Assignment problem Four- 2

Mr. William Norris is 45 years old. The following five independent Cases make varying assumptions for the 2019 taxation year with respect to Mr. Norris marital status and number of dependants. In all cases, Mr. Norris earned employemt income of 60000 and his employer withheld the required EI premiums and CPP contributions.

Case A : Mr. Norris is married and his wife, Susan, has net income for tax purposes of 8800, susan s 73 year old mother, Bernice, lives with them. Bernice, has a mental infirmity that is not severe enough to qualify for the disability tax credit. However, it does make her dependent on William and Susan. Because of a large investment portfolio, Bernice had net income for tax purposes of 18000 during 2019:

The federal Tax Before Credits is the same in all five of the cases in this problem. It is calculated as follows:

Tax On First $47,630 $ 7,145

Tax On Next $12,370 ($60,000 - $47,630) At 20.5 Percent 2,536

Tax Before Credits $9,681

Case A

The solution to this Case can be completed as follows:

Tax Before Credits $9,681

Basic Personal Amount ($12,069)

Spousal ($12,069 - $8,800) ( 3,269)

EI ( 860)

CPP ( 2,749)

Canada Employment ( 1,222)

Canada Caregiver [$7,140 - ($18,000 - $16,766)] ( 5,906)

Credit Base ($26,075)

Rate 15% ( 3,911)

Federal Tax Payable $ 5,770

As Bernice is dependent because of a mental infirmity, William can claim the Canada caregiver credit.

Case B: Mr. Norris is married and his wife, Susan, has net income for tax purposes of 4410. They have one child, Martha, who is 10 years of age. Martha had no income during the year. During the year, the family had medical expenses as follows:

William: 1200

Susan: 1600

Martha: 350

Total: 3150

Case B

The solution to this Case can be completed as follows:

Tax Before Credits $9,681

Basic Personal Amount ($12,069)

Spousal ($12,069 - $4,410) ( 7,659)

EI ( 860)

CPP ( 2,749)

Canada Employment ( 1,222)

Medical Expenses ($3,150)

Reduced By The Lesser Of:

[(3%)($60,000)] = $1,800

2019 Threshold Amount = $2,352 1,800 ( 1,350)

Credit Base ($25,909)

Rate 15% ( 3,886)

Federal Tax Payable $ 5,795

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Mr. Norris is married and his wife, susan, has net income for tax purposes of 4500. They have a son, Allen, who is 19 years old and lives at home. He attends university on a full time basis during 8 months of the year. Mr. Norris pays 9000 for Allens tuition and 900 for required textbooks. Allen had employment income during the summer months of 2200. He will transfer any unused credits to his father.

Case C

The solution to this Case can be completed as follows:

Tax Before Credits $9,681

Basic Personal Amount ($12,069)

Spousal ($12,069 - $4,500) ( 7,569)

EI ( 860)

CPP ( 2,749)

Canada Employment ( 1,222)

Transfer From Son (Note) ( 5,000)

Credit Base ($29,469)

Rate 15% ( 4,420)

Federal Tax Payable $ 5,261

Note: The transfer from the son is as follows:

Tuition Fees $ 9,000

Maximum Transfer ( 5,000)

Carry Forward (For Allens Use Only) $ 4,000

Allens Tax Payable is completely eliminated by his basic personal credit. He can transfer a maximum of $5,000 of his tuition amount to his father. The remaining $4,000 can be carried forward indefinitely, but must be used by Allen.

Case D: Mr. Norris is not married and has no dependants. On receipt of a 300000 inheritance in Dec, he donates 50000 to his local hospital, a registered charity. He chooses to claim 15000 in 2019. He also makes contributions to a federal political party in the amount of 1000.

Case D

The solution to this Case can be completed as follows:

Tax Before Credits $9,681

Basic Personal Amount ($12,069)

EI ( 860)

CPP ( 2,749)

Canada Employment ( 1,222)

Credit Base ($16,900)

Rate 15% ( 2,535)

Political Contributions Tax Credit

[(3/4)($400) + (1/2)($350) + (1/3)($250)] ( 558)

Charitable Donations [(15%)($200) + (29%)($15,000 - $200)] ( 4,322)

Federal Tax Payable $ 2,266

As none of his income is taxed at 33 percent, this rate will not be applicable to the calculation of the charitable donations tax credit.

Unused charitable donations can be carried forward for up to five years. The limitation of 75 percent of Net Income For Tax Purposes would have given Mr. Norris a maximum credit based on $45 [(75%)($60,000)] in charitable donations. However, if he chose that amount, the credit would be larger than his Tax Payable. Because this is a non-refundable credit, he should not use an amount of the contribution that would create a credit larger than his tax otherwise payable.

This leaves Mr. Norris with $35,000 ($50,000 - $15,000) in charitable donations that can be carried forward for five years. He will be subject to the 75 percent limitation of Net Income For Tax Purposes in any year he claims the charitable donations.

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Case E Mr. Norris is a single father. He has a daughter, Mary, who is 8 years old and lives with him. Two years ago, Mr. Norris graduated from a Canadian University . He currently has a Canada Student Loan outstanding. Mr. Lorris pays back this loan in monthly instalments of 300. During the year, he paid 450 in interest on this loan.

Case E

The solution to this Case can be completed as follows:

Tax Before Credits $9,681

Basic Personal Amount ($12,069)

Eligible Dependant - Mary ( 12,069)

EI ( 860)

CPP ( 2,749)

Canada Employment ( 1,222)

Interest On Student Loan ( 450)

Credit Base ($29,419)

Rate 15% ( 4,413)

Federal Tax Payable $ 5,268