Amira and her husband, Owen, are both 40 years of age and own a small bungalow in

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Question:

Amira and her husband, Owen, are both 40 years of age and own a small bungalow in the B secAon of Brossard. They have one daughter, Ellie, born in November of 2015.

Amira is the Eastern Canada Sales Co-ordinator for Clearwater Mutual Funds. Owen is a Project Manager who sub-contracts to a small real estate investment company where he oversees building projects (i.e. for tax purposes he is considered to be self-employed and bills the company directly, but pays his own business expenses).

Since the onset of the pandemic in March 2020, Amira has been teleworking, having taken over the family office at home. She believes she is eligible to claim the full $400 ($2 a day) for home office expenses for employees in 2020. Amira earned $72,200 in salary and $7,500 in bonuses in 2020 and received $2,214 in Child Tax Benefits for the year. The couple paid $900 a month for daycare (Ellie only turned 5 aer the September 30th cut-off for kindergarten in 2020) for 9 months in 2020, as they kept Ellie home over the summer and were not required to pay.

Owen was unable to work for 2 months in 2020 when the construcAon industry was shut down in Quebec. During that period he received $4,000 in CERB benefits. For the remainder of 2020, Owen billed the real estate investment company $60,250, and paid business-related expenses of $12,900.

Each contributed $200 a month to a Registered ReArement Savings Plan (RRSP). Amira also contributed $150 a month to a Defined Benefit Pension Plan (DBPP, a type of Registered Pension Plan) sponsored by Clearwater.

Upon her grandfather’s death several years ago, Amira inherited $25,000 which she invested in Clearwater mutual funds in a non-registered account. She received a 2020 T5 slip indicaAng amounts of $500 in eligible Canadian dividends received and capital gains of $1,100.

Owen’s parents, who are reAred, have gied Owen $2,500 every December since Ellie’s birth in 2015, which Owen then immediately contributed to an RESP for Ellie before year- end.

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Only Amira has opened a Tax Free Savings Account (TFSA). She contributed $1,000 each year for 2017, 2018 and 2019, then withdrew $500 in 2020 for an unexpected dental expense.

Part 1 (5 marks)

Calculate total income for Federal tax purposes (line 15000) and net income (line 23600) for Amira and Owen in 2020. For each income/deducAon type, indicate the line number on the T1 form. Add lines as required to the table below. Round to the nearest dollar.

The following deducAons are shown for Owen as a self-employed individual:

Line	Deduc7on	$ Amount
22200	DeducAon for QPP contribuAons	2,631
22300	DeducAon for PPIP premiums	182

Refer to the 2020 Federal Income Tax and Benefit Return for residents of Quebec at:

hcps://www.canada.ca/en/revenue-agency/services/forms-publicaAons/tax-packages- years/general-income-tax-benefit-package/quebec/5005-r.html

Amira			Owen
Line #	Income/Deduc7on And Calcula7on	$	Line #	Income/Deduc7on And Calcula7on	$



15000	Total Income		15000	Total Income


			22200	DeducAon for QPP contribuAons on self- employment earnings	(2,631)
			22300	DeducAon for PPIP premiums on self- employment earnings	(182)

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23600 Net Income

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Part 2 (2 marks – 1 mark each)

(i) For tax purposes, it is becer for Owen’s parents to gi money to Owen for Ellie’s RESP and have him contribute the amount to her RESP as the subscriber. Why?
(ii) In what year will Ellie receive the last of the Canada EducaAon Savings Grant if Owen’s parents conAnue to gi $2,500 every December and Owen conAnues to contribute the amount to Ellie’s RESP right away? Please explain.

Part 2(i)	Reason
Part 2 (ii)	Year and explana7on

Part 3 (1 mark)

How much can Amira contribute to her TFSA as of January 2021? Please explain. Refer to Table C at the end of the Case Study.

Amira’s TFSA room as of January 2021

Explana7on

Mini-Case B (7 marks)

Like every Canadian couple, Amira and Owen carry quite a lot of debt.

Three years ago, Amira purchased a Subaru Outback cosAng $34,750 before sales tax of 15%, with a $5,000 down payment, 7 year term and interest rate of 6%, compounded monthly. Payments are monthly.
The couple has a line of credit to cover unexpected expenses. The maximum possible withdrawal is $15,000. Terms include a monthly principal repayment of

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2% of the balance outstanding, and an interest rate of 7%, compounded monthly,

on any outstanding balance.

The couple’s mortgage is coming up for renewal. They borrowed $289,750 five
years ago at a rate of 2.59%, compounded semi-annually. Their financial insAtuAon has offered them a renewal rate of 1.69%, compounded semi-annually, for a new 5-year term. Their original amorAzaAon period was 25 years. They would renew their mortgage for the remaining 20 year amorAzaAon, but instead of bi-weekly payments, they would opt for monthly payments.
Amira and Owen pay, on average, $800 towards their credit cards every month, and generally carry a balance of $2,000 from month to month. Combined, their total credit card limit is $10,000.
Part 1 (1 mark)
Calculate Amira’s monthly car loan payment.
Part 2 (1 mark)
The couple drew down $5,000 on their line of credit (LOC) 6 months ago and have paid the required 2% principal plus interest every month for the last 6 months. What would be their line of credit payment this upcoming month?

Monthly car loan payment calcula7on

LOC calcula7on

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Part 3 (2 marks)

What will be the couple’s new monthly mortgage payment if they accept the terms offered by their financial insAtuAon?

Calcula7on of mortgage balance

Calcula7on of new monthly payment

Part 4 (1 mark)
Calculate the couple’s Total Debt Service (TDS) raAo. Does it fall within guidelines?

Annual heaAng and property taxes are $1,800 and $3,250, respecAvely. Refer to Case 1 for gross income informaAon: Use Amira’s gross salary and bonuses only. Use Owen’s net business income and ignore the CERB.

Note: Their financial insAtuAon factors in 5% of the credit card maximum or the average monthly payment, whichever is higher, and 3% of the maximum possible withdrawal on their line of credit.

Calcula7on of TDS ra7o

Guideline

Part 5 (1 mark – 1⁄2 mark each)

The couple’s credit card charges an annual percentage rate (APR) of 18%, compounded daily, and requires a 5% minimum payment.

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(i) How long would it take them to pay off their $2,000 balance if they shelve their cards, never use them again, and conAnue with the ($2,000 x 0.05) = $100 minimum monthly payment required now?
(ii) How much total interest would they have paid?

Calcula7on of credit card amor7za7on period

Calcula7on of total interest paid

Part 6 (1 mark)

Given all you know about the couple’s finances (refer to both Case 1 and Case 2), what one suggesAon would you make to provide guidance or improve their financial situaAon?

Recommenda7ons could include