Gravex Inc. wishes to pay the additional personal tax, resulting from the meal taxable benefits (TB1), on behalf of each employee. However, doing so will create another taxable benefit (TB2; the amount of the personal tax). Gravex Inc. will then need to pay an additional amount of salary to each employee to ensure they have enough after-tax cash to pay the personal tax on TB2. Gravex Inc. does not want any employees to be out-of-pocket after it pays their personal tax on TB1. Mrs. Haralampiev wants to communicate this situation to each employee. She hired a local accountant to draft a memo, but found the memo somewhat confusing and doubts its accuracy. She is hoping you can do a better job. The draft memo is in Appendix A. In your memo, Mrs. Haralampiev would like you to include an example calculation using an employee who has salary income of $250,000. The calculation should show: - the total additional amount of employment income that needs to be added to an amended T4 slip (hint: the total amount will be the sum of three amounts: two taxable benefit amounts and a salary amount) - the total additional personal taxes owing on the total additional employment income - that the employee is not out-of-pocket (because the additional personal taxes on the employment income will be covered in part by the employer and in part by the employees additional salary) Use a combined marginal tax rate of 53.53%. Be sure to justify and show all calculations. Required: prepare a second memo to address these requests.

Appendix A memo from a local accountant Joyfully I ran over to the window and saw snow falling. I became peaceful and was in my happy place. Now I concentrate on writing this memo. A taxable benefit is a benefit that is taxable. It should be report on you tax return and needs to go under the T4 slip as employment income otherwise you will go to jail. Make sure things like free meals are included on the T4 slip. When in doubt put it on otherwise you could go to jail. You will pay tax on the taxable benefit which seems kinda weird but thats how it works. I defiantly suggest getting proper advise if you have doubt. ITA 6(1)(a) says something about taxable benefits. May I gently suggest you read it for clarification purposes and to distill a crystalline and yet not altogether meretricious quality to, your tax knowledge? Now we turn our attention to the meals. I hope they were tasty. So you said your employer gives you about one meal a week without you having to fork out the cash for the free meal. A free meal means you dont have to pay for it. All employees get to come; and have free meals each week and eat deliciousness. Employers can pay for up to six free meals for there employees without them having a tax consequence. But more than six: look out. Gravol Inc. should assign excess value of to many meals (more than six) to the T4 slip. So if you had the ability to eat 40 free meals, do 40 minus 6 = 34 and times 34 by the cost of the meal and that product is the value of the T4 meal to report. And pay tax on it. Dont forget to pay tax or jail for you my friend. How is an Employer compensating you forgetting to put the value of these meals on your T4 slip? Your Employer wants you do have no problems with taxable benefits so figure out the value of the tax on the excess meals and gross-up the reported employment income by the value of the meals plus the tax on the meals just like you would normally do with an eligible or non eligible divided. Your employer should pay the government the tax on the excess value meals and then you dont have to pay it and you in essence break even. So the employer includes the value of too many meals on the T4 slip and the value of the tax on that value and withholds the right amount of extra tax and then you are happy. To show you how it works, watch these calculations. Say the cost of the meals is $1,000 for one employee. Take $1,000 times theyre marginal tax rate, which is, say, 30%. $1,000 x 30% = 300.00 so thats 300 dollars that the employee must dig deep and somehow pay to the good folks who run this fine country of ours. But wait the employer is actually paying the $300; not the employee. So, the $300 creates another taxable event. The tax on the 300 is $300 x 30% which is $90. The Employer is paying $90. So the Employee must actually report $300 (for the original meals) plus $90 paid for on behalf of the Employee by the employer and not the employee. So that is $390 to report on the T4 slip. $390 to report less 390 in tax = 0 so you are not out of pocket at all.