TAXX301_Assign1

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Question 1-13, pg. 58 CASE A Income under ITA 3(a): Employment Income $58,200 Rental Income 5400 $63,600 Income under ITA 3(b): Taxable Capital Gains 31,600 Allowable Taxable Losses (12,400) 19,200 Balance from ITA 3(a) and 3(b) 82,800 Subdivision e deductions (4000) Balance from ITA 3(c): 78,800 Deductions under ITA 3(d): Business Loss (12,300) Net Income for Tax Purposes $66,500 CASE B Income under ITA 3(a): Employment Income $82,600 Rental Income 12,200 $94,800 Income under ITA 3(b): Taxable Capital Gains 15,600 Allowable Taxable Losses (23,400) nil Balance from ITA 3(a) and 3(b) 94,800 Subdivision e deductions (5400) Balance from ITA 3(c): 89,400 Deductions under ITA 3(d): Business Loss (8400) Net Income for Tax Purposes $81,000 Allowable Capital Loss Carry Over (23,400 – 15,600) $7800 CASE C Income under ITA 3(a): Employment Income $46,700 Rental Income 2600 $49,300 Income under ITA 3(b): Taxable Capital Gains 11,600 Allowable Taxable Losses (10,700) 900 Balance from ITA 3(a) and 3(b) 50,200 Subdivision e deductions (11,600) Balance from ITA 3(c): 38,600 Deductions under ITA 3(d):

Business Loss (62,300) Net Income for Tax Purposes nil Business Loss Carry Over (62,300-38,600) $23,700 CASE D Income under ITA 3(a): Employment Income $33,400 Rental Income (18,300) $15,100 Income under ITA 3(b): Taxable Capital Gains 23,100 Allowable Taxable Losses (24,700) nil Balance from ITA 3(a) and 3(b) 15,100 Subdivision e deductions (5600) Balance from ITA 3(c): 9500 Deductions under ITA 3(d): Business Loss (46,200) Net Income for Tax Purposes nil Allowable Capital Loss Carry Over (24,700 – 23,100) $1600 Business Loss Carry Over (46,200-9500) $36,700 Question 2-1, pg. 98 CASE ONE Date Tax Payable Income Withheld Owing 2020 $18,880 $14,480 $4400 2021 20,320 19,720 600 2022 Esti. 21,760 18,640 3120 Instalments would be required for 2022 as the estimated tax owing in 2022 and 2020 exceeds the $3000 threshold. Instalments for Individuals: Alternative 1: Current Year / 4 Alternative 2: Preceding Year / 4 Alternative 3: Second Preceding Year/4 + (excess of the net tax owing for the 1 st preceding year-1/2 second preceding year net tax)/2 The CRA uses alternative 3 in their instalment reminders. 4400/4 = 1100 1100 will be used for the first two payments on March 15 and June 15. (600-2200)/2 = (800) = nil

No payments will be made on September 15 and December 15 because the amount owing is less than 0. This will result in total payments of 2200 (1100 x 2) for 2022. However, this is not the best option for Gladys Nite. If she instead used alternative #2 (Preceding year/4) she could reduce her overall instalment payments. Using that alternative, we get 600/4 = 150 per payment. These payments would occur on Mar. 15, Jun. 15, Sep. 15, and Dec. 15. This is a significantly better option than alternative #3 despite having to make payments on Sep. 15 and Dec. 15 as it reduces her overall instalment payments from 2200 to 600 . CASE TWO Date Tax Payable Income Withheld Owing 2020 $18,880 $19,280 nil 2021 20,320 14,880 5440 2022 Esti. 21,760 18,560 3200 Instalments would be required for 2022 as the estimated tax owing in 2022 and 2021 exceeds the $3000 threshold. CRA Instalment Reminders Nil/4 = nil The first two payments on Mar. 15 and Jun. 15 would be nil because the amount owing in 2020 is nil. The next two payments would equal (5440-0)/2 = 2720 on Sep. 15 and Dec. 15. This is not the worst alternative to choose as there is some built in tax deferral compared to alternative #2 which would require equal payments of 1360 throughout the year. However, alternative #1 is the best choice as it reduces the overall instalment payments from 5440 to 3200. Alternative #1 Current year owing/4 3200/4 = 800 Four payments of 800 on Mar. 15, Jun. 15, Sep. 15, and Dec. 15 would be required under this alternative. CASE THREE Date Tax Payable Income Withheld Owing 2020 $18,880 $15,280 3600 2021 20,320 16,160 4160 2022 Esti. 21,760 19,440 2320

