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445 Other Income, Other Deductions, And Other Issues Assignment Problems Assignment Problem Nine - 12 (Comprehensive Case Covering Chapters 1 to 9) Family Information Spencer James is 41 years old. He has been married to Suzanne James for over 20 years. The couple have three children. All members of the family are in good health. Information on the children is as follows: Charles And Charlene are 8 year old twins. During 2020, each of the twins received eligible dividends of $1,000 on public company shares that were gifted to them by their father in July 2019. At the time of the gift, each block of shares had a fair market value of $9,500. Spencer had acquired the two blocks of shares at a cost of $8.000 each. In December 2020. each twin sold the shares for $10.000 Charlton is 19 years old and attended university on a full time basis for four months of the year. Spencer and Suzanne pay his tuition fees of $6,300, along with textbook costs of $650. He has agreed to transfer the maximum amount of his tuition credit to his father. Charlton lives with Spencer and Suzanne. His only income for the year is from the sale of shares purchased from Spencer as described in the following text. In June 2020, Spencer sells shares with an adjusted cost base of $28,000 and a fair market value of $36,500 to his son, Charlton. In order to provide Charlton with money to buy a car and to create a capital loss for himself, he sells the shares to Chariton for $5,000. Charlton sells the shares in September for $42.000. Because of their work demands. Spencer and Suzanne have child care costs for the two twins of $250 per week for 48 weeks. During the remaining four weeks, the twins are sent to summer camp at a cost of $250 per child per week Suzanne's Income Information Suzanne operates a mail order business out of rented space. As it is furnished business space, the business does not own any capital assets. For 2020, her net business income, calculated on the basis of tax rules, was $70,544 During 2020, Suzanne spent six consecutive weeks attending a specialized business accounting program at a designated educational institution. She received a tuition tax receipt that stated she had paid $2,000 in tuition fees. In January 2019, Spencer gifted Suzanne a residential rental property. This property had cost Spencer $500,000 several years ago, with $100,000 of this amount allocated to the land and $400,000 allocated to the building. At the time of the gift, an appraisal indicates that the fait market value of the property was $530,000, allocated $110.000 to the land and $420,000 to the building. The building had a January 1, 2019. UCC of $376,320. Spencer did not recognize this transaction in his 2019 tax return For the year ending December 31, 2019, Suzanne had net rental income, after the deduction of maximum CCA of $16,400. In November 2020, after experiencing significant difficulties with tenants, Suzanne lists the property for sale. It sells within a month for $555.000, with $120,000 of this total allocated to the land and $435.000 allocated to the building. The net rental income, prior to the deduction of CCA was $15,300 for 2020. 446 Chapter 9 Assignment Problems Spencer's Employment Information Spencer is employed by a Canadian public company. His annual salary is $106,700, none of which is commissions. His employer withheld the following amounts from his remuneration El Premiums $ 856 CPP Contributions 2.898 Professional Association Dues 1,200 Registered Pension Plan Contributions 4,200 Spencer's employer made a matching RPP contribution of $4,200 Because of his excellent performance during 2020, Spencer was awarded a bonus of $20,000 of this total, $10,000 will be paid in 2020, with the balance being paid in June 2021 Spencer is provided with an automobile by his employer. The vehicle is leased by the employer at a rate of $523 per month, including a payment of $51 per month for insurance. The automobile is available to Spencer for 11 months during 2020. During the remaining month, the employer required that it be returned to their garage. Total mileage for 2020 is 58.000 kilometres, only 5.000 of which are for personal use. On their birthday, Spencer's employer provides every employee with a $1.000 gift certificate that can be used for merchandise on Amazon. In addition, at Christmas, each employee receives a basket of gourmet food and wine. The value of this basket is $350. During 2020, Spencer spent $5,600 on meals and entertainment of his employer's customers. The employer's policy is to reimburse 80 percent of these costs. For the last 10 years, Spencer has worked in a rural office of his employer. The rural office is located 110 kilometres from the company's head office in a major Canadian city. As his family has become less enchanted with the country life style, Spencer has transferred to the company's city office. The move involves selling his rural home and acquiring a city home. The various cash outflows associated with the move are as follows: Real Estate Commissions - Old Home $11,620 Legal Fees - Old Home 1,250 Loss - Old Home 18.000 Unpaid Property Taxes - Old Home 625 Cleaning And Minor Repairs - Old Home 450 Legal Fees - New Home 1,460 Cost Of Moving Household Goods 3,460 While Spencer's employer does not provide a moving allowance, the company agrees to com pensate him for his $18,000 loss on his old home as management expects him to spend the time he spent commuting at the office Other Information 1. The family's medical expenses for 2020 were as follows: Spencer $ 4,600 Suzanne 8.600 Charles 4,700 Charlene 3,600 Total Medical Expenses $21.500 *This medical expense was for a brow lift to remove wrinkles and improve the appearance of Suzanne's forehead, 2. In January 2020, Spencer's father dies. He was an unsuccessful pig farmer who agonized over the death of each pig. The major asset in his father's estate is a family farm operation. 