June 30, 2022. Daniella, aged 41, works for St. Davids hospital as a Physiotherapist. Her husband, Barrie, aged 39, is a golf instructor. Annually, Daniellas gross earnings are $102,000 and Barries gross earnings are $69,000. They have one child, aged 7.

Currently, Daniella and Barrie rent a two-bedroom townhouse in Oakville, Ontario. To shorten the commute, and save money on gas, they purchased a new home in Etobicoke, Ontario. The listing received multiple offers, however Daniella and Barries offer, for $1 million, was accepted by the sellers. Barrie was very excited, because it would bring him closer to his sister Sophie.

Prior to making an offer on the home, Daniella was able to lock in a five-year fixed, closed mortgage rate for 4.7% APR with a 25-year amortization period. They plan to make monthly payments. Based on their research, Daniella and Barrie estimate the annual property taxes to be $3,900 per year.

Current Assets and Liabilities Daniella and Barrie have saved approximately $216,000, for the purchase of their new home. They manage their own investments, and annually they have been able to generate a rate of return equal to 5.2%; Barrie believes that they will be able to continue to generate this rate of return until they retire.

They give you the following information regarding their current finances:

Item Monthly

Rent Expense $2,200

Heating $70

Utilities $60

Internet $70

Tenant Insurance $50

Phone $110

Groceries $800

Entertainment $200

Car Loan $450

Car Expenses $300

Child Care $600

Miscellaneous $300

Assets and Liabilities

RESP savings $23,000

Car $14,000

Outstanding Car Loan $7,000

New Home Savings Account $216,000

Chequing Account $43,000

Daniella TFSA $52,000

Barrie RRSP $9,700

Credit Card Balance $1,480

After discussing their assets and liabilities with you, Daniella tells you that they plan on buying a joint-first to die, mortgage life insurance policy with a face value of $150,000. Now that they have purchased their home, they plan on buying a homeowners insurance policy that will cover $750,000 in damages to their home, with $2 million in liability coverage.

#1) Do they qualify for a conventional mortgage, under the normal mortgage rules, or will they need to purchase insurance from CMHC? Use the current CMHC limits of 39% for GDS and 44% for TDS. Note, you will need to stress test the mortgage and calculate their mortgage ratios to answer this question. The qualifying rate is 5.25%. (15 marks)

Question 2 (15 marks)

Assume it is December 1, 2022, and the value of their home has appreciated; the home they bought for $1 million in June is now worth $1.2 million, and the replacement cost of the home equals the market value of the home.

C. Assume that Daniella and Barrie have purchased life insurance and name each other as the primary beneficiary to their life insurance policies. If Barrie passes away, and Daniella receives the death benefit from the life insurance policy how much do they have to pay in taxes? Use the tax rates you calculated in Question 1, Part A, if you need them. (2 marks)

D. Fast forward into the future. It is now December 15th, 2022 and Daniella and Barrie have decided to sell their home. On December 22nd, they get an offer from a buyer for $1.3 million which they accept. The closing date, the date that the title will transfer to the buyers, is January 2nd, 2023. When filing their income tax returns, what tax year did the disposition occur? (2 marks)