Question 2: Net Income For Tax Purposes (29 marks) Only numbers should be entered into the blue boxes. If an amount reduces income (will be subtracted), you must show it as a negative number. If there is no impact, put in a zero. Required: Determine Rich's net income for tax purposes for the year ended December 31, 2020. Answer 5 1 6 Rich works for a large Canadian Public Company. His net employment income is $161,000. Included in this amount is the stock option benefit of $6,000. He was granted 2,000 options in January 2020 at an option price of $20. At the time the options were granted, the shares were trading at $18/share. When Rich exercised all his options in July 2020 the shares were trading at $23/share. 7 899 2 10 11 12 3 13 Rich paid $410/month in child support, and $620/month in spousal support. All payments were made in full in 2020. Rich has decided to catch up on his retirement savings and during 2020 he makes contributions to his RRSP of $13,200. His unused RRSP deduction room carried forward from 2019 is $7,000. His Notice of Assessment indicates that his earned income in 2019 was $166,000, and his pension adjustment was $6,000. Unused RRSP deduction room + (18% X 2019 earned income) OR dollar limit Less 2019 Pension Adjustment 2020 RRSP deduction limit Show your calculations for the RRSP deduction limit, then enter RRSP Deduction R RR deduction in Q5 Now 5 04 7 -8 19 20 21 Less 2019 Pension Adjustment = 2020 RRSP deduction limit Show your calculations for the RRSP deduction limit, then enter any RRSP deduction if any. RRSP Deduction 4 Rich sold a piece of furniture in the year for $12,000. The cost of this furniture was only $500 22 23 5 In September 2020, the share price spikes and Rich sells all the Public Company shares he purchased in July for $26.25 per share. 24 6 25 26 27 28 Rich holds other investments: His shares in Bob's Telephone Co. pay $1,600 eligible dividends. His shares in Orange Tech Co pay $6,900 non-eligible dividends He purchased a $120,000, 3%, term deposit on April 1, 2020. This four-year term deposit will pay interest upon maturity Record each of the investment impacts on income, if any, on a separate line. Rich borrowed from his line of credit to purchase these investments. The interest on his line of credit was $2,405 in 2020, 29 30 7 31 32 8 33 34 Rich has owned a residential rental property since 2014. The beginning UCC and revenue is shown below. Beginning UCC 349 190 Rental revenue for the year 33,300 Rental Revenue 35 Amount deducted: $24.700 $7,100 05 Now Rental expenses are shown below Mortare Payments Note 1) Ultes Cover Sheet Q2 Q3 Enter the amount of expense that can be deducted in the blue 04 39 40 A E Rental Revenue Enter the amount of expense that can be deducted in the blue answer box. Show this deduction as a negative number 2 -3 Rental expenses are shown Amount below deducted: Mortgage Payments (Note 1) $24,700 Utilities $7,1001 Property tax $4,100 Repairs and Maintenance $8,700 Net rental income before CCA Maximum CCA (Calculated CCA) Capital Cost Allowance deducted (show as negative) Note 1: Interest included in $ 6,100 mortgage payments; 44 Net rental income after CCA 45 46 47 48 49 50 51 Net Income for tax purposes At the beginning of 2020, Rich has the following loss carry forwards available: Non-capital losses 6,200 Net capital losses [(1/2XS40,000)] 20,000 Enter any amounts Rich can deduct from net income for tax in the blue boxes to the right. Leave any unused boxes blank. 52 Taxable income 53 54 55 Question 2: Net Income For Tax Purposes (29 marks) Only numbers should be entered into the blue boxes. If an amount reduces income (will be subtracted), you must show it as a negative number. If there is no impact, put in a zero. Required: Determine Rich's net income for tax purposes for the year ended December 31, 2020. Answer 5 1 6 Rich works for a large Canadian Public Company. His net employment income is $161,000. Included in this amount is the stock option benefit of $6,000. He was granted 2,000 options in January 2020 at an option price of $20. At the time the options were granted, the shares were trading at $18/share. When Rich exercised all his options in July 2020 the shares were trading at $23/share. 7 899 2 10 11 12 3 13 Rich paid $410/month in child support, and $620/month in spousal support. All payments were made in full in 2020. Rich has decided to catch up on his retirement savings and during 2020 he makes contributions to his RRSP of $13,200. His unused RRSP deduction room carried forward from 2019 is $7,000. His Notice of Assessment indicates that his earned income in 2019 was $166,000, and his pension adjustment was $6,000. Unused RRSP deduction room + (18% X 2019 earned income) OR dollar limit Less 2019 Pension Adjustment 2020 RRSP deduction limit Show your calculations for the RRSP deduction limit, then enter RRSP Deduction R RR deduction in Q5 Now 5 04 7 -8 19 20 21 Less 2019 Pension Adjustment = 2020 RRSP deduction limit Show your calculations for the RRSP deduction limit, then enter any RRSP deduction if any. RRSP Deduction 4 Rich sold a piece of furniture in the year for $12,000. The cost of this furniture was only $500 22 23 5 In September 2020, the share price spikes and Rich sells all the Public Company shares he purchased in July for $26.25 per share. 24 6 25 26 27 28 Rich holds other investments: His shares in Bob's Telephone Co. pay $1,600 eligible dividends. His shares in Orange Tech Co pay $6,900 non-eligible dividends He purchased a $120,000, 3%, term deposit on April 1, 2020. This four-year term deposit will pay interest upon maturity Record each of the investment impacts on income, if any, on a separate line. Rich borrowed from his line of credit to purchase these investments. The interest on his line of credit was $2,405 in 2020, 29 30 7 31 32 8 33 34 Rich has owned a residential rental property since 2014. The beginning UCC and revenue is shown below. Beginning UCC 349 190 Rental revenue for the year 33,300 Rental Revenue 35 Amount deducted: $24.700 $7,100 05 Now Rental expenses are shown below Mortare Payments Note 1) Ultes Cover Sheet Q2 Q3 Enter the amount of expense that can be deducted in the blue 04 39 40 A E Rental Revenue Enter the amount of expense that can be deducted in the blue answer box. Show this deduction as a negative number 2 -3 Rental expenses are shown Amount below deducted: Mortgage Payments (Note 1) $24,700 Utilities $7,1001 Property tax $4,100 Repairs and Maintenance $8,700 Net rental income before CCA Maximum CCA (Calculated CCA) Capital Cost Allowance deducted (show as negative) Note 1: Interest included in $ 6,100 mortgage payments; 44 Net rental income after CCA 45 46 47 48 49 50 51 Net Income for tax purposes At the beginning of 2020, Rich has the following loss carry forwards available: Non-capital losses 6,200 Net capital losses [(1/2XS40,000)] 20,000 Enter any amounts Rich can deduct from net income for tax in the blue boxes to the right. Leave any unused boxes blank. 52 Taxable income 53 54 55