Robby Beamon has recently been appointed vice-president of sales and marketing for Lori's Unpublished Books Limited, a public company. Robby has come to you for advice regarding the tax implications of his new position. During your meeting you were able to determine the following information:
(A) Remuneration for the year:
Salary -gross..........................................................$84,800
Less: Canada Pension Plan contributions $2,307
Employment Insurance contributions 840
Disability insurance premiums 600
3,747
$81,053
Bonus based on company sales........................................24,000
Allowances for the year (paid monthly):
Meals, accommodation and air travel..........................13,000
Car...................................................................6,300
Entertainment......................................................2,000
Moving allowance...............................................15,000
Robby has also been granted an option to acquire 7,500 previously unissued fully paid shares of Lori's Unpublished Books Limited at $11.50 per share. The fair market value at the time of the grant was $15. One of the conditions was that he must exercise one-third of the option immediately upon it being granted. He did so in May and acquired 2,500 shares.
(B) Robby has summarized the following expenses related to his employment:
Gas and oil - automobile..................................................$ 3,900
Painting (office only) ............................................................100
Licences - automobile.........................................................100
Meals (consumed while travelling away for more than 12 hours) .......7,000
House insurance .....................................................................800
Accommodation (while travelling on company business) ..................10,000
Interest expense - car loan........................................................3,600
General maintenance (house) .......................................300
Car insurance .......................................................1,900
Hydrov. ................................................: ■ v • •700
Air travel............................................................4,200
Car maintenance...................................................1,000
Supplies...............................................................700
Fuel (house) .....................................••jr,■■ • t • • •1.200
Property taxes......................................................4,500
Mortgage interest.................................................24,000
Salary (to wife, including payroll taxes and employer contributions) ....15,000
(C) Lori's Unpublished Books Limited requires Robby to provide an automobile in order to carry out his duties of employment. Robby is responsible for his travelling expenses. On March 17, 2012, he acquired a new car for $46,000, including HST at 15%, financing part of the acquisition through a bank loan arranged for the same date. The capital cost allowance rate in the first year is effectively 15%. He estimates that he will drive 38,000 kilometres in the course of his employment. He expects his total kilometres to the end of the year to be 45,000. The car and the employment use are reasonable for his position and his work requirements.
(D) Robby's contract also requires that he maintain an office in his home, since no other office is provided. He is responsible for all costs related to the operation of the office. He does not receive an allowance or reimbursement related to any of these costs. Robby has estimated that the office occupies approximately 15% of his home. This estimate is based on square footage. Robby estimates that if he had to rent a comparable amount of space he would have to pay $850 per month plus utilities.
REQUIRED
(A) Calculate Robby's employment income for 2012, assuming that all expenses are reasonable in the circumstances and will be documented. Ignore consideration of the GST rebate.
(B) If the facts in part (A) were changed as follows, what would be the deductible expenses for ITA: 8(1) 2012?
(i) Lease entered into on March 17, 2012.
(ii) Monthly lease payments are $1,100 including HST at 15%.
(iii) Employment use accounts for 38,000 kilometres out of a total of 45,000 kilometres for 2012.
(iv) Manufacturer's list price is $46,000 excluding HST.
(C) How would your conclusions in parts (A) and (B) change if Robby was an internal auditor and, therefore, did not receive a bonus based on sales?