Martin Jones and his wife, Sally, are both 68 years of age. Sally received OAS payments o $7,400 during 2020. In addition to her OS benefits, Sally earns interest of $43,000 during 2020.

The investments that provide this interest were inherited from her mother. Because of a serious accident several years ago, Sally qualifies for the disability tax credit.

During 2020, Martin receives an annual pension benefit from his former employer of $124,000.

This is his only source of income other than the OS payments described in Scenario 2 below.

Scenario 1

Martin prepares his and Sally's tax returns and does not split his pension income. Martin has never applied for OS payments, thinking that they would simply be clawed back by the government because of his ongoing high level of income.

Scenario 2 An accountant prepares Martin and Sally's tax returns and splits Martin's pension income, with $62,000 going into each of their tax returns. Martin applied for OAS as soon as he turned 65 and received $7,400 in OAS benefits in 2020.

Neither Martin nor Sally are eligible for any tax credits other than the basic personal credit, the age credit, the pension income credit, and the disability tax credit. Further, they have no deductons that will be used in the determination of Taxable Income,

Required:

A. Calculate the amount of Net Income For Tax Purposes and Taxable Income for both Martin and Sally under each of the two scenarios

B. Based on your figures from Part A, calculate the amount owing to the CRA for both Martin and Sally under each of the two scenarios. Provide a comparison of the amounts owing under the two alternatives.

Answer rating: 100% (QA)

A Calculate the amount of Net Income For Tax Purposes and Taxable Income for both Martin and Sally u... View the full answer