INSTRUCTIONS, READ FIRST

Save your excel file using the following: LastName_FirstName_Assignment1_ClassDay

For ClassDay = put either Monday or Wednesday depending on your section

There are 3 questions to complete.

Question 1 - complete in excel in the designated section. When you are done, type your INITIALS in cell F35

Question 2 - case = complete in tab "Q2 Response"

Question 3 - complete in excel in the designated section. When you are done, type your INITIALS in cell I103

When you are finished, upload your completed excel to the online assignment dropbox by the stated deadline.

Q1 - Employment Benefits = 9 marks

The taxpayer provided you with the following information related to their employment.

Required: For each item, select whether the item was Taxable or Not Taxable (from the dropdown box - highlighted in yellow), and identify the section number from the ITA to support your conclusion (from the dropdown box - highlighted in yellow).

Instructions:

1) Click on the individual cell to activate the dropdown arrow.

2) Make your selection given the options in the dropdown list.

3) Use your notes, text, ITA, and the Employer Guide 4130 as research tools.

Employment income (received in 2020)

$45,000

Bonus ($1,000 received in December 2020)

$1,000

Bonus ($5,000 received in January 2021)

$5,000

Employer-paid the following items:

Employer contribution to company registered pension plan

$2,500

Employer paid premiums for group term life insurance (beneficiary = taxpayer)

$1,200

Employer paid premiums for extended health and dental plan

$1,500

Employer paid for income tax preparation

$350

Employer paid for couselling for retirement

$400

A scholarship for the taxpayer's son, received under a program provided by the employer.

$4,500

Dry-cleaning allowance for business clothing

$600

Employer directly pays for parking. The parking lot is private owned (not owned by the employer).

$800

Employer paid for seminar/workshop on new accounting software being implemented in company.

$900

Monthly car allowance ($200 per month)

$2,400

Other items:

Taxpayer stayed in condo in Barbados (owned by employer) for a one-week holiday. Typical value for a one week stay is $1,500.

$1,500

Taxpayer purchased merchandise from employer at a 20% discount, saving a total of $500 (still above cost). Discount is available to all employees.

$500

Taxpayer received the following gifts from the employer:

2 coffee mugs

$10

Gift card to the grocery store - taxpayer was voted the most friendly employee

$100

A watch - for working at the company for 10 years (employer provides a milestone gift at the 10 year mark)

$450

Weekend getaway in Mexico - given by employer for signing up the newest customers

$1,100

A holiday gift (various household gifts)

$75

Both column A and B must be correct to score for each row

Column A - select Taxable or Not Taxable from the dropdown arrow

Column B - select the section number from the ITA to support from the dropdown arrow

Taxable or Not Taxable

Section Reference

You have been provided with the following information (see case facts below) which should be used to prepare an analysis on whether the taxpayer would be an employee or self-employed. Use the following approach to discuss whether the taxpayer would be an employee or would be considered as self-employed.

Use the following approach: I = Issue + A = analysis + R = recommendation

Issue: Describe the tax issue (one sentence)

Analysis: Use the relevant tax technical to analyze the problem and prepare a balanced analysis where appropriate. i.e. the criteria to analyze employee vs. self-employed. It is not enough to list the criteria but rather to explain how they relevant given your case facts. Organize your analysis as follows: refer to chart --> for your analysis section.

Recommendation: Make a conclusion on the appropriate tax treatment of the taxpayer. Support your conclusion.

You can organize your response in the tab called: Q2 Response

The company is ABC Yoga, and they are a not-for-profit organization (NPO) that runs yoga education courses in cities across Canada. ABC will be offering a certification of Yoga Health upon successful completion of their certification exam (short answer/long answer) and a practicum (practical examination) which is part of their new Yoga training program. A new department has been created to oversee the administration of the exam. You have been provided with some information about the process:

ABC Yoga is expecting many experienced Yoga practitioners to take time away from their busy schedules to mark these exams. ABC will provide a temporary marking center setup somewhere offsite at a conference center for one week which is the expected duration of marking.

Each marker would be paid a flat fee of $5,000 and no benefits. The payment is made using EFT upon completion of the marking week. The employees of ABC Yoga will train the markers on the short answer / long answer questions on the first day of the marking week. The markers can set their own schedule after the first day of training. i.e. they can determine their start and end time, breaks, and can come and go to the conference room to complete the marking based on preference. Each marker is responsible to mark a minimum number of responses per day (to ensure the center stays on track to complete all the marking within a week) and a total of 2,000 by the end of the marking week.

Sample table setup for your Analysis section.

Technical + Case facts that support

AN EMPLOYEE

Technical + Case facts that support

SELF-EMPLOYED

Factor 1: supports an employee / employer relationship because .

Factor 1: supports a self-employed situation because

Factor 2: supports an employee / employer relationship because .

Factor 2: supports a self-employed situation because

Etc.

Etc.

Response to Q2 - Employee vs. Self-Employed - 6 marks

Organize your answer here. Please ensure you use appropriate formatting and wrap text so that your response is easy to review.

Q3 - Business Income = 15 marks

You have been provided the following information from your client; a corporation called XYZ Limited. Income Statement (for Accounting) and related notes are provided below.

