Finding Taxable Income and Taxes Payable for an Individual

Answer the following:

Mr. Jack Leonard has asked you to assist him in preparing his 2020 tax return. To this end, he provides you with the following information.

Mr. Leonard's employer is a large, publicly traded corporation. During 2020, Mr. Leonard received a gross annual salary of $63,100. There is no pension plan and Mr. Leonard's 2019 Pension Adjustment amount is nil. His employer withheld the maximum for CPP contributions ($2,898) and EI premiums ($856).

On August 1, 2020, his employer granted him an option to purchase 100 of its shares at a price of $7 per share. The market price of the shares at that time was $7 per share. On December 1, 2020, the market price of the shares had increased to $16 per share. On that date, Mr. Leonard exercises his option and purchases the 100 shares, which resulted in $900 in Stock Option Benefits [(100)($16 - $7)].

Mr. Leonard provides the following list of receipts and disbursements for the 2020 taxation year:

Receipts

Royalties On Patent Purchased In 2012 54,341

Bond Interest 430

Disbursements

RRSP Contribution On July 6, 2020 $13,000

Financial Support Of His Aunt 7,100

TFSA Contributions 10,000

You ascertain that his aunt is physically infirm, is wholly dependent upon Jack Leonard for support, had income of $3,000 during the year, and lives in Florida for health reasons.

Mr. Leonard provides you with the following information on his dispositions of property during the year:

Proceeds Cost

Diamond Ring $1,200 $ 950

Painting 1,100 1,800

Pistol Collection 2,000 1,400

On further enquiry, you learn that he is married and has a 19 year old son. Mr. Leonard's wife had income of $2,990 during the year.

His son lives at home and was employed during twelve weeks of the summer at a golf course as a greens keeper, at a salary of $250 per week. In September, he left his employment to commence full time studies at university. Tuition fees paid for the 2020 calendar year amounted to $4,860, and were paid by Mr. Leonard. The son's only other source of income was $700 in interest on bonds received from his father as a birthday gift in 2010. He will transfer any unused tuition credit to his father.

Assume Mr. Leonard's 2019 Earned Income for RRSP purposes was equal to his 2020 Earned Income. At the beginning of 2020, Mr. Leonard has no unused deduction room or undeducted contributions.

During 2020, Mr. Leonard is transferred by his company from their Edmonton office to their Calgary office.

On January 3, 2020, Mr. Leonard flies to Calgary at a cost of $325 to locate a new residence for him and his family. During the three days that he is there, his food and lodging costs total $575. Both the air fare and the food and lodging costs are reimbursed by the company. After considering the properties that he has seen, he makes an offer on a property on January 10. The offer is accepted that same day.

Later that month he sells his Edmonton home which he purchased for $265,000 in 2018. The house is sold for $257,800. While Mr. Leonard managed to sell the house without using a real estate agent, legal fees associated with the sale total $950.

Mr. Leonard and his family leave Edmonton on March 15 and arrive in Calgary that same day. He uses a companys car to transport himself and his family. As the family brought a picnic lunch for the trip, he ignores food costs for the day.

Unfortunately, his new Calgary home is not available until April 3 and, as a consequence, he, his son and wife stay in a Calgary suite hotel from March 15 through April 3 (19 days). The rate for a two room suite is $325 per day, but Mr. Leonard has a discount voucher that gives him a rate of $200 per day for a week (7 nights).

Assume that the 2020 rate for meals is $51 per day per person.

The cost for moving his household effects and leaving them in storage until his Calgary home was ready totaled $3,640. His legal fees associated with acquiring the Calgary home are $600.

The 2020 medical expenses, which were all paid for by Mr. Leonard, are as follows:

Mr. Leonard $ 465

Mr. Leonards wife 738

Mr. Leonards son 12,473

Total Medical Expenses $13,676

Part A: Calculate the clients minimum Division B (net) income for tax purposes in accordance with the format of Section 3 of the Income Tax Act for the 2020 taxation year. Show all your calculations.

Part B: Calculate your clients taxable income.

Part C: Calculate your clients federal taxes owing or refundable for 2020.