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PLEASE remember to check and clear the Diagnostics before sending me your first draft! Note:
PLEASE remember to check and clear the Diagnostics before sending me your first draft! Note: you will need to use either the CANTAX software to complete this solution because these are the only tax software programs that I have installed on my computer.
Page 1 of 9 BTAX1 Myrtle Beech has brought you the information for her 2017 personal income tax return and has asked you to prepare the return for her. After sorting through all the information slips, receipts etc., you have compiled the following details: (1) GENERAL INFORMATION: Social Insurance Number (self): 457-822-798 Social Insurance Number (spouse): 464-565-787 Address: 303 McEwen Drive Kingston, Ontario K7M 3W2 (613) 389-4624 Address on previous year's return: 110 Ridgewood Avenue Niagara Falls, Ontario L2E 2Z9 Date of birth: December 24, 1977 Date of Move: January 2, 2017 (2) DETAILS OF DEPENDENTS: (a) Name: Sandy Relationship: Husband Date of Birth: December 13, 1974 Net Income: Sandy received $2,000 (actual amount) in eligible dividends from MMP Incorporated, a taxable Canadian corporation. This was his only source of income. These shares were purchased with his own funds. During 2017, Sandy attended Queen's University as a full-time student from January - April and September - December (30 weeks), the tuition fees for which were $7,500 as indicated on form T2202A.
Page 2 of 9 BTAX1 - Case Study (2) DETAILS OF DEPENDENTS (continued): (b) Name: Rocky Relationship: Son Date of Birth: August 1, 2014 Net Income: -0- (c) Name: Crystal Relationship: Daughter Date of Birth: August 4, 2004 Net income: -0- (d) Name: Oomen Relationship: Daughter Date of birth: September 15, 2001 Net income: Gross earnings $ 3,000.00 EI premiums 51.90 Also see "Details of Investment Income" (e) Name: Pebbles Relationship: Daughter Date of Birth: July 31, 1999 Net income: Gross earnings $ 3,500.00 EI premiums 57.05 Also see "Details of Investment Income" Pebbles attended St. Lawrence College as a full-time student from January - April and September - December in 2017, the tuition fees for which were $ 3,500 as indicated on form T2202A. (f) Name: Wayne Relationship: Myrtle's Uncle Date of Birth: April 5, 1927 Net Income: when you do Wayne's tax return you will notice that the software will automatically include the Old Age Security benefits on his return and so it should! Wayne is permanently confined to a wheelchair. He spends his days reading the Business Law textbooks and is totally dependent on his niece.
Page 3 of 9 BTAX1 - Case Study (3) DETAILS OF EMPLOYMENT INCOME: On January 2, 2017, Myrtle and family moved from Niagara Falls to Kingston to accept employment with as a sales manager with a travel company, Finns Fabulous Tours Inc. The T4 is included. Gross earnings $ 25,000.00 (box 14) Commissions (included in gross earnings) 3,000.00 (box 42) CPP contributions 1,064.25 (box 16) EI premiums 407.50 (box 18) Income tax withheld 8,000.00 (box 22) R.P.P. contributions 1,250.00 (box 20) Pension adjustment 4,256.00 (box 52) (a) Myrtle was required by the terms of her employment contract to provide her own vehicle for business use. She leased a car for the five-month period at a cost of $900 per month. This amount does not include insurance or HST. She drove the car a total of 9,000 kilometers of which 7,200 kilometers were for business use. Myrtle paid the total operating costs in the amount of $950. Finns Fabulous Tours Inc. paid her a vehicle allowance of $ .58 per kilometer driven for business use (this amount was not included in the gross earnings reported on her T4). (b) Myrtle was required by the terms of her employment contract to travel out-of-town, for which the company paid her a total allowance of $1,500 (not included in the gross earnings reported on her T4). The actual costs incurred and paid by Myrtle, from January 1, 2017 to May 31, 2017 were as follows: Accommodations $ 2,500 Train fares 800 Meals, while out of town 1,000 Myrtle also paid the following additional expenses for which she was not reimbursed: Training costs $ 1,600 Supplies 280 (c) In recognition of her sales achievements, Myrtle received two awards: a gold watch with a value of $450 and a digital camera with a value of $300. Please note: I would like you to enter any amounts that are to be included in gross earnings from employment (other than the salary and commissions of $25,000) on line 104 of the return!
