CASE ONE Daniel Hudson Daniel Hudson is a senior mechanic in the logging industry. Because of the specialized nature of his work, he is highly pald. His current employer pays him a basic salary with no special benefits. Recently, Daniel received an offer of employment from a corporation in the same line of business. The salary offered is lower than he currently receives, but a number of benefits are included in the remuneration package. Danielis confused by the offet. He does not like the idea of a reduced salary, but realizes that the benefits have some value. He also realizes that what is important is the level of disposable income that he has for himself and his family. Daniel has provided you with the pertinent information (see Exhibits 1 and 2) and has asked you to help him make a decision Required: IN (0) Determine what Daniel's net income from employment for tox purposes will be if he remains with his current employer (@Exhibit 1). Assume the year is 2020, (b) Determine what Daniel's net income from employment for tax purposes will be if he accepts the offer from the competitor Exhibit 2). Assume the year is 2020. (c) Assuming that Daniel pays tax at a rate of 40% determine the amount by which his personal disposable income will increase (or decrease) if he accepts the new offer ignore "other deductions." 116% 2/3 Exhibiti: Information Regarding Current Employment and Certain Other Expenditures 1. Daniel's gross salary next year will be 580,000. From this, the employer will deduct the required income tax, El premiums of $856, and CPP contributions of $2.898. 2. It is part of Daniel's ordinary duties to work on equipment at locations other than the main repair depot. On average, he is called out of town two or three days each month. On such trips, he must always stay overnight in a hotel. The company reimburses him for his hotel costs (lodging but not meals). 3. Daniel leases his own car at $500 per month, including HST. He incurred the following additional travel costs in the current year: Insurance $ 800 600 Repairs and maintenance Gasoline 2,200 Meals (out of town) 200 During the year, Daniel drove a total of 22.000 km, of which 4.000 km were for his employer. Daniel anticipates that travel costs in the future will be about the same as they were this year. His contract of employment requires that he puy his own automobile expenses. No reimbursement is made for the vehicle. 4. Daniel is required to purchase and maintain his own small tools. Every year, he spends approximately $500 on new tools and to replace lost or stolen tools. He also purchases his own work coveralls and pays for their cleaning, which amounts to another $300 per year. 5. Daniel will take possession of his new home in three months, and he is currently shopping for a mortgage. He expects to obtain a $90,000 mortgage with interest at 8% for a term of five years. 6. Daniel maintains the following insurance policies: Premium cost Term life insurance of 5.100,000 $1.200 Private medical insurance 600 House fire insurance 1.000 7. Daniel is a coller and belongs to a private club. His annual membership dues are $2.400 Help Tax-1 resit.pdf X 3 73 116% Exhibit 2: Information Regarding Offer of Employment with Competitor 1. The proposed salary is $70,000 per year. From that amount, the employer will deduct the required income tax. El premiums of $856. and CPP contributions of $2,898. 2. The employer will case an automobile identical to the one currently used by Daniel. However, the employer's lease cost will be only $450 per month, including HST, because of a fleet discount. In addition, the employer will pay the annual insurance cost of $800, the repair and maintenance costs, which are estimated to be $600 annually, and the gasoline costs of $2.200. Daniel will be entitled to operate the car for personal use. The number of business kilometres and personal kilometres driven will be the same as they are now. The employer will pay for all out-of-town meals when an overnight stay is required. The cost of meals is expected to be $200 per year. 3. The employer maintains a good supply of small tools, and mechanics are not required to purchase or use their own. In addition, the employer maintains a complete wardrobe of work coveralls, so Daniel will not have to purchase or under his own. 4. As a senior mechanic, Daniel will be entitled to a low interest loan (1x) from the employer of up to five years' duration. Such loans can be renewed at the end of term. The maximum loan amount is $40,000. Assume the prescribed interest rate set by the CRA is currently 5. The employer maintains a group term life insurance program and a private medical insurance program. At no cost to Daniel, the employer will provide $300,000 or group term life insurance as well as medical coverage equal to what he currently has. The premium costs to the employer will be as follows: Life insurance $900 Medical insurance 500 These amounts are lower than Daniel's current costs because group discounts are available to the employer 6. The employer has agreed to pay Daniel's annual golf club dues of $2.400. As Daniel does not entertain and deal with customers, the employer derives no benefit from Daniel's membership in the