Question 1 - calculating employment income:

You have been provided with the following information from your taxpayer, Ms. A who is the vice-president of Loblawn Ltd. She is looking for you to address the tax implications of various amounts she received from her employer during 2020.

Required: Calculate the total from employment income for 2020. I would suggest preparing this in excel. Use supporting notes (1,2, 3, or a, b, c, etc.) for the following:

Support each item included in your employment income calculation.

Support each item omitted from your employment income calculation.

When supporting your items ensure you are specific as to whether the item is from the ITA or from a CRA Administrative document (i.e. Folio or Guide).

Items from Ms. A:

1.Ms. A received a loan (as an employee) in the amount of $10,000 on January 15, 2020, at 0.5% interest to purchase shares of the corporation. The interest was payable on each anniversary date of the loan. Ms. A paid the accrued interest on the anniversary date as required, in 2021. Use the prescribed interest rate applicable for employee loans in 2020 (from CRA site: Q1 2020 = 2%, Q2 2020 = 2%, Q3 2020 = 1%, and an estimate of Q4 2020 - 3%).

2.Ms. A is taking courses at a local college on a part-time basis. The course is for a personal interest topic. During 2020 Loblawn Ltd. paid the tuition for the courses, which amounted to $1,500. Loblawn Ltd. also paid $600 for a seminar / workshop so Ms. A could learn about the new accounting software Loblawn implemented.

3.In 2020 Loblawn paid $$399 for Ms. A to get her 2019 personal tax return completed by professionals.

4.Ms. A and her spouse were able to stay in a condo in Bermuda for a two-week holiday in January 2020. If the A's would have purchased the vacation on their own it would have cost them $1,000. However, Ms. A only paid $100 to Loblawn.

5.Ms. A received a total gross salary of $120,000. Her bonus for 2020 was not received until January 15^th of 2021. The following deductions were taken from Ms. A's income in 2020: income taxes $45,000, Canada Pension Plan premiums (CPP) $2,898 Employment Insurance premiums $856, and $250 for Group accident disability insurance premiums.

6.Ms. A purchased merchandise from Loblawn in 2020 during the year and saved approximately $500 as she has an employee discount of 20%. The discount is available to all employees.

7.Ms. A used a company owned vehicle costing $32,500 (not including HST) for all of 2020. Ms. A also received a gas allowance of $350 per month regardless of how many kilometers she drove. In 2020 Ms. A's total kilometers driven were 35,000, of which 20,000 km were personal in nature. The operating costs incurred by Loblawn during 2020 was $3,500, including insurance of $500.

Question 2 - calculating employment expenses:

You have been provided with the following information from your taxpayer. Mr. B works in company ABC Ltd He is required to use his own car and incur the necessary expenses to earn commission income.

Mr. B purchased a car on July 1, 2020 for $35,000 (including HST). The CCA on the vehicle is $2,000.

Total km = 20,000; personal km 4,000

Total commission received in 2020: $17,500

Mr. B incurred the following expenses to earn commission income:

Meals and entertainment: $13,300

Client promotional material: $12,500

Gasoline and operating expenses: $5,700

Required: Calculate the total eligible expenses for Mr. B for 2020.

Explain whether Mr. B has options in terms of which section (in s.8(1)) he can deduct employment expenses and what conditions are needed for each one.

I would suggest preparing your calculation in excel. Use supporting notes (1,2, 3, or a, b, c, etc.) for the following:

Support each deduction or each amount that is not eligible to be deducted.

When supporting your items ensure you are specific as to whether the item is from the ITA or from a CRA Administrative document (i.e. Folio or Guide).

Question 3 - Business income:

You have been provided the following information from your client; a corporation called XYZ Limited.

Required: Calculate the total business income for tax purposes for XYZ Limited for 2020. I would suggest preparing this in excel. Use supporting notes (1,2, 3, or a, b, c, etc.) for the following:

Support each item included in your business income calculation.

Support each item omitted from your business income calculation.

When supporting your items ensure you are specific as to whether the item is from the ITA or from a CRA Administrative document (i.e. Folio or Guide).

XYZ Limited

Income Statement

For the year ended December 31, 2020

Sales

$98,700,000

Cost of Goods Sold

$32,500,000

Gross Profit

$66,200,000

General and administrative expenses (Notes a-e)

$11,200,000

Selling expenses (Note f)

$15,644,000

Income from operations

$39,356,000

Other income (Notes g-j)

$25,000

Provision for income taxes (accounting)

$10,320,000

Net income

$29,011,000

The following detailed information has also been provided:

a)The professional and legal fees account included the following items:

Cost incurred to renegotiate the company bank loans

$15,000

Appraisal costs to determine the value of a machine (used as collateral) for a bank loan

$2,500

Cost incurred to defend the company against a wrongful dismissal

$75,000

Legal and accounting fees to issue shares

$12,000

b)The following is a breakdown of the amounts paid by XYZ Ltd. towards insurance for its employees:

$1,000,000 insurance policy on the life of the president included in insurance: expense ($200 per month)

$2,400

Group term life insurance for employees included in salaries and benefits ($6,250 x 12 months)

$2,500

XYZ Ltd. is the beneficiary of the policy on the president. That policy is used as collateral on the bank loan. This is because the president plays a significant role in the success of the XYZ Ltd. business. The premiums on the policy are equal to the net cost of the insurance for the policy.

c)XYZ Ltd. made significant repairs to the outside of the building for a total cost of $50,000. Of that amount, $10,000 relates to landscaping costs.

d)Also included in general and administrative expenses were the following costs:

Interest on late payment of municipal taxes

$2,500

Loss from theft by the payroll clerk

$10,000

Donations to various registered charities

$10,000

Political contributions

$10,000

Amortization

$134,000

e)A total of $9,700 was included in the financial statements as amortization of a bond discount for bonds issued three years ago.

f)The selling expenses account included the following items:

Sponsorship costs - local events

$1,000

Meals/entertainment costs of salespeople

$210,000

Membership for salespeople at local golf courses

$15,000

Staff holiday party and summer barbecue

$2,500

Basketball tickets given to clients

$9,500

g)During the year XYZ Ltd. sold some of its capital assets for a loss of $75,000.

h)A total of $11,500 was incurred to organize financing for the bank loan.

Other relevant information:

i)Capital cost allowance for the year was $74,000.

j)A total of $144,000 in management bonuses have been accrued for in the financial statements. They were paid on June 15, 2021.