It is early April 2024 and you, CPA, work in a mid-sized accounting firm in Kelowna, British Columbia. While you normally work on audits, you have requested to participate in the personal tax pool this year. The experience gained will be valuable for your career. You meet with the partner, Aram Anzari, who has instructions for a special personal tax return he would like you to prepare. Task #1 Aram asks you to prepare the 2023 tax returns for his good friends Kathy and Kevin Dhaliwal. Aram has shared with you the Dhaliwals' personal tax information, as provided by Kathy (see Appendix). In Excel, you will need to calculate the federal income taxes payable, showing all components and calculations for the Dhaliwals. You have been asked to ignore any CPP/QPP on self-employment income. Task #2 You have also been asked to write a short memo to Kevin and Kathy explaining the results of the tax calculation and when their returns are due. Aram also asked you to explain any evidence that the Canada Revenue Agency (CRA) may request for the Dhaliwals' claim for child care expenses and donations. He is aware of the fact that the CRA has been auditing these items more frequently and he wants to make sure the Dhaliwals are ready to respond. Appendix Kathy Dhaliwal - Personal tax information Remember: The current tax year that you are preparing the taxes for ended December 31, 2023. The prior tax year ended December 31, 2022. Kevin (age 48) and I (age 44) have numerous sources of income and deductions, and we want to ensure we pay as little tax as possible. We have two children: Sam (age 5) and Eric (age 2). We incurred $17,000 of daycare expenses during the year. After taking a year off with Eric, Kevin decided not to return to his full-time job at a privately held Canadian company, VJuice Inc. Instead, he returned to the workforce as an independent contractor for the British Columbia Ministry of Health on January 4, 2023. Kevin received contract income totalling $70,000 that was reported on a T4A slip as self-employment income for the year. He wants to claim meals and entertainment expenses relating to his contract of $2,500. I am a senior executive at a private company called Wheat Design Inc. (Wheat). During the year, I received a salary of $325,000. My T4 slip also indicates the following amounts withheld from my salary: Income tax Group medical premiums CPP contributions El premiums RPP contributions Charitable donations $60,000 2,200 3,754 (max) 1,002 (max) 6,000 1,000 All senior executives at Wheat are provided with a leased vehicle of the employee's choice. My vehicle is a Mercedes-Benz. The company paid the monthly lease payment of $675 plus 5% GST and the monthly insurance premium of $75. The original cost of the car was $55,000 plus 5% GST (ignore provincial sales tax). During the year, I drove a total of 60,000 km, of which 18,000 km were considered personal. I use a company Visa card to pay for vehicle operating costs. I also wrote to Wheat that it can use any optional calculation methods available to minimize any taxable benefits. During the year, these operating costs paid by Wheat totalled $6,500. I also received an allowance of $300 per month to cover any additional vehicle expenses that I cannot, or do not, put on the company's Visa. Appendix (continued) Kathy Dhaliwal - Personal tax information Before starting his contract work in January, Kevin purchased a new vehicle with a full warranty at a cost of $25,000 plus 5% GST (ignore provincial sales tax). Kevin drove the vehicle 50,000 km during the year, of which 32,000 km were business related. Expenses related to the vehicle for the year included: Gas, oil changes, and repairs DVD player Insurance Parking tickets $ 8,000 1,000 1,500 500 Kevin also paid $2,000 of interest that he believes is not deductible for tax purposes. It relates to a personal line of credit that he used to purchase the vehicle. Kevin's contract position with the British Columbia Ministry of Health also involved working more than 60% of his time from home, and he always met with department supervisors at home. Kevin's home office took up approximately 10% of our home. During the year, we incurred the following home expenses: Mortgage interest Property taxes Electricity Home insurance $ 5,000 4,000 3,000 Home office repairs 500 1,000 I also received some perks from Wheat that were not included on my T4 slip. Wheat paid 100% of the premiums for my group disability insurance ($2,500 per annum), as well as my personal life insurance premiums ($1,500 per annum). Wheat has a company condo in Cuba that all senior executives can take their family to for one week per year. Similar accommodations in Cuba would cost $5,000 if I had to pay for them myself. I have taken my family there the past three years. The company also provides support to the employees for professional development. I took one $3,000 course during the year on "effective leadership." The full cost was covered by Wheat. My 2022 Notice of Assessment shows that my 2023 RRSP deduction limit is $15,000. On December 31, 2023, I made an RRSP contribution of $10,000 to my own RRSP. On January 5, 2024, I contributed $2,000 to a spousal RRSP. I made an additional $5,000 contribution to a spousal RRSP on April 1, 2024. In addition, my Notice of Assessment indicated that I had undeducted RRSP contributions from 2022 of $2,000. We sold our home on July 28, 2023, for $850,000. We had originally purchased this house for $375,000 10 years ago. We also own a cottage worth $650,000 that we purchased 10 years ago for $200,000. We plan to continue owning this property as our family cottage. Appendix (continued) Kathy Dhaliwal - Personal tax information I also have a significant investment portfolio held at a financial institution, which provided the following information: Actual Actual non- eligible Capital eligible Description Interest dividends gains dividends Investments, CDN account $3,000 $2,000 Investments, CDN account $2,500 I currently have a net capital loss carryforward of $2,500 (incurred last year). We are proud of our investment record. This is the only loss we have ever incurred in our portfolio. Otherwise, even after taking into account all investment expenses, we always make money. I also sold the following property during the year: Description Sailboat Coin collection Proceeds $12,000 10,000 During the year, we also incurred the following expenses: Cholesterol testing $ 500 Political contributions 1,000 Membership fees - Nobody's Gym 2,000 Family dental expenses 3,000 Cost $30,000 4,000 I was nervous that I was going to owe a significant amount of tax, so I made an instalment payment a few weeks ago of $5,000.