Page 4 of 9 BTAX1 - Case Study (4) DETAILS OF INCOME FROM SELF-EMPLOYMENT: On June 1, 2017, Myrtle decided to leave her position at Finns Fabulous Tours Inc. and open her own business, which involves the wholesale and retail sale of beach products. The name of her business is - "Life's a Beech". (Yeah, I know...pretty sad!) This business is HST registered and therefore all amounts do not include HST collected/paid. Details of the revenues and expenses for the 7 months (214 days) ended December 31, 2017 were as follows: Sales (Note 1) $466,000 Purchases 300,000 Ending inventory 56,000 Accounting and legal fees (Note 2) 3,000 Advertising and promotion (Note 3) 12,000 Insurance (Note 4) 1,200 Interest and bank charges 1,250 Business taxes and licenses 800 Store supplies 750 Travel expenses (Note 5) 10,300 Rent (Note 6) 25,000 Employees wages and benefits (Note 7) 46,000 Automobile expenses (Notes 8 and 9) 4,060 Charitable donations 1,000 Federal political contributions 500 NOTES: (1) In December of 2017, a customer purchased a large quantity of merchandise for a total sales price of $10,000 (included in the sales figure). The cost of this merchandise was $6,000. The customer made a cash down payment of $1,000 in December 2017 and will pay the remaining amount over a three-year period. (2) Accounting and legal fees include $200 for preparation of Myrtle's 2016 personal income tax return. (3) Advertising includes expenditures in the amount of $1,600 for entertainment of clients. (4) Insurance expense includes life insurance premiums of $250. Sandy is the beneficiary of the policy.
Page 5 of 9 BTAX1 - Case Study (4) DETAILS OF INCOME FROM SELF-EMPLOYMENT (continued): (5) Travel expenses include all the travel expenses paid to one employee who does all of the buying for the business. (The vehicle allowance was not included on the employee's T4). Automobile allowance $ .58 per km x 15,000 kilometers $ 8,700 Meals consumed while out of town 680 Accommodations 920 $ 10,300 (6) Myrtle rents store space for the retail part of her business. She signed a lease on June 1, 2017 for a five-year period. The cost of leasehold improvements in 2017 was $20,000. This amount is not included in "rent expense". (7) Wages and benefits include a salary Myrtle paid to herself, in the amount of $8,000. (8) Myrtle purchased a new passenger vehicle on June 1, 2017 at a cost of $36,000. Myrtle drove this vehicle 7,000 kilometers of which 75% was for business use. Total interest paid on the car loan for the 60 days that it was owned in 2017 was $650 and the total operating costs incurred for this vehicle was $950. Both amounts are included in "Automobile Expenses". (9) Myrtle decided that it would be in the best interest of the business to provide free delivery service. So on July 30, 2017, she sold the vehicle referred to in note #8 above, for proceeds of $25,000 and purchased a delivery van. The van cost $40,000 (includes HST) and was used 100% for business use. The loan interest and operating costs for this vehicle were $2,460 and are included in "Automobile Expenses". Myrtle also purchased another passenger vehicle at a cost of $25,000 (excludes HST), but this was used strictly for business purposes. OTHER_INFORMATION: (a) Cost of store equipment (June 2017) $ 2,680 (b) On June 1, 2017, computer equipment was purchased at a cost of $3,500. The computer was used approximately 75% of the time for business use. The cost of applications software purchased solely for business use was $400.
Page 6 of 9 BTAX1 - Case Study (4) DETAILS OF INCOME FROM SELF-EMPLOYMENT (continued): OTHER_INFORMATION_(continued): (c) Myrtle operates the wholesale part of the business from an office in her house. The total house expenses for the 12 months of 2017 were as follows: Mortgage interest $ 5,000 Mortgage principal 3,500 Property taxes 2,400 Heat and hydro 1,800 Insurance 650 Myrtle's office occupies approximately 400 square feet of the total 2,000 square feet of the house. (5) DETAILS OF INVESTMENT INCOME: Please note that only the actual amount of dividends received is given, so you will need to calculate the taxable amount to be entered in box 25 of each T5. (a) Eligible dividends received from taxable Canadian corporations: Canadian Tire Limited $2,500 (actual amount) Dupont of Canada 1,200 (actual amount) Bell Canada 1,500 (actual amount) Finns Fabulous Tours Inc. 450 (actual amount) (b) On July 31, 2017, (Pebbles' eighteenth birthday), Myrtle transferred 200 shares of her holdings in Bell Canada to Pebbles and 200 shares to Oomen on the same date, for her upcoming sixteenth birthday. Myrtle owned 800 shares at the date of transfer, at which time, the fair market value was $40 per share. The shares were acquired as follows: January, 2011 - 200 shares @ $20 per share June, 2012 - 150 shares @ $25 per share February, 2014 - 300 shares @ $30 per share March, 2016 - 150 shares @ $35 per share The total eligible dividends received on the 400 shares, subsequent to the date of transfer were $ 800 ($400 by each daughter). This amount is not included in the $1,500 above (a).
