George Pharmacy is a pharmaceutical salesman who has been very successful at his job in the last few years. Unfortunately, his family life has not been very happy. Three years ago, his only child, Anna, was driving a car that was hit by a drunk driver. She and her husband were killed and their 14 year old son, Kevin, was blinded in the accident. He also suffered extensive injuries to his jaw that have required major and prolonged dental work.

George and his wife, Valerie, adopted Kevin. Valerie quit her part-time job to care for him. She also cares for her mother, Joan Drugstore who lives with them. Joan suffers from dementia, Parkinson's and severe depression. The family doctor has signed a letter stating that she is dependent on George and Valerie because of her impairments. Joan does not meet the residency requirements necessary to qualify for Canadian Old Age Security payments. Assume that Valerie does not file a tax return.

Valerie's parents separated two years ago in Scotland after her father, David Drugstore, suffered enormous losses in the stock market. They were forced to sell their home and David moved to Chile. David phones periodically to request that money be deposited in his on-line bank account.

George's brother, Martin, completed an alcohol rehabilitation program after being fired for drinking on the job. He is also living with George and Valerie while he is enrolled as a full time student at Western University. George is paying his tuition and Martin has agreed to transfer any available education related amounts to George. Although Martin plans to file his 2019 tax return, he has not done so yet.

Kevin is taking several undergraduate psychology courses at Western University. After hearing a talk given by an expert blind echolocator, i.e., one who uses sound to locate objects, his goal is to become a researcher at the Brain and Mind Institute and study the use of echolocation.

Prepare the 2019 income tax return of George Pharmacy using the ProFile tax software program, any other tax software or manually using the forms posted in the content section of DC Connect. List any assumptions you have made, and any notes and tax planning issues you feel should be placed in the file. Ignore HST implications in your solution by assuming that George does not qualify for the GST/HST rebate.

Title

Mr.

First Name

George

Last Name

Pharmacy

SIN

527-000-509

Date of birth (Y/M/D)

1955-07-02

Marital Status

Married

Canadian citizen?

Yes

Provide information to Elections Canada?

Yes

Own foreign property of more than $100,000 Canadian?

No

First Name

Valerie

Kevin

Joan

Last Name

Pharmacy

Pharmacy

Drugstore

SIN

527-000-483

527-000-517

None

Date of birth (Y/M/D)

1954-12-30

2003-10-17

1934-02-24

Net income

$6,520 in CPP

Nil

$500

Tax Software Assignment Problems

First Name

David

Martin

Last Name

Drugstore

Pharmacy

SIN

None

527-000-533

Date of birth (Y/M/D)

1935-01-12

1972-06-02

Net income

Nil

$8,300

During September, David was arrested in Chile. Valerie had to spend three weeks in Chile and pay $2,000 in bribes before she could get him released from jail. George had to pay Nannies On Call $3,500 for in-home help to take care of Kevin while she was gone.

Tuition fees - for Martin Pharmacy (brother)

A

8,000

Number of months in school - part-time

B

0

Number of months in school - full-time

C

8

Tuition fees - for Kevin

A

3,600

Number of months in school - part-time

B

8

Number of months in school - full-time

C

0

Valerie

Mothers Against Drunk Drivers (MADD)

1,000

George

Canadian Institute For The Blind (CNIB)

3,000

Issuer - Mega Pharma Inc.

Employment income

14

378,000.00

Employee's CPP contributions

16

2,748.90

Employee's EI premiums

18

860.22

Income tax deducted

22

114,000.00

Employment commissions

42

82,000.00

Charitable donations

46

400.00

During 2019, Mega reimbursed George $3,788 for meals and entertainment with clients,

$2,268 for hotels and $4,925 for airline tickets.

In addition to George's salary, he also earns commissions. His employer requires him to have an office in his home and has signed the form T2200 each year to this effect.

Tax Software Assignment Problems

Area of home used for home office (square feet)

650

Total area of home (square feet)

5,000

Telephone line including high speed internet connection

620

Hydro

3,200

Insurance - House

4,000

Maintenance and repairs

3,800

Mortgage interest

6,200

Mortgage life insurance premiums

400

Property taxes

6,700

2019-12-31

George

Johnson Inc.

Out of Canada insurance

731.00

2019-08-31

George

Dr. Smith

Dental fees

155.40

2019-09-19

George

Optician

Prescription glasses

109.00

2019-11-07

Valerie

Pharmacy

Prescription

66.84

2019-06-07

Joan

Dr. Wong

Psychiatric counseling

2,050.00

2019-03-22

David

Tropical Disease Centre

Prescription

390.00

2019-12-20

Martin

Dr. Walker

Group therapy

6,000.00

2019-10-01

Kevin

Dr. Takarabe

Orthodontics and Dental

30,000.00

George paid $800 for the care and feeding of Kevin's seeing eye dog, Isis, during 2019.

On October 1, 2019, George purchased a new computer and software that will be used solely in his home office for employment related uses. The computer cost $3,600 and the various software programs cost $1,250.

At the beginning of 2019, George had a net capital loss carry forward of $10,500 from the sale of shares in 2018. He had not disposed of any capital assets prior to 2018.

Description

Molson Inc. shares

Imperial Oil shares

Sailboat

Number of units

150

387

N/A

Year of acquisition

2016

2017

2017

Date of disposition

February 14

June 6

October 1

Proceeds of disposition

37,000

9,600

74,000

Adjusted cost base

27,600

12,100

72,000

Outlays and expenses

35

29

N/A

Description

Motorcycle

Painting

Coin collection

Year of acquisition

2019

2012

2016

Date of disposition

November 17

August 28

March 24

Proceeds of disposition

14,000

1,100

700

Adjusted cost base

21,000

450

1,800

Outlays and expenses

N/A

N/A

N/A

Tax Software Assignment Problems

Address - 888 YYZ Drive, Toronto, Ontario M0M 0M0

Year of purchase

2015

Gross rents

16,000

Property taxes

5,128

Insurance

1,890

Interest on mortgage

3,175

Payment on principal

2,200

Furnace repairs

550

Maintenance contract

3,469

Building purchased for $120,100 - UCC beginning of year

107,441

Fixtures purchased for $8,500 - UCC beginning of year

4,651

The building and fixtures were purchased on August 28, 2015. At the time the building and fixtures were being used as a drugstore and Mr. Pharmacy has retained the same tenant.

George knows he should have been contributing to various savings plans over the years, but his increasing number of needy dependants required he spend all of his take home pay to support them and he has contributed to none. It was only in 2019 that his compensation had increased enough so that he had sufficient funds to consider savings plans.

His daughter had made contributions totalling more than $10,000 to an RESP for Kevin prior to her death, but George has made no RESP contributions to the plan since then.

George's 2019 RRSP deduction limit is $285,550.