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from a Canadian Taxation Course.

INDIVIDUALS: TAX BRACKETS Taxable income Up to $48,535 In excess of $48,535 In excess of $97,069 In excess of $150,473 > $214,368 Tax 15% $7,280 plus 20.5% on the next $48,534 $17,230 plus 26% on the next $53.404 $31,115 plus 29% on the next $63,895 $49,645 plus 33% on the remainder TAX CREDITS BASIC CREDIT = $13,229 x 15% = $1,984 SPOUSE/SPOUSAL EQUIVALENT (ELIGIBLE DEPENDENT) -15% x ($13,229 minus spouse/eligible dependent's net income) =$1,984 MAX Base amount increased by $2,273 (to $15.502) if the spouse/eligible dependent is mentally or physically infirm. CANADA CAREGIVER FOR CHILD $17,085) = $1,091 MAX AGE CREDIT = 15% (S7,637 - 15% x (net income - $38,508)) = $1,146 MAX PENSION CREDIT=15% x Ist $2,000 of "pension income"= 5300 maximum (not indexed) ADOPTION CREDIT = 15% of Ist $16,563 of eligible adoption expenses = $2,484 MAX CHARITABLE DONATIONS = [(15%MA)] + [(33%)(B)] + [(29%)(C)) (not indexed), where A = the first $200 B = the lesser of 1) total gifts less $200 and 2) taxable income less $214,368 C=the excess, if any, by which the total donations exceed the sum of $200 plus amount B (eligible donations generally limited to 75% of net income) MEDICAL EXPENSE CREDIT = 15% ((B-C) + D) where B = eligible medical expenses of the taxpayer, spouse or minor dependants C= the lesser of 3% of the taxpayer's net income and $2,397 D-E-F E = eligible medical expenses of the adult dependant F=the lesser of 3% of the adult dependant's net income and $2,397 DISABILITY CREDIT = 15% x $8,576 = $1,286 X POLITICAL DONATION TAX CREDIT (not indexed) = 75% first $400, 50% next $350 and 1/3 next $525... (5650 max credit overall) EDUCATION-RELATED CREDITS (not indexed) (a) TUITION CREDIT = 15% x eligible tuition fees (b) STUDENT LOAN INTEREST = 15% of interest paid on qualifying student loans; 5 year carry forward by student TRANSFER OF UNUSED CREDITS TO SPOUSE AND OTHERS Tuition (to parents and grandparents if no spouse) Age (to spouse only) Pension (to spouse only) Disability to child, grandchild,parent , grandparent, brother, sister, aunt, uncle, nephew, niece of the taxpayer or the taxpayer's spouse) Dependent must first use personal, EI and CPP credits before being able to use these credits El & CPP s. 118.7 = El & CPP premiums @ 15% (El & CPP premiums will be given to you) - El Credit 15% x $856 = $128 MAX -CPP Credit - 15% * $2,732 = $410 MAX CANADA EMPLOYMENT CREDIT = 15% x lesser of employment income or $1,245 = $187 MAX DIVIDEND TAX CREDIT: - for eligible dividends - 6/11 of 38% gross-up - for other dividends from taxable Canadian corporations = 9/13 of 15% gross-up FIRST TIME HOMEBYER'S TAX CREDIT = 15% X $5,000 of a cost of a qualifying home ($750 MAX) CORPORATE TAXES: Basic corporate rate: 38% Federal abatement: (10%) Small business deduction (if applicable): (19%) General rate reduction (if applicable): (13%) QUESTION 3 morts Jack Chang's 4 years old and is emploved by a Canadian public company. His malay 5112.465. none of which is commissions. Because of his outstanding work during 2020, he has been wanted $20.000 bonus fit of this bonus in December 2020. and the other half will be pinay 2021 For 2020, employer withheld premium of 56 and CP contributions of 2,2 from The lover how the professional indust of $1.000 and contributions to the Sick Hospital of $2.500 Ahio withhele were registered pension plan contributions of 6.800. The employer tomada contribution to the plan of 54.100 Jack's spouse, Margarita Changia 44 years old. Her vet income for Tax Purpose is 57.820 The couple has three children who live with the information on these children is as follows Sherry is 17 years old, in good health and has income from part time jobs 57,43 Sunette is 19 years old and has serious breathing problems that prevent hertion working on a Mine basis Shein and has income from part time jobs of $7.250 Sharon las 23 years old and attends universyon ato me basis for 11 months of the year lack pays her buition fees of $10.300 along with textbook costs of 1.100. She