1. Wong’s 20X7 gross salary was $90,000, from which CW Ltd. deducted the following amounts — Carol president and major shareholder Canadian-controlled private corporation that

Carol Wong is the president and major shareholder of CW Ltd., a Canadian-controlled private corporation that operates a construction business in Regina, Saskatchewan. CW earns only business income which is all subject to the small business deduction.

In 20X7, she had a number of financial transactions. She has asked you to help her prepare her 20X7 tax return and provide advice on other tax matters. The following additional financial information is provided:

1. Wong’s 20X7 gross salary was $90,000, from which CW Ltd. deducted the following amounts:

Income tax ………………………………………. $30,000

CPP and EI premiums……………………………. 3,340

Private health insurance premiums………………. 600

Group sickness and accident insurance premiums… 400

In addition to her salary, CW Ltd. paid $2,000 to a deferred profit-sharing plan, $600 of private health insurance premiums, and $400 of group sickness and accident insurance premiums on Wong’s behalf.

2. Wong is required to use her own automobile for company business. For this, CW Ltd. pays her an annual allowance of $3,600. In 20X7, Wong incurred automobile operating costs of $5,200. Also, in 20X7, she purchased a new automobile for $34,000 plus HST, and received $18,000 as a trade on her old car. At the end of the previous year, the old car had an undepreciated capital cost allowance balance of $15,000 (class 10.1).Of the 20,000 kilometres driven in 20X7, 12,000 were for employment purposes.

3. For three months in 20X7, Wong was sick and could not attend work. She received $9,000 from the company’s group sickness and accident insurance plan. Since the plan’s inception, Wong had paid premiums totalling $2,000.

4. During 20X7, Wong purchased a warehouse property and leased it to CW Ltd. to store construction equipment. The property cost $250,000 (land 30,000, building 220,000). The building was constructed after March 18, 2007. The price for the land includes $2,000 of permanent landscaping completed just after acquisition. The 20X7 rental income is summarized below.

5. Wong is a 30% partner in a computer software business but is not active in its management. The partnership financial statement shows a profit of $40,000 for the year ended December 31, 20X7. The profit consists of $32,000 from software sales and $8,000 from interest earned.

6. On July 1, 20X6, Wong purchased a three-year guaranteed investment certificate for $20,000 with interest at 10%.The interest compounds annually but is not payable until July 1, 20X9.

7. Wong received (made) the following additional receipts (disbursements) in 20X7:

Receipts:

Dividends (Eligible) from Canadian public corporations ………. $2,000

Dividends (Non-eligible) from CW Ltd. ………. 3,000

🔒

Unlock the complete assignment

You are viewing the free preview. Purchase this assignment once to reveal the complete resource.

$9.99 USD

Secure checkout is completed by Stripe.

Dividends from foreign corporations (net of 10% foreign tax) ………. 900

Winnings from a provincial lottery……….………. 12,000

Disbursements:

Contribution to RRSP (within allowable limits) ………. 10,000

Dental expenses for children ……….………. 3,500

Donation to a charity……….………. 2,000

Safety deposit box ……….………. 100

Life insurance premium used as collateral for personal bank loan…. 800

Investment counsel fees ……….……….… 1,000

Required:

Determine Wong’s minimum net income for tax purposes in accordance with the aggregating formula of section 3 of the Income Tax Act.

SOLUTION

Net income for tax purposes:

Employment income:

Salary [ITA 5(1)]		$ 90,000
Group sickness benefit ($9,000 - $2,000) [ITA 6(1)(f)]		7,000
Automobile allowance (unreasonably low) [ITA 6(1)(b)]		3,600
		100,600
Operating costs $5,200 x 12,000/20,000 km [ITA 8(1)(h.1)]		(3,120	)
CCA Class 10.1 old car ($15,000 x 30% x 1/2) [ITA 8(1)(j), Reg 1100(2.5)]	$2,250
CCA Class 10.1 new car ($30,000 x 1.13 x 30% x ½) [ITA 8(1)(j), 13(7)(g), Reg. 1101(1af)]]	5,085
12,000/20,000 km x $7,335	$7,335	(4,401	)
		93,079

Business income:

Partnership (30% x $32,000) [ITA 2(1)(l)]								9,600
Property income:
Partnership (30% x $8,000) [ITA 12(1)(l)]						2,400
Rental property:
Income reported	$1,000	$1,000	$1,000	$1,000
Storage shed addition to building)	Storage shed addition to building)	3,000	3,000	3,000
Landscaping (from land cost)	(2,000	(2,000	(2,000	(2,000	)
Rental income before CCA	2,000	2,000	2,000	2,000
CCA class 1 - ($220,000 + $3,000) x	CCA class 1 - ($220,000 + $3,000) x	CCA class 1 - ($220,000 + $3,000) x	CCA class 1 - ($220,000 + $3,000) x
6% x ½ = 6,690 - limit to rental income	6% x ½ = 6,690 - limit to rental income	6% x ½ = 6,690 - limit to rental income	(2,000	(2,000	)	0
Interest – GIC (10% x 20,000) [ITA 12(4)]	Interest – GIC (10% x 20,000) [ITA 12(4)]	Interest – GIC (10% x 20,000) [ITA 12(4)]				2,000
Dividends: [ITA 12(1)(j), (k), 82(1)]	Dividends: [ITA 12(1)(j), (k), 82(1)]	Dividends: [ITA 12(1)(j), (k), 82(1)]
Public (2,000 x 138%)	Public (2,000 x 138%)	Public (2,000 x 138%)	2,760	2,760
CW Ltd. (3,000 x 118%)	CW Ltd. (3,000 x 118%)	CW Ltd. (3,000 x 118%)	3,540	3,540
Foreign ($900 + $100)	Foreign ($900 + $100)	Foreign ($900 + $100)	1,000	1,000		7,300
						11,700
Property deductions:	Property deductions:	Property deductions:
Safety deposit box	Safety deposit box	Safety deposit box				(0	)
Investment counsel fees [ITA 20(1)(bb)]	Investment counsel fees [ITA 20(1)(bb)]	Investment counsel fees [ITA 20(1)(bb)]				(1,000	)	10,700
								113,379
Other deductions: RRSP [ITA 60(i)]	Other deductions: RRSP [ITA 60(i)]	Other deductions: RRSP [ITA 60(i)]						(10,000	)
Net income for tax purposes	Net income for tax purposes	Net income for tax purposes						$103,379