Barry Yuen is district sales manager for a Vancouver-based distribution company. He has requested that you help him establish his employment income for tax purposes for the 20X3 taxation year. He has provided the following information:
1. Yuen’s base salary in 20X3 was $78,000. As sales manager, he is entitled to a small commission on the sales made by staff under his supervision. He received $7,200 in such commissions in 20X3, which included $1,000 of commissions earned in late 20X2. The December 20X3 commissions had been computed as $1,800 and were received in January 20X4. The employer deducted the following from his salary in 20X3:
Canada Pension Plan contributions…………… $2,426
Employment Insurance premiums…………… 914
Private medical plan premiums…………… 300
2. In addition to the above, the employer paid the following to Yuen or on his behalf:
Travel allowance…………………………………………… $2,400
Group term life insurance premiums for $50,000 coverage… 600
Premiums for a private medical insurance plan…………… 300
3. Yuen’s wife died in late 20X2, leaving him to support three children. In 20X3, he hired a person at a cost of $9,000 to provide baby-sitting services for the two youngest children. Following his wife’s death, Yuen suffered from depression. As a result, his employer paid the cost of $3,000 for counselling services and also provided him with airline tickets costing $2,300 so that he and the children could attend a relaxation resort.
4. Yuen uses his own vehicle for employment duties. The vehicle (class 10.1) had an undepreciated capital cost of $14,000 at the end of 20X2.Yuen paid $4,000 in 20X3 to operate the car and used it 70% of the time for employment duties.
5. Yuen incurred the following additional costs relating to his employment:
Promotion (meals) …………… $ 800
Purchase of a cellular phone …………… 1,200
Lease costs for laptop computer…………… 700
Golf club dues ………………………… 1,000
Hotel costs—out-of-town travel……… 4,300
6. When not travelling, Yuen works from an office at his employer’s place of business. Increasingly, he has been taking home work to do in the evenings and on weekends. He intends to set aside a specific room in his house that he will use only for this purpose. His house costs include property taxes, insurance, utilities, and mortgage interest. He will also purchase a work desk and chair.
Required:
1. For the 20X3 taxation year, determine Yuen’s net income from employment for tax purposes.
2. Briefly explain the tax treatment of the intended home-office expenses.