is in good health. She has investment income of $4.00 The mustments were purchased with income from port time jobs during her high school year. Other Information 1. In 2017, lack received options to purchase 300 shares of his player's common tocatarie of $12 per share. As the time the options were granted the market price of the stock was $70 per share. In April 2020, when the shares are trading asas pershare, lackers all of the options. He is still holding these shares at the end of the year 2. During 2000, jack receives several pts from his employer As a reward for winning the company's Top Performer word, he receive an experte paid weekend in a luxury hotel in Niagara on the lake. The regular price for the package en hele for all of the company's employees, bek received a 60o Amaron en ore for a personal shoppings At Winter Holidays the company provides each employee with a bucket of pourmet food The value of the best in 5450 During 2000, lack spent $8,400 on employment related meals non travel and entertainment with clients of his employer is employer reimbursed all but $1.000 of these cost Page 1 of 2 Name Student Section 4. During 2000. Hacka Margarita decided to purchase their the family home they have rented for the last 3 years. After considerable searching they identify the perfect property tlocks from their rented apartment and purchase it for 5452.000. As per his employer's policy. granted an interest-free ton of 700.000 toist with the purchase. The lat was granted on Apr 1.2020. Asume that the pricribed rest hot 2020 During 2000, both Sherry and Sharon had ineplayer back had to pay $2.00 fot in atter Senese ed un trufa during the is paid $15.00 for hansplay surgery to reduce and reshape Shares which he believe in greatly improved her appearance. These mounts are encoded in the following medical expenses of the family of which were paid by lack ad * und Margarita $2,200 1.100 Sharon 16,000 - REQUIRED A Calate Mr. Changsminium Table income and federal Tax Payable Refund forever ended December 31, 2020 Show all of your work whether or not you feel a leant to your frelonywer [19 Marts Explain why Mr. Changcules for each tax credit that we came in Port Tou can use point form. 114 Marts Explain the income tax treatment of the employee tock option serta Da Market shery QUESTION 3 [36 marks] Jack Chang is 41 years old and is employed by a Canadian public company. His annual salary is $112,468, none of which is commissions. Because of his outstanding work during 2020, he has been awarded a $20,000 bonus. Half of this bonus was paid in December 2020, and the other half will be paid in January 2021. For 2020, his employer withheld El premiums of $856 and CPP contributions of $2,898 from his pay. The employer also withheld professional association dues of $3,400 and contributions to the Sick Kids Hospital of $2,500. Also withheld were registered pension plan contributions of $6,800. The employer also made a contribution to the plan of $4,600. Jack's spouse, Margarita Chang, is 44 years old. Her Net Income For Tax Purposes is $7,320. The couple has three children, who all live with them. Information on these children is as follows: Sherry is 17 years old, in good health, and has income from part time jobs of $7,625. Suzette is 19 years old and has serious breathing problems that prevent her from working on a full-time basis. She is infirm and has income from part time jobs of $7,250. Sharon is 23 years old and attends university on a full-time basis for 11 months of the year. Jack pays her tuition fees of $10,300, along with textbook costs of $1,100. She is in good health. She has investment income of $14,800. The investments were purchased with income from part- time jobs during her high school years. Other Information: 1. In 2017, Jack received options to purchase 300 shares of his employer's common stock at a price of $72 per share. At the time the options were granted, the market price of the stock was $70 per share. In April 2020, when the shares are trading at $85 per share, Jack exercises all of the options. He is still holding these shares at the end of the year. 2. During 2020, Jack receives several gifts from his employer: As a reward for winning the company's Top Performer Award, he receives an expense- paid weekend in a luxury hotel in Niagara-on-the-Lake. The regular price for this package was $1,200 As is the case for all of the company's employees, Jack received a $600 Amazon gift certificate for a personal shopping spree. At Winter Holidays, the company provides each employee with a basket of gourmet food. The value of this basket is $450. 