Canadian Tax Case

Jasmine Singh is a highly popular artist who operates a sole proprietorship. For the current taxation year, Jasmine's daughter, Ella, who maintains the books and records of the business, has calculated 2022 net income of $209,640. In determining net income, Ella begins with accounting income calculated using ASPE.

Other Information:

1. During the year, Jasmine spent $6,500 for landscaping the grounds around her home office. In accordance with ASPE, this amount was treated as a capital expenditure. As the work was done late in the year, no amortization was claimed for the current year.

2. The following items were included in the expenses claimed for accounting purposes:

Amortization expense $42,700

Yacht club membership fees for Jasmine and Ella 15,000

Cost of sponsoring local soccer teams 4,000

Advertising on a foreign television station

(Directed at Canadian market) 3,800

Business meals and entertainment 16,000

Registered Charitable donations 12,000

Interest paid on equipment loan 2,925

Interest paid on late income tax instalments 650

3. Included in the accounting expenses were $11,000 in fees paid to Jasmines 17-year-old grandson for creating and maintaining the web site for the business. In determining the fee, Jasmine found that it would cost at least $30,000 to obtain the equivalent services from an outside consultant.

4. Maximum CCA for the business operations has been determined to be $52,700 for the current taxation year.

5. Jasmine sold a very expensive piece of her artwork in 2022 for $67,000. The cost of materials for this piece (canvas, paint, etc.) was $7,000. The purchaser was a friend who bought the piece to put on display in the lobby of his dentist office. Since the purchaser was a friend and the public display would be good advertising for her, Jasmine agreed to let him pay her $20,000 per year for three years. The first payment of $20,000 was made on December 31, 2022. Jasmines artwork is inventory for accounting and tax purposes - $67,000 was included in the accounting income and $7,000 was deducted as cost of goods sold for 2022.

6. Jasmine has a home office that accounts for 264 square feet of her home and is used solely for business purposes. This is her only place of business. She meets clients here on a regular basis and locks the office when it is not in use. Jasmines home has a total living area of 2,200 square feet. She has chosen not to deduct CCA on her home. The home office expenses for 2022 were as follows and were not included in her accounting net income calculation provided above:

Property insurance $ 1,600

Property taxes 3,400

Mortgage interest 5,200

Repairs and maintenance 3,000

Utilities 7,200

Home telephone 1,340

Business telephone 1,550

7. On July 1, 2022, Jasmine sold a parcel of vacant land that she had inherited from her grandmother in 2017 for proceeds of $50,000. The original cost of the land was $40,000. Jasmine has paid a total of $2,600 in property taxes on the land since she inherited it. Legal fees and closing costs for the sale were $1,200.

8. Jasmine also inherited a rental property from her grandmother in 2017. In 2022, the property generated $42,300 of rental revenue, and incurred $28,900 in operating expenses before the calculation of CCA. The building had a January 2022 UCC balance of $276,157. The building was originally purchased in 2014 for $375,000.

9. Jasmine purchased 12,000 units of a mutual fund for $6 each on January 1, 2022. At the end of the year, she received a T5 slip from the broker listing the details of her earnings for 2022 as follows:

Eligible dividend $4,200

Interest income 1,680

Required:

Question 1. Calculations:

a) Calculate Jasmine Singhs 2022 business income.

b) Calculate Jasmines 2022 property income.

c) Calculate Jasmines net income for tax purposes.

d) Calculate Jasmines dividend tax credit for 2022, assuming that the provincial rate is 26%