Patrick makes a living selling safety equipment through his business, a sole-proprietorship, in

Ontario. He employs 5 full-time staff and business was running smoothly until COVID19 reduced

his business revenue starting in April 2020. He pays each of his employees a monthly salary of

$2,000 and properly remits payroll deductions on time through his CRA payroll account. He does

not want to lay-off his staff, and can manage in the short-term, but without sustained revenue,

he is unsure what his options are. Using the information Patrick provided, his accountant has

computed his 2019 personal tax liability as $500,000 and has advised Patrick to remit by the April

30th due date. Patrick is struggling with cashflow and is wondering how he will make this tax

liability payment by April 30th.

Lisbon, Patrick's wife, started her optometry practice in 2019 and made $250,000 in profit for

2019. She borrowed $500,000 interest-free from Patrick in 2019 to start her practice. In early

2020 she had to close her practice due to COVID19 and is expecting to incur a loss of $200,000

for the rest of the year. Lisbon also earned $80,000 in investment income so far in 2020 from

marketable securities that she purchased with inheritance money. Lisbon's accountant has

indicated that the business loan will impact Patrick and that he should have added $250,000 in

profit from Lisbon's practice into his 2019 tax return since he made the loan to Lisbon. Patrick,

being an ethical person, will be taking this information to his accountant to have his 2019 tax

return amended to reflect the change.

Cho, Patrick's son, is an executive at a large Canadian corporation that sells medical equipment

to hospitals. He is single and lives in Ottawa and has worked for this company for the past 5

years. His company did not need to lay off any employees and business is busier than ever. Cho's

job requires him to travel to different countries to install medical equipment at hospitals and

other than his airfare, his employment agreement requires him to pay for accommodation and

other travel expenses directly. He receives a monthly allowance of $2,000 and it normally covers

his travel expenses. He had left for Switzerland on March 15, 2020 to demo his company's

products. When COVID19 struck, travel restrictions were placed by governments worldwide and

Cho had to stay and work from a hotel in Switzerland until the travel restrictions are lifted. Cho's

company has increased his monthly allowance to $5,000 to cover his living expenses while in

Switzerland. As he is frugal, Cho found a low-cost hotel to stay that allows him to buy and cook

his own food. His actual monthly living expense, including rent and food is $3,000. Cho is happy

that he can pocket the difference and is confident he will not have to pay Canadian income tax

on the additional $2,000 while he is working from Switzerland. He is wondering if staying in

Switzerland long-term due to COVID19 would impact his Canadian tax status somehow. He is

only interested in the impact to his Canadian tax status. He also heard about CERB program that

provides financial assistance and is thinking of applying.

Required

It is now April 15, 2020 and you, a CPA tax consultant, have been assisting Patrick's family with

other tax matters. Patrick has mentioned the above issues to you and wants a second opinion

and clarity on the above. Assist Patrick, Lisbon and Cho with their tax situation by writing a

memorandum. Make sure to provide details, discuss alternatives and recommend the best

solution based on everyone's situation with the information given.

Make any reasonable

assumptions, as necessary.

You should research and apply contents from Chapters 1 to 10 and CRA publications published

up to June 15, 2020 on the CRA website to guide you with your response.

CRA website:

https://www.canada.ca/en/revenue-agency/services/forms-publications.html

Chapter1: Introduction

Chapter2. Liability for Tax

Chapter3:Employment Income

Chapter4:Income from Business: General Concepts and Rules

Chapter5:The Capital Cost Allowance System for Depreciable Property Including

Intangibles

Chapter6:Income from Property

Chapter7:Capital Gains: Personal

Chapter8: Capital Gains: Business Related

Chapter9: Other Sources of Income and Deductions in Computing Income

Chapter10: Computation of Taxable Income and Taxes Payable for Individuals