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

Required: Calculate Michaels minimum Net Income for Tax Purposes, Taxable Income, Federal Taxes Payable and Net Taxes Owing for 2021. Ignore all GST considerations. If there are any losses carryovers, please calculate and state them using correct terminology. For any amount not used in your calculations, explain why it is excluded. Show all work for full marks.

Exhibit 2

Michaels Financial Info

-Angela has net employment income of $130,000 in 2021. She also donated $30,000 to the Calgary Womens Emergency Shelter. I received salary of $300,000 plus $22,000 in taxable employee benefits. My withholdings included $92,000 in federal income taxes and $3,166 in CPP. I dont pay EI as I am not arms length from the company.

-I received $140,000 in non-eligible dividends from Dunder Mifflin this year. After this occurred, I sold 10,000 Dunder Mifflin shares for $800,000 to my friend Carlos. The shares had an ACB of $50,000. I heard that I might be able to avoid taxes on the gain from these shares. Could you see if there is any special treatment that I should be aware of and analyze if I would receive it?

-I also had 5 years 9% bonds that matured on October 1, 2021. The bonds interest was paid annually. The bonds face value was $20,000 but I purchased them for $18,520. The effective interest rate was 11%

-My 5,000 shares in Microsoft paid an annual dividend of $2.48 per share in 2021. Unfortunately, there was a US withholding tax of 10% on these dividends.

-Finally, I decided to give away my 1,000 shares in Schrute Ltd, a Cdn public company. My 12- year-old granddaughter Phyllis received 500 shares, Dwight received 300 shares and the remaining 200 shares went to Angela. I bought them originally for $15 per share and they had a fair market value of $28 per share when I gave them away. A $2 per share dividend was declared on the dividends after the gift. When the price increased to $46 per share in October, all 3 of them sold their shares.

-In 2015, we moved from our Springbank home to a penthouse in downtown Calgary. The home had a $340,000 capital gain so Angela used the principal residence exemption up to and including 2014 to reduce our taxes on it. Unfortunately, the Calgary real estate market has dropped significantly so we dont expect to have a gain on the penthouse. But we did sell our condo in Kelowna this year. The condo was owned solely by me. We bought it in 1998 for $233,000 and it sold for a price of $1,256,000. Real estate fees were 1.5%.

-I subscribe to the Globe and Mail ($365 per year) and the Calgary Herald ($150 per year).