16 ITA: Division B Cam Renaz, a self-employed geologist, is a single parent with full custody of his two daughters, Sharee and Susanna (ages 13 and 15). During the past year, Cam retained the full-time services of a nanny to care for them while he worked. Unfortunately, this was a difficult year in Cam's field and his earnings were low. To assist in financing his living expenses, he withdrew $12,000 from his RRSP. He also settled with his wife and she paid him $20,000 as a lump sum in exchange for being relieved of any liability for future alimony payments. To save even more money, Cam prepared his own income tax return, instead of using his accountant's services. Below is a summary of Cam's income tax information: Consulting income, net of expenses Car purchased used 40% for business use Nanny's salary ($1000/month) RRSP withdrawals (gross) Canadian dividends cash amount (from CCPCs whose active business income is eligible for the small business deduction) $28,000 (18,000) (12,000) 12,000 1,500 When Cam filed his income tax return, he deducted the nanny expense from his consulting income, and wrote off 40% of the cost of the car as business expense. He did not report the RRSP withdrawals because 20% tax was withheld at source. When Cam received his notice of assessment from the CRA, he was shocked to see that he owed substantially more income tax. The following comments were made in his notice of assessment: Child care expenses are not deductible as a self-employed business expense and have been disallowed. Cannot deduct price of car as a business expense, and the item has been disallowed. Your dividend income has been increased by $225. Our records indicate that you withdrew $12,000 from your RRSP and received $20,000 from your ex-spouse for alimony; these amounts have been added to your income. Cam does not understand why the CRA is assessing him this way. He particularly recalls his accountant telling him that the nanny expenses would be tax deductible. Compute Cam's net income, considering the legislation, common law and administrative practice, and the correct income tax treatment of each of the items creating problems in Cam's income tax return