Charles Ebo was terminated from his employment with QR Ltd. in July 20X6. In November 20X6, he began work as a commission salesperson for AP Ltd., a Canadian public corporation. Ebo has asked you to help him prepare his 20X6 tax return. Information regarding his employment is outlined below.
1. Ebo’s employment with QR was terminated on July 31, 20X6. His salary to that date was $56,000. Besides income tax, QR had deducted the following amounts from his salary:
Registered pension plan…………………………….. $4,000
CPP and EI contributions …………………………….. 3,340
Group sickness and accident insurance plan premium…… 500
Reimbursement for personal use of employer auto…….. 800
QR also contributed $4,000 to an RPP and $500 to a group sickness and accident insurance plan on Ebo’s behalf. Ebo took a medical stress leave from January 10 to March 15, 20X6. His salary was not paid during the leave. However, he received $4,500 for loss of earnings from the group sickness and accident insurance plan. In previous years, Ebo had paid a total of $3,000 in premiums to the plan.
2. On July 31, 20X6, Ebo returned the company car to QR, which had been available for his personal use. The car had an original cost of $35,000 and a book value of $24,000. Ebo had driven the car 20,000 km in 20X6, of which 8,000 km was for employment purposes. QR paid the operating expenses of $2,900.
3. In December 20X6, Ebo sold 4,000 shares of AP Ltd. at $10 per share. He had acquired them in November 20X6 under a stock-option plan at $6. At the time of acquisition, the shares were valued at $8 per share. When the option was granted, the shares were valued at $6 per share.
4. When his employment was terminated, Ebo paid a lawyer $800 to settle compensation issues. As a result, he received additional holiday pay of $1,000 and a retiring allowance of $6,000 for his 10 years of service.
5. Ebo collected employment insurance of $5,400 before starting his employment with AP on November 1, 20X6. Besides a base salary of $1,000 per month, Ebo receives commissions on sales. Ebo’s commission is 4% of sales. His first sales were made in late December 20X6 and totalled $150,000.The related commission was received on January 15, 20X7. On December 1, 20X6, AP paid Ebo $1,500 as an advance against commissions. AP certified that Ebo was required to pay his own car and other expenses. On November 1, 20X6, he leased a car at $960 per month (including tax). Operating expenses for November and December were $900 in total. The car was used 70% of the time for employment purposes.
Ebo incurred the following additional expenses:
Entertainment—meals and beverages…….. $600
Promotion—gift calendars for customers….. 200
Purchase of a cellular phone……………… 500
Required:
Determine Ebo’s net income from employment for the 20X6 taxation year.