3. During 2020, Jack spent $8,400 on employment related meals (non-travel) and entertainment with clients of his employer. His employer reimbursed all but $1,000 of these costs. 4. During 2020, Jack and Margarita decided to purchase their first family home (they have rented for the last 11 years). After considerable searching, they identify the perfect property 3 blocks from their rented apartment and purchase it for $462,000. As per his employer's policy, Jack is granted an interest-free loan of $200,000 to assist with this purchase. The loan was granted on April 1, 2020. Assume that the prescribed rate is 2 percent throughout 2020. 5. During 2020, both Sherry and Sharon had rhinoplasty surgery. Jack had to pay $2,800 for emergency services after Sherry's nose suffered serious trauma during a Muay Thai class. He also paid $13,500 for rhinoplasty surgery to reduce and reshape Sharon's nose which she believes has greatly improved her appearance. These amounts are included in the following medical expenses of the family, all of which were paid by Jack: Jack and Margarita $2,200 Sherry 3,100 Suzette 12,300 Sharon 16,000 -REQUIRED A) Calculate Mr. Chang's minimum Taxable income and federal Tax Payable (Refund) for the year ended December 31, 2020. Show all of your work whether or not you feel it is relevant to your final answer. [19 Marks) B) (1) Explain why Mr. Chang qualifies for each tax credit that was claimed in Part A. You can use point form. [14 Marks) (ii) Explain the income tax treatment of the employee stock option in Part A. [3 Marks] INDIVIDUALS: TAX BRACKETS Taxable income Up to $48,535 In excess of $48,535 In excess of $97,069 In excess of $150,473 > $214,368 Tax 15% $7,280 plus 20.5% on the next $48,534 $17,230 plus 26% on the next $53.404 $31,115 plus 29% on the next $63,895 $49,645 plus 33% on the remainder TAX CREDITS BASIC CREDIT = $13,229 x 15% = $1,984 SPOUSE/SPOUSAL EQUIVALENT (ELIGIBLE DEPENDENT) -15% x ($13,229 minus spouse/eligible dependent's net income) =$1,984 MAX Base amount increased by $2,273 (to $15.502) if the spouse/eligible dependent is mentally or physically infirm. CANADA CAREGIVER FOR CHILD $17,085) = $1,091 MAX AGE CREDIT = 15% (S7,637 - 15% x (net income - $38,508)) = $1,146 MAX PENSION CREDIT=15% x Ist $2,000 of "pension income"= 5300 maximum (not indexed) ADOPTION CREDIT = 15% of Ist $16,563 of eligible adoption expenses = $2,484 MAX CHARITABLE DONATIONS = [(15%MA)] + [(33%)(B)] + [(29%)(C)) (not indexed), where A = the first $200 B = the lesser of 1) total gifts less $200 and 2) taxable income less $214,368 C=the excess, if any, by which the total donations exceed the sum of $200 plus amount B (eligible donations generally limited to 75% of net income) MEDICAL EXPENSE CREDIT = 15% ((B-C) + D) where B = eligible medical expenses of the taxpayer, spouse or minor dependants C= the lesser of 3% of the taxpayer's net income and $2,397 D-E-F E = eligible medical expenses of the adult dependant F=the lesser of 3% of the adult dependant's net income and $2,397 DISABILITY CREDIT = 15% x $8,576 = $1,286 X POLITICAL DONATION TAX CREDIT (not indexed) = 75% first $400, 50% next $350 and 1/3 next $525... (5650 max credit overall) EDUCATION-RELATED CREDITS (not indexed) (a) TUITION CREDIT = 15% x eligible tuition fees (b) STUDENT LOAN INTEREST = 15% of interest paid on qualifying student loans; 5 year carry forward by student TRANSFER OF UNUSED CREDITS TO SPOUSE AND OTHERS Tuition (to parents and grandparents if no spouse) Age (to spouse only) Pension (to spouse only) Disability to