Navdeep has drafted the income statement attached in Exhibit 1. Opening UCC for his CCA calculations was as follows: Class 1 building: $157,000 Class 8 equipment: $49,000 Class 10 vehicles: $152,000 Group Project Tax Principles Page 4 of 6 Class 10.1 vehicle: $25,500 Class 14 franchise: $85,000 The business had the following additions and disposals to its capital assets during the year: On October 1, 2018, the Class 10.1 vehicle was sold for $40,000 and replaced with a new vehicle, a Tesla, for $60,000. The business borrowed the full amount of the cost of the Tesla, and interest expense on the loan was $1,870 during the year. On August 15, 2018, the business sold the Class 1 building and leased a warehouse. The building cost $200,000, and the land that it was on had a cost of $75,000. The property was sold for $350,000, with $100,000 allocated to the land. Equipment was purchased at a cost of $40,000. Some older equipment was sold for $5,000. The equipment that was sold had a cost of $7,500. A Class 10 vehicle was written off as the result of an accident. It had cost $25,000. Insurance proceeds of $4,000 were received. There are remaining vehicles in that CCA class. The leased warehouse needed some upgrades at a cost of $135,000 for improvements such as paint, flooring and shelving units. The lease was for a seven-year term with one two-year renewal option and a second three-year renewal option. Landscaping around the new warehouse cost $10,000 and was capitalized for accounting purposes. Navdeep advised you that the franchise had a 10-year life, and it was purchased on March 1, 2017, for $85,000. Navdeep normally takes the maximum CCA allowable but no CCA was taken on this franchise in 2017. He provides you with the following additional information with respect to items included on the income statement: Salaries include an amount paid to Navdeeps sister of $40,000. His sister occasionally fills in for one of the store clerks when they are ill, and she is expected to work 500 hours during 2018. Store clerks are paid $16/hour. Advertising and promotion includes: o golf-club membership, which has been very important for bringing in new clients as Navdeeps business has a large portion of its store dedicated to selling golf-related equipment $4,000 o meals at golf club with clients $2,600 o donation to registered charities $500 Office expenses include: o financing fee paid to arrange loan for Tesla $4,000 Group Project Tax Principles Page 5 of 6 o advertising brochures printed for spring 2019 advertising campaign $6,500 o computer equipment

$2,750 Navdeep has not included any expenses for the home office. The travel and convention costs were for the following: o attendance at a golf tournament in Georgia $6,000 o attendance at annual convention organized by Canadian sporting goods franchisees, held in Calgary, Alberta $3,000 o mileage paid to a key employee 8,000 km $0.65/km = $5,200 o speeding tickets that Navdeep received on his way to work $2,000 Bad debt expense was made up of actual write-offs during the year of $5,500 that were specifically identified during the year. Navdeep will be required to remit both the employers and his portion of CPP of 2 $2,594 = $5,188 when he files his tax return. Exhibit 1 Navdeeps Sporting Goods Income statement For the year ended December 31, 2018 Sales $550,000 Expenses: Cost of goods sold $200,000 Wages 235,000 Office expenses 13,250 Depreciation 40,000 Advertising and promotion 18,000 Interest expense 1,870 Travel and convention 16,200 Bad debt expense 5,500 Total expenses $529,820 Net income before other income/expenses 20,180 Add: gain/loss on disposal of assets 25,000 Net income $ 45,180 Group Project Tax Principles Page 6 of 6 There is no office space at his retail store or in the warehouse, so Navdeep has set up an office in an unused room in his home. He uses the room for several hours every day for his business record-keeping and meeting with suppliers, which he does regularly. It takes up 10% of their home, and the costs are as follows: property taxes: $4,000 insurance: $1,000 mortgage interest: $3,500 utilities: $1,800 minor repairs and maintenance: $3,000 Required: a) i) Determine the expenses that Jasleen can deduct from her employment income. Briefly explain whether Jasleen should claim expenses as a sales or non-sales employee. Clearly demonstrate any differences between your calculations for sales and non-sales employees and explain those items that are excluded from your calculations. (5.5 marks) ii) Determine Jasleens net income for tax purposes and taxable income for 2018. (14.5 marks) iii) List and briefly explain items excluded from your calculation of net and taxable income. (2 marks) b) Prepare a CCA schedule for Navdeeps Sporting Goods in proper form, being sure to show ending UCC for all CCA classes. Where it is necessary to choose between a variety of calculations, show all calculations, including those where the result is nil. Explain any amounts that you do not use in your calculations. (13 marks) c) Determine Navdeeps net income for tax purposes by preparing a reconciliation of accounting income to net income for tax purposes, starting with net income for accounting purposes and adding and subtracting items as needed. Also determine Navdeeps taxable income. Briefly explain why certain items were excluded from the calculation for Navdeep. Show all your calculations. (18 marks) d) Explain whether Navdeep should claim the home office expenses, using the case facts to support your conclusions. (4 marks) Note: Round all amounts to the nearest dollar and ignore GST and provincial taxes. Show all steps in your calculations, even if the result is zero.