Jean Walls owns a scuba-diving business (sole proprietorship) in Prince Rupert, BC. She is 45 years
Question:
Jean Walls – owns a scuba-diving business (sole proprietorship) in Prince Rupert, BC. She is 45 years old, married and has 2 kids (age 13 & 16). Her husband – Jack – is a local painter and poet and has Net Income for Tax Purposes of $7,500 from his painting and poetry business in 2019.
Jean has a background in accounting and prepares her financial statements in accordance with GAAP. Her net income for accounting purposes was $122,000 in 2019 and included the following:
- $ 4,000 gain on the sale of boat used in her business
- $18,000 meals and entertainment expenses
- $12,000 amortization
- $ 3,000 for a holiday retreat for her and Jack to celebrate their anniversary.
- $ 5,000 in penalties from the ministry of fisheries and wildlife
Her UCC balances at the beginning of 2019 were as follows:
- Class 7: $45,000
- Class 8: $20,000
During 2019 her business had the following capital transactions:
- She purchased some scuba diving equipment for $15,000
- She sold her old boat for $47,000. It had a net book value of $43,000 and originally cost $50,000.
- Purchased her new boat (imported from the U.S.A.) for $65,000
- She sold all of the class 8 items during the year for $9,000.
She is calculating the employment income for her only employee (“Sal Teephish”). Sal received the following from the business during the year:
- $45,000 gross salary
- $700 prepaid visa gift card as a reward for being an employee for 10 years.
- $600 tuition paid for an advanced scuba diving instructor course
Other activity in the year
- She received a $6,000 non-eligible dividend during the year.
- Her kids go to a 2-week poetry and painting camp each summer. This year, the camp cost $600 per week for each child.
- She gave a $700 charitable donation to Greenpeace. She donates to Greenpeace every year.
- She paid $8,000 in federal income tax instalments to CRA during the year.
- She has a $5,000 net capital loss available from a bad investment in 2016.
Requirements
- Using S(3) format calculate Jean’s net federal tax payable for the year
- Calculate Sal’s employment income for the year (including any benefits)
- Clearly state any other issues you can think of (tax planning, additional information needed etc.)
Financial Management Principles and Applications
ISBN: 978-0133423822
12th edition
Authors: Sheridan Titman, Arthur Keown, John Martin