Sukhbir Singh Sodhi Assignment 1-2

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ADMS 3520 (Overview of Canadian Income Tax) Fall 2023 Assignment 1 Due: by Monday, October 2, 2023 at 5:00pm Submit your/ your group’s assignment using our eClass course website. If you work in a group: choose 1 group member to submit the assignment (by the deadline) on behalf of the group. Make sure you only submit one assignment. Please use this coversheet (but do not include the rest of the question with your submission). The assignment question is after the coversheet. Section (A, B, C, D) Last Name First Name D Sodhi Sukhbir Attach this coversheet to your solution Your assignment solution can be prepared individually or in groups of up to five students. You can work with students in any section. You identify group members on this coversheet. Please list names alphabetically by last name. Each group must work independently from other groups. Assignments must be submitted (prior to the deadline) by using our eClass course website. Late assignments will not be accepted and will receive a 0. Follow the directions otherwise you will lose marks. Multiple assignment submissions will not be accepted. Please use Microsoft Word. You can submit a maximum of 1 file. 1

Income Tax Instalments Since BAI is a CCPC with Taxable income more than $500,000, BAI will be required to pay monthly income tax installments to CRA. The amount of these installments, for taxation period September 1, 2023 – August 31, 2024, can be calculated using 3 methods: the current year estimated income tax owing, the first preceding year income tax owing, and the second and first preceding year income tax owing. Current Year Method Estimated income tax owing (2024) $270,000 Monthly installments $270,000/12= $22,500 per month First Preceding Year Method Income tax owing (2023) $225,000 Monthly installments $225,000/12= $18,750 per month Current Year Method Income tax owing (2022) $180,000 Installments for months 1 and 2 $180,000/12= $15,000 per month Income tax owing (2023) $225,000 Installments for months 3 to 12 $ 225000 − $ 15000 ∗ 2 10 = $ 19,500 per month BAI should choose the installment method where there have the minimum total tax payments. For BAI, both the first preceding year method, and the second and first preceding year method have the minimum total tax payment amount. In this case, the tie breaker is that they should 2

choose the method that provides for a greater deferral of the payment amounts. So here BAI should use the second and first preceding year method, as by using this method they will pay only $15,000 for the first 2 months and then $19,500 for the next 10 months. The first 2 payments will be due on Sep 30, 2023, and Oct 31, 2023. The rest of the installments will be paid on: Nov 30, 2023 Dec 31, 2023 Jan 31, 2023 Feb 29, 2024 Mar 31, 2024 Apr 30, 2024 May 31, 2024 June 30, 2024 July 31, 2024 Aug 31, 2024 The final income tax payment for BAI for year ending August 31, 2023, will be due 2 months after its fiscal year ends, which means that it will be due on October 31, 2023. Whereas the corporate (T2) tax return for BAI will be due 6 months after its fiscal period end, that means it will be due on February 29, 2024. Personal tax Implications for Employee’s on Benefits  Bonus – If Annabelle decides that BAI will be paying its employees bonuses if there is an increase in annual sale by 15%. Then those $10,000 worth of bonus for each employee will be added to their employment income as it is a taxable benefit. Because BAI will be paying these bonuses after at least 9 months of the 2024-year end, due to this they won’t be a part of the employment income for year ended December 31, 2024, but will be added into their employment income of year ended December 31, 2025 as it will be a taxable benefit.  Tuition Costs – If BAI will pay 50% tuition for the party planning course for 2 of its employees, then those employees will not face any increase in their employment income 3

