COMPREHENSIVE CASE STUDY - 2021-2022

REQUIRED:

Using a tax preparation software - preferably the Profile software that is provided free of charge by Intuit Canada to students of this course - and the facts given below, complete the tax return (Form T1) for Mr. James Doode for the 2021 taxation year, including all relevant schedules, forms and worksheets, e.g. Form T2125 for the calculation of business income, etc. Ignore all GST/HST aspects. You must submit the completed tax return for James through the Case Study link on the Blackboard portal by attaching the file containing the data if you used the Profile tax software (the file should have a .21T extension if you are using the 2021 version of the Profile software). Do not attach the Profile program file (file called "profile.exe") as that file does not contain the data for the tax returns you prepared. No marks will be given for submitting the Profile program by itself.

You can use another tax software than Profile if you prefer. The purpose of this exercise is to work with a tax software - it doesn't matter which one you use. If you decide to use another software than Profile, you must submit a readable copy of the entire tax return with all relevant schedules, forms and worksheets, e.g. a pdf copy. If I cannot access the tax return in a readable format, I cannot grade it and no marks can be given for your work.

I have posted hints on the Discussion Board in the forum called "Comprehensive Tax Return Case Study" to help you with this assignment. There is also a practice tax return I suggested you do before doing this assignment - Tax Software Assignment Problem Four-3 in the textbook (see my separate message on the Discussion Board in the Case Study forum for further details).

INFORMATION TO USE FOR THE TAX RETURN CASE STUDY:

James Doode decided to start his own business in 2020 after retiring from the Canadian Armed Forces. Since 2019, James receives monthly pension payments from his former employer's pension plan. James business (sole proprietorship) consists of a motorcycle shop known as James Specialty Bike Shop, selling and repairing motorcycles (industry code 441220).

James hired you to prepare his personal tax returns for the year 2021. James wants to pay the very least tax possible and will use any election or choice legally available. Attached is an Appendix showing the relevant financial information pulled from the accounting records for James' business. The amounts shown have not been adjusted for tax purposes. James expects you to identify which items are allowed for tax purposes to comply with the tax laws in Canada.

Tax forms James received are included on the Case Study link as separate documents confirming the various items of income described below for the year.

Detailed Information:

James was born on November 1, 1971. He is divorced but currently lives alone at 123 Main Street, Anytown, Ontario, K0H 1H0. James Social Insurance Number (SIN) is 527-000-145.

During 2021, James received bi-weekly pension payments from his former employer's pension plan for a total pension income of $40,000 - see T4A slip attached issued to James for 2021 (box 16). Federal income tax of $5,000 was withheld at source on that pension income - see box 22 of the T4A slip.

James has spousal support obligations from his previous marriage. He is required to pay $1,000 per month to his former spouse (Mary Doode; SIN: 527- 000-129) in accordance with a court order. During the year 2021, James was only able to pay 7 months worth of support. James has no other dependents

James made $2,000 charitable donations to the Red Cross on June 1, 2021.

Finally, James paid federal income tax instalments of $5,000 quarterly to the CRA throughout the year 2021, for a total of $20,000.

APPENDIX

Accounting Information for 2021

James Specialty Bike Shop

Revenues

Motorcycle and Parts Sales $450,000

Expenses

Purchase of inventory, parts and supplies (Note 1) $135,000

Golf club dues (Note 2) 5,000

Fines and penalties (Note 3) 10,000

Insurance (Note 4) 5,000

General office expenses 3,000

Home Office expenses (Note 5) 3,012

Salaries 58,000

Employer contributions to CPP and EI 3,960

Depreciation (Note 6) 41,928

Loss on sale of equipment (note 6) 8,250

Truck expenses (Note 7) 5,700

Total Expenses $278,850

Net Income for accounting purposes $171,150

Note 1: The opening inventory on January 1, 2021 was $15,000. The closing inventory on December 31, 2021 was $35,000.

Note 2: James joined the local golf club to find new customers. The membership cost was $5,000 for the year.

Note 3: In 2020 the business was sued for selling branded motorcycle parts without proper authorization from the brand owner. In early 2021, James reached an out-of-court settlement with the brand owner which provides that James will pay a penalty of $10,000 for pre-2021 transactions that were completed without proper authorization, in exchange for the brand owner dropping the charges against him. The penalty was paid January 1, 2021. The agreement also provided that James would enter into a new distributorship agreement with the brand owner effective January 1, 2021 - see Note 7 below for further details under "Intangible Assets".

Note 4: The insurance expense includes the cost of the truck insurance of $2,000 see Note 7 below.

Note 5:

Home Insurance $1,500

Interest on mortgage $8,500

Property taxes $5,200

Home telephone line $800

Utilities $5,100

Maintenance and repairs $4,000

TOTAL $25,100 x 12% = $3,012