Client Information Tandiwe Okara is employed by Rocky Coast Environmental Ltd, a Canadian controlled private corporation. She was recently promoted from Associate Engineer to Director of Engineering, a promotion she worked very hard for over the past three years. Tandiwe has requested your assistance in preparing her 2020 income tax return and your advice on certain other tax matters. Information regarding Tandiwe’s financial activities for 2020 is outlined in Exhibit 3-1. Selected information from her 2019 tax return is provided in Exhibit 3-2. 

Exhibit 3-1 Tandiwe Okara 2020 Financial Information

1. In 2020, Tandiwe received a salary of $120,000. From her income, Rocky Coast deducted income tax of $33,000 and CPP and EI of $3,754. The company contributed $700 as Tandiwe’s premium on a supplementary unemployment insurance plan and paid $1,000 to a professional engineering association as an annual membership fee. The company also contributed $5,000 to its registered pension plan on Tandiwe’s behalf, and Tandiwe made a matching contribution of $5,000.

2. Tandiwe is provided with an automobile leased by Rocky Coast. During 2020, the company paid total lease costs of $6,000, including $900 for insurance and all applicable taxes. Tandiwe drove her vehicle for a total of 20,000 kilometres, of which 8,000 were employment related.

3. In 2018, Tandiwe was granted an option to buy 100 shares of Rocky Coast at $50 per share when the shares were valued at $55 each. She exercised her option in 2019 and purchased the shares when they were valued at $70 per share. In November 2020, Tandiwe sold these shares for $80 each. Before selling the shares, Tandiwe received a $200 dividend from the company. All the company’s income is eligible for the small business deduction and/or is investment income.

4. Tandiwe sold a bond on February 1, 2020. The selling price of the bond was $20,300, including interest of $300 for the period from November 1, 2019 to January 31, 2020. The bond was purchased on January 1, 2018 for $19,200 ($200 being the interest amount).

5. Tandiwe gifted $3,000 to her daughter Jayne (age 16) to buy an investment. Jayne invested her money and earned $400 in interest. In December 2020, Jayne sold her investment for $4,000.

6. In 2020, Tandiwe had the following other receipts and disbursements:

Counselling fee paid by the company for re-employment $ 500

Safety deposit box fee 100

Legal fee to defend last year’s income tax reassessment 1,000

7. Tandiwe sold her guitar for $500, which was purchased for $2,000 in 2006. She also sold an antique vase for $2,200, which was purchased for $800 in 2005.

8. During the year, Tandiwe paid $500 for the purchase of vitamins and other supplements prescribed by her doctor. He also paid $700 for private dental insurance.

9. Tandiwe is divorced and lives with her 15-year-old son. Her son had zero income in 2020 and Tandiwe paid $2,500 for her eligible medical expenses, including $500 for prescription eyeglasses. In accordance with the legal agreement, she paid an annual support payment of $6,000 to her former spouse and $8,000 as half the private school day student fees for her daughter.

10.The company paid Tandiwe an allowance of $5,500 for general employment-related expenses. From this allowance, she used $1,000 to purchase a notebook computer that is primarily used for employment-related work. She spent $500 on a stock trading course.

11. Tandiwe owns a condominium in the city that is designated a rental property. She purchased her property in 2005 at a cost of $120,000. The undepreciated capital cost balance of the building was $85,000 on December 31, 2019. In 2020, she received $20,000 as rent and paid the following expenses: interest – $6,000, property tax – $2,000, strata fees - $5,000, and repairs and maintenance - $3,000.

12.Tandiwe is an active member in her community and decided to volunteer as a firefighter during the year. Given the hotter summers and increased forest fires in her area, she feels her environmental engineering background would bring value to her local volunteer fire department.

13.In 2020, Tandiwe had the following other receipts and disbursements: Donation to the David Suzuki Foundation - $ 500 and the BC School District #79 for development of an environmental education program - $1,000; RRSP contribution $ 11,000.

14.Tandiwe received a dividend of $1,000 from the active business income of a CCPC. She also received $1,800 (net of $200 withholding tax) from a U.S. company. She paid $200 to an investment advisor for advice regarding her RRSP investment.

15.Tandiwe began consulting with her condominium Strata to collaborate on ways to reduce waste and upcycle materials from residents. Given her environmental engineering expertise, the strata voted for Tandiwe to provide a report about options available to the residents. Tandiwe did not want payment for doing this but the residents voted to give her three months of strata fees in exchange for her services.

Exhibit 3-2 2019 Tax Return Details

Listed Personal Property Losses – Carry forward from 2019 $1,000

Registered Retirement Savings Plan:

Deduction limit from previous years’ Notice of (Re) Assessment $10,000

Maximum RRSP Deduction Available $10,000

Net Capital Losses – Carry forward from 2019 $10,000

Required – Please submit the following two documents:

1. Using the Excel, submit the following:

i. Calculate Tandiwe’s minimum net income for tax purposes in accordance with the ordering provisions found in section 3 of the Income Tax Act, and her minimum taxable income for the 2020 taxation year.

ii. Based on your answer to part (a), calculate Tandiwe’s minimum federal income tax for the 2020 taxation year. Show all calculations.

2. A one-page client summary section (memo) that presents the main issues related to the tax results including the identification of and discussion about the determination of the various sources of income. You will need to determine what is important for future tax planning purposes and/or for your client to know and understand.

Answer rating: 100% (QA)

Calculation of Minimum Net Income and Minimum Taxable Income a Calculation of Minimum Net Income Salary 120000 Less CPP and EI 3754 Less Professional ... View the full answer