For the last five years, Mrs. Rosetta Stone has been working as a technical writer and translator
Question:
For the last five years, Mrs. Rosetta Stone has been working as a technical writer and translator for “Brandan Books Incorporated,” (BB Inc.), a Canadian controlled private company located in Kamloops, BC. The following employment information is for the year ended December 2020:\r\n
Mrs. Stone receives an annual salary of $155, 800. The following amounts were withheld from her gross wages by her employer:\r\n
Federal and provincial taxes$28,740\r\n
Employment insurance premiums856\r\n
Canada pension plan premiums2,898\r\n
Group disability insurance premiums11,870\r\n
Union dues2,100\r\n
Registered pension plan contributions25,300\r\n
1 – Mrs. Stone pays half of the premiums while her employer pays the other half.\r\n
2- BB Inc. matches Rosetta’s contributions dollar for dollar\r\n
In addition, she was awarded a $30,000 bonus for her outstanding performance. Since Rosetta does not need the money this year, she has asked her employer to delay the payment of the bonus until January 1, 2025 when she plans to take a year off of work to travel the world.\r\n
BB Inc. is a generous employer that values its employees. In addition to matching Mrs. Stone’s contributions to the Company’s RPP and paying half of the group disability insurance premiums, the employer also provides these additional benefits:\r\n
\r\n
1. The employer provides life insurance coverage equal to two and a half times her salary in the event of her death. The life insurance premiums of $1,850 are entirely paid by BB Inc.\r\n
2. The Company pays for Mrs. Stone’s private childcare cost for her three young kids. The annual cost for this service amounted to $18,000 which was paid to a local childcare business serving the general public needs.\r\n
3. BB Inc. believes in its employees’ growth, health and job satisfaction. To promote these values, they paid for the following:\r\n
a. Tuition for an advance Spanish course amounting to $3,400. This will be useful since Rosetta often must deal with clients from Spanish speaking countries.\r\n
b. Tuition of $2,000 for an oil painting class. Mrs. Stone has several hobbies, one of which is painting and drawing.\r\n
c. A gym membership at Gold’s Gym valued at $3,200. Mrs. Stone works out at the gym three times a week with a personal fitness trainer.\r\n
d. During the summer months, Mrs. Stone is expected to meet clients and discuss business at the golf course. She is provided with a golf membership at the Dune’s costing $2,000. Rosetta does not particularly enjoy golfing and only golfs when required for work.\r\n
e. Free healthy meals are provided at the office by a catering service five days a week. BB Inc. must pay the caterer a weekly amount of $180 per employee for this service. Rosetta took advantage of this service for 40 weeks this year.\r\n
f. The following gifts and awards were received by Mrs. Stone this year:\r\n
i. A gold bracelet valued at $1,900 to recognize her outstanding performance.\r\n
ii. A gift certificate of $400 redeemable at the Mall to celebrate her birthday.\r\n
iii. A $300 basket full of high-end chocolate goodies that all employees received in the month of April.\r\n
iv. A $700 baccarat crystal vase to commemorate her 5th year of employment at BB Inc.\r\n
v. A large can of Russian caviar and 6 bottles of fine Russian vodka to mark the holiday season. These items are valued at $1,600.\r\n
vi. Mouse pads, t-shirts and coffee cups with the company logo imprinted on them. The total value of these items added up to $50.\r\n
g. Five years ago, when Rosetta was hired, BB Inc. provided her with stock options allowing her to purchase 3,000 stocks of the company at a price of $33 dollars a share. At the time the options were granted, the stocks had an estimated market value of $37 per share. On March 11th of the current year, when the company stock was estimated to be worth $78 per share, she decided to exercise 1,700 of her options. On November the 9th, 2020, she sold 900 of her shares at a price of $62 per share.\r\n
h. The company provided a BMW to Rosetta that she can use for employment as well as for personal usage. The BMW was purchased by BB Inc. three years ago for $89,000 including all appropriate taxes and fees. On May 31, while driving to Vancouver to visit family, she was involved in a serious car accident on the Coquihalla. The car was totaled, and Mrs. Stone was seriously injured. For the period January 1 to May 31, the car was driven a total of 9,430 kilometers of which 4,200 were for personal reasons. BB Inc. also paid for all of the operating costs for the BMW which added up to $2,559 for the 5 month period. When Mrs. Stone returned to work after two full months of recovery at home, the company provided her with a 2020 Lexus which the company leases on her behalf. The monthly lease costs for the Lexus is $570 which includes $120 of collision and comprehensive insurance. For the period of August 1st to December 31st, Rosetta drove a total of 6,800 kilometers, 3,300 of which were work related. The operating costs for the Lexus amounted to $3,756 and were all paid by BB Inc.\r\n
i. During the two months that Rosetta was disabled and recovering at home, she received a monthly amount of $7,750 from the disability insurance plan. Because Rosetta shares the premium costs with her employer, she has paid $9,350 in premiums over the last five years.\r\n
j. To help Rosetta with the additional expenses that resulted from her serious car injury, on June 1st her employer provided her with a $30,000 interest free loan. She will pay back the loan some time at the end of next year when her finances are back in order. Assume that the prescribed rate of interest was 2% for the first 2 quarters of the year and 2.5% for the last two quarters of the year.\r\n
k. Because Mrs. Stone is required to travel extensively for her work, she was provided with a monthly travel allowance of $2,000. She did not receive the travel allowance for the two months while she was recovering at work. On average, Mrs. Stone’s travel costs usually are close to $2,000 per month. In some months her travel costs may be slightly higher but this is balanced by other months when they are slightly lower. In addition to a travel allowance, Rosetta also receives a clothing allowance of $500 per month, $6000 in total for the year. The company believes that all employees should look professional and expects all personnel to be formally dressed at all times of the working day.\r\n
l. To do her job, Rosetta purchased the following items using her own money. BB Inc. has not reimbursed her for any of these expenses:\r\n
i. iMac Computer$3,400\r\n
ii. Laser Printer$1,250\r\n
iii. Scanner/Photocopier$4,000\r\n
iv. Cell phone$900\r\n
v. Paper for printer and copier$200\r\n
vi. Toner for copier$320\r\n
vii. Other office supplies$180\r\n
m. Mrs. Stone has an office at home that she occasionally uses when she does not feel like driving to work on stormy winter days. The office occupies 15% of her apartment’s floor space. The following monthly apartment costs were incurred by Rosetta:\r\n
i. Rent$2,240\r\n
ii. Heating and Electricity$180\r\n
iii. Tenant insurance$33\r\n
iv. Telephone line/internet$155\r\n
v. Cleaning services$90\r\n
Required:\r\n
1. Calculate Mrs. Stone’s net employment income for the year ended December 31, 2020.\r\n
2. List and explain why you excluded an item from the calculation of employment income.\r\n
3. Calculate any taxable capital gains or allowable capital losses that she will have to report resulting from the disposal of her shares of BB Inc.\r\n
4. Will Mrs. Stone be able to deduct the stock option deduction in calculating her taxable income this year? If so, how much can she claim?\r\n
5. Assuming that Mrs. Stone has no other sources of income other than employment, when will she have to file her 2020 income taxes?\r\n
6. Had Mrs. Stone died in the car accident, what would have been the filing deadline for her 2020 tax return?\r\n
Federal Taxation 2016 Comprehensive
ISBN: 9780134104379
29th edition
Authors: Thomas R. Pope, Timothy J. Rupert, Kenneth E. Anderson