Custom Problem 3-1

Week 3 Homework Assignment Employee Loans Case

Donald Fair, a Vancouver resident, is negotiating his compensation for 2013 with Association Ltd. and was offered the following compensation package:

Salary of $80,000

Monthly Car Allowance of $200 a month to help cover car expenses. At year end, Donald determined that he incurred $4,000 in vehicle operating expenses that related to employment activities.

$100 Keg Restaurant Gift Card

2 Fleece Vests with a total value of $75

On April 1, 2013, Association Ltd. would provide an interest free loan. The loan would be in the amount of $45,000. The market rate at the time the loan was offered is 4%.

Part I

Calculate Donalds Net Income For Tax Purposes and Taxable Income pursuant to section 3 for 2013 assuming:

a) The loan proceeds were used to purchase a Nissan Rogue which was used exclusively for employment purposes. b) The loan proceeds were used to purchase an art collection for personal enjoyment.

c) The loan proceeds were used to purchase a home in Vancouver.

Part II What would Donalds Taxable income be in 2017 assuming no change to his compensation package and that he made an interest payment of $200 to Association Ltd. on December 31, 2017? To better illustrate the difference, assume that the prescribed rate in 2017 for Part III is 3%

Part III

If the loan proceeds were used to purchase shares of Google, a company that has publicly declared that it has never paid a dividend and has no intention to do so in the future, would the loan be treated as an investment loan? Why or why not?