Case

In 2020, Shelden aged 60 was laid off in March 2020 as a result of COVID-19. Shelden is married to Pamela and Pamela stays home to babysit their three grandkids who lives with Shelden's daughter, Joan and her husband Bill. Pamela does not charge Joan for child-care. Shelden applied for Canada Emergency Response Benefit (CERB) with CRA and received $500 CERB per week for twenty weeks.

He had purchased a rental property in 2019 for $400,000 and because of COVID-19, Shelden felt that he may not find suitable employment in the near future and decided to sell his rental property on July 30, 2020, for $500,000. Shelden was renting the property for $2,000 per month. He had monthly mortgage payments from First National Bank of $1,500. The principal component of his monthly mortgage payment is $300 per payment. He also incurs the following monthly expenses for the rental property:

• $100 for snow removal and lawn care services
• $150 for utilities
• $75 for house insurance

He opted to begin receiving his defined benefit pension plan now instead of waiting until age 65. He received pension income of $23,000 for 2020.

He also decided to start go into business with Pierre, his best friend. They formed the Shelden and Pierre Partnership and providing tax consulting services. By the end of the year, they had revenues of only $9,000 and expenses totaling $39,000. Furthermore, he withdrew $20,000 from his RRSP to supplement his income in August 2020. Later, he sold 100 shares of Tesla, that he had purchased for $225, at a price of $825.

In the fall of 2020, Shelden's employer hired him back full time and he made $45,000 for the year with his employer ABC company.

Federal Income Tax Rates Ontario Tax Rates

Tax Rate Tax Bracket Tax Rate Tax Bracket Surtax Threshold

15.00% Up to $48,535 5.05% Up to 44,740

20.50% 48,536-97,069 9.15% 44,741-89,482 20% $4,830

26.00% 97,070-150,473 11.16% 89,483-150,000 36% $6,182

29.00% 150,474-214,368 12.16% 150,001-220,000

33.00% 214,369 and over 13.16% 220,001 and over

Assignment Questions

1. Calculate Shelden's total income for 2020.
2. Using the above tables calculate Shelden's federal and provincial taxes owing. (please ignore any non-refundable tax credits). Please note that the provincial surtaxes are based on the excess provincial tax payable above the threshold.
3. Based solely on the information provided in the assignment, which non-refundable tax credits will Shelden be entitled to receive and how much Federal tax will he be able to save.
4. Based on the limited information available, please identify 10 deductions and/or tax credits that Shelden may qualify for or consider.

Surtax Calculation Example

Ontario Tax Rates

Tax Rate Tax Bracket Surtax Threshold

5.05% Up to 44,740

9.15% 44,741-89,482 20% $4,830

11.16% 89,483-150,000 36% $6,182

12.16% 150,001-220,000

13.16% 220,001 and over

Taxable Income = $150,000

44,740 x 5.05% = $2,259.37

(89,482 - 44,740) x 9.15% = $4,094.72

(150,000 - 89,482) x 11.16% = $6,753.70

Total Provincial Tax Payable Before Surtax = $13,107.79

Surtax

(13,107.79 - $4,830) = $8,277.79 x 20% = $1,655.56

($13,107.79 - $6,182) = $6,925.79 x 36% = $2,493.28

Total Surtax = $4,148.84

TOTAL PROVINCIAL TAX PAYABLE = $17,256.63