Amy and Jake Smith have come to discuss their 2022 tax situation with you. They predict that Amy will not have to pay taxes this year, which they believe will allow Jake to claim the non-refundable tax credit of spouse credit. The couple has provided you with the following information, including the statements from their companies (Exhibits I and II) which they have prepared themselves but are not sure if they are correct. Jake is also the sole shareholder of Brooklyn Co., a CCPC, and would like to know the tax liability for Brooklyn Co.

Jake and Amy and family

Jake and Amy have been married for ten years. They are both 40 years old, and they have three children under the age of five. Total daycare expenses for the children were $1,000.

Jake (2022)

Jake earns a pre-tax salary of $75,000 per year from Brooklyn Co.

Enhanced CPP is $461.

Jake received the following benefits from Brooklyn during the year: Private health and dental care: $400

Life insurance: $500

$2,000 worth of products at cost

Registered pension plan (RPP) contributions: $3,000 per year.

Brooklyn Co. also deducted $3,000 from Jakes salary during the year for the RPP.

Jake contributed $2,000 to an RRSP for the taxation year (within the allowable limit).

Amy (2022)

Amy began part-time employment at Fitness Inc. and earned a gross salary of $15,000 and did not have any employment income in the prior year.

Amy received free use of the owners cottage for two weeks in May, which is typically rented out for $500 per week.

Enhanced CPP is $94.

Amy began a small home-based proprietorship last year, Amys Consulting, see Exhibit 2 for Amys accounting records. The business operates from a 200 square foot room in the familys 2000 square foot home and is used exclusively for the business.

Amy contributed $4,000 to a TFSA this year.

Required:

A. Prepare the calculations (in accordance with the statutory formula of S.3 of the Income Tax Act) to determine the taxable income for both Jake and Amy for 2022. (Show calculations for Amys business income.) (30 marks)

B. Determine if Jake will be able to claim the non-refundable spouse credit for the 2022 taxation year? (4 marks)

C. Calculate the federal tax liability for Brooklyn Co. for 2022? (26 marks)