Mr. Allen Arnold lives in Burlington, Ontario. He is 46 years old. His wife Brenda is 38 years old and, for 2020, she has Net Income For Tax Purposes of $8,500. They have two children. Their daughter Sarah is 12 and has income from part time jobs of $300. Their son Derek is 10 and has no income of his own.

Allen's Employment Information

Mr. Arnold works for a large public company and, during 2020, his basic salary is $103,000. In addition, his employer reward his with bonus of $26,140, which was paid in January 2021. During 2020, his employer withholds the following amounts from his earnings:

Registered Pension Plan Contributions

$4,200

Canada Pension Plan Contributions

$2,898

Employment Insurance Premiums

$856

Donations To United Way

$1,200

Payments For Personal Use Of Company Car

$600

Union Dues

$260

1. Mr. Arnolds employer makes a matching $4,200 contribution to the companys RPP on behalf of Mr. Arnold.

2. Mr. Arnolds employer provides him with a car that was purchased in 2017 for $38,000. His employer pays all of the operating costs which, during 2020 totalled $9,800. During the year, Mr. Arnold drove the car a total of 48,000 kilometers, 42,000 of which were for employment related travel. During Mr. Arnolds two months sick leave, he was required to return the car to the company garage.

3. As with all of the other employees, Mr. Arnold received a $750 gift certificate for use at a local department store. He also received a $300 cash reward for his sales performance.

4. The company is also providing him with a $200,000 interest free housing loan to help finance his new house purchase. This loan is granted on April 1, 2020 and must be repaid at the end of five years. CRA prescribed interest rate for the second quarter was 2%. For the third and the fourth quarters CRA prescribed interest rate was 3%.

5. Several years ago, Allens employer granted him options to buy 2,000 shares of the companys stock at a price of $20 per share. This was the market value of the shares at the time the options were granted. In January, 2019, when the shares are trading at $32 per share, Allen exercises all of the options. In December, 2020, the 2,000 shares are sold for $35 per share.

6. Mr. Arnold receives a travel allowance of $4,950 per year to cover his hotel costs. His actual hotel costs for 2020 were $5,100.

Allen's Business Income

As an accountant, Allen also has not incorporated professional practice. His business uses a December 31 year end.

1. When he began his practice in 2015, he purchased an office building for $750,000, of which $180,000 reflected the estimated fair market value of the land. It was a new building and it has been allocated to a separate Class

Allen uses all of the building for his practice. On January 1, 2020, the building had a UCC of $431,676.

2. In an attempt to attract a wealthier clientele, Allen upgrades his office during March, 2020. He spends $204,000 on new furniture and fixtures. The old furniture and fixtures were sold for $31,000. These assets had a capital cost of $93,000 and a UCC of $34,284.

3. As many of his clients are disabled, his business requires a car to be used to provide in-home services. On January 1, 2020 he acquired a new luxury vehicle at a cost of $62,000. During the year, it was driven a total of 32,000 kilometers, of which 29,000 related to providing in-home services for his clients. Operating costs for the year totaled $4,800.

4. Other 2020 costs of operating his business, determined on an accrual basis, are as follows:

Building Operating Costs

$24,300

Payments To Staff

$42,000

Miscellaneous Office Costs

$17,500

Meals With Clients

$15,300

5. During the year ending December 31, 2020, Allen delivered services for $345,000.

Allen's Property, Investment, & Other Information

Through careful spending for himself and his family, Aldo has been able to accumulate an investment portfolio of over $500,000. All of these funds have been invested in Mutual Fund Trusts and, during 2020, these trusts made distributions totaling $36,960. The breakdown of these distributions is as follows:

Capital Gains

$22,960

Eligible Dividends

$8,500

Interest Income

$5,500

Total

$36,960

All of these investments are owned by Allen. Cynthia has no 2020 investment income.

1. For many years, Allen has owned a cottage on a nearby lake. It had cost $75,000, including an estimated value for the land of $20,000. On January 1, 2020, because of his familys declining use of this property, Allen decides to convert the property to a rental property. At this time, the property is appraised for $250,000, including $50,000 for the land. During 2020, net rental income before the deduction of CCA equals $3,900. Allen does not intend to designate the cottage as her principal residence in any of her years of ownership.

2. Allen owns a painting with an adjusted cost base of $200. During 2020, he sells this painting for $22,000.

3. Medical expenses for Mr. Arnolds family are as follows:

Allen

$3,650

Brenda

$2,600

Sarah

$1,300

Derek

$6,200

4. Allen paid 7,500 for Sarah education; Sarah has agreed to transfer the maximum allowable amount to Allen for tax purposes.

5. Ignore GST/HST considerations.

REQUIRED:

Based on the information from above assume that Allen has the following Incomes:

Net Employment Income

130,095.00

Net Business Income

152,310.00

Net Property Income

18,580.00

Net Taxable Capital Gains

112,480.00

Calculate the following amounts related to Mr. Arnolds Taxes for 2020:

Net Income For Tax Purposes

Taxable Income

Tax Payable Before Credits

Non-Refundable Federal Tax Credits*:

Basic Personal Amount

Spousal Amount

EI Premium

CPP Contributions

Canada Employment

Transfer of Tuition

Medical Expenses

Additional Federal Credits:

Charitable Donations

Dividend Tax Credit

* Non-Refundable Federal Tax Credits should be before 15% Federal Rate applied

Enter only positive amounts

Mary operates a proprietorship that generated $100,000 in income under GAAP. Included in this amount are:

$7,000 of amortization expense;

$4,000 for bad debt expense;

$112,000 cost of goods sold; and

$12,000 meals and entertainment with clients.

Marys maximum CCA has been calculated at $10,000 for the year.

How much is Marys business income for tax purposes?

A.

$113,000

B.

$109,000

C.

$107,000

D.

$103,000

Answer; D (NOT SURE)

Mary operates a proprietorship that generated $100,000 in income under GAAP. Included in this amount are:

$7,000 of amortization expense;

$4,000 for bad debt expense;

$112,000 cost of goods sold; and

$12,000 meals and entertainment with clients.

Marys maximum CCA has been calculated at $10,000 for the year.

How much is Marys business income for tax purposes?

A.

$113,000

B.

$109,000

C.

$107,000

D.

$103,000

Which of the following is NOT a characteristic of interest?

A.

It must represent compensation for use of a principal amount.

B.

It must accrue continuously over time.

C.

It must be paid on a regular, periodic basis.

D.

It must be calculated with reference to a principal amount. ANSWER :C