Mr. Ned Newell is employed by Snoopy-Snacks Ltd. (a Canadian-controlled private corporation). As of February 15, 2012, Ned was promoted to vice-president sales due to his hard work negotiating puppy snack contracts on behalf of the company. This promotion required Ned to relocate from the Toronto office of Snoopy-Snacks Ltd. to its Victoria, British Columbia office.
Ned has provided you with the following information regarding his 2012 income and expenses. He requests your assistance in determining his 2012 employment income for tax purposes.
Payroll details:
Gross salary $125,000
Less:
Income taxes $45,000
Canada Pension Plan contributions 2,307
Employment Insurance contributions 840
Registered pension plan contributions: defined benefit 6,750
Group income protection premiums paid 120
Group term life insurance premiums paid 180 55,197
$ 69,803
Employer-paid amounts and fringe benefits paid by Snoopy-Snacks Ltd.:
Dental plan premiums - paid to Star Insurance Company $ 245
Group term life insurance premiums 90
B.C. provincial health care premiums 640
Group income protection premiums 400
Monthly allowance to cover travel and automobile expenses (based on a flat monthly amount of $400 for travel and $400
For auto) 9,600
Travelling expenses for Ned and his wife to Bermuda for a sales conference. Ned's time was spent attending the conference but his wife was on vacation the entire time. No HST was payable on the trip since it was outside of Canada. One-half of the
Expenses related to Ned and one-half to his wife 2,800
A birthday gift (a watch) received while in Ontario (including HST). Snoopy-Snacks Ltd. deducted the cost of this gift as a
Business expense 150
Outside financial counselling fees (including HST). The counselling firm indicated that 80% of its fees relate to counselling for future retirement while the remaining 20% of its fees relate to tax preparation 2,568
Other Information:
1. Snoopy-Snacks Ltd. provided Ned with some assistance that relates to his move from Toronto to Victoria. The details of that assistance are set out below.
a) Ned purchased a new home in Victoria just prior to his move. However, he could not take possession of that home until April 30, 2012. Snoopy-Snacks Ltd. paid Ned's rent for a Victoria apartment for the months of February through April 2012. The rent paid was $1,200 per month.
b) Ned and Snoopy-Snacks Ltd. agreed that he would receive reimbursement from Snoopy-Snacks Ltd. for one-half of the loss realized by him on the sale of his Toronto home. Ned received $16,500 as a result of this agreement.
c) Ned received an allowance of $15,000 to cover his moving expenses.
In addition to the above, Ned's employer agreed to reimburse him an amount equal to one-quarter of his annual mortgage interest payment for the first five years of his mortgage on his new Victoria home. This was intended to compensate for higher real estate prices in Victoria. For 2012, Ned received $2,000 under the terms of this agreement.
2. Snoopy-Snacks Ltd. maintains an employee stock purchase plan for certain of its employees. Ned became eligible for this plan after his promotion. During 2012, he was granted an option to purchase 1,000 shares in Snoopy-Snacks Ltd. at an exercise price of $15 per share. At the time this option was granted the fair market value of the shares was $20 per share. On September 15, 2012, Ned exercised the option to purchase 600 of the above shares. The fair market value of the shares was $25 at that time.
3. Ned had unlimited use of the company's private swimming pool. All management level employees are permitted to utilize this pool. The local private swimming pool charges annual fees of $1,800 per year before HST.
4. Ned had the following expenditures during 2012.
Automobile operating expenditures:
Lease payments for 12 months ($850 a month including HST of
12%) $10,200
(lease commenced July 1, 2011 for a period of three years; deducted lease costs for 2011 were $4,585)
Gasoline and oil 1,300
Insurance 1,050
Maintenance 180
Licence 120
Travelling expenditures:
Meals (consumed while out of metropolitan area for greater than 12 hours) 7,200
Accommodation 12,000
During 2012, Ned travelled a total of 36,000 kilometres, of which 22,500 kilometres were employment related. The manufacturer's list price on his automobile was $33,000 before HST.
REQUIRED
(A) Determine Ned's employment income for tax purposes for 2012, and cross-reference your answer to the appropriate sections of the Act and/or Interpretation Bulletins.
(B) Indicate why you did not include any of the above amounts in your answer with the appropriate cross-reference.
(C) Compute the potential GST rebate in 2013 and the income tax consequences upon receipt of ITA: 6(8) the HST rebate. Assume an HST rate of 12% for this purpose.