Problem 3-4 (Past exam question: 40 minutes) (Text: Ch. 3) Graham Grepzer has come to you in connection with two offers of employment as a salesperson from two rival dry-goods manufacturing companies. Neither company has an office in his present location of Beamsville, Ontario, and he would be required to operate from the basement of his home. Graham indicates that his estimated cash expenses including HST @ 13% would be: Travel outside of Beamsville Meals (equal monthly amounts)$3,200 Accommodation5,000$8,200 Total car operating costs (Note 1) Gas and Oil$2,200 Maintenance800 3,000 Insurance (if car owned)1,300$4,300 Office expenses 20% of total space (Note 2) Mortgage interest 20% $19,000$3,800 House insurance20% 800160 Municipal taxes20% 2,500500 Utilities20% 1,000200 Interest on bank loan (Note 3)500$5,160 Entertainment expenses including golf club membership of $1,100 (equal monthly amounts)$4,000 Telephone long-distance calls$1,000 Office supplies$500 Assume that all these expenses are reasonable in the circumstances. Notes 1. these amounts are the otal car expense. he estimates that his total kilometeres will be 30000 of which 24000 will be for business purpose. 2 The home was purchased 10 yrs for $150,000. 3 the interest on the bank loan is for the acquisition of 5400 of office equipment

offer 1:

1. Employer Alpha's remuneration package would consist of a salary of 58000 plus estimated commission of employer Alpha would also pay for a private dental and drug plan *$700/ yr) and a contribution to a defined benefit registered pension plan at 6% of gross salary and commission but exclusive of other fridge benefit ($4200/yr). Graham would be required to contribute an equal amounts to the pension plan.

Graham would be require to use his own car and pay for all of the expenses. However. The company would pay him a flat allowance of $450 per month for his 24000 business kilometre. Graham has indicated that he would have to acquire a new car with an estimated cost of 19000$ including HST, high would be financed fully through a bank loan at 10%

offfer 2

Employer Beta's remuneration package would consist of a straight salary of $70000. Employer Beta would also pay for income protection premium ($500/ys).a lease company car would be provided which would cost his employer $6300 per annum including $1100 for insurance but excluding hit. Employer Beta would pay him a monthly trade allowance of $1500 and the annual code dues ($1100) at the local goft course for entertaining corporate clients. However Graham would have to directly pay all of his expenses. In addition the company would contribute to a money purchase registered pension plan 6% of graham's gross salary exclusive of other fringe benefits, Graham would contribute an identical amount.

Compute graham's employment income for tax purpose for the current year under the two proposals given the assumption that these amount are for a full calendar year. Ignore the effoects of any leap year or any potential HST rebate implication

Explain why you excluded any of the above information from your calculations

Answer rating: 100% (QA)

To compute Grahams employment income for tax purposes under the two proposals we need to break down ... View the full answer