child, grandchild,parent , grandparent, brother, sister, aunt, uncle, nephew, niece of the taxpayer or the taxpayer's spouse) Dependent must first use personal, EI and CPP credits before being able to use these credits El & CPP s. 118.7 = El & CPP premiums @ 15% (El & CPP premiums will be given to you) - El Credit 15% x $856 = $128 MAX -CPP Credit - 15% * $2,732 = $410 MAX CANADA EMPLOYMENT CREDIT = 15% x lesser of employment income or $1,245 = $187 MAX DIVIDEND TAX CREDIT: - for eligible dividends - 6/11 of 38% gross-up - for other dividends from taxable Canadian corporations = 9/13 of 15% gross-up FIRST TIME HOMEBYER'S TAX CREDIT = 15% X $5,000 of a cost of a qualifying home ($750 MAX) CORPORATE TAXES: Basic corporate rate: 38% Federal abatement: (10%) Small business deduction (if applicable): (19%) General rate reduction (if applicable): (13%) QUESTION 3 morts Jack Chang's 4 years old and is emploved by a Canadian public company. His malay 5112.465. none of which is commissions. Because of his outstanding work during 2020, he has been wanted $20.000 bonus fit of this bonus in December 2020. and the other half will be pinay 2021 For 2020, employer withheld premium of 56 and CP contributions of 2,2 from The lover how the professional indust of $1.000 and contributions to the Sick Hospital of $2.500 Ahio withhele were registered pension plan contributions of 6.800. The employer tomada contribution to the plan of 54.100 Jack's spouse, Margarita Changia 44 years old. Her vet income for Tax Purpose is 57.820 The couple has three children who live with the information on these children is as follows Sherry is 17 years old, in good health and has income from part time jobs 57,43 Sunette is 19 years old and has serious breathing problems that prevent hertion working on a Mine basis Shein and has income from part time jobs of $7.250 Sharon las 23 years old and attends universyon ato me basis for 11 months of the year lack pays her buition fees of $10.300 along with textbook costs of 1.100. She is in good health. She has investment income of $4.00 The mustments were purchased with income from port time jobs during her high school year. Other Information 1. In 2017, lack received options to purchase 300 shares of his player's common tocatarie of $12 per share. As the time the options were granted the market price of the stock was $70 per share. In April 2020, when the shares are trading asas pershare, lackers all of the options. He is still holding these shares at the end of the year 2. During 2000, jack receives several pts from his employer As a reward for winning the company's Top Performer word, he receive an experte paid weekend in a luxury hotel in Niagara on the lake. The regular price for the package en hele for all of the company's employees, bek received a 60o Amaron en ore for a personal shoppings At Winter Holidays the company provides each employee with a bucket of pourmet food The value of the best in 5450 During 2000, lack spent $8,400 on employment related meals non travel and entertainment with clients of his employer is employer reimbursed all but $1.000 of these cost Page 1 of 2 Name Student Section 4. During 2000. Hacka Margarita decided to purchase their the family home they have rented for the last 3 years. After considerable searching they identify the perfect property tlocks from their rented apartment and purchase it for 5452.000. As per his employer's policy. granted an interest-free ton of 700.000 toist with the purchase. The lat was granted on Apr 1.2020. Asume that the pricribed rest hot 2020 During 2000, both Sherry and Sharon had ineplayer back had to pay $2.00 fot in atter Senese ed un trufa during the is paid $15.00 for hansplay surgery to reduce and reshape Shares which he believe in greatly improved her appearance. These mounts are encoded in the following medical expenses of the family of which were paid by lack ad * und Margarita $2,200 1.100 Sharon 16,000 - REQUIRED A Calate Mr. Changsminium Table income and federal Tax Payable Refund forever ended December 31, 2020 Show all of your work whether or not you feel a