Question 1

Mrs. Jane Smith has provided you with the following information with respect to her 2018 taxation year. She has asked you to review the information and provide her with an approximation of her taxes payable for 2018 taking into consideration all the provisions available to her pursuant to the Income Tax Act.

1. Salary, net $160,000

Income taxes withheld $40,000

CPP 3,000

EI 1,000 44,000

$204,000

2. Mrs. Smith paid professional fees of $1,250 to the Professional Engineers of Ontario.

3. Five years ago, Mrs. Smith invested in ABC Inc., a Canadian private company which is a small business corporation. She invested in ABC Inc. by way of a $100,000 unsecured loan bearing interest at 5% per year, and the purchase of common shares in the amount of $50,000. Until December 2017 she received interest payments on the loan. However, for 2018 she has not received any interest payments and in fact ABC Inc. has filed for bankruptcy. No dividends were ever declared on her common share holdings.

4. Mrs. Smiths earned income for 2017 for RRSP purposes is $210,000.

5. In November of 2018, Mrs. Smiths employer relocated her from Toronto to Windsor to head up a new manufacturing facility. In her relocation, Mrs. Smith incurred and paid for $28,500 of eligible moving expenses. Mrs. Smiths employment income from the new work location was $15,000 for 2018. She received a moving expense allowance of $10,000.

6. Mrs. Smith is recently divorced. She pays estimated alimony of $3,000 per month. The lawyers have yet to finalize the divorce.

7. Mrs. Smith was in a serious car accident in 2015, and as a result she requires the use of a wheelchair. In 2015 she filed the necessary form to qualify for the disability tax credit and was approved for 2015 and future years.

8. In 2018, Mrs. Smith sold the following assets. Also, Mrs. Smith has unclaimed capital losses on listed personal property of $1,400 arising in 2017.

Oil Painting (cost - $1,200; proceeds - $750; LPP)

Canoe (cost - $1,750; proceeds - $1,500; PUP)

Rare Coin (cost - $1000; proceeds - $1,900; LPP)

Bible produced in 1635 (cost - $2,500; proceeds - $18,500; LPP)

Antique car (cost - $10,000; proceeds - $11,000; PUP)

Antique chair (cost - $800; proceeds - $1,100; PUP)

Antique table (cost - $200; proceeds - $3,000; PUP)

9. Mrs. Smith received a $4 million settlement as a result of the car accident. In 2017 she invested these funds and earned interest income of $100,000 that was reported on her 2017 tax return. This did not make her happy as she paid almost $40,000 in taxes as a result. In April 2018 she (on the advice of a friend) transferred $1 million to a savings account in the name of her 16 year old daughter Jennifer and $1 million to a savings account in the name of her 19 year old daughter Kate. For 2018, the savings account in Jennifers name earned $23,000 and the savings account in Kates name earned $29,200.

10. In 2018, Mrs. Smith sold her residences. The following information relates to the disposition of the residences. Mrs. Smith has never used the principal residency exemption.

Toronto Home (cost - $100,000; selling price - $480,000; year of purchase 2009)

Farm in Quebec (cost - $170,000; selling price - $268,000; year of purchase 2011)

Florida Condo (cost $140,000; selling price - $190,000; year of purchase 2014)

11. In 2018, Mrs. Smith sold 2000 shares of Shy High Limited for $60 per share, a Canadian public corporation. The following are the details of these shares:

Nov 8, 2009 purchased 500 shares at $21 per share

April 15, 2010 purchased 600 shares at $19 per share

July 2, 2011 purchased 1200 shares at $23 per share

June 30, 2013 sold 800 shares at $29 per share

Oct 23, 2014 received a stock dividend of 10% of shares held; stock dividend increased corporations paid up capital by $1 per share.

12. Mrs. Smith contributed $18,000 to RRSPs for 2018.

13. Mrs. Smith incurred $11,000 of eligible medical expenses for 2018.

14. Mrs. Smith is also a landlord. She owns/owned several rental properties. The following information relates to each rental property:

Property A - Rental Income - $75,000; interest expenses $48,000; property taxes - $7,000; CCA - $8,200.

Property B - Sold January 1, 2018 for total proceeds of $700,000. Consideration of the purchase price was $100,000 cash paid on January 1, 2018 and a $600,000 note at 10%. On December 31, 2018, Mrs. Smith received $60,000 on account of interest on the note. The following information relates to the allocation of the purchase price as well as the tax attributes of the land and building.

Land (cost - $50,000; proceeds - $300,000)

Building (cost - $300,000; UCC - $243,000; proceeds - $400,000)

Property C Sold January 1, 2018 for $450,000. The allocation of the purchase price was $300,000 for the building and $150,000 for the land. At December 31, 2017 the building had a cost of $400,000 and UCC of $350,000, and the land had a cost of $100,000. The building was the last remaining asset in the class.

Property D A commercial rental property whereby the tenants carried on active business income. In February of 2018, Mrs. Smith decided to sell the property for $2,320,000 of which $2,000,000 was allocated to the building and $320,000 was allocated to the land. The building had a cost of $800,000 and a UCC of $262,000. The land had a cost of $80,000. However, on January 1, 2019 Mrs. Smith used the proceeds to purchase another commercial property. The purchased price of the new property was $2,900,000 ($2,400,000 for building; $500,000 for land).

15. Mrs. Smith has a rather active investment portfolio in the stock market. A summary of her investment returns are as follows:

Interest on bonds - $45,500

Capital Gains - $95,600

16. Mrs. Smith has unused net capital losses of $41,400

17. Mrs. Smith made charitable contributions in 2018 of $10,230.

18. The RRSP limit for 2018 is $25,400.

*PLEASE ANSWER LIKE THE FOLLOWING ANSWER TEMPLATE GUIDE FORMAT*

Employment Income

Interest Income

Taxable Capital Gains

Taxable Dividends

Net Rental Income

Alimony

Other

Net Income for tax Purposes (A)

Deductions:

RRSP

RPP

Net Capital Losses

Allowable Business Investment Loss

Non capital loses

Moving Expenses

Dues

Alimony

Interest Expense

Other

Taxable Deductions (B)

Taxable Income (A-B)

Calculation of Taxes Owing (C)

Federal and Provincial Income Brackets Tax

$50,000 or less 15%

Excess of $50,000. $7,500 + 30% on next $80,000

Excess of $130,000.. $31,500 + 40% on remainder

Credits (D):

Basic personal amount $10,000

Disability amount $11,200

Tuition Amount $5,000

Employment Insurance $950

Canada Pension Plan Contributions $2,500

Canada Employment Amount $2,000

Total non-refundable credits (sum of D*15%)

Note: appropriate percentage for non-refundable credits is 15%.

Taxes owing (A-B) * (C) less non-refundable credits

Less: Taxes paid (withholdings/installments) (E)

Taxes payable (A-B)*(C) less non-refundable credits and (E).