Question 3 (15 marks)

Joey Thumbs has had a very busy year. In January of 2019 he came across $1,000,000 and decided to invest the entire amount in various sources. Below is a summary ofJoeys investments for 2019:

• January 1st, Joey invested $250,000 in a 5-year interest-bearing bond. The annual rate is 7% and payments are due December 31st of each year. As of January 5th Joey had not received his interest payment and was thinking of paying his friends a visit to see where his cash was.

• Helping out a buddy, Frankie Knuckles, who was short on cash, Joey purchased a bond from him. The bond had a face value of $50,000. The annual interest rate was 6% and paid interest on June 30th and December 31st. The bond expired December 31, 2019. Joey purchased the bond on April 30, 2019. (Assume Frankie Knuckles has a passion for accounting and charged Joey a fair amountusing the accrued interest method.)

• Joey invested $50,000 in a CCPC that was in the business of producing, the finest gin in all of the land. The gin is sold at a premium of $70.00/bottle or $800for a case of 12. All of the companys top-shelf investors, of which Joey wasnow one, had the same shareholder agreement: Each was promised 1 case of their top gin each year and a dividend equal to 2.5% of their investment annually. True to their word, the company delivered the cheque for his dividend and the case of gin on December 31st 2019, just in time for Joeys New Years Eve party.

• Joey invested $50,000 in Shopify (a Canadian public company) because he is shrewd and understands that the brick and mortar store is in decline and digital platforms supporting an on-line presence are a necessary component of the new economy. He received a dividend in 2019 of $760.

The vast majority of Joeys money was invested in a rental property. Joeypurchased an apartment building to rent out to his friends who needed a place to hide out stay while their houses were under surveillance construction etc. Purchased on March 1, 2019, the place was full for most of the year. Being a law-abiding citizen, Joey kept excellent records of his rental income and expenses. They are listed below:

o Rental Revenue (gross)o Utilities o Property Insurance o Cleaning services

o Property Taxes o Salary of apartment manager (his cousin Vinny) o Furniture to furnish rooms o Net Income from Rental Property $( 59,560)

The apartment building cost $600,000 and was built in 2015. The real estate appraisal suggested that the land was worth $105,000 and the building was worth $495,000 at the date of purchase.

Required It is January 5, 2020, and wanting to keep ahead of the feds Joey wants to file his

taxes ASAP. He has asked for your help in calculating his Income from Property.

1. a) Assuming Mr. Thumbs wants to minimize his tax burden, calculate his Income from Property for 2019. Show all calculations and state any assumptions made. (13 marks)

2. b) If there are any tax credits associated with any of the above items, calculate what those would be. Show all calculations. (2 marks)