Problem

After being unemployed for two years, Donald Parker found employment with a large, publicly traded corporation in early 2019. His gross 2019 salary was $40,000 and, in addition, he earned commissions of $20,000. The corresponding figures for 2020 were $53,000 and $32,000. Deductible expenses related to the commission income were $3,000 in 2019 and $4,000 in 2020.

From his earnings, Donald's employer withheld the following amounts:

2020 2019

Federal And Provincial Income Taxes $19,000 $11,000

CPP Contributions 2,898 2,749

EI Premiums 856 860

Disability Insurance Premiums 250 250

Registered Pension Plan (RPP) Contributions 1,500 1,400

The Registered Pension Plan is a money purchase plan. The employer makes RPP contributions and pays disability insurance premiums equal to those amounts withheld from employee earnings for these items. In addition, the employer provided Donald with a low interest loan. The taxable benefit on this loan was $2,750 in 2019 and $2,500 in 2020.

Other information for the years 2019 and 2020 is as follows:

2020 2019

Net Rental Income (Loss) $1,400 ($2,500)

Taxable Spousal Support Received 2,600 2,400

Deductible Spousal Support Paid ( 3,600) ( 3,500)

Capital Gains (Losses) ( 2,200) 1,750

Royalties* 875 920

Interest Income 273 496

*The royalties are on a song written by Donald's mother in 1962.

In 2016, just prior to losing his job, Donald contributed $7,500 to an RRSP. As he realized he would be in the minimum tax bracket until he found work, Donald did not deduct this RRSP contribution prior to 2020. He has Unused RRSP Deduction Room of $25,000 at the end of 2019.

In December, 2020, Donald wins $200,000 in a lottery. He would like to put as much of this amount as possible into his RRSP prior to the end of 2020.

Required:

A. Determine Donald's RRSP Deduction Limit for 2020.

B. Calculate the amount you would recommend that Donald contribute to his RRSP for 2020.

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