Dan Held, your new client, is an entrepreneur who carries on a successful unincorporated business (le.,...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Dan Held, your new client, is an entrepreneur who carries on a successful unincorporated business (le., a sole proprietorship). Dan started his business in 2019 which generated a $1,200,000 in taxable income in that year, In 2020, Dan earned $1,500,000 in taxable income and expects his business to continue to grow in the future. He has come to you for advice on all matters related to income tax compliance and reporting. During your initial meeting with Dan you have learned about the following items about his tax situation: 2. Dan did not make any tax instalment payments to CRA for the 2020 taxation year. He prefers to keep the cash in the bank because it yields 2% risk-free interest annually. Dan is adamant that if he were to remit instalments to CRA, he would not earn any interest income on these amounts. Therefore, he intends to make one lump-sum payment CRA upon filing of his 2020 personal tax return on June 15, 2021. b. On January 30, 2021, Dan hired an office manager to look after the administrative functions of his business (e.g. general administrative support). The contract is for a 1-year term for a fixed 575,000 compensation. The terms of the contract stipulate that the office manager must work exclusively for Dan (i.e., the office manager cannot be employed or have other clients while working in Dan's business). Dan provides the office space and all related equipment and materials necessary for the performance of the office manager's duties pursuant to the contract. The contract requires the office manager to work based on the 9 am to 5 pm schedule, Monday to Friday. Dan is not sure what his tax compliance and reporting obligations are in connection with the hiring of the office manager. C. You learn from Dan that CRA performed a "desk audit" of Dan's 2019 personal tax return and asked him to provide support for certain business expenses claimed in calculating net business income. Dan was too busy to deal with the CRA and neglected to respond to the CRA. The CRA subsequently reassessed Dan's 2019 personal tax return to deny the deduction of these expenses which resulted in incremental taxes owing of $15,000. The CRA Notice of Reassessment is dated November 15, 2020. Dan indicated that he will provide you with all documentation to support the expenses sometime in July 2021 (he is too busy to deal with this now). Dan has asked that you assist him in dealing with the CRA on this matter in the summer. d. Dan has a policy of destroying accounting records related to his business 2 years after the end of the year (e.g., 2020 books and records will be destroyed in January 2023). Dan takes pride in his organizational skills and does not like to clutter his office with too much historical paperwork. Dan informed you in 2020 he acquired a rental property (condo) in Miami, Florida for $500,000. Dan leased the condo to a tenant under an annual lease arrangement. Dan is not sure how to e. account for this investment on his 2020 personal tax return. For each of the above noted items, do you see any tax compliance and/or reporting issues? If yes, what tax compliance and/or reporting issues and why? Advise Dan on kis tax compliance and reporting requirements and give recommendations as to appropriate course of action for each item. Ignore all GST and PST considerations as well as CRA administrative relief provisions related to tax compliance -REQUIRED and reporting matters. Dan Held, your new client, is an entrepreneur who carries on a successful unincorporated business (le., a sole proprietorship). Dan started his business in 2019 which generated a $1,200,000 in taxable income in that year, In 2020, Dan earned $1,500,000 in taxable income and expects his business to continue to grow in the future. He has come to you for advice on all matters related to income tax compliance and reporting. During your initial meeting with Dan you have learned about the following items about his tax situation: 2. Dan did not make any tax instalment payments to CRA for the 2020 taxation year. He prefers to keep the cash in the bank because it yields 2% risk-free interest annually. Dan is adamant that if he were to remit instalments to CRA, he would not earn any interest income on these amounts. Therefore, he intends to make one lump-sum payment CRA upon filing of his 2020 personal tax return on June 15, 2021. b. On January 30, 2021, Dan hired an office manager to look after the administrative functions of his business (e.g. general administrative support). The contract is for a 1-year term for a fixed 575,000 compensation. The terms of the contract stipulate that the office manager must work exclusively for Dan (i.e., the office manager cannot be employed or have other clients while working in Dan's business). Dan provides the office space and all related equipment and materials necessary for the performance of the office manager's duties pursuant to the contract. The contract requires the office manager to work based on the 9 am to 5 pm schedule, Monday to Friday. Dan is not sure what his tax compliance and reporting obligations are in connection with the hiring of the office manager. C. You learn from Dan that CRA performed a "desk audit" of Dan's 2019 personal tax return and asked him to provide support for certain business expenses claimed in calculating net business income. Dan was too busy to deal with the CRA and neglected to respond to the CRA. The CRA subsequently reassessed Dan's 2019 personal tax return to deny the deduction of these expenses which resulted in incremental taxes owing of $15,000. The CRA Notice of Reassessment is dated November 15, 2020. Dan indicated that he will provide you with all documentation to support the expenses sometime in July 2021 (he is too busy to deal with this now). Dan has asked that you assist him in dealing with the CRA on this matter in the summer. d. Dan has a policy of destroying accounting records related to his business 2 years after the end of the year (e.g., 2020 books and records will be destroyed in January 2023). Dan takes pride in his organizational skills and does not like to clutter his office with too much historical paperwork. Dan informed you in 2020 he acquired a rental property (condo) in Miami, Florida for $500,000. Dan leased the condo to a tenant under an annual lease arrangement. Dan is not sure how to e. account for this investment on his 2020 personal tax return. For each of the above noted items, do you see any tax compliance and/or reporting issues? If yes, what tax compliance and/or reporting issues and why? Advise Dan on kis tax compliance and reporting requirements and give recommendations as to appropriate course of action for each item. Ignore all GST and PST considerations as well as CRA administrative relief provisions related to tax compliance -REQUIRED and reporting matters.