Required: Calculate the total business income for tax purposes for XYZ Limited for 2020.

Your response will be completed in the TABLE found at the END (BOTTOM) of the question details.

XYZ Limited

Income Statement

For the year ended December 31, 2020

Sales $98,700,000

Cost of Goods Sold (Note a) $32,500,000

Gross Profit $66,200,000

General and administrative expenses (Notes b-g) $11,200,000

Selling expenses (Note h) $15,644,000

Income from operations $39,356,000

Other income (Notes i-j) #25,000

Provision for income taxes (accounting) $10,320,000

Net income $29,011,000

The following detailed information has also been provided:

a) XYZ Ltd. has recorded an inventory obsolescence provision. All items that did not sell within the last 180 days were written down to the carrying value. The provision was $325,000.

b) Towards the end of 2020 XYZ Ltd. initiated an early retirement package for employees over the age of 60. The deadline to accept the offer packages is January 30, 2021. No replies have been received as of December 31, 2020; it is expected that most employees will sign the early retirement package. The cost to the company is expected to be $450,000. It has been accrued in the financial statements.

c) The professional and legal fees account included the following items:

Cost incurred to renegotiate the company bank loans $15000

Cost incurred to defend the company against a wrongful dismissal $75000

Legal and accounting fees to issue shares $12000

d) The following is a breakdown of the amounts paid by XYZ Ltd. towards insurance for its employees (already recorded in the F/S).

$1,000,000 insurance policy on the life of the president included in insurance expense ($200 per month). See note below on purpose of policy. $2400

Group term life insurance for employees included in salaries and benefits ($6,250 x 12 months) $2500

XYZ Ltd. is the beneficiary of the policy on the president. That policy is used as collateral on the bank loan. This is because the president plays a significant role in the success of the XYZ Ltd. business. The premiums on the policy are equal to the net cost of the insurance for the policy.

e) XYZ Ltd. made significant repairs to the outside of the building for a total cost of $50,000. Of that amount, $10,000 relates to landscaping costs.

f) Also included in general and administrative expenses were the following costs:

Interest on late payment of municipal taxes $2500

Loss from theft by the payroll clerk $10000

Donations to various registered charities $10000

Political contributions $10000

Amortization $34000

g) The salaries and benefits account shows contributions for certain employees to the companys registered pension plan. The contributions were made March 31, 2021. The pension plan is a defined contribution (money purchase) plan. The company matches the employees contributions on a dollar for dollar basis.

Registered Pension Plan Employment compensation

President $14675 $260000

Controller $12700 $160000

h) The selling expenses account included the following items:

Sponsorship costs local events $1000

Meals/entertainment costs of salespeople $210000

Membership for salespeople at local golf courses $15000

Staff holiday party and summer barbecue (2 / year) $2500

Basketball tickets given to clients $9500

i) During the year XYZ Ltd. sold some of its capital assets for a loss of $75,000.

j) During the year XYZ Ltd. earned a total of $25,000 in interest income from an investment in a money market fund.

Other relevant information:

k) Capital cost allowance (for tax purposes) for the year was $74,000.

l) A total of $144,000 in management bonuses have been accrued for in the financial statements. They were paid on June 15, 2021.

Instructions:

1) The starting point is net income for accounting purposes (NI for A)

2) For each item listed, identify whether it should be:

Added back to NI (an expense for accounting but not permitted for tax)

Added to NI (income not recorded for accounting, but should be for tax)

Deducted from NI (income for accounting but not permitted for tax)

Deducted from NI (an expense not recorded for accounting, but should be for tax)

No impact (how it is recorded for accounting is correct for tax)

For Column A:

CLICK on the individual cell to activate the dropdown arrow.

Make your selection given the options in the dropdown list.

For Column B:

ENTER the correct amount to add back or deduct. If only a portion of the amount should be added back or deducted, enter that portion.

All columns, A, B, and C must be correct for each row to score

Column A

Column B

Column C

CLICK (select) your response using the dropdown box (activated when click on the box)

ENTER the adjustment amount

EXPLAIN (type) in the reason for your adjustment, including the relevant ITA section. If you need more space use 'wrap text', or use Notes 1, 2, etc.

$29,011,000

Net income for accounting purposes (START)

Income tax (accounting)

Other

Inventory provision

a

Retirement accrual

b

Negotiate loan fees

c (i)

Cost to defend lawsuit

c (ii)

Legal/accounting fees to issue shares

c (iii)

Life insurance (president)

d (i)

Group term life insurance

d (ii)

Repairs to outside of building

e

Landscaping costs

e

Late payment for municipal taxes

f (i)

Payroll theft loss

f (ii)

Charity donations

f (iii)

Political contributions

f (iv)

Accounting amortization

f (v)

RPP contributions - President

g (i)

RPP contributions - Controller

g (ii)

Sponsorship (local event)

h (i)

Meals/entertainment - sales

h (ii)

Golf course membership

h (iii)

Staff party (2)

h (iv)

Basketball tickets - clients

h (v)

Capital asset loss

i

Money market interest

j

CCA

k

Management bonus

l