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Instalment payments do not need to be made in this case as the estimated 2022 tax payable is less than $3000. If it turned out that the estimation was wrong and Gladys owed more than $3000 she would need to pay instalments. Question 2-6, pg. 100 Additional information I would like to have before taking Mr. O’Brien on as a client. 1. When he received his notice of reassessment. If it is more than 90 days ago, it will make filing an objection more difficult. 2. If the additional payment has anything to do with CPP/EI refunds, a home buyers plan (HBP) or tax deducted at the source among a number of other issues which one cannot object to as outlined in the CRA’s guide “Resolving Your Dispute: Objections and Appeal Rights under the Income Tax Act” 3. When the initial notice of assessment was received. If it was more than three years before the notice of reassessment, the reassessment may be invalid. 4. If Mr. O’Brien has signed any waiver of the three year time limit. Should I get the information I need and decide Mr. O’Brien is worth taking on as a client, I would proceed with the following steps. 1. Have Mr. O'Brien authorize me through his “My Account” service. 2. Begin communicating with the CRA. While it is unlikely that they would change anything as the amount is over $25,000, starting a dialogue on behalf of Mr. O’Brien cannot hurt and may illuminate specific reasons as to why the CRA made the adjustments they made. 3. If informal communication fails or if the CRA is taking too long to respond, submit a formal notice of objection on the CRA website within 90 days from receiving the notice of reassessment. The CRA must respond within 90 days and their response will be one of the four following options. a. Vacating the reassessment (reversing it) b. Confirming it c. Varying the amount d. Reassessing Should the matter remain unresolved, I would pursue a higher level of appeal such as the tax court of Canada. Question 3-10, pg. 173-174 Salary $120,000 Union Dues (100) Vehicle 3629 Options 13,000 Personal Trainer 700 Printer Supplies (550)

Net Employment Income $136,979 1. Federal and provincial income tax, EI premiums, and CPP contributions are not considered tax deductible and therefore have no impact on the calculation of employment income. Personal health plans are not considered a benefit and thus will not appear either. Union dues are the only withheld amount that is deductible and therefore reduce income by $100. 2. Taxable benefit for the car Standby charge = (2%)(cost)(Months available to employee)(Personal km/months available*1667) = (2%)(33,600)(12)(6000/1667*12) = $2419 (rounded) Operating Cost = Lessor of 1. (0.28)(Personal km driven) 2. (1/2)(Standby charge) (0.28)(6000) = $1680 (1/2)(2419) = $1210 (rounded) We will use this figure as it is less than $1680. Benefit = Standby charge + Operating cost = $2419 + $1210 = $3629 3. Employment income is determined on a cash basis which would mean the cheque for $2000 should be included in Alex’s 2023 income as it is payable in January 2023. 4. Since the options granted to Alex were not in the money when they were granted there are no initial income tax considerations. The income Alex earns when he sells the exercised shares is treated as capital gains. Initial Price per share Sold Price per share Profit $35 $48 $13 $13 x 1000 shares = $13,000 capital gains. This amount is included in full since we are calculating employment income. If we were calculating taxable income, this amount would be reduced by $6500 (13,000)(1/2). 5. Childcare provided by the employer that is not available to the public is not considered a benefit. 6. Merchandise discounts are not considered benefits unless they are to do with items of significant monetary value. Retail clothing would typically not count. Additionally, the discount must be available to all employees and cannot be below cost for the company. 7. Takeout meals eaten while working overtime are typically not considered benefits. Private health services plan employer portions are typically not considered benefits. A personal trainer supplied by the company, even if used at Apex’s site are considered benefits.

8. Since the iPad was purchased by the company and used exclusively for company purposes, it would be considered property of the company and not applicable as a benefit for Alex. Unfortunately, Alex will not be able to deduct CCA for the printer as he is an employee. If he were a contractor this would be an option for him. He can; however, deduct supplies. In this case that would include the $550 for ink cartridges and paper. Question 3-12, pg. 175-176 Salary $82,500 Bonus Deferral *1 20,000 Vehicle Benefit *2 7580 Counselling Services *3 1500 Interest Benefit*4 375 Stock Option Benefit *5 3000 Subtotal $114,955 Professional Dues (1800) RPP Contributions (3200) Net Employment Income $109,955 1. Since the bonus is deferred more than three years the bonus is added to the employee’s income when the services are rendered by the employee to the employer. In this case that would mean 2022. 2. Mr. Bond does not qualify for a reduction in the vehicle benefit charged him as he used the company vehicle for personal reasons more than 50% of the time. This also removes the choice in calculating operating cost. Standby Charge = (2%)(Cost)(Months available) Operating Cost = (.28)(Personal km driven) Standby Charge = (2%)(47,500)(10) = 9500 Operating Cost = (.28)(6000) = 1680 Subtotal = 11,180 At this point, Mr. Bond could apply the 3600 the company has withheld. Withheld payments = 3600 Final Total = 7580

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3. Counselling services are usually considered taxable benefits unless the counselling is in respect to the mental or physical health of the employee. 4. Loans given at rates lower than relevant prescribed rates are considered taxable benefits and Mr. Bond will be subject to the difference between the interest rate charged and the interest rate that would have been charged if at the prescribed rate. Loan Amount Rate Time Owing 150,000 1% 3 months 375 150,000 2% 3 months 750 750 – 375 = 375 in taxable benefit. 5. Mr. Bond was granted the options to purchase shares at $15. He exercised this right when shares were trading at $18. The difference of $3 is considered part of employment income. However, he did not sell the shares immediately, waiting until they were trading at $20 per share to sell. The difference between $18 and $20 would be considered capital gains. Thus (1000 shares)($18-$15) = $ 3000 6. Federal Income Tax, EI premiums, CPP contributions, United Way donations and payments for personal use of the car are nondeductible. Payments for the car can be used against the standby charge and operating cost applicable to Mr. Bond. While donations may create a tax credit, they are not considered in determining employment income.