George Jetson runs his own business as a sole proprietor. He does not have a background in accounting or finance but has been successful handling his own tax returns in the past. This past year, he made some capital investments in his business that he deducted on his tax return. The CRA has audited Georges tax return and has rejected a number of his deductions because they are capital costs. This resulted in George underpaying his taxes and he will now have to pay penalties to the CRA. He has written to you for your guidance to help him better understand the rules so that he doesnt get in trouble with the CRA again.

Here are the deductions that the CRA did not allow in full on Georges tax return:

Building (land makes up $800,000 of this value) $1,400,000

Patent 12,000

Furniture 30,000

Tesla (passenger vehicle for Georges employment use) 120,000

Total $1,562,000

Required: Write a short (one page) memo providing advice for Mr. Jetson regarding the correct tax treatment of the relevant capital costs. Be sure to consider that Mr. Jetson has limited knowledge of income taxation, so you need to analyze the issue at a high level and then clearly communicate the relevant tax rules in language that is appropriate to his level of understanding.

analysis of tax issues (using facts from the case and your knowledge of tax rules)

professional communication (including complete grammar and accurate spelling) at an appropriate level for the client