Dara Doodle, age 67, has asked you for assistance in preparing her 2011 tax return. She is married to Drake, age 56, who has three children from a previous marriage, ages 22, 20, and 15. The children live with the couple and are supported by both. Dara is a manager with Tax Preparer's Unlimited Limited. Drake is an economist who occasionally finds contract work preparing economic forecasts at the minimum wage. Drake is certified as having a mental impairment. Drake is incapable of caring for the children as a result of his mental impairment. The following information has been provided.

 

(a)  Dara's salary slips show the following:

gross salary and taxable benefits                                                                                      $65,000

less withholdings:

income tax withheld                                                                  $22,000

RPP contributions to a defined benefit plan                           4,000

donation to United Way registered charity                               600

Employment Insurance premium                                                787                 27,387

net salary and taxable benefits                                                                                 $37,613

 

(b)  Dara has the following other sources of income:

dividends from Airways Ltd. (Public Co), actual amount                                               $ 600

taxable capital gains (allowable capital losses)

Tax Trivia Canada Ltd., common shares                                                            14,500

painting by Beam, a noted Canadian artist                                                        2,500

Growth Potential Unlimited Limited, common shares                                    (1,100)

loss on common shares of Drivel Ltd., a small business corporation                        (40,000)

monthly pension of $3,200 from previous employer                                       38,400

Old Age Security pension received                                                                    6,400

 

     Dara's disbursements included the following:

             interest on funds borrowed to purchase investment portfolio                                        $700

RRSP contributions (fully deductible, based on 18% of 2010 earned income) 9,000

 

(c)  Drake has the following income:

income (for tax purposes) from part-time employment                                             $5,000

dividends from Bell Canada Enterprises (BCE), actual amount                                     360

interest on Canada Savings Bond given to him by Dara on October 31, 2008                400

Canadian-source bank interest                                                                                         200

interest on loan to his sister                                                                                             175

     Drake's disbursements included bank interest on funds borrowed to purchase

               the BCE shares                                                                                                                   450

 

(d) Dot, the 22-year-old, attended the University of Waterloo for eight months during 2011 as a full-time student. She has income for tax purposes of $4,500 and paid tuition fees of $3,100.

 

(e) Duncan, age 20, attends high school and Duggan, age 15, attends a special school for the hearing impaired, since he has no hearing. Child care expenses for Duggan were incurred of $4,000. Each has as his only source of income $225 of interest income from Canada Savings Bonds given to them by Dara on October 31, 2010. Dara paid $6,500 in expenses for rehabilitative therapy fees to Duggan's special school in 2011.

 

 

(f)     The following additional disbursements were made by Dara in 2011:

donation to University of Waterloo                                                             $300

London Life extended health care premiums                                                 375

donation to registered provincial political party                                             125

 

(g) Dara has a net capital loss balance of $1,350 arising from a disposition in 1999. She did not realize any capital gains, other than as noted above, during the period from 1992 to the present.

 

(h) Dara had a non-capital loss balance of $5,500 available in 2011.

 

 

Required:

 

1. Calculate Dara Doodle's taxable income and federal taxes owing or refundable for 2011 without electing under subsection 82(3) in respect of her husband's dividends. Use the appropriate ordering rules in sections 3, 111.1, and 118.92. Briefly explain any items omitted from your calculations. Ignore minimum tax and provincial tax. Also assume that the pension income is not split between the couple