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    Caines Dec 2011 PDF

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    Scott Li

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    © All Rights Reserved
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    of 6
    NOTE: PAGE 1 OF 6 UNIVERSITY OF TORONTO FACULTY OF LAW ANNUAL EXAMINATIONS, DECEMBER 15, 2011 ‘TIME: 9:30 am 12:30 pm ‘CANADIAN INCOME TAX LAW Reaminer: Prafeasne Caines 1, You may use any kind of material you wish during the examination, for ‘example, notes, the casebook, the Income Tax Act, and texts, except books ‘owned by the library. 2. The exam is composed of thirteen (13) questions, which relate to the attached fact pattern. The questions are equally weighted, but are not all equally dificult, Answer each question separately and explain your fanewers. If you believe more information Is required to give an answer, indicate what information is needed and how it would affect the result. 3, Cell phones, pagers and other communication devices are prohibited in exams. Cell phones are not permitted as a time keeping device, therefore should not be visible on the desk during an examination. Communication ‘vices let an the deste during an exam may’ be removed by the invgilatr. 4, Before you begin, ensure that you have written your psoudoname, course ‘name, and the number of the booklet on each examination booklet and the fname of the instructor on the firat booklet. If you request an additional bookdet{s) during the examination, write the required information on the booklet at the time you receive it. No time wil be permitted for this at the end of the examination, '5. During the examination, only one student at a time is permitted to leave the examination room, No student may leave within fifteen minutes of the conclusion of the examination. 6. At the endl of this examination, the invigilator will ask you to stop writing, ‘count the total number of booklets used, record this on the front of the first ‘booklet, and insert all booklets into the first booklet. For students who are ping their cuasnination, the invigilator wail ale you to atop typing and exit Examsoft, You wil then remain seated and quiet until all the examination papers/envelopes are collected, The invigiator(s) will et you naw when you ean leave the examination room. 7. Time limite will be strictly enforced. Students who continue to write or ype aller the examination has ended will have their answer bookdets examination envelope collected separately and may be subject to a penalty ‘Annual Examinations, 2011-2012 PAGE 2 OF 6 (Canadian Income Tax Law, Professor Caines he 1. Is Hank an employee of Ron? ‘You may assume for subsequent questions that the $10/day Hank is paid for his work is ‘employment income from his job at MeDaniel’s Restaurant, and that MeDaniel’s Restaurant is a business. 2, What is Hante's employment income for 2010? 3, Can Ron deduct any clothing or grooming expenses? 4, Discuss the deductibility ofthe $100 Ron spent to buy hamburgers from Muller ‘Meats, and the consequences of the deferral agreed with the seller. 5, Discuss the tax consequences for Ron of the events involving the rymaster-4000 land the Frymaster-5009, including any potential deductions in 2010 or 2011, ‘What are the consequences of the Candice's lawsuit, for Candice and Ron? Discuss the tax consequences for Hank ofthe theft and sale of the Frymaster-5000. Discuss what income Hank derived from his activites as the ‘Dance’n Man Discuss the deductibility of the $130 ultimately paid for the meal at Marigold’. 10, Discuss the letter from the CRA to Ron regarding the sale ofthe Old Building. 11. What are the tax consequences of the sale of the Old Building and the purchase of the New Building? 12, What ean Ron deduct in connection with the move to Victoria Place? 13, What do you think about Sebastion’s idea? ‘The thet pattern deats with the following individuals: Ron MeDaniel - A hardworking, though quiky, immigrant restaurateur. The one-time proprietor of McDaniel’s Restaurant (algo known ag “McDaniel, a famous restaurant in Coboconk, Ontatio, He had never designated a principal residence before 2011, Hank - A local man who is referred to by Ron as his “favourite employee” Sebastian ~ Friend of Hank, Candice ~ Retired woman with an outstanding lawyer and a refined aesthetic sense Janet ~ Ron's niece, born April 15, 1984, Rupert Marigold ~ Proprietor of Marigold's, another restaurant in Coboconk PAGES OF 6 Prior to the events of this story, two things brought joy to the people of Coboconic, Ontario: the delicious hamburgers and crispy french fries of the famous McDanicl’s Restaurant, MeDaniel’s Restaurant, the source of all this happiness, was a ‘business owned and operated by one Ron MeDaniel Ron MeDaniel, a chef from Scotland, opened McDaniel’s Restaurant when he arrived jn Canada about 10 years ago. ‘The restaurant operated from a typical restaurant-type building in downtown Coboconk. Ron organized hie whole life around the restaurant. For example, Ron always wore odd, bright, yellow-and-red-striped sweat-suit ensembles, tarish make-up, and rain boots (whether working or not, regardless of weather), which he believed would give the restaurant ‘character" and endear himn to customers. The outfit actualy frightened young children, causing some people o dine elsewhere, Ron even lived In the restaurant, despite its lack of typical home furnishings, and each night after closing, time would fall asleep on one of the restaurant’ tables Despite his personal quits, McDaniel’s Restaurant was popular