QUESTION 5 7 marks Mouna established an RRSP in 2013 As of January 1, 2019, Mouna had no unused deduction room and no undeducted contributions Her 2018 earned income was sufficient for her to make the maximum 2019 contribution of $26,500 However, as she acquired a new home during 2019, she made no contributions to her RRSP that year With the new home and furnishing purchases behind her and the receipt of a sizable inheritance from her father's estate, she has sufficient funds to maximize her contribution in 2020 She would like you to advise her as to the maximum contribution that she can make in 2020 Her 2019 earned income was $185,000 Her 2019 net income was $240,000 Mouna's spouse Bob had 2019 earned income and net income of $30,000 Bob will likely have less income than Mouna in their retirement The RRSP dollar limits are $26,500 for 2019 and $27,230 for 2020 REQUIRED A) Calculate the maximum 2020 RRSP contribution that Mouna can make Show your work 3 marks B) Should Mouna consider making some of the 2020 contribution to Bob's RRSP Explain 2 marks C) How and why would your answer to A) change if Mouna was part of a registered pension plan (RPP) in 2019 and her employer contributed to the RPP in 2019 2 marks INDIVIDUALS TAX BRACKETS Taxable Income Up to $48,535 In excess of $48,535 In excess of $97,069 In excess of $150,473 $214,368 TAX CREDITS Tax 15 $7,280 plus 20 5 on the next $48,534 $17,230 plus 26 on the next $53,404 $31,115 plus 29 on the next $63,895 $49,645 plus 33 on the remainder BASIC CREDIT $13,229 x 15 $1,984 SPOUSE SPOUSAL EQUIVALENT (ELIGIBLE DEPENDENT) 15 x ($13,229 minus spouse eligible dependent's net income) $1,984 MAX Base amount increased by $2,273 (to $15,502) if the spouse eligible dependent is mentally or physically infirm CANADA CAREGIVER FOR CHILD 18 15 x $2,273 $341 CANADA CAREGIVER 15 x ($7,276 minus dependant's net income $17,085) $1,091 MAX AGE CREDIT 15 x ($7,637 15 x (net income $38,508)) $1,146 MAX PENSION CREDIT 15 x 1st $2,000 of pension income $300 maximum (not indexed) ADOPTION CREDIT 15 of 1st $16,563 of eligible adoption expenses $2,484 MAX CHARITABLE DONATIONS (15 ) (A) (33 )(B) (29 ) (C) (not indexed), where A the first $200 B the lesser of 1) total gifts less $200 and 2) taxable income less $214,368 C the excess, if any, by which the total donations exceed the sum of $200 plus amount B (eligible donations generally limited to 75 of net income) MEDICAL EXPENSE CREDIT 15 ((B C) D) where B eligible medical expenses of the taxpayer, spouse or minor dependants C the lesser of 3 of the taxpayer's net income and $2,397 D E F E eligible medical expenses of the adult dependant F the lesser of 3 of the adult dependant's net income and $2,397 DISABILITY CREDIT 15 x $8,576 $1,286 QUESTION 1 30 marks Los Pasteles Verdes Ltd ( the Company ) has a fiscal year ending December 31 For the year ending December 31, 2020, the Company's income statement is as follows Revenues Expenses $950,000 Cost Of Goods Sold ($206,000) Administrative Costs (152,000) Amortization Expense (173,000) Increase in warranty reserves (32,000) Other Expenses (87,000) (650,000) Income Before Tax Expense $300,000 Income Tax Expense Current ($36,000) Future Net Income (12,000) (48,000) $252,000 Other Information 1 During the year, $6,000 was spent on landscaping for its new facilities For accounting purposes this was capitalized as an asset The Company believes the work has an unlimited life and has decided not to amortize this balance 2 The Company incurred legal costs to make amendments to its articles of incorporation in 2020 These legal costs totalling $9,500 were included in Other Expenses 3 On January 1, 2020, the Company has UCC balances for its tangible assets as follows Class 1 (4 CCA rate) Class 14 1 (5 CCA rate) $450,000 Nil The Class 1 balance relates to a single building acquired in 2006 at a cost of $600,000 including the surrounding land The value and cost of the land at the time of acquisition was $50,000 On February 10, 2020, this building and the land are sold for a total of $662,000 The value of the land is unchanged at $50,000 In the accounting records, this real property was carried at $557,000, $507,000 for the building and $50,000 for the land The resulting gain on the building is included in the accounting revenues The old building is replaced on February 15, 2020 with a new building acquired at a cost of $733,000 of which $60,000 is allocated to land The Company chose not to put the new building into a separate Class 1 so it does not qualify for the 6 percent CCA rate No elections are made with respect to the replacement of the building 4 The Company was late on paying some income tax instalments as well as some municipal