Supplemental Assignment $3\mathrm{.}1$: Finding Net Income

Question $1$

Read the following scenario:

Carl Black is a Canadian citizen who was born in Canada and has lived in Canada continually up to the current year. He owns a condominium in Toronto, which he purchased five years ago.

$$ On August $4$ of the current year, he gets married to Mary Matheson, an American $($U$.$S$.)$ citizen. Shortly after he gets married, Carl sells his condominium in Toronto and, on August $31,$ he terminates his employment in Toronto.

$$ On September $15$ of the current year, Carl moves to New York and settles into a home with Mary. Carl has difficulty finding a job and does not commence employment in New York until March $1$ of the following year.

$$ Carl has an investment account in Toronto, which he continues to hold after moving to New York; he earns investment income $($dividend and interest$)$ in the current year.

Answer the following:

$1.$ Explain the difference between deemed resident, ordinarily resident, and non$-$resident, for an individual.

$2.$ An individual who is ordinarily resident can be a part$-$time resident or a full$-$time resident. Explain the difference. Give an example of a part$-$time resident and an example of a full$-$time resident.

$3.$ Determine the resident status of Carl Black for the current year $($i$.$e$.,$ deemed resident, ordinarily resident $\{$full$-$time or part$-$time$\},$ or non$-$resident$).$ Give detailed reasons for your answer, with appropriate references to the Income Tax Act of Canada.

$4.$ What is Carl$$s liability for income tax in Canada in the current year? Be specific and give reasons for your answer.

Question $2$

Read the following scenario:

Michael Landon personally carries on two separate businesses $($proprietorships$)$ and he is also employed on a part$-$time basis by Tell Telephones Ltd$.$ Michael has an investment account at Merrill Lynch$.$ He provides you with the following information for the current taxation year:

Income:

Interest income earned from term deposits $($S $12(1)($c$))$ $$4,250$

Dividends $($taxable amount$)$ from shares $($Merrill Lynch investments$)($S $12(1)($j$))10,500$

Income $($sales$)$ from Business A $($S $9)81,600$

Income $($sales$)$ from Business B $($S $9)125,500$

Salary earned, Tell Telephones Ltd$.($S $5)12,500$

Losses, deductions, and expenses:

Expenses $($allowed$)$ from Business A $($S $9$ to $37)$ $$90,050$

Expenses $($allowed$)$ from Business B $($S $9$ to $37)45,200$

RRSP contribution $($allowable per S $60($i$))10,000$

Childcare expenses $($allowed per S $63)5,200$

Spousal support payments $($allowed per S $60)12,000$

Interest expense on loan, funds invested in Merrill Lynch account $($S $20(1)($c$))3,500$

Investment counsel fees paid to a financial planner $($allowed per S $9)350$

Union dues $($S $8(1)($i$))500$

Michael also advises you that he disposed of some shares in his Merrill Lynch account, and realized the following capital gains and losses in the current year:

Taxable capital gain on disposition of $100$ Telus$*$ shares $1,200$

Allowable capital loss on disposition of $200$ Atco$*(2,000)$

$*$ Telus and Atco are both Canadian public corporations

Answer the following:

$1.$ Based on the above information, compute Michael Landon$$s net income for the current year in accordance with Section $3$ of the ITA $($i$.$e$.,$ use the Section $3$ format$).$