February 15, 2024, and you have just arrived at the offices of Weird & Wacky Ltd (WW)

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Question:

February 15, 2024, and you have just arrived at the offices of Weird & Wacky Ltd (WW) which operates a chain of novelty stores across western Canada. WW is owned by the Weasley family and you have been their tax advisor for 15 years. WW's CEO Arthur Weasley joins you.

Arthur: You've arrived at a good time. We just completed the financial statements for our November 2023 year end. I bought the company information for you (Exhibit 1). We need you to determine its taxable income and taxes payable so we can see if we owe money or will be getting a refund.

You reply that you will calculate this right away.

Arthur: Great. I also have some personal items for you. My son George is going to sell WW shares he purchased for $10,000 in 2014. They are worth $275,000 today. We were wondering if there is any way to minimize the taxes from this sale.

Arthur: George will appreciate it. I need your expertise for myself. I sold my house in Calgary in October and used the proceeds to purchase a lakeside property in Kelowna. I also sold the condo Whistler as the kids weren't using it anymore. I would like to know how much taxes I will owe on these sales. As you know I am in the top Federal/Alberta tax bracket already. Here are the details on the sales (Exhibit 2).

Also, my daughter Ginny needs you to complete her 2023 tax return. I've brought her file with me (Exhibit 3).

You respond that this might take a week but it will be a top priority. Arthur thanks you and you leave for your office.

Exhibit 1:

Weird & Wacky Ltd Information

WW began operations in 2003. It is currently owned 40% by Arthur Weasley and 20% each is held by his adult children: Fred, George, and Ginny. Fred resides in California while the rest of the family lives in Calgary, Alberta. Arthur is a widower, Fred and George are single and Ginny is a divorced mother of 2 boys: 5 year old Albus and 3 year old Severus.

WW Ltd Income Statement (ASPE)

For Year Ended November 30, 2023

(In millions)

Sales $12640000

Cost of goods sold 7932000

Gross profit 4708000

Operating Expenses:

SAlaries 1799000

Rent 833000

Utilities 306000

Advertising 254000

Depreciation 132000

Insurance 120000

Miscellaneous 105000

Total Operating Expense 3549000

Income From Operations 1159000

Investment Income 228000

Interest Expense (165000) 63000

Income Before Income Taxes 1222000

Income Tax Expense (135000)

Net Income $1087000

- WW leases most of its assets including its buildings. At the end of the prior year, the company had a balance of $134,000 in Class 8 and $5,200 in Class 50. In fiscal 2023, WW purchased $68,000 in new equipment and sold old equipment for $3,100 that cost for $20,000. The company also sold computers for $15,600 that were purchased for $47,000. The net book value of the old equipment was $1,500 while the net book value of the old computers was $19,800.

-WW used a US advertising agency to design its 2023 Christmas flyer. The cost was $30,000.

-Miscellaneous includes $19,000 for the company's annual employee party and $46,000 for meals and entertainment. It also includes $47,000 for warranty expenses. Actual warranty costs were $59,100

- Investment income includes $90,000 of non-eligible portfolio dividends from an associated company and $100,000 gain from the sale of shares. The remaining investment income is interest income.

- Included in interest expense is $80,000 of financing fees for a new operating line of credit.

-Income tax expense consists of instalment payments made by WW for its 2023 taxes.

-WW has a $16,000 net capital loss carry forward.

-The associated company has been allocated $280,000 of the small business deduction.

- At the end of 2022, WW had a NERDTOH balance of $130,000. It received a NERDTOH dividend refund of $43,000 in 2022.

- WW paid $300,000 in non-eligible dividends in 2023.

Exhibit 2:

Real Estate Sales

The Calgary house was purchased in 2013 for $612,000 while the Whistler condo was inherited by Arthur in 2006. Its value on that date was $588,000. The house sold for net proceeds of $1,340,000 while the condo sold for net proceeds of $1,456,000. While Arthur normally resided in the Calgary home, he is an avid skier who spent many weekends at the condo each year.

Exhibit 3:

Personal Tax Information for Ginny

Ginny is taking time off work to be with her sons until they start elementary school. To supplement her income, she has a part time consulting business from which she earned $21,300 in 2023. She also had the following items in 2023:

- Bonds: Ginny received $4,500 of interest from 3 year bonds with a face value of $20,000 and a 7.5% stated rate with interest paid at maturity. The bonds matured in 2023. Ginny has reported interest income from the bonds in previous years. Ginny purchased the bonds for $20,260.

- WW Shares: Ginny received $60,000 of non-eligible dividends from WW.

- Potter Shares: On January 1, 2023, Ginny owned 100 shares of Potter Inc. with an ACB of $20,000. She purchased another 50 shares for $184 per share on March 1, 2023. On December 20, 2023, Ginny sold 75 shares when the shares were trading at $180 per share. However, the share price dropped significantly in 2024 so on January 12, 2024, she repurchased 40 shares for $1,700 per share. Ginny's brokerage charges a 2% fee on all purchases and sales.

- Snape Shares: Ginny received $1,020 of dividends from Snape Inc., a US company. The dividends were net of $180 of US withholding taxes.

- Support Payments: Ginny received $50,400 of support payments from her ex-husband Harry. The couple had a difficult divorce so ended up with a judge ordered settlement. Terms of the settlement require Harry to make monthly payments of $3,000 a month for the Albus and Severus and $1,200 per month for Ginny.

- Childcare: Ginny pays a girlfriend to watch Albus and Severance when she is working. Total payments were $14,600 in 2023. This amount includes $2,000 to watch the children when Ginny flew to Maui for a 2 week vacation.

- Instalment Payments: Ginny paid $4,200 in federal income tax instalment payments

Question:

1. Determine minimum Net Income for Tax Purposes, Taxable Income, Federal Taxes Payable and Net Federal Taxes Owing for the 2023 taxation year for Ginny. Ignore any GST or PST considerations. For any amounts provided but excluded from your calculations explain why they have been excluded.