club. CASE ONE Daniel Hudson Daniel Hudson is a senior mechanic in the logging industry. Because of the specialized nature of his work, he is highly pald. His current employer pays him a basic salary with no special benefits. Recently, Daniel received an offer of employment from a corporation in the same line of business. The salary offered is lower than he currently receives, but a number of benefits are included in the remuneration package. Danielis confused by the offet. He does not like the idea of a reduced salary, but realizes that the benefits have some value. He also realizes that what is important is the level of disposable income that he has for himself and his family. Daniel has provided you with the pertinent information (see Exhibits 1 and 2) and has asked you to help him make a decision Required: IN (0) Determine what Daniel's net income from employment for tox purposes will be if he remains with his current employer (@Exhibit 1). Assume the year is 2020, (b) Determine what Daniel's net income from employment for tax purposes will be if he accepts the offer from the competitor Exhibit 2). Assume the year is 2020. (c) Assuming that Daniel pays tax at a rate of 40% determine the amount by which his personal disposable income will increase (or decrease) if he accepts the new offer ignore "other deductions." 116% 2/3 Exhibiti: Information Regarding Current Employment and Certain Other Expenditures 1. Daniel's gross salary next year will be 580,000. From this, the employer will deduct the required income tax, El premiums of $856, and CPP contributions of $2.898. 2. It is part of Daniel's ordinary duties to work on equipment at locations other than the main repair depot. On average, he is called out of town two or three days each month. On such trips, he must always stay overnight in a hotel. The company reimburses him for his hotel costs (lodging but not meals). 3. Daniel leases his own car at $500 per month, including HST. He incurred the following additional travel costs in the current year: Insurance $ 800 600 Repairs and maintenance Gasoline 2,200 Meals (out of town) 200 During the year, Daniel drove a total of 22.000 km, of which 4.000 km were for his employer. Daniel anticipates that travel costs in the future will be about the same as they were this year. His contract of employment requires that he puy his own automobile expenses. No reimbursement is made for the vehicle. 4. Daniel is required to purchase and maintain his own small tools. Every year, he spends approximately $500 on new tools and to replace lost or stolen tools. He also purchases his own work coveralls and pays for their cleaning, which amounts to another $300 per year. 5. Daniel will take possession of his new home in three months, and he is currently shopping for a mortgage. He expects to obtain a $90,000 mortgage with interest at 8% for a term of five years. 6. Daniel maintains the following insurance policies: Premium cost Term life insurance of 5.100,000 $1.200 Private medical insurance 600 House fire insurance 1.000 7. Daniel is a coller and belongs to a private club. His annual membership dues are $2.400 Help Tax-1 resit.pdf X 3 73 116% Exhibit 2: Information Regarding Offer of Employment with Competitor 1. The proposed salary is $70,000 per year. From that amount, the employer will deduct the required income tax. El premiums of $856. and CPP contributions of $2,898. 2. The employer will case an automobile identical to the one currently used by Daniel. However, the employer's lease cost will be only $450 per month, including HST, because of a fleet discount. In addition, the employer will pay the annual insurance cost of $800, the repair and maintenance costs, which are estimated to be $600 annually, and the gasoline costs of $2.200. Daniel will be entitled to operate the car for personal use. The number of business kilometres and personal kilometres driven will be the same as they are now. The employer will pay for all out-of-town meals when an overnight stay is required. The cost of meals is expected to be $200 per year. 3. The employer maintains a good supply of small tools, and mechanics are not required to purchase or use their own. In addition, the employer maintains a complete wardrobe of work coveralls, so Daniel will not have to purchase or under his own. 4. As a senior mechanic, Daniel will be entitled to a low interest loan (1x) from the employer of up to five years' duration. Such loans can be renewed at the end of term. The maximum loan amount is $40,000. Assume the prescribed interest rate set by the CRA is currently 5. The employer maintains a group term life insurance program and a private medical insurance program. At no cost to Daniel, the employer will provide $300,000 or group term life insurance as well as medical coverage equal to what he currently has. The premium costs to the employer will be as follows: Life insurance $900 Medical insurance 500 These amounts are lower than Daniel's current costs because group discounts are available to the employer 6. The employer has agreed to pay Daniel's annual golf club dues of $2.400. As Daniel does not entertain and deal with customers, the employer derives no benefit from Daniel's membership in the club