Question 1:

It is February 26, 2021 and you are taking a Personal Finance course, your two best friends Joanne and John have turned to you for some advice. All are living on a tight budget with Joanne being the only one that is saving money. You have all three been roommates for the last year and live in a condo near Concordia University. John has always taken care of the finances each month, making it easy for both you and Joanne to simply e-transfer a lump sum to him based on his monthly calculations. All are Canadian citizens, residing in Quebec.

Joanne (currently 23 years old with upcoming birthday on May 2, 2021):

• is a full-time student at Concordia.

• lives on a tight budget and prefers to save any extra money that she has at the end of each month (currently puts $25 a pay cheque a side for her Tax-Free Savings Account (TFSA); to date she has managed to contribute $2,600 to her TFSA).

• has been working part-time (12 hours/week) earning $20/hour working in finance at the Bank of Montreal:

  • 2018 gross salary for part-time work $12,000

  • 2019 gross salary for part-time work $13,000

  • 2020 gross salary for part-time work $14,000

  • 2021 gross salary for part-time work $15,000

John (currently 25 years old, birthday was on January 2, 2021):

• graduated in April 2020.

• never worked previously and due to COVID-19 only started his first job working full-time at Google as of December 1, 2020 earning an annual gross salary of $75,000 where he is paid monthly, on the last day of the month.

• his parents have provided John with a budget throughout his school years except for his tuition, for which he had to obtain a government student loan; now that he is working, he no longer has his parents monthly income.

• John made a first payment towards his government student loan with his first pay cheque on December 31, 2020.

You (currently 20 years old, birthday was on February 15, 2021):

• first year of university as a full-time student in John Molson School of Business (JMSB) with one of your courses this term being FINA 200, Personal Finance.

• you are on a tight budget as you are not working and your parents are helping you with your tuition and expenses.

• received $5,000 under the Canada Emergency Student Benefit (CESB) in 2020 as you were unable to find work over the summer due to COVID-19.

1. John does not understand how a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA) and a work. Respond with either Yes or No in each box below.

Question	RRSP	TFSA
Age limit to contributing
Age requirement to start contributing
Need earned income to contribute
Contributions are tax deductible
Withdrawals are taxable
Report contributions on your tax return
Report withdrawals on your tax return
Report your annual investment earnings (interest, dividends, capital gains) on your tax returns
Interest on a loan is tax deductible
If overcontribute by over $2,000, there is a penalty of 1% per month to pay above this amount
No grace amount of $2,000; any amounts over the limit are subject to the penalty of 1% per month based on the highest excess for the month
Requirement to convert to a Registered Retirement Income Fund (RRIF) or an annuity at a later date

2. Neither John nor Joanne have ever contributed to their RRPSs. Calculate how much John and Joanne could contribute to their RRSP to deduct on their 2020 tax return. Neither are part of a company pension plan. Do not forget to take contribution room from previous years and use information from Table D.

Calculation for John:

Calculation for Joanne:

3. Based on the information from this Mini-Case, calculate the following to see how much each could contribute to a Tax-Free Savings Account (TFSA) in 2021. Assume that none have contributed to their accounts to date except for Joanne who has contributed $2,600. Do not forget to take contribution room from previous years and use information from Table C.

Joannes total TFSA contributions
Johns total TFSA contributions
Your total TFSA contributions

4. All three of your names are on the lease agreement and utility bills. John took care of making the monthly bill payments which made it easy for both you and Joanne as this was quite tedious. Both you and Joanne simply e-transferred to John the amounts that he calculated each month. It suddenly came to light that John had not been paying the rent nor the bills for some time as you found the payment delinquency notices from the landlord and utility companies. Provide two potential financial impacts these non-payments could have on you.

1. Impact:_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

2. Impact:_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

5. John comes clean and says that he has used the money to buy lottery tickets and for online gambling. You let John know that he has put both you and Joanne in a difficult financial position. John tells you that he has won $10,000 and promises to use this money to catch up on the amounts owing and turns to you for financial advice. With the money that John has won, he has asked if the amounts are taxable. (Underline and highlight your response).

1. Lottery ticket winnings are taxable: Yes or No

2. Online gambling winnings are taxable: Yes or No

3. Interest earned on investing the money from the lottery is taxable: Yes or No

4. Interest earned on investing the money from the lottery inside a TFSA is taxable:

Yes or No

6. What is the filing deadline for the 2020 personal income tax returns for each of you?

Joanne (student and part-time employee) _____________________

You (full-time student) _____________________

John (full-time employee)_____________________

7. Due to COVID-19, you received special payments from the government under the Canada Emergency Student Benefit (CESB) program and are wondering if you need to include this income in your 2020 income tax return. (Underline and highlight your response).

CESB is taxable: Yes or No

8. You know that your mother is the higher income earner in the family and always asks for your Concordia University T2202A tax form, so she can claim the tuition tax credit on her tax return. You know that as a student you must first use the tuition tax credit, and any amounts over that you do not use, you can either transfer to your mother or carry the unused amounts forward for your use in a future year when you have income. Based on your tuition tax slip further on, how much tuition can you transfer to your mother for her to use on her 2020 Federal income tax return?

$____________________________

9. John said he did not feel like wasting his time filing a 2020 tax return as he only earned one month of income in 2020 and knows that he does not owe any taxes. Give John four (4) reasons for filing a tax return.

1. Response:___________________________________________________________________________________________________________________________________________

2. Response:___________________________________________________________________________________________________________________________________________

3. Response:___________________________________________________________________________________________________________________________________________

4. Response:___________________________________________________________________________________________________________________________________________