leant to your frelonywer [19 Marts Explain why Mr. Changcules for each tax credit that we came in Port Tou can use point form. 114 Marts Explain the income tax treatment of the employee tock option serta Da Market shery QUESTION 3 [36 marks] Jack Chang is 41 years old and is employed by a Canadian public company. His annual salary is $112,468, none of which is commissions. Because of his outstanding work during 2020, he has been awarded a $20,000 bonus. Half of this bonus was paid in December 2020, and the other half will be paid in January 2021. For 2020, his employer withheld El premiums of $856 and CPP contributions of $2,898 from his pay. The employer also withheld professional association dues of $3,400 and contributions to the Sick Kids Hospital of $2,500. Also withheld were registered pension plan contributions of $6,800. The employer also made a contribution to the plan of $4,600. Jack's spouse, Margarita Chang, is 44 years old. Her Net Income For Tax Purposes is $7,320. The couple has three children, who all live with them. Information on these children is as follows: Sherry is 17 years old, in good health, and has income from part time jobs of $7,625. Suzette is 19 years old and has serious breathing problems that prevent her from working on a full-time basis. She is infirm and has income from part time jobs of $7,250. Sharon is 23 years old and attends university on a full-time basis for 11 months of the year. Jack pays her tuition fees of $10,300, along with textbook costs of $1,100. She is in good health. She has investment income of $14,800. The investments were purchased with income from part- time jobs during her high school years. Other Information: 1. In 2017, Jack received options to purchase 300 shares of his employer's common stock at a price of $72 per share. At the time the options were granted, the market price of the stock was $70 per share. In April 2020, when the shares are trading at $85 per share, Jack exercises all of the options. He is still holding these shares at the end of the year. 2. During 2020, Jack receives several gifts from his employer: As a reward for winning the company's Top Performer Award, he receives an expense- paid weekend in a luxury hotel in Niagara-on-the-Lake. The regular price for this package was $1,200 As is the case for all of the company's employees, Jack received a $600 Amazon gift certificate for a personal shopping spree. At Winter Holidays, the company provides each employee with a basket of gourmet food. The value of this basket is $450. 3. During 2020, Jack spent $8,400 on employment related meals (non-travel) and entertainment with clients of his employer. His employer reimbursed all but $1,000 of these costs. 4. During 2020, Jack and Margarita decided to purchase their first family home (they have rented for the last 11 years). After considerable searching, they identify the perfect property 3 blocks from their rented apartment and purchase it for $462,000. As per his employer's policy, Jack is granted an interest-free loan of $200,000 to assist with this purchase. The loan was granted on April 1, 2020. Assume that the prescribed rate is 2 percent throughout 2020. 5. During 2020, both Sherry and Sharon had rhinoplasty surgery. Jack had to pay $2,800 for emergency services after Sherry's nose suffered serious trauma during a Muay Thai class. He also paid $13,500 for rhinoplasty surgery to reduce and reshape Sharon's nose which she believes has greatly improved her appearance. These amounts are included in the following medical expenses of the family, all of which were paid by Jack: Jack and Margarita $2,200 Sherry 3,100 Suzette 12,300 Sharon 16,000 -REQUIRED A) Calculate Mr. Chang's minimum Taxable income and federal Tax Payable (Refund) for the year ended December 31, 2020. Show all of your work whether or not you feel it is relevant to your final answer. [19 Marks) B) (1) Explain why Mr. Chang qualifies for each tax credit that was claimed in Part A. You can use point form. [14 Marks) (ii) Explain the income tax treatment of the employee stock option in Part A. [3 Marks]