Malaya Redfield is a salesperson for Ludicris Lollipop Ltd., a Canadian public corporation. The company produces various sweets such as candy and chocolate bars.

It has been a stressful time for Malaya these last 18 months. In the summer of 2020, her spouse passed away. Malaya has two children: Ryan who is 13 and Julie who turned 18 on April 30, 2021.

Malaya's 2021 employment contract states that she will be paid an annual base salary of $50,000 plus a commission of 1.5% of her annual cash sales. Her 2020 sales totaled $3,200,000, with $200,000 of this total collected by the company in 2021. Her 2021 sales amounted to $2,800,000, but the company had yet to collect $300,000 of these by December 31, 2021.

In 2021, her employer paid Malaya her base salary plus her commission income. A review of her last pay stub for 2021 reveals the following was withheld from her salary for the year:

Contributions to the Company RPP $3,000

CPP Contributions 3,166

EI Premiums 890

Premiums for the Company's Dental and Health Plan* 1,500

Federal Income Tax Withheld 15,000

* The plan is funded 50/50 by the employees and the employer and is a Private Health Services Plan.

Malaya is covered by the company's group term life insurance. Her coverage is equal to her annual base salary. The company pays a premium of $5 for every $1,000 of coverage to the Sweet Life Insurance Company.

In January of 2021, Malaya detected a packaging problem with a particular line of candies before these were to be shipped. Her keen eye saved the company an estimated $360,000 in product recalls. This helped her win the employee of the year reward of an iPad2 which cost the company $900.

In September of 2020, her employer transferred her from Montreal to Toronto. She thought the change would be beneficial after the death of her spouse a few months earlier. Her employer paid for all her moving expenses. Unfortunately, due to the quick sale of her Montreal home, she incurred a $30,000 loss on its sale. Ludicris Lollipop agreed to reimburse her $20,000 of the $30,000 loss, but only in January of 2021. The $20,000 was actually received on January 14, 2021.

In April of 2020, Malaya's employer granted her the right to purchase up to 5,000 shares of the company for $17 per share under the employee stock option plan. At the time the option was granted, the shares were trading for $15. On February 1, 2021, when the shares were trading at $20 per share, she exercised her option on 3,000 shares. She sold 2,000 shares at $22 per share with a settlement date of December 30, 2021.

In order to purchase the 3,000 shares, Malaya negotiated an interest free loan from her employer for the purchase price. The loan was received on February 1, 2021. Malaya repaid the loan in full on December 31, 2021.

Throughout 2021 her employer provided her with an automobile, which it leases for $450 per month. The automobile was available for her personal use. During the year, Malaya drove a total of 35,000 kilometers, 8,000 of which were personal and 27,000 of which were for employment purposes. Except for $2,200 of car insurance, Ludicris Lollipop did not pay for any of her automobile operating expenses as these were Malaya’s responsibility.

Malaya is responsible for her salesperson expenses (including the automobile operating expenses). During the year she incurred the following:

Total Automobile Expenses (Excluding Insurance) $5,400

Meals and Entertainment with clients (not billed to clients) 2,600

Hotels 1,500

Malaya is a member of the Confectioners’ Association of Canada, a professional association. Her annual membership dues are $1,400.

Malaya meets all of the conditions of ITA 8(1)(f) (deductible salesperson expenses).

Malaya has a sideline business which she carries on as a sole proprietor. The business is called The Cup Cake Diva. She started her business venture a few years ago and has continued it in Toronto. Malaya prepares and sells cupcakes and other pastries from her home. Most of her sales are made for social events which are typically held on weekends.

Malaya provides you with the following information for 2021 with respect to her business:

Sales Revenues $40,000

Supplies (Flour, Sugar, Boxes, Etc.) Purchased 12,000

Purchase of New Commercial Oven

(For Business use only) 2,200

Purchase Of New Automobile For Cash 39,000

Automobile operating expenses 3,000

With respect to the supplies, she had an opening inventory of $1,600. On December 31, 2021 the inventory of supplies was $900.

Early in January, 2021, Malaya sold her old automobile for $12,000. It had cost $35,000. Both the old and the new automobiles were used exclusively for her business. Any personal use is limited to the employer provided automobile.

Her daughter Julie helps in the business. She is making the deliveries to practice her driving and shows real aptitude for dealing with clients. Malaya has not offered her any monetary compensation as Julie is just happy to be driving a new car at this point in time.

Malaya uses 20% of the livable space in her home for the business. Her 2021 household expenses include the following:

Utilities $5,400

Property Taxes 3,800

Maintenance 1,600

Dedicated Phone Line for the business 800

Home Insurance 1,900

Mortgage Interest 12,300

The UCC balances at January 1, 2021 are as follows:

Class 8 $3,100

Class 10.1 9,000

Malaya does not claim CCA on her home as she realizes that if she did, this would result in future recapture and capital gains principal residence implications.

Assume the prescribed rate for benefits during all four quarters of 2021 is 1%.

Required:

A. Determine Ms. Redfield’s minimum:

1. 2021 Net Income,

2. 2021 Taxable Income,

Answer rating: 100% (QA)

A1 2021 Net Income Salary Income Base Salary 50000 Commission Income 43000 320... View the full answer