Assignment1Spring2020TaxationQuestion1

Mr.Chapman,anewclient,hasinvestedinrentalproperties,principalresidencesandothercapitalpropertywithinheritancemoniesandotherliquidcash.Heprovidesyouwiththefollowinginformationwithrespecttohis2019taxationyear.

Mr.ChapmanisemployedbyWealthInc.,aCanadian-controlledprivatecorporation,andreceivedthefollowingincomeandbenefits:

(1)Salary(net).............................................. $69,678

Payrolldeduction:

Incometaxes..................................

$15,013

CPP.........................................

2,749

EI..........................................

860

Registeredpensionplan(definedbenefit:currentservice)

3,700 22,322

$92,000

(2)Mr.Chapmanpaidprofessionalfeesof$500totheProfessionalEngineersofOntario.

(3)Mr.Chapmansoldtwolotsofhisstockoptions.Heprovidesyouwiththefollowing:

1stlot450sharessoldonMarch15,2019,for$26.50pershare.Theseshareswerepur-chasedinFebruary2012for$8atwhichtimetheshareswerevaluedat$10.50.

2ndlot600sharessoldonDecember5,2019,for$25pershare.Theseshareswerepur-chasedonApril12,2019,for$15atwhichtimetheshareswerevaluedat$21.Thefairmarketvalueatthedateofgrantwas$17.

(4)Mr.Chapmanreceivedaninterest-freeloanof$9,000onMarch12,2019,toenablehimtopurchasesharesofWealthInc.TheloanwasoutstandinguntilthesharesweresoldonDecember5,atwhichtimetheloanwasrepaid.Assumethattheprescribedratethroughouttheyearwas7%.

Inaddition,during2019,Mr.Chapmanreceivedthefollowingincomefromvarioussourcesincludingcertaincapitaldispositions.

(A)Mr.Chapmansoldthefollowingassets:

Cost

Proceeds

Antiquefootstool................................

$1,100

$900

Painting.......................................

950

2,000

Stampcollection.................................

250

850

(B)During2019,Mr.Chapmansoldhistworesidences,inordertopurchasealargerhomeinanexpensivesuburb.Thefollowingfactsrelatetothesetworesidences:

Datepurchased

Cost

Commission

Proceeds

Cityhome........

2010

$95,000

$21,000

$350,000

Cottage..........

2005

15,500

12,000

300,000

(C)Inadditiontohisresidences,Mr.Chapmanownstworentalproperties.Thefollowinginforma-tionpertainstothesetwoproperties:

YongeSt.

CharlesSt.

Costofland.....................

$70,000

$100,000

Costofbuilding..................

$55,000

$80,000

UCCJanuary1,2019,Class1......

$39,000

$65,000

YongeSt.

CharlesSt.

Rentalrevenuein2019.............

$18,000

$7,600

Expenses:

Taxes(property)..............

$2,100

$1,800

Otherexpenses...............

4,300

6,100

Mortgageinterest..............

3,600

Nil

$10,000

$7,900

TheCharlesSt.rentalpropertywassoldinNovemberforproceedsof$250,000less$9,000ofsellingcosts.Oftheproceeds,$140,000wasfortheland.

Mr.ChapmanpurchasedtheYongeSt.rentalpropertybyplacingamortgageonhishome.Hismonthlypaymentsare$450permonth,ofwhich$300permonthrepresentsinterest.

(D)Mr.Chapmangiftedhiswife$10,000inJune2019toallowhertoinvestinthestockmarket.Mrs.Chapmandecidedtobeacautiousinvestorforthefirstwhile;asaresult,sheinvestedthe$10,000inTreasuryBillswhichearned$600fromJunetoDecember2019.

(E)Mr.Chapmangifted$8,500toeachofhistwinchildren,DollyandCamp,aged15.Bothchildrenplacedtheirmoniesinhighinterest-bearingsavingsaccountseachreceivinginterestof$1,050in2019.

'(F)Mr.Chapmanreceiveddividendsfromthefollowinginvestments:

WealthInc.aCanadian-controlledprivatecorporation(fromincome

taxedatthelowcorporaterate..............................$800

'(G)Mr.ChapmanownsunitsinDumarkMutualFund.HereceivedaT3slipfromDumarkMutualFundindicatingthefollowingincomeamountsallocatedtohisaccountandreinvestedin2019:

Capitalgains................................$1,200

Actualamountofdividends........................347

Taxableamountofdividends.......................500

Mr.Chapmanhadinvested$20,000intheDumarkFundin2018.Thisresultedinthepurchaseof1,640.824unitsofthefund.In2018,incomeof$46.31wasallocatedtohisaccountandreinvested.Thereinvestmentresultedinthepurchaseof3.845unitsatthemarketvalueof$12.044perunit.The2019incomeallocationresulted,onreinvestmentofthe$1,544.97,inthepurchaseof119.358unitsatthemarketvalueof$12.944perunit.Latein2019,aftertheincomeallocation,Mr.Chapmansold1,000unitsforatotalof$12,881.

'(H)Mr.Chapmansolda$100,000GovernmentofCanadabondfor$115,000.Thisbondpaidinterestsemi-annuallyataninterestratewhichwasmuchhigherthancurrentinterestrates.Mr.Chapmanhadpurchasedthebondsontheopenmarketfor$98,000.

'(I)Mr.Chapmanhasalistedpersonalpropertyloss,carriedforwardfrom2013,of$500.

Mr.ChapmanhasaskedyoutocalculatehisDivisionBincomeaccordingtotheorderingrulesinsection3for2019.