QUESTION 2

Mickey Mousse is 44 years old and is employed by a Canadian public company. His annual salary is $112,468, none of which is commissions. Because of his outstanding work during 2020, he has been awarded a $20,000 bonus. Half of this bonus was paid in December 2020, and the other half will be paid in December 2021.

For 2020, his employer withheld EI premiums of $856 and CPP contributions of $2,898 from his pay. The employer also withheld professional association dues of $3,400 and contributions to the United Way of $2,500.

Also withheld were registered pension plan contributions of $6,800. The employer also made a contribution to the plan of $4,600.

Mickeys spouse, Margo Mousse, is 46 years old. Her Net Income For Tax Purposes is $7,320.

The Mousse have three children, who all live with them. Information on these children is as follows:

Sherry is 17 years old, in good health, and has income from part time jobs of $7,625.

Suzy is 19 years old and has serious breathing problems that prevent her from working on a full-time basis. She is infirm and has income from part time jobs of $7,250.

Sammy is 23 years old and attends university on a full-time basis for 11 months of the year. Mickey pays her tuition fees of $10,300, along with textbook costs of $1,100. She is in good health. She has investment income of $14,800. The investments were purchased with income from part-time jobs during her high school years.

Other Information:

1. In 2017, Mickey received options to purchase 300 shares of his employer's common stock at a price of $72 per share. At the time the options were granted, the market price of the stock was $70 per share. In January, 2020, when the shares are trading at $85 per share, Mickey exercises all of the options. He is still holding these shares at the end of the year.

1. During 2020, Mickey receives several gifts from his employer:

• As a reward for winning the company's Employee Of The Month Award, he receives an

expense paid weekend in a local hotel. The regular price for this package was $1,200.

• As is the case for all of the company's employees, Mickey received a $600 gift certificate for merchandise at a local department store.
• At Christmas, the company provides each employee with a basket of gourmet food. The value of this basket is $450.

1. During 2020, Mickey spent $8,400 on employment related meals (non-travel) and entertainment with clients of his employer. His employer reimbursed all but $1,000 of these costs.

1. During 2020, Mickey and Margo decide to purchase their first family home (they have rented for the last 15 years). After considerable searching, they identify the perfect property one block from their rented apartment and purchase it for $462,000. As is his employer's policy, he is granted an interest free loan of $200,000 to assist with this purchase. The loan was granted on April 1, 2020. Assume that the prescribed rate is 2 percent throughout 2020.

1. During 2020, both Sherry and Sammy had rhinoplasty surgery. Mickey had to pay $2,800 for emergency services after Sherry's nose suffered serious trauma during a Taekwondo class. He also paid $13,500 for rhinoplasty surgery to reduce and reshape Sammy's nose which she believes has greatly improved her appearance. These amounts are included in the following medical expenses of the family, all of which were paid by Mickey:

Mickey and Margo $ 2,200

Sherry 3,100

Suzy 12,300

Sammy 16,000

REQUIRED

1. Calculate Mr. Mousses minimum Taxable Income and federal Tax Payable (Refund) for the year ended December 31, 2020. Show all of your work whether or not you feel it is relevant to your final answer. [19 Marks]

1. (i) Explain why Mr. Mousse qualifies for each tax credit that was claimed in Part A. You can use point form. [14 Marks]

(ii) Explain the income tax treatment of the employee stock option in Part A. [3 Marks]