TAX

Question 1 - Moving Expenses 30 marks

Mr. Lawrence Harvey has lived and worked in Halifax for most of his adult life. In July 2019, he discovers that his wife of many years has been having an affair with both his father and his brother. He immediately begins divorce proceedings and submits a request to his employer for a transfer away from Halifax.

As he has skills that are uniquely valuable to his employer, the employer wishes to comply. After considering alternative locations, Lawrence and his employer agree on a move to the companys main office in Ottawa. Lawrence will begin working in that location at the beginning of December 2019. Lawrences salary is $8,000 per month, with the first 11 months of 2019 being paid by the Halifax office, the remaining one month being paid by the Ottawa office.

As part of the uncontested divorce settlement, Lawrence receives the family residence. During October 2019, it is sold for $435,000. As he was anxious to sell quickly, there is a loss of the sale of $52,000. Costs associated with the sale are as follows:

Real Estate Commissions $21,000

Legal Fees 800

Unpaid Property Taxes to Date of Sale 1,500

Cost of Cleaning and Minor Repairs Prior to Sale 3,800

In October 2019, Lawrence flies to Ottawa to locate suitable housing. As he is now living alone, he decides to lease a condominium. After 2 days, he finds a suitable property which he leases for $2,500 per month, beginning November 1. He remains in Ottawa for an additional 4 days in order to find furnishings for the rental unit. The costs associated with this trip are as follows:

Air Fare - Return $1,250

Rental Car Costs (6 Days) 420

Hotel (6 Nights At $200) 1,200

Food (6 Days - Total) 510

His employer has agreed to the following to provide assistance with the move:

• They will provide him with an $18,000 allowance to cover his general moving costs.
• They will compensate him, to the extent of $30,000, for the loss on the sale of his Halifax home.

All of these amounts will be paid by the Ottawa office during December 2019.

On November 7, Lawrence leaves for Ottawa by air. Because the acquired furnishings have not been delivered yet, he has to live in an Ottawa hotel until November 25.

His expenses for the period November 7 through November 25 are as follows:

Air Fare - One Way $ 600

Hotel Room With Kitchenette (19 Nights At $160) 3,040

Food (19 Days Total Including Groceries For

Cooking In Hotel) 660

He contracts a car moving company to transport his car to Ottawa and it is delivered on November 8. The cost for this service is $1,100.

A moving company takes care of moving Lawrences personal belongings to Ottawa. The invoice for this service is $3,500. In addition, there is a $1,200 charge for storing these belongings until the Ottawa condominium becomes available.

Lawrence begins working in Ottawa on December 1. He would like to take the maximum moving expense deduction for 2019.

Lawrence will use the simplified method of determining food costs in calculating his moving expenses. Assume that the flat rate for meals is $51 per day.

Required: Determine the amount of Lawrences maximum 2019 deduction for moving expenses. In addition, indicate the amount of any carryforward that is available at the end of the year.

Question 2 - Child Care Expenses 20 marks

During 2019, Mr. Morris Holmes starts a new business venture. While he expects that, in the long run, the business will be profitable, it only produced net business income of $18,000 during its first year of operations. Because of the time he committed to this venture, this was the only income Mr. Holmes earned during 2019.

Mrs. Holmes is employed as a management consultant. Her 2019 gross employment income was $81,000 and RPP contributions of $3,000 were withheld from her pay. Her only other source of income was interest received of $1,200.

During 2019, Mr. Holmes spent 6 weeks attending a college course dealing with the management of a small business. The course required Mr. Holmes to spend at least 15 hours per week in classes and preparing assignments.

Because of the requirement of Mr. Holmes business and Mrs. Holmes employment, the couple incurred child care costs during 2019 of $300 per week for 50 weeks.

Required: Determine the maximum amount that can be deducted by Mr. and Mrs. Holmes for the year ending December 31, 2019 for child care expenses under the following assumptions:

A. They have two children, neither of whom qualify for the disability tax credit. Their ages are 3 and 5 years old.

B. They have three children, none of whom qualify for the disability tax credit. Their ages are 3, 5, and 10 years old.

Quiz 3 Question 3 - 20 marks

During the current year, KB has the following costs:

Utility Costs for Home $2,500

Maintenance and Repairs for Home 3,100

Property Taxes for Home 5,400

House Insurance 1,300

Interest on Mortgage 4,600

Home Telephone Monthly Charge 600

Separate Line to Home-Work-Space Monthly Charge 480

Employment Related Long Distance Charges 560

Home Internet Service Fees 720

KB estimates that he/she uses 18 percent of his residence and 30 percent of his home internet service for employment/business related purposes. Maximum CCA on 100 percent of the house would be $12,000. Determine the maximum deduction that would be available to Mr. Beasley assuming:

A. He is an employee with $72,000 in income (no commissions).

B. He is an employee with $72,000 in commission income.