enough that Ron. couldn’ do everything himself. Ron therefore paid Hank, a resident of Coboconk and all around hamburger lover, to help out with two specific tasks at the restaurant. Hank’s first responsibility was to take care ofall the hamburger preparation and cooking in the McDaniel’ kitchen. In addition, Hank served as the restaurant's “official head taste testet", This involved eampling the restaurant's food to male sure it ved up to Ron's high standards, Hanlc used hia own judgement to decide when and how often to sample the food, During his temure at MeDaniel’s Restaurant Hanle determined the harsburgers were, without exception, "quite delicious". Hanke was paid $10 for each day he worked. While working, Hank was required to wear the same sort of outfit as Ron, which he bought for himself at a cost of $30, ‘With Hank handling hamburgers, Ron was free to focus on french fries. The french fries were prepared with a deep fryer, Deep fryers are property of class 59, for which 25% annual depreciation is allowed by the regulations. Because of Ron's reputation in the deep fying world, deep fryers he used became collectors" items, As a result, Ren could usually sell his old deep (syers for considerably more than the original cost. Ron took advantage of this to trade up his deep flyers every year or two. At the start of 2010, Ron was using @ Frymaster-4000 that he had purchased for $1000 two years earlier. ‘The Prymaster-4000, was Ron's only class 58 property, and the undepreciated capital cost of that class was ‘$500, On March 7, 2010, Ron sold the Frymaster-4000 for $2000. The next day he Annual Examinations, 2011-2012 PAGE 4 OF 6 ‘Canadian Income Tax Law, Professor Caines purchased a Frymaster-S000 for $2500, which he also used in the restaurant unt February 1, 2011, ‘On June 1, 2010, Ron went to Muller's Meats, 2 local butcher, te discuss the purchase of 100 hamburgers. Muller orginally quoted a price of $110 for the hamburgers, ‘but dropped the price to $100 when Ron said that he would pay immediately but was willing to wait three months for delivery. ‘The money was paid that day and the hamburgers were delivered on September 1. Of these hamburgers, 30 were sold to customers ofthe restaurant in 2010, 5 were sold to customers in 2011, 10 wore eaten by Hanke ae part of his taste-esting duties in 2010, and the remaining 55 hamburgers were discarded early in 2011 for reasons described below. For the 2010 holiday season, MeDaniel’s Restaurant sold festive red-coloured “holiday-burgers," which were red because they were not cooked. Kon was aware of the risks of serving uncooled meat, but concluded that the promotional value would probably exceed the costs, It didn’t, Every person who ate @ holiday-burger became violently i, causing lote of negative publicity, Although Hank, who taste-tested a holiday-burger, was 100 ill ta wark from December 27th to the 31st, Ron continued to pay him the same $10 / day out of guilt. Ron was so annoyed by the incident that he threw away the remaining unsold hamburgers on January 10, 2011. Candice was one of the MeDaniet's customers who became ill. The illness made her dinzy, and the dizsiness caused her to trip and knock over two pretty sculptures, ‘destroying them both. She sued Ron and was awarded $1,200 for the destruction of each sculpture ($2,400 total. She had purchased the two sculptures in 2008 for $1,300 and $8800, respectively, and used them to decorate her home, Hank didn’t sue Ron, but he wasn’t happy about the food poisoning. He took his revenge on February 1, 2011. ‘That night, alter the restaurant had closed and Ron had gone to sleep, Hanke anuck back into MeDaniel's Restaurant through an open window and stole the Prymaater-£000. At the time ofthe theft the fair market value of the Frymaster ‘5000 was $2000. Hane sold the stolen Frymaster one month later, for $500, a typical Dlackmarlet price, Between the theft and the sale, Hank hid the deep fryer in his kitchen ‘and occasionally used it to prepare meals for himself ‘The events of 2010 caused Hank to reflect on hie life, and he decided that his true passion was not hamburgere, as he had long supposed, but dance. He started going to ‘dance clubs every night of the week, He told Ron that he'd be quitting on April 1, 2011, Annual Examinations, 2011-2012 PAGES OF 6 (Canadian Income Tax Lave, Professor Caines ‘and put an advertisement for his dancing services in the newspaper, under the stage name *Dance'n Man". The advertisement read: “Dance'n Man will entertain you with dance for only $20." The advertisement cost Hank $15. [Ron was intrigued. On March 15, 2011, he called the "Dance'n Man” (not realizing it was Hank) to discuss details. They agreed that the Dance'n Man would perform at Ron's niece's birthday party, on April 15, 2011, ‘The birthday party was at Marigold’s, another local restaurant. Hanke quit his job at MeDaniel’s Restaurant aa planned on April, performed at the birthday party, and was paid $20 for his dancing. On the day of the birthday he travelled between home and Marigold's by bus (61 round trip). Hank danced poorly, was jeered, and never danced again, On May 1, 2011, in light of his many debacles in Coboconk, Ron decided to move his ‘operations to the nearby town of Vietoria Place, 41km down the road. He sold the MeDanie!’s building in Coboconk (the “Old Building’) for $10,000; he had purchased it 8 years before for $7,000 and had never claimed any capital cost allowances. In order to calculate the gan from the sale ofthe Old Building for tax purposes, Ron

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