QUESTION #3(25 MARKS)

Your client, Dr. Miranda Steels, 66 years old, has brought you the following information for the preparation of her 2021 income tax return:-

Gross Salary.................................................................................$120,000

Canada Pension Plan Contributions...........................................(2,166)

Employment Insurance Contributions......................................... ( 800)

Income taxes withheld................................................................(15,000)

Adiitiona Information

i. Pension income received from a registered pension plan .................$42,000

ii. Rental Property loss excluding capital cost allowance.......................... $10,000

iii. Dividends from Canadian public corporations ..........................................$9,000

iv. Interest from other investments...................................................................$6,000

v. Dr. Miranda Steels separated from her husband in January of 2021. The couple has one daughter Gillian, eight years old who is disabled. In the divorce settlement, the Court ruled that the family home should be sold and any gains divided equally. In March of 2021, the home was sold for $1,200,000. The home was bought in 2017 for $950,000. Real estate commission and other expenses related to the sale was $15,000.

vi. Mrs. Steels made $10,000 contribution to her RRSP in 2021. Her earned income in 2020 was $110,000. She did not contribute to a Registered Pension Plan in 2020 but had unused deduction room from previous years of 20,000.

vii. In 2021, she made $2,000 contributions to the Salvation Army and $800 contribution to Federal Political Parties.

viii. She incurred the following medical expenses:-

Dental bills for her Gillian..................................$10,000

Eyeglasses for herself..........................................$1,000

Premiums paid for private health plan..............$ 800

Physiotherapy for herself.....................................$ 720

ix. She had the following loss carryovers from previous years:-

Net Capital loss.........................$5,000

Non Capital loss......................$12,000

Required:-

Compute Mrs Steels 2021, Federal Income Taxes Payable.

APPENDIX #1

2021 Federal Income Tax Brackets

Taxable Income Tax

$49,020 or less......................................................................................15%

in excess of $49,020.............................................................................$7,353 *+ 20.5% on next $49,020

in excess of $98,040.............................................................................$17,402 ** + 26% on next $53,938

in excess of $151,978............................................................................$31,426 ***+29% on next $64,533

in excess of $216,511............................................................................$50,141+33% on the remainder

------------------------------------------------------------------------------------------------------------------------------------------

*Computed as 15%*$49,020=$7,353

**Computed as $7,353 + 20.5% of $49,020=$17,402 (rounded)

***Computed as $17,402 + 26% of $53,938 =$31,426 (rounded)

****Computed as $31,426 +29% of $64,533=$50,141 (rounded)

2

Non-Refundable 2020 Tax credits

Dollar Base Rate Threshold

Basic Personal ...............................................................................13,808 ** 15 $151,978

(If income is above threshold the credit is reduced to $12,421)

Spouse or Equivalent................................................ . ...................13,808 ............ 15 $151,978 Spouse orEquivalent....................................................................................12,141..............15 $216,151

Canada Caregiver ..............................................................................7,348 .............15 $17,256

Age credit.............................................................................................7,713 ..............15............(adjusted by the of Division B income over $38,893)

Pension income....................................................................................2,000..............15

(In this case a choice is made between the $2000 and the lesser of the pension income)

Canada employment amount......................................................... ...1,257 ..............15

Adoption expense amount.................................................................16,729.............15

Home accessibility tax credit.............................................Up to.......10,000 .............15

First time home buyers tax credit...................................................5,000...............15

Volunteer firefighters tax credit...........................................................3,000...............15

Search and Rescue volunteers tax credit.............................................3,000...............15

CPP(maximum)..................................................................................Amount paid...15

EI(maximum)..........................................................................................Amount paid..15

Pension................................................................................................2,000 .... 15

Mental or physical impairment amount...............................................8,662 ...............15

Tuition amount................................................................Amount paid(can be transferred to a dependent or spouse)

Medical expenses............................................................Actual Medical Expenses :-

LESS:-Lesser of:-

1. $2,421
2. 3% of Division B Income

Charitable donations...........................................................200..................15 then 29% on amounts over $200

Interest paid on student loans........................................15% of actual

Dividend Tax Credit...............................6/11 of grossed up dividends for public corporations with gross up of 38% and 9/13 for CCPC with gross up of 15%

(An election can be made to transfer this credit to a spouse)

Digital News subscription credit is 15% for up to $500 subscriptions

Foreign Tax Credit.................................Lesser of:-

i. non-business income tax paid to a foreign country

ii. Net non business foreign income

divided by total Division B income times

This number times tax for the year for Part 1 taxes

Contribution Credit

$400 or less..............................................................75% of contribution

More than $400 but not more than $750................$300+50% of contribution over $400

More than $750, but not more than $1275.......... $475+one-third of contribution over $750

More than $1275...........................................................$650

Any individual can transfer to the spouse any unused credits of:-

i. Tuition

ii. Age

iii. Pension

iv. Mental or physical impairment

Tax o Old Age Security Benefits.:-

Every resident in Canada is entitled to receive Old Age Security Benefits from the Federal Govt., once that resident is 65 years old. This amount received is clawed back(repayment to the Federal Govt.) at the end of the year depending on the Division B income of that person.

The Clawback is calculated as:-

Lesser of:-

i. Old Age Security Benefits received ........................................ $xxx

ii. Division B Income less $79,845. If there is an excess 15% of this amount reduces the benefit.