Tax Software AP 4-2 This problem is continued in Chapter 11. DISCLAIMER: All characters appearing in this problem are fictitious. Any resemblance to real persons, living or dead, is purely coincidental. George Pharmacy is a pharmaceutical sales rep who has been very successful at his job in the last few years. Unfortunately, his family life has not been very happy. Three years ago, his only child, Anna, was driving a car that was hit by a drunk driver. She and her husband were killed and their 14-year-old son, Kevin, was blinded in the accident. He also suffered extensive injuries to his jaw that have required major and prolonged dental work. George and his wife, Valerie, adopted Kevin. Valerie quit her part-time job to care for him. She also cares for her mother, Joan Drugstore, who lives with them. Joan suffers from dementia, Parkinson's, and severe depression. The family doctor has signed a letter stating that she is dependent on George and Valerie because of her impairments. Joan does not meet the resi- dency requirements necessary to qualify for Canadian OAS payments. Valerie's parents separated two years ago in Scotland after her father, David Drugstore, suf- fered enormous losses in the stock market. They were forced to sell their home and David moved to Chile. David phones periodically to request that money be deposited in his online bank account. George's brother, Martin, completed an alcohol rehabilitation program after being fired for drink- ing on the job. He is also living with George and Valerie while he is enrolled as a full-time student at Western University. George is paying his tuition, and Martin has agreed to transfer any available education-related amounts to George. Although Martin plans to file his 2020 income tax return, he has not done so yet. Kevin is taking several undergraduate psychology courses at Western University. After hearing a talk given by an expert blind echolocator (a person who uses sound to locate objects), his goal is to become a researcher at the Brain and Mind Institute and study the use of echolocation. Kevin has agreed to transfer the maximum tuition credit to George. Other information concerning George for 2020 is provided on the following pages. Required: With the objective of minimizing George's tax payable, prepare the 2020 income tax return of George Pharmacy using the ProFile tax software program assuming Valerie does not file a tax return. List any assumptions you have made and any notes and tax planning issues you feel should be placed in the file. Ignore HST implications in your solution by assuming that George does not qualify for the GST/HST rebate. Personal Information Title First Name Last Name SIN Date of Birth (Y/M/D) Marital Status Canadian Citizen? Provide Information to Elections Canada? Own Foreign Property of More than $100,000 Canadian? Taxpayer Mr. George Pharmacy 527-000-509 1956-07-02 Married Yes Yes No Taxpayer's Address 123 ZZZ Street, London, Ontario, NOZ OZO Phone number (519) 111-1111 Family Members First Name Last Name SIN Date of Birth (Y/M/D) Net income Spouse Valerie Pharmacy 527-000-483 1955-12-30 $6,520 in CPP Child Kevin Pharmacy 527-000-517 2004-10-17 Nil Mother-in-Law Joan Drugstore None 1935-02-24 $500 Family Members First Name Last Name SIN Date of Birth (Y/M/D) Net income Father-in-Law David Drugstore None 1936-01-12 Brother Martin Pharmacy 527-000-533 1973-06-02 $8,300 Nil During September, David was arrested in Chile. Valerie had to spend three weeks in Chile and pay $2,000 in bribes before she could get him released from jail. George had to pay Nannies On Call $3,500 for in-home help to take care of Kevin while she was gone. Box Amount T2202A (Martin) Tuition fees for Martin Pharmacy (brother) Number of months in school-part time Number of months in school-full time A B 8,000 0 8 Box Amount T2202A (Kevin) Tuition fees for Kevin Number of months in school-part time Number of months in school-full time A B 3,600 8 O 0 0 Donor Valerie George Charitable Donation Receipts Mothers Against Drunk Drivers (MADD) Canadian Institute for the Blind (CNIB) Am't 1,000 3,000 14 16 18 22 T4 Box Amount Issuer-Mega Pharma Inc. Employment income 378,000.00 Employee's CPP contributions 2,898.00 Employee's El premiums 856.36 Income tax deducted 114,000.00 Employment commissions 42 82,000.00 Charitable donations 46 400.00 During 2020, Mega reimbursed George $3,788 for meals and entertainment with clients, $2,268 for hotels, and $4,925 for airline tickets. In addition to George's salary, he also earns commissions. His employer requires him to have an office in his home and has signed the form T2200 each year to this effect. On October 1, 2020, George purchased a new computer and software that will be used solely in his home office for employment-related uses. The computer cost $3,600 and the various soft- ware programs cost $1,250. 650 House Costs Area of home used for home office (square feet) Total area of home (square feet) Telephone line including high speed internet connection Hydro Insurance-House Maintenance and repairs Mortgage interest Mortgage life insurance premiums Property taxes 5,000 620 3,200 4,000 3,800 6,200 400 6,700 (Y/M/D) Patient 2020-12-31 George 2020-08-31 George 2020-09-19 George 2020-11-07 Valerie 2020-06-07 Joan 2020-03-22 David 2020-12-20 Martin 2019-10-01 Kevin Medical Expenses Johnson Inc. Dr. Smith Optician Pharmacy Dr. Wong Tropical Disease Centre Dr. Walker Dr. Takarabe Description Am't Out of Canada insurance 731.00 Dental fees 155.40 Prescription glasses 109.00 Prescription 66.84 Psychiatric counselling 2,050.00 Prescription 390.00 Group therapy 6,000.00 Orthodontics and dental 30,000.00 George paid $800 for the care and feeding of Kevin's seeing eye dog, Isis, during 2020. George's 2020 RRSP deduction limit is $285,550. Tax