Sam is 39 and has been married to Tammy for 13 years. They have two healthy children, 10-year-old Ryan, and 6-year-old Zoe. Ryan earned in 2019, $1400 doing little part-time jobs. During 2019 Sam volunteered 300 hours in search and rescue and was not paid for this volunteer work.

Sam is the sole proprietor of an accounting business with a December 31 year end. In 2014, when he opened his business, he purchased a new Class 1 office building for $750,000, that included $180,000 worth of land value. Sam uses all of the building for his business. On January 1, 2019, the building had a UCC of $431,676.

In March 2019 Sam purchases $204,000 worth of furniture. He sells the old furniture for $31,000. The old furniture had an ACB of $93,000 and a UCC of $34,284. Sam also purchases a computer for $1,200, applications software for $2,044, and a client list from another accounting firm for $41,000.

Sam uses a car for business. On January 1, 2019 he purchases a new car for $42,000. During the year, he drove it a total of 32,000 kilometers, with 29,000 kilometers of those kilometers related to his business. The car’s operating costs for the year totaled $4,800.

Other costs Sam incurred in 2019, (on an accrual basis) are building operating costs $24,300, staff wages $42,000, miscellaneous office costs $17,500, and meals with clients $15,300.

During 2019 Sam provided his clients with services worth $345,000. On January 1, 2019 his billed AR was $92,000, with this balance increasing to $105,000 by December 31, 2019. His unbilled receivables on January 1, 2019 were $71,000 and increased to $82,000 on December 31, 2019.

Tammy works for a large Canadian public company. Her 2019 salary is $62,000. Tammy’s employer matches Tammy’s Registered Pension Plan Contribution. Her employer withheld the following amounts from her pay cheque:

Registered Pension Plan Contributions $2,500

EI Premiums 860

CPP Contributions 2,749

Tammy is required to travel for employment. She uses her own car for employment. She purchases a car on January 1, 2019 for $38,000. During 2019, she drove a total of 36,000 kilometers, of that 31,500 kilometers were for employment. The car’s operating costs were $3,465. In addition, Tammy’s other travel costs are hotels $3,200 and money spent on food during out of town trips of $1,300. Tammy’s employer provides her with an allowance for hotels and food $4,400, and to compensate her for the personal use of her car of $100 a week for a total of $5,200.

While Tammy has no investments, Sam has Mutual Fund (trust investments) of over $500,000. During 2019, the investment trust distributed $36,960 as:

Capital Gains $22,960

Eligible Dividends 8,500

Interest Income 5,500

Total $36,960

Both Sam and Tammy have RRSPs. At the beginning of 2019, Sam’s RRSP had $11,000 in unused deduction room and $13,000 in undeducted contributions. During 2019, he contributes $22,000 to his RRSP. Sam’s earned income for 2018 was $123,000. He plans to take the maximum deduction available.

However, in December 2016, Sam withdrew $25,000 from his RRSP under the Home Buyers’ Plan. In January 2017, he used this $25,000 to purchase a new home. Because he was able to purchase the home for a lower price than he had anticipated, in 2017 he repaid $10,000 of the Home Buyers’ Plan balance. He has not made any repayment to the Home Buyers’ Plan during either 2018 or 2019.

At the beginning of 2019, Tammy had $7,000 of unused deduction room in her RRSP. She has been able to deduct all of the contributions she had made in previous years. In February 2017, Sam contributed $5,000 into Tammy’s RRSP and deducted it on his 2016 return. He has not made any additional contributions to Tammy’s plan because of the income attribution rules related to RRSPs. In December 2019, Tammy withdraws $7,000 from her RRSP to loan to her brother. In February 2020, her brother pays her back the $7,000, along with a gift of $5,000 for being such a great sister. Tammy immediately puts the $7,000 back into her RRSP. Tammy’s earned income for 2018 was $51,000. Her employer reported a pension adjustment for that year of $4,800. She plans to take the maximum deduction available.

In addition, at the beginning of 2019, Tammy’s employer increases the RPP defined benefit formula for the company’s retirement plan. Previously, the benefit was based on 1.5 percent of pensionable earnings for each year of service. The new agreement calls for a benefit based on 1.75 percent of pensionable earnings for each year of service. This change will be applied retroactively. Tammy has been a member of the plan since 2016. Her pensionable earnings during those years are as follows:

Year Pensionable Earnings

2016 $40,000

2017 45,000

2018 48,000

Sam paid the following medical bills for 2019:

Sam’s Hair Replacement $6,800

Tammy’s Prescription Glasses 850

Tammy’s Teeth Whitening 950

Ryan’s Prescription Glasses 350

Ryan’s Psychologist 1,500

Zoe’s Physiotherapy 725

Total $11,175

Sam and Tammy will allocate tax credits between them to minimize the family’s income tax bill. Where either spouse can claim the credit and it makes no difference in the combined tax payable, Sam will claim the credit.

Required: 

A. Determine Tammy’s Net Income, Taxable Income, and Taxes Payable/Refund for 2019.

B. Determine Sam’s Net Income, Taxable Income, and Taxes Payable/Refund for 2019.

Employment Income
Gross wage	62,000
RPP Contributions	-2,500
Net emplpyment income	59,500
Property income
Eligibile Dividends received	8,500
Gross-up of elgible dividens (38%)	3230
Interest	5,500
Property income:	17,230
Net business Income?

Answer rating: 100% (QA)

ANSWERS A Determine Tammys Net Income Taxable Income and Taxes PayableRefund for 2019 Tamm... View the full answer