QUESTION 1 (19 MARKS)

You have just finished meeting with Paul and Christine, a married couple, who have come to you for some tax advice. They brought along information about Pauls employment income for 2019.

For several years, Paul has been a commission salesperson working for a company that sells technology solutions to businesses. For 2019, he earned a base salary of $180,000 plus commissions based on his sales. He travels across the country for work and is very successful. He is responsible for paying certain expenses when he is travelling, while his employer is responsible for other expenses. Paul is responsible for paying any entertainment and promotional costs he incurs, as well as air transportation, hotel, and meal costs while he is travelling for business.

Beginning March 1, 2019, Pauls employer provided him with a leased vehicle for the rest of the year. He had no car before this date. As his employer does not have an office in Vancouver, Paul operates out of his home office, where he principally conducts business. He has a desk and computer equipment that he owns. This office represents 10% of the floor space in Pauls home. While he does not see clients at his home, he does use this space exclusively for business.

Paul has notified his employer that, if he is eligible, he will elect to use the lesser of calculation for the operating cost benefit on the vehicle.

Required: a)

Determine the expenses that Paul can deduct from his employment income. Calculate the expense deductions for sales and non-sales employees and explain items that are excluded from your calculations. Briefly explain whether Paul should claim expenses as a sales or non-sales employee. (7 marks)

b) Determine Pauls net income for tax purposes for 2019. (9 marks) c) List all items excluded from your net income calculation and explain why the item has been excluded. (3 marks) Note: Round all amounts to the nearest dollar and ignore GST and provincial taxes. Show the full detail of all steps in your calculations, even if the result is zero.

Question 2

(5 MARKS) Fernando, CPA, started his own public accounting practice in 2019 when the company he had worked for since 2010 went bankrupt and he lost his job. During all the years Fernando worked for the company, he was only involved in the preparation of simple personal tax returns. Since he started his practice, Fernando has not yet had the time to take tax courses or seminars, and he has not purchased any tax-related manuals or subscribed to any tax reporting service.

One of his new clients, Sharon, has consulted him on a complex corporate tax matter involving a foreign affiliate. Sharon requires an answer in two days time.

Required:

Comment on the major ethical issues Fernando should consider.

Paul provides you with the following information for 2019: Paul: Salary paid during the year Commission income paid during the year $180,000 20,000 Expenses paid personally: Utilities for house Minor repairs to home Property taxes Travel costs (airline tickets and hotel costs) Meals while travelling Entertainment of clients Promotional material (brochures) House insurance Mortgage interest New computer and printer purchased this year Golf membership for golfing with clients $2,000 1,700 3,500 15,000 5,000 6,000 200 600 10,000 2,500 4,000 $6,000 2,000 500 960 1,000 Benefits paid for by employer: Vacation for Paul and Christine as a reward for having the largest increase in sales this year Health and dental benefits Long-term disability insurance with wage-loss protection Group term life insurance Financial planning - annually, employer pays for one meeting with a financial planner for each employee Gift to Paul provided on his birthday front-row tickets to a hockey game Monthly lease payment on the company car Car operating costs (maintenance, fuel, insurance) Total kilometres driven Personal kilometres driven Gift from customer: Golf clubs as a gift from a very happy customer Paul's payment to his employer for personal use of the vehicle within 45 days of the year end 900 750 6,000 40,000 km 15,000 km $1,200 $1,500 Paul provides you with the following information for 2019: Paul: Salary paid during the year Commission income paid during the year $180,000 20,000 Expenses paid personally: Utilities for house Minor repairs to home Property taxes Travel costs (airline tickets and hotel costs) Meals while travelling Entertainment of clients Promotional material (brochures) House insurance Mortgage interest New computer and printer purchased this year Golf membership for golfing with clients $2,000 1,700 3,500 15,000 5,000 6,000 200 600 10,000 2,500 4,000 $6,000 2,000 500 960 1,000 Benefits paid for by employer: Vacation for Paul and Christine as a reward for having the largest increase in sales this year Health and dental benefits Long-term disability insurance with wage-loss protection Group term life insurance Financial planning - annually, employer pays for one meeting with a financial planner for each employee Gift to Paul provided on his birthday front-row tickets to a hockey game Monthly lease payment on the company car Car operating costs (maintenance, fuel, insurance) Total kilometres driven Personal kilometres driven Gift from customer: Golf clubs as a gift from a very happy customer Paul's payment to his employer for personal use of the vehicle within 45 days of the year end 900 750 6,000 40,000 km 15,000 km $1,200 $1,500