QUESTION #3(25 MARKS):

In November 2021, Alex Brown who was employed by X Ltd. , a public corporation, lost his job because of the closure of X Ltd. Alex is married to Maria. They have 2 children ages three(3) and six(6). The three year old is physically disabled and is under the care of the local physician. In 2021, Alex earned $140,000 from employment after the deduction of $1,769 for Canada Pension Plan Contributions, $800 for Employment Insurance Contributions and $20,000 for income taxes for the year. The company also deducts from his paycheck $100 per month for contributions to the United Way. Alex also contributed $1,000 in 2021 to the Liberal Party of Canada and $200 to the subway musicians.

Mary earned $210,000 as a self-employed consultant.

The couple employ a full-time nanny, at a salary of $24,000 per year, to take care of their two children while they work. They also paid overnight camp fees of $1,200 for two weeks for the older child.

Alexs father who is 90 years old lives with the family as he is physically disabled. His income for 2021 was $16,000.

Additional Information:-

i. In 2021, Alex received a termination payment of $21,000 from his old employer.

ii. Alex was previously married. That marriage ended in 2019. As a result of the decision of the divorce court in 2019 Alex was awarded alimony of $500 per month. In 2021 he received the alimony awards from the previous spouse.

iii. In 2020, Alexs father inherited 10,000 shares of the Ford Motor Company as a result of the death of his brother Jim. Jim had bought the shares in 2010 at a cost of $20 per share. At the time of the death of Jim, the shares were worth $50/share. In March 2021, the shares were transferred to Alex by his father. In December 2021, Alex needed cash and he sold the shares at $140/share.

iv. Alex made contributions of $5,000 to his RRSP for 2021. His earned income in 2020 was $90,000 with a pension adjustment of $5,000. He had unused deduction room of $15,000.

v. In 2021, he incurred a partnership loss of $12,000.

iv. He had the following losses brought forward from previous years:-

a. Net loss from a lawn maintenance business$17,000

b. Net capital loss 5,000

Required:-Calculate Alexs 2021 Federal Taxes Payable under Division B of the ITA. Show all calculations(25 marks).

APPENDIX #1

2021 Federal Income Tax Brackets

Taxable Income Tax

$49,020 or less..15%

in excess of $49,020..$7,353 *+ 20.5% on next $49,020

in excess of $98,040..$17,402 ** + 26% on next $53,938

in excess of $151,978.$31,426 ***+29% on next $64,533

in excess of $216,511.$50,141+33% on the remainder

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*Computed as 15%*$49,020=$7,353

**Computed as $7,353 + 20.5% of $49,020=$17,402 (rounded)

***Computed as $17,402 + 26% of $53,938 =$31,426 (rounded)

****Computed as $31,426 +29% of $64,533=$50,141 (rounded)

2

Non-Refundable 2020 Tax credits

Dollar Base Rate Threshold

Basic Personal ....13,808 ** 15 $151,978

(If income is above threshold the credit is reduced to $12,421)

Spouse or Equivalent . .13,808 15 $151,978 Spouse orEquivalent12,141..15 $216,151

Canada Caregiver ...7,348 .15 $17,256

Age credit7,713 ..15(adjusted by the of Division B income over $38,893)

Pension income2,000..15

(In this case a choice is made between the $2000 and the lesser of the pension income)

Canada employment amount 1,257 ..15

Adoption expense amount..16,729..15

Home accessibility tax creditUp to.10,000 ..15

First time home buyers tax credit...................................................5,000.15

Volunteer firefighters tax credit..3,000..15

Search and Rescue volunteers tax credit3,00015

CPP(maximum).................................................Amount paid15

EI(maximum)Amount paid..15

Pension...................................................2,000 . 15

Mental or physical impairment amount..8,662 15

Tuition amount.Amount paid(can be transferred to a dependent or spouse)

Medical expensesActual Medical Expenses :-

LESS:-Lesser of:-

1. $2,421
2. 3% of Division B Income

Charitable donations..20015 then 29% on amounts over $200

Interest paid on student loans.15% of actual

Dividend Tax Credit....6/11 of grossed up dividends for public corporations with gross up of 38% and 9/13 for CCPC with gross up of 15%

(An election can be made to transfer this credit to a spouse)

Digital News subscription credit is 15% for up to $500 subscriptions

Foreign Tax Credit...Lesser of:-

i. non-business income tax paid to a foreign country

ii. Net non business foreign income

divided by total Division B income times

This number times tax for the year for Part 1 taxes

Contribution Credit

$400 or less..75% of contribution

More than $400 but not more than $750................$300+50% of contribution over $400

More than $750, but not more than $1275. $475+one-third of contribution over $750

More than $1275..$650

Any individual can transfer to the spouse any unused credits of:-

i. Tuition

ii. Age

iii. Pension

iv. Mental or physical impairment

Tax o Old Age Security Benefits.:-

Every resident in Canada is entitled to receive Old Age Security Benefits from the Federal Govt., once that resident is 65 years old. This amount received is clawed back(repayment to the Federal Govt.) at the end of the year depending on the Division B income of that person.

The Clawback is calculated as:-

Lesser of:-

i. Old Age Security Benefits received . $xxx

ii. Division B Income less $79,845. If there is an excess 15% of this amount reduces the benefit.