Page 7 of 9 BTAX1 - Case Study (5) DETAILS OF INVESTMENT INCOME (continued): (c) During 2017, Myrtle purchased a 90-day Treasury Bill at a cost of $ 9,452. The redemption value was $10,000 and the Treasury Bill matured in 2017. These are amounts were reported in boxes 20 and 21 respectively on the T5008 received by Myrtle. (d) On June 1, 2016, Myrtle had purchased a 5-year G.I.C. in the amount of $5,000 at an interest rate of 6.5%. (No T5 was received in 2017). (e) During 2017, Myrtle received dividends from Amgen Inc., a U.S. corporation. The actual amount of dividends received, after withholding taxes were deducted at a rate of 15%, was $425 in U.S. currency. Select the US average rate of exchange when entering this income. Myrtle is entitled to a federal foreign non-business tax credit for the foreign taxes withheld. Do not forget to enter the amount of withholding taxes on the appropriate forms! You should see a federal foreign tax credit on page 2 of Schedule 1 if you have entered this correctly. (e) Myrtle paid the following amounts in 2017: Safety deposit box rental $ 35.00 Interest on funds borrowed to purchase investments 3,600.00 (6) DETAILS OF DISPOSITIONS OF CAPITAL PROPERTIES: (a) See "Details of Investment Income" regarding the transfer of shares to Pebbles and Oomen. (b) On November 30, 2017, Myrtle sold one of her rental properties for total proceeds of $200,000 (referred to in item #7). The original cost of the property was $175,000, of which $43,750 was allocated to the cost of land and $131,250 to the cost of the building. Just prior to the sale the land was appraised at $48,000 and of the building at $112,000 (Ignore selling expenses.) (c) On December 23, 2017, Myrtle sold her 500 common shares of Canadian Tire Limited at $15 per share. These shares were originally acquired in 2016 at a total cost of $8,000. On January 4, 2018, Myrtle purchased 500 common shares of Canadian Tire Limited at a cost of $16 per share. (d) During 2017, Myrtle decided to sell her original painting of Luca Pacioli for proceeds of $2,600. The original cost of the painting was $800.
Page 8 of 9 BTAX1 - Case Study (7) DETAILS OF RENTAL INCOME: Myrtle owned 2 rental properties in Niagara Falls during 2017. The information relating to these properties for the year-ended December 31, 2017 is as follows: Class 1 Class 1 Original cost $ 131,250 $ 270,000 U.C.C. as at Dec. 31, 2016 $ 130,000 $ NIL Proceeds of sale [calculated in item #6 (b)] N/A Rental revenues $ 10,000 $ 12,000 Disbursements: Mortgage interest $ 5,200 $ 6,500 Mortgage principal 3,000 2,800 Property taxes 2,500 3,000 Insurance 800 1,200 Repairs 2,400 -0- Advertising -0- 50 On November 30, 2017, Myrtle sold the class 3 building. (You should have already calculated the proceeds of sale in item #6 (b). The class 1 building is the house that Myrtle and family lived in before they moved to Kingston. She was unable to sell it so she rented it instead. This building must be treated as an addition on the CCA schedule, as it was not previously being rented. The Fair Market Value of the Building on the date it became a rental property was $260,000. The original cost of the land was $40,000 and the Fair Market Value of the land on the date that the change of use occurred was $40,000.
Page 9 of 9 BTAX1 - Case Study (8) DETAILS OF OTHER INCOME AND EXPENSES: (a) During 2017, Myrtle received $3,600 child support payments from her exhusband. This amount was as specified in the divorce agreement dated March 15, 2000. (b) RRSP contribution (February 1, 2018) $ 7,500 Myrtle's earned income for 2016 was $55,000. The pension adjustment from her 2016 T4 was $4,500. At the end of 2016, she did not have any unused RRSP deduction room or any undeducted RRSP contributions. (c) During 2017, Myrtle paid a total of $ 3,200 in child care expenses for Rocky, to Mrs. Poppins. Mrs. Poppin's Social Insurance Number is 455-277-988. (d) Moving expenses (from Niagara Falls to Kingston): Moving company costs $ 3,500 Car rental 70 Gasoline 50 *Hotels (17 days @ $225) 3,825 *Food (17 days @ $60) 1,020 * Myrtle and her family had to stay in a hotel upon their arrival in Kingston, because their new house was being painted. (e) While still employed with Finns Fabulous Tours Inc., Myrtle injured herself on the job and was off work for one week. She collected $500 in WSIB payments as reported in box 10 of form T5007. (f) Allowable capital losses available for carry-forward (from 2016) $ 250 (g) Myrtle attended St. Lawrence College from September to December of 2017 on a part-time basis and took one course, the tuition fees for which were $350. (h) Myrtle had returned to university a few years ago on a full-time basis, for which she is still repaying a Canada Student loan. Interest paid on this loan in 2017 was $2,875.