Software AP 4-2 This problem is continued in Chapter 11. DISCLAIMER: All characters appearing in this problem are fictitious. Any resemblance to real persons, living or dead, is purely coincidental. George Pharmacy is a pharmaceutical sales rep who has been very successful at his job in the last few years. Unfortunately, his family life has not been very happy. Three years ago, his only child, Anna, was driving a car that was hit by a drunk driver. She and her husband were killed and their 14-year-old son, Kevin, was blinded in the accident. He also suffered extensive injuries to his jaw that have required major and prolonged dental work. George and his wife, Valerie, adopted Kevin. Valerie quit her part-time job to care for him. She also cares for her mother, Joan Drugstore, who lives with them. Joan suffers from dementia, Parkinson's, and severe depression. The family doctor has signed a letter stating that she is dependent on George and Valerie because of her impairments. Joan does not meet the resi- dency requirements necessary to qualify for Canadian OAS payments. Valerie's parents separated two years ago in Scotland after her father, David Drugstore, suf- fered enormous losses in the stock market. They were forced to sell their home and David moved to Chile. David phones periodically to request that money be deposited in his online bank account. George's brother, Martin, completed an alcohol rehabilitation program after being fired for drink- ing on the job. He is also living with George and Valerie while he is enrolled as a full-time student at Western University. George is paying his tuition, and Martin has agreed to transfer any available education-related amounts to George. Although Martin plans to file his 2020 income tax return, he has not done so yet. Kevin is taking several undergraduate psychology courses at Western University. After hearing a talk given by an expert blind echolocator (a person who uses sound to locate objects), his goal is to become a researcher at the Brain and Mind Institute and study the use of echolocation. Kevin has agreed to transfer the maximum tuition credit to George. Other information concerning George for 2020 is provided on the following pages. Required: With the objective of minimizing George's tax payable, prepare the 2020 income tax return of George Pharmacy using the ProFile tax software program assuming Valerie does not file a tax return. List any assumptions you have made and any notes and tax planning issues you feel should be placed in the file. Ignore HST implications in your solution by assuming that George does not qualify for the GST/HST rebate. Personal Information Title First Name Last Name SIN Date of Birth (Y/M/D) Marital Status Canadian Citizen? Provide Information to Elections Canada? Own Foreign Property of More than $100,000 Canadian? Taxpayer Mr. George Pharmacy 527-000-509 1956-07-02 Married Yes Yes No Taxpayer's Address 123 ZZZ Street, London, Ontario, NOZ OZO Phone number (519) 111-1111 Family Members First Name Last Name SIN Date of Birth (Y/M/D) Net income Spouse Valerie Pharmacy 527-000-483 1955-12-30 $6,520 in CPP Child Kevin Pharmacy 527-000-517 2004-10-17 Nil Mother-in-Law Joan Drugstore None 1935-02-24 $500 Family Members First Name Last Name SIN Date of Birth (Y/M/D) Net income Father-in-Law David Drugstore None 1936-01-12 Brother Martin Pharmacy 527-000-533 1973-06-02 $8,300 Nil During September, David was arrested in Chile. Valerie had to spend three weeks in Chile and pay $2,000 in bribes before she could get him released from jail. George had to pay Nannies On Call $3,500 for in-home help to take care of Kevin while she was gone. Box Amount T2202A (Martin) Tuition fees for Martin Pharmacy (brother) Number of months in school-part time Number of months in school-full time A B 8,000 0 8 Box Amount T2202A (Kevin) Tuition fees for Kevin Number of months in school-part time Number of months in school-full time A B 3,600 8 O 0 0 Donor Valerie George Charitable Donation Receipts Mothers Against Drunk Drivers (MADD) Canadian Institute for the Blind (CNIB) Am't 1,000 3,000 14 16 18 22 T4 Box Amount Issuer-Mega Pharma Inc. Employment income 378,000.00 Employee's CPP contributions 2,898.00 Employee's El premiums 856.36 Income tax deducted 114,000.00 Employment commissions 42 82,000.00 Charitable donations 46 400.00 During 2020, Mega reimbursed George $3,788 for meals and entertainment with clients, $2,268 for hotels, and $4,925 for airline tickets. In addition to George's salary, he also earns commissions. His employer requires him to have an office in his home and has signed the form T2200 each year to this effect. On October 1, 2020, George purchased a new computer and software that will be used solely in his home office for employment-related uses. The computer cost $3,600 and the various soft- ware programs cost $1,250. 650 House Costs Area of home used for home office (square feet) Total area of home (square feet) Telephone line including high speed internet connection Hydro Insurance-House Maintenance and repairs Mortgage interest Mortgage life insurance premiums Property taxes 5,000 620 3,200 4,000 3,800 6,200 400 6,700 (Y/M/D) Patient 2020-12-31 George 2020-08-31 George 2020-09-19 George 2020-11-07 Valerie 2020-06-07 Joan 2020-03-22 David 2020-12-20 Martin 2019-10-01 Kevin Medical Expenses Johnson Inc. Dr. Smith Optician Pharmacy Dr. Wong Tropical Disease Centre Dr. Walker Dr. Takarabe Description Am't Out of Canada insurance 731.00 Dental fees 155.40 Prescription glasses 109.00 Prescription 66.84 Psychiatric counselling 2,050.00 Prescription 390.00 Group therapy 6,000.00 Orthodontics and dental 30,000.00 George paid $800 for the care and feeding of Kevin's seeing eye dog, Isis, during 2020. George's 2020 RRSP deduction limit is $285,550