taxable.
= $200,000 - $160,000
= $40,000 * 50%
= $20,000 Taxable gain
Parcel 2
Parcel 2 was purchased with the intention of reselling it at a profit, therefore the land is
considered inventory and the resulting gain of $280,000 is business income.
$190,000 is deferred to future years, therefore a reserve can be deducted from the gain.
However, the full gain must be included in income by the end of the third taxation year.

Expense
Finders fee to obtain a mortgage on the companys buildings

Amoun

Amount

Included

$6,000

$1,200

Note

A finders fee for a mortgage

and is disallowed by the gen

specific exception is provide

borrow money; one-fifth can

Property taxes on the companys new fishing lodge, which is used

1,200

by employees

over five years

Under this restriction, no bus

to deduct the expenses incu

maintenance of a yacht, a ca

course unless such property

normal business
Interest for late payment of municipal property taxes for the

600

600

warehouse
Brokers fees for the purchase of publicly traded shares
Permanent landscaping of land around the head office buildings

1,400
4,800

0
4800

The item has a long-term be

Expenses incurred for the la

around a building or other st

the purpose of gaining or pro

deductible when paid (not w

though such expenditure pro

Cost of investigating a site for a proposed warehouse, when the

2,000

2000

site was rejected

benefit through land enhanc

A deduction is permitted for
a suitable site for a building

business. The deduction is a

Hockey tickets to entertain customers
Reserve for the possible costs for guarantees of products sold in

1,800
8,000

900
0

Total

$9,500

the year

the site is actually acquired

Meals and entertainment at
no reserves are permitted as