Brenda has provided you with the following details regarding her activities for 2020. Brenda owns a chocolate shop located in Brentwood Mall. She runs it as a sole-proprietorship without her husband's involvement. Reid and Oliver help out every Saturday at the shop. Neither receives a salary for their work. Brenda pays for their sporting events and clothing so she does not feel she should pay them a wage.

The income statement for 2020 and other information for Brenda's chocolate shop are below:

Revenues $581,000

Expenses (General and administrative) 398,250

Amortization on fixed assets 35,810

146,940

Accounting gain on disposal of fixed assets 98,325

Accounting net income before income taxes 245,265

Provision for income taxes (instalments paid by Brenda) 48,000

Net income after taxes 197,265

Additional information related to Brenda's chocolate shop:

The opening UCC balances at January 1, 2020 were as follows:

Class 1 45,000

Class 8 8,000

Class 10 12,000

During 2020, Brenda purchased the following depreciable assets for her business: Delivery van 31,000

Computer equipment & related systems software 8,000

Computer word processing software 6,000

In April 2020, Brenda sold her owned business premises (consisting of land and a Class 1 building) and moved to a spot in Brentwood Mall, which is currently being leased. She received proceeds of $120,000 for the land (original cost of $75,000).

The details of the sale of the former class 1 building, as well as the other depreciable assets sold during 2020, are set out below:

Proceeds Original Cost Net book value

Cl 1 building 135,000 85,000 40,000

Delivery van 4,500 18,000 6,175

During 2020, Brenda purchased the client list from a competitor who was going out of business. She paid $32,000 for this list. The customer list had an indefinite life.

Brenda has the following loss carry-overs from prior years:

Non-capital loss from 2019 of $17,000

Capital loss of $25,000, from the sale of shares that occurred in 2008

Brenda is a partner in a partnership and owns 10% of the total units. During 2020, the partnership earned total income of $45,000. Brenda is entitled to 10% of the income. Of the $45,000, 25% was from taxable capital gains, 50% was business income and the remaining balance was interest income. Brenda has $42,000 in RRSP contribution room (not including the 2020 contribution room). Brenda has not made any contributions to an RRSP this year.

During 2020, Brenda and Steve made the following selected expenditures:

Care for the children:

Food and clothing for Reid and Oliver $6,500

Babysitter for half days during 30 weeks of school term ($150 per week) 4,500

Babysitter for full days during 15 weeks of summer and other vacations 3,750

Sci-Fi camp for both children three weeks each ($275 per week) 2,475

Payments made to Jessica to babysit so the couple could go out on a date night 750

Additional information:

1. Medical expenses paid from January 1 to December 31, 2020 for the family are listed below. The family had no medical expenses in 2019.

Paid by Steve Patient Amount

Prescriptions Steve 490

Laser eye surgery Brenda 4,500

Teeth whitening Brenda 2,100

Special contacts Jessica 1,500

Special equipment (see below) Jessica 10,000

Prescriptions Reid 215

Steve's daughter Jessica has very poor eyes. It costs $1,500 to buy her special contact lenses. Even with the contact lenses, she can barely function and cannot obtain regular employment. As a result, Jessica's only source of income is scholarship from the USFA for $3,500. In spite of these hardships, she is attending the local university and with the aid of special equipment purchased in January 2020 for $10,000, is doing quite well. Jessica's tuition for the eight months that she will be in full-time attendance is $4,200. Jessica continues to live at home while she attends university.

2. Brenda and Steve both believe in giving back and as such, made contributions to registered charities of $700 and 1,200 respectively in 2020. They have made contributions to registered charities for the past 10 years.

3. The CPP rate for income earned by self-employed individuals is 4.95% and the maximum contributory earnings is $51,800.

Required:

1. Calculate Steve and Brenda's Net income for tax purposes. Show supporting computations whether or not relevant to your final answer. Ignore any GST/HST tax implications.

2. Calculate the federal tax owing, not include provincial tax. For the purposes for this part - please assume the following Net Income For Tax Purposes:

Steve's NIFTP $155,000

Brenda's NIFTP 195,000

Based on the Net Income for Tax Purposes (NIFTP) provided above, calculate Steve and Brenda's taxable income and the federal tax owing for 2020. Assume Steve and Brenda want to minimize tax where possible and all possible credits will be taken.