Supplementary Self Study Problems, Byrd & Chens Canadian Tax Principles 2021/22 Edition

Chapter 2 Supplementary Self Study Problems

SSS Problem 21

(Individual Income Tax Instalments)

In January 2021, you are asked to provide tax advice to Ms. Leslie Garond. She has provided you with the following information about her combined federal and provincial income taxes payable and the income taxes withheld by her employer for the 2019 and 2020 taxation years:

Year Taxes Payable Taxes Withheld

2019 $22,000 $9,500 2020 18,000 9,700

For 2021, she estimates that her combined federal and provincial income taxes payable will be $14,000 and that her employer will withhold a total of $9,850 in income taxes.

She has asked you whether it will be necessary for her to pay instalments in 2021 and, if so, what the minimum amounts that should be paid are and when they are due.

Required: Advise Ms. Garond as to whether or not she is required to make instalment payments for 2021. If instalments are required, calculate the alternative amounts that could be paid under each alternative. Indicate which alternative would be best and the dates (including the year) on which the payments should be made.

SSS Problem 22

(Individual Tax Instalments)

In January 2021, you are asked to provide tax advice to Mr. Lester Gore. For the three years 2019, 2020, and 2021, he provides the following information on his combined federal and provincial income taxes payable, along with information on withholdings by his employer:

Year Taxes Payable Taxes Withheld

2019. $15,000 $11,500
2020. 10,800 11,750
2021. (Estimated) 17,000 13,000

He has asked you whether it will be necessary for him to pay instalments in 2021 and, if so, what is the minimum he has to pay and when.

Required: Provide the information requested by Mr. Gore. Your answer should include a conclusion on whether or not instalments are required. If instalments are required, indicate the alternative amounts that could be remitted under each alternative, the best alternative to use, and the dates on which the instalments should be paid.

Supplementary Self Study Problems, Byrd & Chens Canadian Tax Principles 2021/22 Edition

SSS Problem 23

(Individual and Corporate Income Tax Instalments)

For the taxation year ending December 31, 2019, the taxpayers combined federal and provincial income taxes payable amounted to $93,000, while for the taxation year ending December 31, 2020, the amount payable was $108,000. It is estimated that federal and provincial taxes payable for the year ending December 31, 2021, will be $82,500.

Case A The taxpayer is an individual whose employer withholds combined federal and provincial taxes of $86,700 in 2018, $109,500 in 2019, and $79,200 in 2020.

Case B The taxpayer is an individual whose employer withholds combined federal and provincial income taxes of $91,500 in 2019, $98,700 in 2020, and $78,300 in 2021.

Case C The taxpayer is a small CCPC with a December 31 year end.

Case D The taxpayer is a publicly traded corporation with a December 31 taxation year end. Assume that its combined federal and provincial income taxes payable for the taxation year ending December 31, 2019, were $78,100, instead of the $93,000 given in the problem.

Required: For each of the preceding independent Cases, provide the following information:

1. Indicate whether instalments are required during the taxation year ending December 31, 2021, including a brief explanation of your conclusion. This explanation should be provided even if the amount of the required instalments is nil.
2. Calculate the amount of instalments that would be required under each of the alternatives.
3. Indicate which of the alternatives would best serve to minimize instalment payments during 2021. If instalments must be paid, indicate the date, including year, on which they are due.

SSS Problem 24

(Instalments, Interest, and Penalties for Corporations)

The taxation year of the Sloan Company, a public company, ends on October 31. During the taxation year ending October 31, 2019, its federal income tax payable amounted to $168,000, while for the taxation year ending October 31, 2020, the federal income tax payable were $153,000. It is estimated that federal income taxes payable for the taxation year ending October 31, 2021, will be $144,000.

Required:

1. Calculate the instalment payments that are required for the taxation year ending October 31, 2021, under each of the three alternatives. Indicate which of the alternatives would be preferable.
2. If the company did not make any instalment payments toward its 2021 income tax payable and did not file its corporate income tax return or pay its income taxes payable on time, indicate how the interest and penalty amounts assessed against it would be determined (a detailed calculation is not required).

Supplementary Self Study Problems, Byrd & Chens Canadian Tax Principles 2021/22 Edition

SSS Problem 25

(Tax Preparers Penalty)

For each of the following independent Cases, indicate whether you believe a penalty would be assessed against the tax return preparer under ITA 163.2. Explain your conclusion.

1. Accountant X is asked by Client A to prepare an income tax return including a business financial statement to be used in the return. In response to a request by Accountant X for business related documents, Client A supplies information to Accountant X, which includes a travel expense receipt. Accountant X relies on this information provided by Client A and prepares the business statement that is filed with the return. The CRA conducts a compliance audit and determines that Client As travel expense was a nondeductible personal expense.
2. Accountant X has several clients that have been reassessed in respect of a tax shelter. Accountant X knows that the CRA is challenging the income tax effects claimed in respect of the tax shelter that is based on a significant overvaluation of the related property, and is technically deficient in its structure. The Tax Court of Canada, in a test case (general procedures), denies deductions claimed in respect of the tax shelter in a previous year by Client B (a client of Accountant X). Client Bs appeal is dismissed. The case is not appealed, and Accountant X is aware of the courts decision. Accountant X prepares and files an income tax return on behalf of Client C that includes a claim in respect of the same tax shelter that the Tax Court denied deductions for.
3. Taxpayer Z approaches Tax-preparer X to prepare and EFILE Zs income tax return. Taxpayer Z provides X with a T4 slip indicating that Z has $32,000 of employment income. Taxpayer Z advises X that he made a charitable donation of $24,000 but forgot the receipt at home. Z asks that X prepare and EFILE the tax return. In fact, Z never donated anything to a charity. X prepares Zs income tax return without obtaining the receipt.