Sarah is a dedicated single mother who lives in Ottawa. She works full-time as a nurse and
Question:
Sarah is a dedicated single mother who lives in Ottawa. She works full-time as a nurse and also runs a part-time home care business for seniors. Sarah has come to you to file her 2022 tax return. She knows she is a bit late, but time just slipped away and now she is panicking!
Employment Income:
Gross Income: Sarah's annual salary as a nurse is $90,000.
Union Dues: Sarah pays union dues of $800 per year to the Ontario Nurses
Association.
CPP & EI: Maximum amounts of $3,499.80 for CPP and $952.74 for IE were deducted
from her income for 2022.
Income Tax: $35,000 in income tax was witheld from Sarah's earnings for the year.
Registered Pension Plan (RPP) Contribution: Sarah contributed $4,000 to her RPP, and
her employer matched that amount.
No other deductions were made from her pay cheque.
Part-time Business:
From her part-time home care business, Sarah generated gross revenues of $30,000 in
2022. The detailed expenses associated with her business are as follows:
a. Transportation Expenses (Fuel, Maintenance, and Insurance):
- Total Car Expenses: $3,000
- Business Use: 4,000 km out of 18,000 km driven (22.2%)
- Car's Original Cost: $40,000 (5 years ago)
- Capital Cost Allowance (CCA) has not been claimed as Sarah doesn't
know how
b. Supplies (gloves, masks, etc.): $1,000
c. Advertising Expenses: $2,000
d. Office Rent: $2,500 Sarah "hotels" at her friend's office when she needs a space to
quietly work. She also stores her files there. For this service, she pays $2,500 per year
to her friend.
e. Telephone: $1,500 Sarah has a separate phone and ipad that she uses in her
business. She has a dedicated line for these devices and her total fees for the year are
$1,500.
f. Medical Equipment (massage table and blood pressure monitor):
- Massage Table: $2,000 (Depreciation and CCA applicable)
- Blood Pressure Monitor: $500 (Depreciation and CCA applicable)
Sarah purchased both new this year and thinks she can 'write off' the full amount of
$2,500 for her tax return.
The Kids:
Cost of Childcare: Sarah incurs childcare expenses of $15,000 per year for her two children under the age of 10. Her son is 9 and her daughter is 6.
Children's Camps: Sarah sent her children to two weeks of summer camp, which cost
$1,500 per child, totaling $3,000 for both children. This was during the summer of 2022.
Other Items:
Sale of Shares: Sarah sold some shares for $35,000, which originally cost her $5,000.
Dividend Income: Sarah earned $2,000 in dividends from a Canadian public company.
Contributions to Children's RESPs: Sarah contributed $3,000 to her children's
Registered Education Savings Plans (RESPs).
Net Capital Loss Carryforward: Sarah has a net capital loss carryforward of $30,000
from previous years.
Required:
a) Determine Sarah's Employment Income for 2022.
b) Calculate Sarah's Net Income for Tax Purposes, i.e. Division B Income.
c) Calculate Sarah's Taxable Income for 2022?
d) Ignoring Provincial Taxes, calculate Sarah's Tax Payable (Refund) on the
assumption that she wishes to pay the least amount of tax possible.
e) Will Sarah owe any additional amounts because she is filing late? Assume she is
filing on this assignment's due date, June 12, 2023. If so, how much?
For each of the above, show all your calculations. Ignore provincial tax.
Introduction To Federal Income Taxation In Canada
ISBN: 9781554965021
33rd Edition
Authors: Robert E. Beam, Stanley N. Laiken, James J. Barnett