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Emmy Peterson, a single taxpayer, was able to complete her own taxes prior to 2021. In 2020 she earned employment income, had a business loss from a partnership and contributed to her RRSP. This year, however, she requires assistance due to the following life changes and transactions. Income sources and amounts for 2021 are shown below. Income Sources Net Employment Income RPP Contribution Net Business Income (Loss) Interest income Amount 143,219 11,158 (31,345) 1,971 She is unable to find her 2020 notice of assessment with her 2021 RRSP deduction limit, however, she has provided what information she can in note 1. She adopted an 8 year-old child from the Ukraine and obtained custody on February 1, 2021. She hired a nanny for two months to help the child, Andi, get settled before she began school. The neighbour babysits when Emmy has to work a few hours on the weekend. Andi took hip hop dance lessons at J'dore Dance for eight weeks and attended overnight summer camp for two weeks. Costs paid in the year are outlined in note 2. FMV at time of inheritance Proceeds She sold two parcels of land she had inherited from her grandmother in 2020. The fair market value at the time of inheritance and the proceeds are outlined below. She entered into a financing arrangement with the buyer of parcel B to receive a 30% down payment in the year of sale, 30% in the year following the sale and the remaining 40% the year thereafter. Templates to calculate gains and losses are provided in note 3. Parcel A 97,596 72,704 Parcel B 832,014 1,047,083 She was requested to relocate by her employer and agreed thinking moving to a smaller center may be better to raise a child. For this reason she agreed to relocated from Toronto to Sarnia. She owned the home she sold in Toronto for nine years. She would like to utilize the principal residence exemption for this transaction. During this 9 years she owned a condo for four years and used the principal residence to fully exempt the gain. Costs associated with the move, and sale of her residence are contained in note 4. Emmy will use the simplified method of determining vehicle and food costs in calculating her moving expenses. Assume that the relevant flat rate for vehicle expenses is $0.53 for Ontario, and the flat rate for meals is $51 per person per day. Required: Complete Emmy's net income for tax calculation, showing all of your work in the templates provided. Income under ITA 3(a) Net Employment Income Interest income Income under ITA 3(b) Taxable Capital Gains Allowable Capital Losses Subtotal 3(a) + 3(b) Deductions under ITA 3(c) Childcare Expenses Moving Expenses RRSP Deduction Subtotal 3(c) Deduction under ITA 3(d) Net Business Income (Loss) Net Income for tax purposes Note 1: RRSP Deduction Income Sources 2020 unused deduction limit 2020 pension adjustment 2020 earned income for RRSP Undeducted contributions from prior years RRSP Contribution Unused deduction room (2020) + 18% of prior year earned income or $27,830 Less Pension Adjustment 2021 RRSP Deduction Limit RRSP Deduction is the lesser of: 2021 RRSP Deduction Limit Contributions Amount 143,219 1,971 56,049 22,764 89,592 10,536 23,046 (31,345) Note 2: Child Care Expenses Lesser of the following: 1. Actual amounts - Enter amount allowed in column C (enter zero if not allowed, or amount allowed if not fully allowed in column C) Nanny (February and March 2021) Before and after school care Baby-sitter (16 year old neighbour) Hip Hop dance lessons Overnight summer camp Total Actual Amount 2. 