447 Other Income, Other Deductions, And Other Issues Assignment Problems which is left to Spencer (other assets go to Spencer's mother and siblings). Information on the farm's assets is as follows: Land The farm land had an adjusted cost base of S250,000. At the time of the father's death, the fair market value was $375,000 Building The building had a capital cost of $325,000, a fair market value at the time of the father's death of $275,000, and UCC of $253,000 Equipment The equipment had a capital cost $130.000, a fair market value at the time of death of $110.000, and UCC of $95,000 The executors of the father's estate elect to transfer the land at its fair market value in order to use up accumulated capital losses on other assets. The building and equipment are transferred at the UCC values. 3. As Spencer, and especially his family, have no interest in running a pig tarm, he sells the inherited property to his brother in March, as soon as he has title. His brother agrees to purchase the assets for the fair market values determined by the executors, specifically $375,000 for the land, $275,000 for the building, and $110,000 for the equipment. 4. In memory of his father, Spencer donates $8,400 on his father's birthday in 2020 to Hearts On Noses - A Mini Pig Sanctuary. This registered charity helps preserve the lives of injured, abused, abandoned, and neglected pot bellied pigs. 5. During 2020, Spencer makes a $4.000 contribution to his Tax Free Savings Account and $5,000 to Suzanne's. He also makes a $2,000 contribution ($1,000 per child) to the family Registered Education Savings Plan established for Charles and Charlene. Required: A Determine Suzanne's federal Tax Payable and her CPP liability for 2020. In calculating Suzanne's federal Tax Payable, assume that Spencer's Taxable income exceeds $200,000 B. Determine Spencer's federal Tax Payable for 2020 In determining these amounts, ignore GST PST and HST considerations, 445 Other Income, Other Deductions, And Other Issues Assignment Problems Assignment Problem Nine - 12 (Comprehensive Case Covering Chapters 1 to 9) Family Information Spencer James is 41 years old. He has been married to Suzanne James for over 20 years. The couple have three children. All members of the family are in good health. Information on the children is as follows: Charles And Charlene are 8 year old twins. During 2020, each of the twins received eligible dividends of $1,000 on public company shares that were gifted to them by their father in July 2019. At the time of the gift, each block of shares had a fair market value of $9,500. Spencer had acquired the two blocks of shares at a cost of $8.000 each. In December 2020. each twin sold the shares for $10.000 Charlton is 19 years old and attended university on a full time basis for four months of the year. Spencer and Suzanne pay his tuition fees of $6,300, along with textbook costs of $650. He has agreed to transfer the maximum amount of his tuition credit to his father. Charlton lives with Spencer and Suzanne. His only income for the year is from the sale of shares purchased from Spencer as described in the following text. In June 2020, Spencer sells shares with an adjusted cost base of $28,000 and a fair market value of $36,500 to his son, Charlton. In order to provide Charlton with money to buy a car and to create a capital loss for himself, he sells the shares to Chariton for $5,000. Charlton sells the shares in September for $42.000. Because of their work demands. Spencer and Suzanne have child care costs for the two twins of $250 per week for 48 weeks. During the remaining four weeks, the twins are sent to summer camp at a cost of $250 per child per week Suzanne's Income Information Suzanne operates a mail order business out of rented space. As it is furnished business space, the business does not own any capital assets. For 2020, her net business income, calculated on the basis of tax rules, was $70,544 During 2020, Suzanne spent six consecutive weeks attending a specialized business accounting program at a designated educational institution. She received a tuition tax receipt that stated she had paid $2,000 in tuition fees. In January 2019, Spencer gifted Suzanne a residential rental property. This property had cost Spencer $500,000 several years ago, with $100,000 of this amount allocated to the land and $400,000 allocated to the building. At the time of the gift, an appraisal indicates that the fait market value of the property was $530,000, allocated $110.000 to the land and $420,000 to the building. The building had a January 1, 2019. UCC of $376,320. Spencer did not recognize this transaction in his 2019 tax return For the year ending December 31, 2019, Suzanne had net rental income, after the deduction of maximum CCA of $16,400. In November 2020, after experiencing significant difficulties with tenants, Suzanne lists the property for sale. It sells within a month for $555.000, with $120,000 of this total allocated to the land and $435.000 allocated to the building. The net rental income, prior to the deduction of CCA was $15,300 for 2020. 