Expert Answer:
Answer rating: 100% (QA)
a Dan did not make any tax inst al ment payments to CRA for the 2020 taxation year He prefers to keep the cash in the bank because it yields 2 risk free interest annually Dan is adamant that if he wer... View the full answer
Related Book For
Canadian Income Taxation planning and decision making
ISBN: 9781259094330
17th edition 2014-2015 version
Authors: Joan Kitunen, William Buckwold
Posted Date:
Students also viewed these accounting questions
-
What an appropriate structure would be suitable for the following given four contingency variables. Also given a brief justification of your choice based on six key organizational elements. 01 Size...
-
McCaig, Brian and Nina Pavcnik. (2018) "Export Markets and Labor Allocation in a Low-Income Country." American Economic Review, 108(7): 1899-1941. An excerpt of the abstract is copied below: We study...
-
Early in 2020, Sporty corporation issued 150,000 common shares ($ 1 par value). During the year, the company purchased 20,000 of these shares as Treasury stock. After that, a 10% stock dividend was...
-
Solve this system of equations -3x-y 5 -3x - 4y 83 || y = 1 11
-
Eric invested $22,000 in a five-year regular-interest GIC earning 4.5% payable monthly. What is each monthly interest payment?
-
You are considering investing in Shawnee Transportation. The company reports 2012 earnings per share of $6.50 on income before extraordinary items and $4.75 on net income. Which EPS figure would you...
-
List three ways to get input from the console and convert that input to the desired data type.
-
(Bond Issue) Donald Lennon is the president, founder, and majority owner of Wichita Medical Corporation, an emerging medical technology products company. Wichita is in dire need of additional capital...
-
40-watt bulbs are priced at 3 bulbs for $8. 100-watt bulbs are priced at 2 bulbs for $10. Assume that you had $52 and then bought 4 100-watt bulbs. What is the maximum number of 40-watt bulbs that...
-
An experiment was conducted regarding a quantitative analysis of factors found in high-density lipoprotein (HDL) in a sample of human blood serum. Three variables thought to be predictive of, or...
-
Review the research-related subfields in psychology choices Which subfield is most relevant to your academic interests? pick one of them Professional interests? Personal interests? Explain why....
-
1. In an experiment to determine the value of*, a cylinder is measured to have an average value of 4.25 cm for its diameter and an average value of 13.39 cm for its circumference. What is the...
-
A 7.00-kg bucket is attached to a cylindrical, massive pulley with a radius of 0.440 m. The bucket starts from rest and falls for 3.1 s into a well. The tension in the rope is 39.10N. What is the...
-
How fast a 58.1 -kg object must travel to have a momentum of 1606.2 kg.m/s east?
-
Emmy is standing on a moving sidewalk that moves at +2 m/s. Suddenly, she realizes she might miss her flight, so begins to speed up, but then she hears over the PA system that her filght is delayed....
-
A charge q1-5C is at position (x1, y1), another charge q2=8C is at position (x2,y2) and a third charge q3=9C is at position (x3,y3). Find the x component of the total force exerted by q1 and q2 on...
-
Question 2 After a few years, your team's business has thrived. You are approached by the private banker of a renowned institution to invest your hard-earned cash in securities. The first investment...
-
Write the binomial probability in words. Then, use a continuity correction to convert the binomial probability to a normal distribution probability. P(x 110)
-
Contesso Travel Inns Ltd. is a successful Canadian-controlled private corporation that owns and operates a small chain of eight hotels in western Canada. The hotels offer high-quality lodging at...
-
What types of income for tax purposes may result when a profit is achieved on the sale of property (e.g., land)?
-
Distinguish among financial property, personal-use property, and listed personal property. Which of these three categories is (are) subject to capital gains treatment?
-
Smith Company produces and sells one product for $40 per unit. The company has no beginning inventories. Its variable manufacturing cost per unit is $18 and the variable selling and administrative...
-
Which of the following statements is false? (You may select more than one answer.) a. Under variable costing, only those manufacturing costs that vary with output are treated as product costs. b....
-
Smith Company produces and sells one product for $40 per unit. The company has no beginning inventories. Its variable manufacturing cost per unit is $18 and the variable selling and administrative...
Study smarter with the SolutionInn App