It is December 5, 2021, and you are employed as the controller for Dunder Mifflin Ltd. Dunder Mifflin is a corporation owned by the Scotts: Michael and Angela and their two adult sons Jim and Dwight. All four of them invested in the company when it began in 2004 and have been active in its operation ever since. Dunder Mifflin sells office products including paper items. Its warehouse is in Calgary, Alberta where the family lives. Michael, the CEO, stops by your office with some questions.

Michael: We think we have found the perfect building for our new warehouse. It is in Nanton, Alberta and if things work out, we should be able to move next summer. It’s twice the size of our current building but because its outside of Calgary, it will only be about 1.5 times the sales price of the Calgary warehouse. Angela and I would relocate to Nanton, but Jim and Dwight will continue to work in Calgary from their homes.

I would like to minimize the amount of the loan needed to buy the new warehouse. Therefore, I want to avoid any taxes resulting from the sale of the current warehouse. Is there any to do this? Please explain fully what steps would be required and the result if we follow them.

Also, we were wondering if Angela and I could deduct the moving expenses when we move? Are there any conditions we should be aware of?

You reply that you will explain any criteria needed regarding the warehouse sale and the moving expenses and analyze the situations for Michael.

Michael: Great. The other issue is the impact of this on the employees. To encourage them to move with us, we have prepared a list of new employee benefits (Exhibit 1) that we are considering offering. I would like to know if these benefits would be taxable to the employees. Also, what is the impact on the company? Can they all be expensed for tax?

You offer to prepare a schedule that discusses whether a benefit is taxable to the employee and deductible by Dunder Mifflin. For items that sometimes might have different treatment depending on the situation, you will discuss the specific circumstances that would affect it.

Michael That would be perfect. I also have some sad news. Jim has separated from his wife Pam. Luckily; they don’t have any children. Jim has agreed to pay Pam $4,500 a month starting in January. He also gave her $10,000 last week to help her with the damage deposit and first month rent on a new place. They wrote an agreement that both signed that states the monthly payment consists of $1,500 to be used for Pam to see a counsellor. The remainder was for her to use as she sees fit. Jim was wondering if he could expense these payments.

You state that are very sorry to hear about Jim and Pam. However, you will prepare an analysis for Jim on the deductibility of these payments.

Michael: One last thing, I was hoping you could estimate my 2021 taxes payable for me. Here is my financial information (Exhibit 2).

You say that this will be no problem. Michael thanks you and asks for it all to be done by December 10. Michael leaves, you sigh, and get to work.

Required: 

Michael’s questions regarding the sale of the warehouse, moving expenses, employee benefits, Jim’s support payments and the sale of Dunder Mifflin shares.

Exhibit 1

Possible Employee Benefits

We are considering providing the following items for our employees who move to Nanton:

• Memberships to a Nanton fitness center ($250 per month)
• Company provided car to 5 senior management employees. We would lease the cars for $1,000 per month. It is expected that the employees would drive them 30% for work purposes.
• 1 round trip ticket to Calgary each month on a local shuttle ($100 per trip)
• Tuition to one course per year (cost from $500 to $5,000)
• $1,000 contribution to employee’s RRSP