AP 11-8 (Comprehensive Tax Payable with Donations)

Family Information

Lyla and Clark Beaston are both 45 years of age. They have been happily married for 23 years. They have no children. Both of them are lawyers and have had very successful careers in a variety of jobs. At this point, their net worth is over $5 million. Lyla is currently employed by a large public company. While Clark has been an employee in the past, he currently spends his time managing the family's investments. For a variety of reasons, all of these investments are solely owned by Clark. While both Lyla and Clark enjoy generally good health, Clark has signifcant back problems related to a childhood accident. As these have worsened in recent years, in 2021 he decides to go to a clinic in the U.S. for surgery. The total cost of this surgery is US$52,000. At the time of this surgery, the exchange rate was US$1.00 = C$1.35, providing a Candian doillar equivalent of $70,200. The travel costs associated with this surgery were US$8,000, resulting in a Canadian dollar equivalent of $10,800. Clark's Canadian doctor has provided a letter indicating that a simi-lar surgery would have required a wait time of at least two years in Canada. The couple have qualifying medical expenses in Canada consisting of prescriptions and regular dental work of $4,800. Because they attribute much of their success to the excellent education they received at the University of Toronto, they make a 2021 donation of $175,000 to this institution when Clark receives a large and unexpected inheritance. No other donations are made during the year.

Lylas Employment Information

Lyla's gross salary for 2021 is $270,000. Her employer withholds the maximum 2021 contribu-tions of Employment Insurance ($890) and the Canada Pension Plan ($3,166). She does all of her work in her employer's ofce and is not required to travel. Given this, she has no deductible travel or other employment-related expenses. Her employer sponsors a defned beneft registered pension plan. Her contribution, which is withheld from her salary, is $12,450. Her employer makes a matching contribution. Her employer provides a group disability plan for its employees. The 2021 premium on this plan is $2,500, one-half of which is paid by Lyla through withholdings. Her employer also provides for a generous medical insurance plan that covers 100% of any prescription costs and dental fees paid in Canada by employees for themselves or their families.

Clarks Investment Results

During 2021, the results for the investments that Clark manages are as follows:

Interest $ 28,600 Eligible dividends from Canadian public companies 136,000 Net taxable capital gains 77,000

In order to increase his investment holdings, Clark assumed a mortgage on the family resi-dence. The residence had been purchased for cash and, at the time the mortgage was arranged, there was no debt on the property. The proceeds of the mortgage were immediately invested in shares of Canadian public companies. Interest on the mortgage for 2021 was $12,000.

Required:

A. Determine the combined net federal tax payable for Lyla and Clark, assuming that Lyla claims all of the medical expenses and all of the charitable donations. B. Determine the combined net federal tax payable for Lyla and Clark, assuming that Clark claims all of the medical expenses and all of the charitable donations. C. Determine whether there is an allocation of medical expenses and charitable donations that would produce a lower combined net federal tax payable than either the Part A results or the Part B results. Show your calculations