2/3 x earned income Gross employment income Total Earned Income 3. Annual limits 8 year-old Child Care Expense Deduction x 2/3 2,929 1,408 318 1,111 791 Parcel A & B Proceeds Less ACB + selling costs Capital gain (loss) x 50% = Taxable capital gain (loss) Proceeds Less ACB + selling costs Capital gain Less capital gains reserve Parcel A - Taxable capital gain (loss) Formula 2: Parcel B - Taxable capital gain (loss) = Capital Gain x 50%= Taxable Capital Gain Capital gains reserves formula for parcel B: Formula 1: Proceeds payable after year-end Total Proceeds Capital Gain x Capital gain = x 20% 20% Capital gains reserve (4 - # of preceding taxation years ending = Capital gains reserve after the disposition) 4 Principal Residence Proceeds Less ACB + selling costs Capital gain Less principal residence exemption = Revised Capital Gain x 50% Taxable Capital Gain Principal residence Exempt portion of capital gain Principal residence exemption Taxable capital gain Exempt portion of capital gain = - Capital gain x 1 + # of years designated Number of years owned Note 4: Moving Expenses Deduction and sale of residence Proceeds - Toronto Property Adjusted cost base - Toronto Property Employment Income from Sarnia office Legal Fees - Toronto Property Real Estate Commissions Cost Of Cleaning And Minor Repairs Prior To Sale Moving Company fee Legal Fees - Sarnia Property Land Transfer Tax - Sarnia Property Hotel in Toronto (10 Nights) Food in Toronto (10 Days) Gas For Trip (1 day - 290km to Sarnia) Food traveling to Sarnia Hotel in Sarnia (7 Nights) Food in Sarnia (7 days) Total moving expenses 829,310 719,158 50,207 4,147 24,879 1,659 5,575 2,488 2,239 2,470 410 150 36 2,352 266 See Note 5 Note 5: Enter amount of moving expense allowed in column C. If zero, leave blank. If full amount not allowed enter amount allowed, showing your work in column D. Emmy has reviewed your calculation of net income for tax purposes and has the following questions. 1. Since this is Emmy's first year claiming the childcare expense deduction is wondering if you can explain the amount of deducted. (3 marks) 2. Emmy thought the capital gain on the sale of the parcel B land was a lot larger then what was included in income. She is wondering if you can explain why the entire capital gain was not included in income? (3 marks) 3. Emmy is curious as to how you determined the number of years she designated her Toronto home, and why the capital gain isn't fully exempt like her condo was. (3 marks) 4. Emmy is wondering if you made changes to the list of moving expenses she provided? She is wondering if you can explain these to her. (3 marks) Emmy Peterson, a single taxpayer, was able to complete her own taxes prior to 2021. In 2020 she earned employment income, had a business loss from a partnership and contributed to her RRSP. This year, however, she requires assistance due to the following life changes and transactions. Income sources and amounts for 2021 are shown below. Income Sources Net Employment Income RPP Contribution Net Business Income (Loss) Interest income Amount 143,219 11,158 (31,345) 1,971 She is unable to find her 2020 notice of assessment with her 2021 RRSP deduction limit, however, she has provided what information she can in note 1. She adopted an 8 year-old child from the Ukraine and obtained custody on February 1, 2021. She hired a nanny for two months to help the child, Andi, get settled before she began school. The neighbour babysits when Emmy has to work a few hours on the weekend. Andi took hip hop dance lessons at J'dore Dance for eight weeks and attended overnight summer camp for two weeks. Costs paid in the year are outlined in note 2. FMV at time of inheritance Proceeds She sold two parcels of land she had inherited from her grandmother in 2020. The fair market value at the time of inheritance and the proceeds are outlined below. She entered into a financing arrangement with the buyer of parcel B to receive a 30% down payment in the year of sale, 30% in the year following the sale and the remaining 40% the year thereafter. Templates to calculate gains and losses are provided in note 3. Parcel A 97,596 72,704 Parcel B 832,014 1,047,083 She was requested to relocate by her employer and agreed thinking moving to a smaller center may be better to raise a child. For this reason she agreed to relocated from Toronto to Sarnia. She owned the home she sold in Toronto for nine years. She would like to utilize the principal residence exemption for this transaction. During this 9 years she owned a condo for four years and used the principal residence to fully exempt the gain. Costs associated with the move, and sale of