Case $1$

It is February of $2024,$ you, CPA, were about to meet with your new clients, Nicole and Joe. They have come to discuss their tax situation with you. They predict that Nicole will not have to pay taxes for the $2023$ year, which they believe will allow Joe to claim the non$-$refundable tax credit of $$spouse credit$.$ They have provided you with the following information, including the statements from their companies $($see Exhibits I and II$)$ which they have prepared themselves. Joe would also like to know the tax liability for his corporation, $123456$ Ontario Ltd$.$

Facts

Nicole and Joe have been married for ten years. They are both $39$ years old, and they have three children under the age of five. Their children attended daycare four mornings a week during $2023$ while they worked. The total cost of the daycare for all three children was $$2,400.$ Nicole and Joe receive the monthly Canada child benefit for each child.

Joe

$$ Joe is the sole shareholder and manager of $123456$ Ontario Ltd$.,$ a local furniture manufacturing plant. He earns a pre$-$tax salary of $$75,000$ per year from $123456$ Ontario Ltd$.$

$$ Joe received the following benefits from $123456$ Ontario Ltd$.$ in $2023$:

o Private health and dental care: $$500$

o Life insurance: $$600$

o $$2,500$ worth of products at cost

o Registered pension plan $($RPP$)$ contributions: $$3,300$

$(123456$ Ontario Ltd$.$ also deducted $$3,300$ from Joe$$s salary, which was Joe$$s contribution to his RPP$)$

$$ Joe contributed $$1,800$ to his RRSP for the $2022$ taxation year $($which is within his allowable limit$).$

$$ In $2022,$ Joe borrowed $$10,000$ from the bank to purchase a set of collectible coins for $$12,000.$ In $2023,$ Joe was able to sell the coins for $$20,000,$ and he incurred interest expense of $$800$ and $$600$ for year $2022$ and $2023,$ respectively.

Nicole

$$ Nicole began part$-$time employment at Fitness Inc. in $2023,$ and earned a gross salary of $$25,000.$ She did not have any employment income the previous year.

$$ Nicole received free use of the owner$$s cottage for two weeks in May, which is typically rented out for $$700$ per week.

$$ She began a small home$-$based proprietorship $-$Nicole$$s Consulting$$ in $2022-$ which generated $$300$ a month in pre$-$tax profits in $2023.$ The business operates from a $200$ square foot room in the family$$s $2,000$ square foot home, and is used exclusively for the business.

$$ Nicole did not file a tax return in $2022$ since she did not owe any taxes.

$$ According to Nicole, she has been contributing the maximum amount to her TFSA. At the beginning of January $2023,$ she withdrew $$1,000$ from her TFSA account. Overall, Nicole contributed $$7,000$ to her TFSA in $2023$

Exhibit I

$123456$ ONTARIO LTD$.$

The $2023$ and $2022$ annual financial statements for $123456$ Ontario Ltd$.($prepared by Joe$)$ are as follows:

$20232022$

Revenue from manufacturing and sales $$2,000,000$ $$2,300,000$

Dividend income from a taxable Canadian corporation $09,000$

Investment interest income $2,0006,000$

Cost of goods sold $1,300,0001,500,000$

Gross profit $$702,000$ $$815,000$

Salaries and wages $300,000350,000$

Other administrative costs $250,000300,000$

Net income before interest and amortization $$152,000$ $$165,000$

Interest expense $10,00010,000$

Amortization $15,00015,000$

Net income after interest and amortization $$127,000$ $$140,000$

Other information

$1.$ Capital cost allowance calculations totaled $$18,500$ in $2022$ and $$19,800$ in $2023.$

$2.$ In $2023,$ a bonus was announced for Joe$$s key employee, equal to a total of $1\%$ of the $2022$ annual $$revenue from manufacturing and sales.$$ The bonus has been structured to be distributed in two equal payments during $2024$ on January $31$st and November $30$th$,$ and has been included in the $2023$salaries and wages.$$

$3.$ Cost of goods sold and $$other administrative costs$$ adhere to the rules of the Income Tax Act.

$4.$ Interest expense is compliant with paragraph $20(1)($c$)$ of the Income Tax Act.

$5.$ All of the company$$s $$revenue from manufacturing and sales$$ is from active business.

$6.$ The dividends were received from a public corporation, of which $123456$ Ontario Ltd$.$ owns less than $1\%$ of the shares.

$7.$ In $2022,$ the Company disposed a property and reported a taxable gain of $$200,000$ in $2022$ tax return. The purchaser paid the remaining balance of $$60,000$ in $2023.$

$8.123456$ Ontario Ltd did not pay any dividends in $2023.$

Exhibit II

Nicole$$s Consulting

The $20230$ and $2022$ annual financial statements for the business $($prepared by Nicole$)$ are as follows:

$20232022$

Revenue $$22,050$ $$13,400$

Administrative expenses $($Note $1)14,00012,550$

Owner's salary $3,6002,400$

Work space in the home $($Note $2)1,4501,450$

Net income $($loss$)$ $$3,000$ $$(3,000)$

Note $1$: All of the administrative expenses are compliant with the rules of the Income Tax Act.

Note $2$: Work space expenses represent ten percent of Nicole and Joe$$s housing costs. The total housing costs include utilities of $$2,400,$ mortgage interest of $$8,400,$ property taxes of $$2,500,$ and home insurance of $$1,200.($The business has met the conditio