446 Chapter 9 Assignment Problems Spencer's Employment Information Spencer is employed by a Canadian public company. His annual salary is $106,700, none of which is commissions. His employer withheld the following amounts from his remuneration El Premiums $ 856 CPP Contributions 2.898 Professional Association Dues 1,200 Registered Pension Plan Contributions 4,200 Spencer's employer made a matching RPP contribution of $4,200 Because of his excellent performance during 2020, Spencer was awarded a bonus of $20,000 of this total, $10,000 will be paid in 2020, with the balance being paid in June 2021 Spencer is provided with an automobile by his employer. The vehicle is leased by the employer at a rate of $523 per month, including a payment of $51 per month for insurance. The automobile is available to Spencer for 11 months during 2020. During the remaining month, the employer required that it be returned to their garage. Total mileage for 2020 is 58.000 kilometres, only 5.000 of which are for personal use. On their birthday, Spencer's employer provides every employee with a $1.000 gift certificate that can be used for merchandise on Amazon. In addition, at Christmas, each employee receives a basket of gourmet food and wine. The value of this basket is $350. During 2020, Spencer spent $5,600 on meals and entertainment of his employer's customers. The employer's policy is to reimburse 80 percent of these costs. For the last 10 years, Spencer has worked in a rural office of his employer. The rural office is located 110 kilometres from the company's head office in a major Canadian city. As his family has become less enchanted with the country life style, Spencer has transferred to the company's city office. The move involves selling his rural home and acquiring a city home. The various cash outflows associated with the move are as follows: Real Estate Commissions - Old Home $11,620 Legal Fees - Old Home 1,250 Loss - Old Home 18.000 Unpaid Property Taxes - Old Home 625 Cleaning And Minor Repairs - Old Home 450 Legal Fees - New Home 1,460 Cost Of Moving Household Goods 3,460 While Spencer's employer does not provide a moving allowance, the company agrees to com pensate him for his $18,000 loss on his old home as management expects him to spend the time he spent commuting at the office Other Information 1. The family's medical expenses for 2020 were as follows: Spencer $ 4,600 Suzanne 8.600 Charles 4,700 Charlene 3,600 Total Medical Expenses $21.500 *This medical expense was for a brow lift to remove wrinkles and improve the appearance of Suzanne's forehead, 2. In January 2020, Spencer's father dies. He was an unsuccessful pig farmer who agonized over the death of each pig. The major asset in his father's estate is a family farm operation. 447 Other Income, Other Deductions, And Other Issues Assignment Problems which is left to Spencer (other assets go to Spencer's mother and siblings). Information on the farm's assets is as follows: Land The farm land had an adjusted cost base of S250,000. At the time of the father's death, the fair market value was $375,000 Building The building had a capital cost of $325,000, a fair market value at the time of the father's death of $275,000, and UCC of $253,000 Equipment The equipment had a capital cost $130.000, a fair market value at the time of death of $110.000, and UCC of $95,000 The executors of the father's estate elect to transfer the land at its fair market value in order to use up accumulated capital losses on other assets. The building and equipment are transferred at the UCC values. 3. As Spencer, and especially his family, have no interest in running a pig tarm, he sells the inherited property to his brother in March, as soon as he has title. His brother agrees to purchase the assets for the fair market values determined by the executors, specifically $375,000 for the land, $275,000 for the building, and $110,000 for the equipment. 4. In memory of his father, Spencer donates $8,400 on his father's birthday in 2020 to Hearts On Noses - A Mini Pig Sanctuary. This registered charity helps preserve the lives of injured, abused, abandoned, and neglected pot bellied pigs. 5. During 2020, Spencer makes a $4.000 contribution to his Tax Free Savings Account and $5,000 to Suzanne's. He also makes a $2,000 contribution ($1,000 per child) to the family Registered Education Savings Plan established for Charles and Charlene. Required: A Determine Suzanne's federal Tax Payable and her CPP liability for 2020. In calculating Suzanne's federal Tax Payable, assume that Spencer's Taxable income exceeds $200,000 B. Determine Spencer's federal Tax Payable for 2020 In determining these amounts, ignore GST PST and HST considerations