Linda Cadwell has been divorced for several years and has custody of her two children: Rory who is 10 years old in the year and and Jamie who is 6 years old in the year. Neither child had any income in the year.

You are provided with the following information for the year:

1. Mrs. Cadwell is the vice-president for Marketing with A Ltd. which is a public corporation; A Ltd. offered her the following benefits in order to entice her to join its staff in the previous year:

1. Interest-free loan of $75,000, granted on October 10th of the previous year, for the purchase of a new residence in B.C.. Until that date, she had lived in the city of Charlottetown, Prince Edward Island, where she had another job. Assume there are no moving costs to deduct. The conditions of the loan are as follows: principal repayment of $10,000 on June 30 of each year.

Assume that the prescribed interest rate for employees at the time of the loan was 3% and that in this particular year, the prescribed interest rates for loans to employees were as follows:

1st and 2nd quarter 3%

3rd and 4th quarter 4%

2. Stock option to purchase 1,000 common shares, granted on October 10th of the previous year. The option is valid until the end of the current year. It allows for the purchase of 1,000 shares at a price of $13 per share. On Dec. 15th of the year, Mrs. Cadwell exercised the option. The fair market value of the shares at the time the option was exercised was $15 per share. The fair market value of the shares when the option was granted was $12 per share. Assume that Mrs. Cadwell deals at arm's length with A Ltd.

2. Mrs. Cadwell received a T4 slip that made no reference to any amount relating to the above benefits. It contained the following information:

Gross salary

(including various taxable benefits other those specified) $62,969

CPP withheld 1,490

RPP employee portion 1,000

Employment Insurance Premiums withheld 700

Charitable donations 480

Federal income tax deducted 14,000

3. Mrs. Cadwell also received the following amounts in the year:

Support payment for herself ($15,500), Rory and Jamie ($49,500);

(pursuant to a written agreement, both payments are periodic).

Bank interest 1,000

Cash dividends from Cakewalk Inc (a Canadian Controlled Private Corp

which paid tax at the low corporate tax rate) 200

Lottery winnings 1,000

4. She also spent the following amounts:

Total child care expenses paid to daycare

centres and supported by receipts for Rory and Jamie $8,000 Personal clothing to be worn for work when attending

meetings of the board of directors $2,500

5. On January 1st of the year, Mrs. Cadwell purchased a 6-unit rental property (Class 1) for $250,000, including $200,000 for the building and $50,000 for the land. The statement prepared by Mrs.

Cadwell indicates the following:

Rents $ 8,000

Expenses:

• Legal expenses relating to purchase $ 3,000
• Insurance 1,800
• Maintenance and repair 3,200
• Electricity and heating 2,000
• Property taxes 4,000

($14,000)

Rental loss ($ 6,000)

6. On Dec 20 of the year, she sold 1,000 shares of A. Ltd. at $30 per share (see point 1(ii)). She incurred no costs with respect to the sale.

7. Mrs. Cadwell has a non-capital loss carryforward in the amount of $6,000 from the previous year.

REQUIRED:

Calculate Mrs. Cadwell's minimum net income pursuant to the format in Section 3 of the Income Tax Act, taxable income, and net federal income taxes payable for the 2019 year (BC income taxes not required).

Show all calculations and indicate the reason if you are omitting any items in your calculation.

Answer rating: 100% (QA)

SOLUTION TAXABLE BENEFIT IN CASE OF INTEREST FREE LOAN FROM ... View the full answer