tax payments, resulting in interest being incurred in the amounts of $540 and $320, respectively This interest was included in Other Expenses 5 The Company would like to deduct the maximum CCA allowable for the year Name Student No Section Page 1 of 2 REQUIRED A) Determine the 2020 minimum Net Income For Tax Purposes Please calculate the January 1, 2021 UCC for all of The Company's CCA classes Show all of your work whether or not you feel it is relevant to your final answer 15 Marks B) Explain, in words, the reason for the inclusion (or exclusion) of each item in your calculation of the Company's net income in Part A You can use point form 15 Marks Question 4 13 marks Garth Garson, your client, is a successful business owner Garth is the sole shareholder of Never Give Up Inc ( NGU ), a Canadian corporation NGU earns $500,000 of business income each year that qualifies for the small business deduction Garth has plans to acquire new businesses and make other investments NGU has recently acquired 100 of the shares of Chain Inc ( Chain ), a taxable Canadian corporation, from a third party seller Chain has a minority shareholding in Pajaro Inc ( Pajaro ), representing 9 of votes and 18 of value in Pajaro Garth would like to understand the tax treatment of following items a) What is the tax treatment of future dividends paid by Pajaro to Chain Why 2 marks b) What is the tax treatment of future dividends paid by Chain to NGU Why 3 marks c) Whether the business income earned by Chain is eligible for a small business deduction Why 2 marks NGU has generated significant excess cash from its business operations that Garth would like the corporation to invest in a marketable securities portfolio comprised of shares of various dividend paying U S public corporations Garth would like to understand the tax treatment of the following items d) NGU will pay 15 U S dividend withholding tax on dividends from the portfolio What is the treatment of the U S dividend withholding tax in calculating taxes payable in Canada Explain the rationale 2 marks e) Garth plans to trade NGU's marketable securities portfolio on an ongoing basis from time to time to generate some gains Garth enjoys reading daily business news and researching equity markets to pick the best performing stocks for this portfolio That being said, Garth does not have any specialized knowledge in trading securities, although he indicated that he is thinking of enrolling into several technical analysis courses taught by popular TikTok influencers so that he can learn how to become a better trader Garth is curious to know how the trading income from the portfolio will be characterized for tax purposes and what factors and considerations are relevant to this determination 4 marks REQUIRED Address, in words, each of the items above Name Student No Section QUESTION 2 14 marks Drako owns 50,000 shares of Diamond Hands Inc , a publicly traded Canadian corporation These shares were acquired several years ago at a total cost of $135,000 The shares are now worth $210,000 In each of the following cases, assume that the purchaser immediately resells the shares for their fair market value of $210,000 Case 1 Drako sells the shares to an arm's length party for $210,000 Case 2 Drako gifts the shares to his 16 year old daughter Case 3 Drako sells the shares to his adult sister for $110,000 Case 4 Drako sells the shares to his grandfather for $260,000 REQUIRED A) For each of the Cases, determine the tax consequences of the disposition to Drako and the tax consequences to the purchaser on the resale of the shares 7 Marks B) For each of the four cases in Part A, explain why adjustments were required, or not required, to Drako's proceeds of disposition or the purchaser's cost 7 Marks QUESTION 3 36 marks Jack Chang is 41 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 January 2021 For 2020, his employer withheld El 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 Sick Kids Hospital 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 Jack's spouse, Margarita Chang, is 44 years old Her Net Income For Tax Purposes is $7,320 The couple has 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 Suzette 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 Sharon is 23 years old and attends university on a full time basis for 11 months of the year Jack 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, Jack 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 April 2020, when the shares are trading at $85 per share, Jack exercises all of the options He is still holding these shares at the end of the year 2 During 2020, Jack receives several gifts from his employer As a reward for winning the company's Top Performer