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as this course will primarily benefit BAI (their employer), so BAI will be the primary beneficiary in this case. So, this won’t be a taxable benefit for those 2 employees. On the other hand, if BAI pays 50% tuition for the dance classes of one of their employees, then the employee will face an addition of that amount in their employment income as it will serve for the personal interest of the employee and will be seen as a taxable benefit.  Stock Options – When it comes to stock options, employees don’t face any tax implications when they are granted the right, and since BAI is a CCPC, its employees will not face any tax implications while exercising the rights too. The taxable benefit will be included in their salaries when they make a sale and then also, they will get deduction for half of the amount. So, in this case, the increase in the taxable income for each employee will be ½ of ($30-$25)*1000= $2,500.  Employee Discount – If BAI decides to give its employees 10% discount on the merchandise that BAI sells. This will not have tax implication for the employees as its not seen as a taxable benefit unless it’s a high-ticket item or the discount doesn’t cover the cost of the employer for making that product. Here we can safely assume that the balloons or party supplies are not a high-ticket item, as well as that the 10% discount doesn’t reduce the price to a point that the employer is not able to cover the cost. If due to some reason the 10% enables employees to but the merchandise at less than cost, they the difference between the cost and the price paid will be added into the employment income of the employee.  Premiums for PHSP – When an employer pays premiums for private health services plans for all of his/her employees, then these premium payments are not included in employment income for the employees because they are not seen as a taxable benefit. So 4

in the case of BAI paying towards PHSP for its employees, those employees will not face any personal income tax implications.  Employee Loans – If BAI decides to give loans to employees at a low-interest, then this will be a taxable benefit for the employees as they are receiving economic benefit due to this. The amount of that taxable benefit will be based on the principal amount being multiped with the difference of the prescribed interest rate – actual interest rate charged from employee. So, taxable benefit in this case will be P*(4%-1%). Capital Cost Allowance  Leasehold Improvements – The renovations completed by Annabelle on the leasehold property will be eligible for CCA under CCA Class 13. This class used the straight-line method instead of declining balance. The maximum CCA claim allowed is the lower amount of 1/5 of the capital cost of the improvement or the capital cost divided by total years of lease term plus any first renewal options. Since, half-net rules has temporarily replaced by ACCII, so the first year’s CCA will be 1.5times the calculated amount. In this case 1/5 th of capital cost is $75,000/5= $15,000 and the other amount will be $75,000/(10+5)= $5,000. So, in this case, the lower amount of $5,000 will be used and due to ACCII, the CCA for year ended August 2023 will be $5,000*1.5= $7,500.  Class 8 Assets (Recapture) – BAI sold all its Class 8 capital assets for $115,000 which was less than its original cost of $150,000 but more than the UCC of $78,000. So, the difference between selling price and UCC i.e., $115,000-$78,000 = $37,000 will be the recapture value and will be added into the business income for the year ended August 31, 2023. 5

 Class 10 Assets – CCA rates for class 10 assets are 30% and are found using the declining balance method. Since BAI, has UCC of $6,000 in class 10 assets. So, the CCA for them will be 30% of $6,000 = $1,800. Additionally, it was mentioned that Class 10 assets of worth $18,000 were purchased on April 30, 2023, so we will have to find CCA for that also while considering ACCII. So, the CCA for additional class 10 assets will be 1.5 (30% of $18,000) = $8,100. Therefore, the total CCA for Class 10 assets will be $1,800+$8,100 = $9,900.  Class 50 Assets – BAI had UCC of $3,500 for class 50 assets. For these assets the CCA rate is 55% and it is found using the declining balance method. So, the CCA for them will be 55% of $3,500 = $1,925. Other than this, BAI purchased new computers with Microsoft O/S worth $25,000. As these additional class 50 assets are still in their first year of purchase, so ACCII will apply to them. So, their CCA will be 1.5(55% of $25,000) = $20,625. Therefore, the total CCA for class 50 assets is $1,925+$20,625 = $22,550.  Class 12 Assets – This class includes assets such as computer software that are not system O/S. This asset class is subject 100% CCA rate. As BAI bought new computer software worth $4,000, so the entire $4,000 will be the CCA for Class 12 Assets for year ending August 2023. So, the maximum amount of CCA that BAI can claim for year ended August 2023, is $7,500(CCA for leasehold improvements) + $9,900 (CCA for class 10 assets) + $22,550 (CCA for class 50 assets) + $4,000 (CCA for class 12 assets) = $43,950. Whereas the recapture for its Class 8 assets will be $37,000. 6

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