her residence are contained in note 4. Emmy will use the simplified method of determining vehicle and food costs in calculating her moving expenses. Assume that the relevant flat rate for vehicle expenses is $0.53 for Ontario, and the flat rate for meals is $51 per person per day. Required: Complete Emmy's net income for tax calculation, showing all of your work in the templates provided. Income under ITA 3(a) Net Employment Income Interest income Income under ITA 3(b) Taxable Capital Gains Allowable Capital Losses Subtotal 3(a) + 3(b) Deductions under ITA 3(c) Childcare Expenses Moving Expenses RRSP Deduction Subtotal 3(c) Deduction under ITA 3(d) Net Business Income (Loss) Net Income for tax purposes Note 1: RRSP Deduction Income Sources 2020 unused deduction limit 2020 pension adjustment 2020 earned income for RRSP Undeducted contributions from prior years RRSP Contribution Unused deduction room (2020) + 18% of prior year earned income or $27,830 Less Pension Adjustment 2021 RRSP Deduction Limit RRSP Deduction is the lesser of: 2021 RRSP Deduction Limit Contributions Amount 143,219 1,971 56,049 22,764 89,592 10,536 23,046 (31,345) Note 2: Child Care Expenses Lesser of the following: 1. Actual amounts - Enter amount allowed in column C (enter zero if not allowed, or amount allowed if not fully allowed in column C) Nanny (February and March 2021) Before and after school care Baby-sitter (16 year old neighbour) Hip Hop dance lessons Overnight summer camp Total Actual Amount 2. 2/3 x earned income Gross employment income Total Earned Income 3. Annual limits 8 year-old Child Care Expense Deduction x 2/3 2,929 1,408 318 1,111 791 Parcel A & B Proceeds Less ACB + selling costs Capital gain (loss) x 50% = Taxable capital gain (loss) Proceeds Less ACB + selling costs Capital gain Less capital gains reserve Parcel A - Taxable capital gain (loss) Formula 2: Parcel B - Taxable capital gain (loss) = Capital Gain x 50%= Taxable Capital Gain Capital gains reserves formula for parcel B: Formula 1: Proceeds payable after year-end Total Proceeds Capital Gain x Capital gain = x 20% 20% Capital gains reserve (4 - # of preceding taxation years ending = Capital gains reserve after the disposition) 4 Principal Residence Proceeds Less ACB + selling costs Capital gain Less principal residence exemption = Revised Capital Gain x 50% Taxable Capital Gain Principal residence Exempt portion of capital gain Principal residence exemption Taxable capital gain Exempt portion of capital gain = - Capital gain x 1 + # of years designated Number of years owned Note 4: Moving Expenses Deduction and sale of residence Proceeds - Toronto Property Adjusted cost base - Toronto Property Employment Income from Sarnia office Legal Fees - Toronto Property Real Estate Commissions Cost Of Cleaning And Minor Repairs Prior To Sale Moving Company fee Legal Fees - Sarnia Property Land Transfer Tax - Sarnia Property Hotel in Toronto (10 Nights) Food in Toronto (10 Days) Gas For Trip (1 day - 290km to Sarnia) Food traveling to Sarnia Hotel in Sarnia (7 Nights) Food in Sarnia (7 days) Total moving expenses 829,310 719,158 50,207 4,147 24,879 1,659 5,575 2,488 2,239 2,470 410 150 36 2,352 266 See Note 5 Note 5: Enter amount of moving expense allowed in column C. If zero, leave blank. If full amount not allowed enter amount allowed, showing your work in column D. Emmy has reviewed your calculation of net income for tax purposes and has the following questions. 1. Since this is Emmy's first year claiming the childcare expense deduction is wondering if you can explain the amount of deducted. (3 marks) 2. Emmy thought the capital gain on the sale of the parcel B land was a lot larger then what was included in income. She is wondering if you can explain why the entire capital gain was not included in income? (3 marks) 3. Emmy is curious as to how you determined the number of years she designated her Toronto home, and why the capital gain isn't fully exempt like her condo was. (3 marks) 4. Emmy is wondering if you made changes to the list of moving expenses she provided? She is wondering if you can explain these to her