Award, he receives an expense paid weekend in a luxury hotel in Niagara on the Lake The regular price for this package was $1,200 As is the case for all of the company's employees, Jack received a $600 Amazon gift certificate for a personal shopping spree At Winter Holidays, the company provides each employee with a basket of gourmet food The value of this basket is $450 3 During 2020, Jack 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 Name Student No Section Page 1 of 2 4 During 2020, Jack and Margarita decided to purchase their first family home (they have rented for the last 11 years) After considerable searching, they identify the perfect property 3 blocks from their rented apartment and purchase it for $462,000 As per his employer's policy, Jack 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 5 During 2020, both Sherry and Sharon had rhinoplasty surgery Jack had to pay $2,800 for emergency services after Sherry's nose suffered serious trauma during a Muay Thai class He also paid $13,500 for rhinoplasty surgery to reduce and reshape Sharon'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 Jack Jack and Margarita Sherry Suzette Sharon $2,200 3,100 12,300 16,000 REQUIRED A) Calculate Mr Chang's 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 B) (i) Explain why Mr Chang 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 POLITICAL DONATION TAX CREDIT (not indexed) 75 first $400, 50 next $350 and 1 3 next $525 ($650 max credit overall) EDUCATION RELATED CREDITS (not indexed) (a) TUITION CREDIT 15 x eligible tuition fees (b) STUDENT LOAN INTEREST 15 of interest paid on qualifying student loans 5 year carry forward by student TRANSFER OF UNUSED CREDITS TO SPOUSE AND OTHERS Tuition (to parents and grandparents if no spouse) Age (to spouse only) Pension (to spouse only) Disability (to child, grandchild, parent, grandparent, brother, sister, aunt, uncle, nephew, niece of the taxpayer or the taxpayer's spouse) Dependent must first use personal, EI and CPP credits before being able to use these credits EI CPP s 118 7 El CPP premiums 15 (EI CPP premiums will be given to you) El Credit CPP Credit 15 x $856 $128 MAX 15 x $2,732 $410 MAX CANADA EMPLOYMENT CREDIT 15 x lesser of employment income or $1,245 $187 MAX DIVIDEND TAX CREDIT for eligible dividends 6 11 of 38 gross up for other dividends from taxable Canadian corporations 9 13 of 15 gross up FIRST TIME HOMEBYER'S TAX CREDIT 15 X $5,000 of a cost of a qualifying home ($750 MAX) CORPORATE TAXES Basic corporate rate 38 Federal abatement (10 ) Small business deduction (if applicable) (19 ) General rate reduction (if applicable) (13 )

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QUESTION 5 [7 marks] Mouna established an RRSP in 2013. As of January 1, 2019, Mouna had no unused deduction room and no undeducted

QUESTION 5 [7 marks] Mouna established an RRSP in 2013. As of January 1, 2019, Mouna had no unused deduction room and no undeducted contributions. Her 2018 earned income was sufficient for her to make the maximum 2019 contribution of $26,500. However, as she acquired a new home during 2019, she made no contributions to her RRSP that year. With the new home and furnishing purchases behind her and the receipt of a sizable inheritance from her father's estate, she has sufficient funds to maximize her contribution in 2020. She would like you to advise her as to the maximum contribution that she can make in 2020. Her 2019 earned income was $185,000. Her 2019 net income was $240,000. Mouna's spouse Bob had 2019 earned income and net income of $30,000. Bob will likely have less income than Mouna in their retirement. The RRSP dollar limits are $26,500 for 2019 and $27,230 for 2020. -REQUIRED A) Calculate the maximum 2020 RRSP contribution that Mouna can make. Show your work. [3 marks] B) Should Mouna consider making some of the 2020 contribution to Bob's RRSP? Explain. [2 marks] C) How and why would your answer to A) change if Mouna was part of a registered pension plan (RPP) in 2019 and her employer contributed to the RPP in 2019? [2 marks] INDIVIDUALS: TAX BRACKETS Taxable Income Up to $48,535 In excess of $48,535 In excess of $97,069 In excess of $150,473 > $214,368 TAX CREDITS Tax 15% $7,280 plus 20.5% on the next $48,534 $17,230 plus 26% on the next $53,404 $31,115 plus 29% on the next $63,895 $49,645 plus 33% on the remainder BASIC CREDIT = $13,229 x 15% = $1,984 SPOUSE/SPOUSAL EQUIVALENT (ELIGIBLE DEPENDENT) -15% x ($13,229 minus spouse/eligible dependent's net income) =$1,984 MAX Base amount increased by $2,273 (to $15,502) if the spouse/eligible dependent is mentally or physically infirm. CANADA CAREGIVER FOR CHILD

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