John Smith is 55 years old, married to Kim (age 50 years). Kims only income is $2,000
Question:
John Smith is 55 years old, married to Kim (age 50 years). Kim’s only income is $2,000 of interest income.
John is a lawyer with his own law practice. John’s net business income from his practice (a sole proprietorship) for the current year was $86,000.
John is also a partner in a restaurant business, which incurred a total net business loss of $18,000 in the current year; as a partner in this business, John’s share of this loss is $6,000. The restaurant business also incurred a
large business loss in the previous taxation year, which John was not able to fully utilize on his prior year’s tax return; hence, John has a non-capital loss carryover balance of $2,000.
In the current year, John received interest income (which is property income) of $1,800 from TD Bank (a Canadian bank).
In November of the current year, John disposed of various shares and marketable securities, which resulted in a taxable capital gain of $8,000, and he disposed of land for an allowable capital loss of $5,000. John has a net (allowable) capital loss carry forward (realized five years ago) of $4,000, which John would like to use as soon as possible.
John provides you with the following other information:
• John always makes a donation to the United Way, a registered charity, during its annual campaign. In the current year, he made a donation of $1,500 to United Way.
• John personally incurred the following medical expenses during the current year:
Expenses | Amount |
Orthodontic work for David (braces removed) | $5,475 |
New prescription eye glasses for Susan | 1,250 |
Prescription medication for Kim (50% covered by private health care) | 475 |
Prescription medication for John (50% covered by private health care) | 785 |
Private health care premiums | 1,500 |
Answer the following:
1. Calculate John’s net income (in accordance with Section 3 of the ITA) and taxable income in the current year. Show all your calculations.
2. Calculate John’s net federal tax payable (including non-refundable credits) in the current year. Show all your calculations.
Business Math
ISBN: 978-0133011203
10th edition
Authors: Cheryl Cleaves, Margie Hobbs, Jeffrey Noble