You, CPA, work for Money and Cash CPAs. It is now January 20, 2023 and you have just finished meeting with Mr. Zee, a new personal tax return (T1) client of your firm. Mr. Zee, is a 55-year-old resident of Canada who is married with 3 children. Additional information about your client is provided in Exhibit I.

Mr. Zee is an employee of GGT Incorporated. In addition to earning employment income, he also has investment income and on January 1, 2022 started a small business as a sole proprietor. Additional information about this new business is provided in Exhibit II.

Mr. Zee wants you to draft a memo to him describing and calculating an estimate of his minimum net income for tax purposes, taxable income and federal income tax owing for 2022. He will use this estimate to help decide how much RRSP contribution to make and to ensure he has enough cash to pay any income tax owing. If any amounts received in the year are tax-free, then he wants you to tell him. Mr. Zee wants you to round your numbers to the nearest dollar.

Your client wants to minimize his 2022 taxable income and tax owing and wants to see all your detailed calculations. You can ignore HST/GST and provincial income tax. You do not need to calculate his spouses, or childrens, tax owing. You do not need to do any tax planning at this time.

Exhibit I- Additional Information

Mr. Zee is married to Mable, and Mables income in 2022 consists of $40,000 of employment income and $6,000 of interest income

Mr. Zee and Mables 3 children are aged: 15, 17 and 19. The children have very little income in 2022

On January 1, 2022, Mr. Zee lent $100,000 to Mrs. Zee to have her, the lower-income spouse, invest in GICs and earn interest income. This loan does not bear interest. In 2022, Mrs. Zee earned $6,000 of interest income from these investments

On February 1, 2022, Mr. Zee gave $20,000 to each of his 3 children. All three children bought Canadian mutual funds that earned: $3,000 of capital gains and $1,000 of eligible dividends for each child in 2022

On December 1, 2022, Mr. Zee sold 1,000 shares of FGH Inc. (a public company) to his 19-year-old child for $20,000 (in total). Mr. Zees adjusted cost base (ACB) of these shares was $21,000, in total. The fair market value of FGH Inc. on December 1, 2022 was $30 per share. Mr. Zee paid $50 of brokerage fees on the sale of shares

During 2022, Mr. Zee paid $950 in interest expense related to a bank loan that he borrowed in order to invest in shares. He also incurred $450 of interest expense on a bank loan used to buy clothes for personal use

Mr. Zee has summarized his 2022 net income from various sources as:

Salary (from GGT Incorporated) $80,000

2021 Bonus (from GGT Incorporated; paid January 15, 2022) $10,000

2022 Bonus (from GGT Incorporated; paid January 19, 2023) $15,000

Non-eligible dividend income (from Canadian companies) $3,000

Mr. Zee owns 2 rental properties that he rented out for 12 months each in 2022. He earned the following:

3045 Camera Ave. 402 Doris Street

Rental income per month $2,200 $2,700

Maintenance and repairs (M&R)

expense (per year) $8,500 $0

Property taxes (per year) $9,000 $10,000

In addition, in 2022, Mr. Zee paid mortgage payments of $3,000 per month for 402 Doris Street. 50% of the 2022 mortgage payments relate to interest expense and the other 50% relate to repayment of loan principal. 3045 Camera Ave. does not have a mortgage

At the beginning of 2022, the UCC balances (separate CCA class 1, 4%) were:

3045 Camera Ave 402 Doris Street

$250,000 $300,000

On March 1, 2018 Mr. Zee purchased Big U.S. Co. shares as an investment for $12,000 U.S. On June 30, 2022, he sold these shares for $16,000 U.S. Assume that 1 U.S. $ was worth 1.235 Cdn. $ on March 1, 2018, and 1 U.S. $ was worth 1.374 Cdn. $ on June 30, 2022. Mr. Zee is not a stock broker and is not a day trader

Mr. Zee has a net capital loss of $10,500 carried forward from the prior tax year

In 2022, Mr. Zee had $13,000 withheld (and remitted to the government) in federal income tax by his employer. He also paid $3,500 in federal income tax instalments in 2022

Thankfully Mr. Zee and his family are all healthy, but Mr. Zee incurred the following medical expenses in 2022:

Private health insurance of $650 total for the family and prescription eye glasses of $500

In 2022, Mr. Zee and Mrs. Zee made charitable donations to Canadian registered charities of $300 (Mr. Zee) and $500 (Mrs. Zee)

Mr. Zees 19-year-old incurred $11,000 of university tuition fees in 2022 and is willing to transfer them all to Mr. Zee, if needed

Mr. Zee paid $3,499.80 in Canada Pension Plan (CPP) contributions in 2022. You can assume that he can deduct $460.50 from his 2022 income and the rest is eligible for a credit. Also, in 2022 Mr. Zee paid $953 of employment insurance (EI) premiums

In December 2022, Mr. Zee and his spouse purchased a new home to live in for $600,000. Prior to this, they had always rented a home (neither Mr. nor Mrs. Zee had ever previously owned a home)

Exhibit II- New Business

Mr. Zee decided to start a part-time business in his spare time. His business consists of providing IT consulting and website advice to clients on evenings and weekends

In 2022, Mr. Zee had 155 clients and he charged each client $200 in the year

In 2022, Mr. Zee incurred the following expenses related to his new business:

Advertising and promotion expense $2,300

Expenses at restaurants for taking out potential new clients of $800

Home office expense of $5,000 (already properly pro-rated for the % of the home used exclusively for business use)

Club fees paid to take potential clients golfing of $1,700

In addition, on June 1, 2022, Mr. Zee purchased the following new assets from arms length parties to use exclusively in his business:

New computer ($3,500)

New computer software ($500)

New furniture ($2,500)

Ignore immediate expensing of CCA for CCPCs and sole proprietors (Mr. Zee is not interested in this at this time)