Ms. King had a busy year in 2012. During the year, she formally separated from her husband and retained custody of her five-year-old daughter, Kelly. She also decided that she needed a fresh start in another city, so she quit her job in Belleville, Ontario, and got a new job in Windsor. Ms. King and her daughter moved to Windsor, Ontario, in November 2012. She has asked you to help her estimate her 2012 personal income tax liability. In order to help you, she has prepared the following list of all the transactions which she thinks might be of interest to you.
(1) Her employment income from her employer in Belleville for the first 11 months of 2012 was $55,000. Her deductions at source included CPP/EI of $3,147 and income tax of $20,000.
Before she left the Belleville employer, a public company, she exercised a stock option that she had for 800 shares. When this option had originally been granted, the share price was $15. The exercise price of the option was $17. At the time she exercised the option, the market price was $25. She immediately sold these shares on the open market for $25.
(2) Her new employer in Windsor agreed to pay some of her moving expenses, but in order to simplify things; they were going to give her an allowance of $8,000. She was responsible, then, for her own expenses.
Her moving costs were as follows:
Moving company charges$5,500
Gas for trip to Windsor at the time of the move (600 km driven)50
Motel in Belleville for one night on the day of the move75
Meals during the day of the move and during the trip to Windsor100
Lease cancellation charge in Belleville200
...........................................................................................$5,925
She had made a trip to Windsor to look for an apartment for her and Kelly and she had incurred the following expenses:
Gas for trip to Windsor$ 50
Motel costs in Windsor 150
Meals 75
$275
(3) Her income from her new employer in Windsor during the month of December was $5,000.
(4) During the year she incurred the following expenses for the care of Kelly:
Food and clothing...............................................................$6,000
Babysitter costs while she was at work ........................................3,000
Continue to next pg......
(5) Ms. King incurred legal fees of $3,200 to establish her right, under the Divorce Act, to support payments in connection with the finalization of the separation agreement. She feels that this was well spent, since her lawyer was successful in getting her husband to pay child support to her for Kelly in the amount of $800 per month, starting in February 2012. So far, her husband has been making these payments on time.
She also had trouble with her 2010 tax return and had to pay her previous accountant $400 to deal with the CRA. It turns out that the CRA has correctly assessed her return.
(6) She is totally confused by the RRSP rules, so she wants you to tell her what the maximum amount is that she can contribute to her RRSP for 2012. She wants you to assume that she will make these payments within the time deadlines when you calculate her tax liability.
(7) Five years ago, Ms. King inherited some shares in a Canadian-resident public company, Facai Ltd., from her mother. She believed that the shares were capable of making money for her. She sold the shares in 2012, in order to put money into a mutual fund that a friend recommended. Her mother had paid $5,000 for these shares in 1985 and at the time of her mother's death, the shares were worth $60,000. Ms. King sold them for $180,000.
Ms. King received cash dividends from these shares during the year in the amount of $9,058.
(8) One of her good friends had been a battered wife, so Ms. King had donated $2,000 to the local registered charity which protects battered women.
(9) Ms. King gave you a copy of her 2011 tax return and it showed employment income of $55,000, child care expenses of $2,000 and taxable dividends of $10,000. She made the maximum RRSP contribution for 2011.
REQUIRED
Calculate Ms. King's income under Division B for 2012. Explain why you omitted any amounts from your calculations. Show all calculations.