You, CPA, work for Marko and Fried CPAs. It is now September 1, 2022 and you have just finished meeting with Mrs. Money, a shareholder and employee of Money Time Inc. (MTI). MTI operates an active business in Canada and is a new client of your accounting firm.

Mrs. Money, is a 46-year-old resident of Canada whose business has grown significantly over the past year. She used to do her own accounting, but now that things are more complex she needs your help. Additional information about your client is provided in Exhibit I.

Mrs. Money wants you to draft a memo to her describing and calculating the federal income tax consequences related to any 2022 payments made (or benefits, or loans or options) to her and her husband (Matt). If any payments are received tax free, then she wants you to tell her why.

She also wants to know if instalments are required and how much income tax instalments, she and MTI will need to pay in 2023. For MTI she wants to know the instalments for the June 30, 2023 year-end. Also when exactly are these instalments due (i.e., day, month and year)?

Finally, she wants to know the maximum amount of capital cost allowance (CCA) that MTI can claim in its June 30, 2022 year-end related to its capital asset purchases.

Your client wants to see all your detailed calculations.

Exhibit I- Additional Information

• MTI is a Canadian controlled private corporation (CCPC) with a June 30th year-end

• Mrs. Money owns 30% of the shares of MTI. Her husband, Matt, owns 15% of the shares. A few other investors and senior employees own the remaining shares of MTI

• During 2022, MTI paid the following:

o Employee health insurance premiums for all 20 MTI employees including Mr. and Mrs. Money. The cost was $1,000 per employee

o Employee training costs of $400 per employee related to courses helpful for MTI’s business

o Toronto Sports Club membership fees of $12,000 each for Mr. and Mrs. Money. Very little MTI business is ever discussed at the Toronto Sports Club

o A monthly car allowance of $1,500 per month ($18,000 for all of calendar 2022) paid to Mrs. Money. Mrs. Money occasionally uses her car for work purposes

o Annual life insurance premiums of $1,350 paid for Mrs. Money’s $1M life insurance policy. Mr. Money is the beneficiary of the policy (i.e., he gets the $1M, if Mrs. Money passes away)

• MTI has a policy that all employees can borrow up to $40,000 from the company as an interest-free loan, as long as they pay it back within 2 years. Several employees have taken advantage of this generous policy, and on February 1, 2022 Mrs. Money borrowed $25,000. This money will be repaid in full on January 1, 2023

• On January 15, 2022, MTI granted Mr. Money, and a few other employees, stock options. Mr. Money was granted 1,000 options that give him the right to purchase 1,000 shares of MTI at a purchase prince of $18 per share. At the time of grant, MTI’s shares were worth $17 per share. These options expire in 1 year and on August 30, 2022, when MTI’s shares were worth $26 per share, Mr. Money exercised all his options

o Mr. Money has no plans to sell his MTI shares

o Assume Mr. Money deals at arm’s length with MTI

• Assume that the prescribed interest rate for all periods is 3%

• When answering the question about income tax instalments Mrs. Money has to pay in 2023 and how much MTI has to pay in June 30, 2023, you should assume the following:

o In 2020 Mrs. Money owed $4,700 in income tax and MTI (June 30, 2020 year-end) owed $95,000 in income tax

o In 2021 Mrs. Money owed $12,000 in income tax and MTI (June 30, 2021 year-end) owed $90,000 in income tax

o In 2022 Mrs. Money will owe $16,000 in income tax and MTI (June 30, 2022year-end) will owe $81,000 in income tax

o In 2023 Mrs. Money estimates that she will owe $15,000 in income tax and MTI (June 30, 2023 year-end) will owe $120,000 in income tax

• MTI does not qualify for quarterly instalments since its taxable income is more than $500,000

• During the June 30, 2022 year-end, MTI made the following capital asset purchases:

o On November 1, 2021, it purchased land and building for $2M in aggregate (i.e., in total) to add an MTI retail store. The land was worth 60% of the total purchase price. In addition to $2M, the following expenses were also incurred related to this purchase: legal fees of $3,000 and land transfer taxes of $90,000

o On November 30, 2021, it purchased new manufacturing equipment for $85,000

o On January 15, 2022, it purchased a new patent with a 20-year legal life for $29,000

o On March 30, 2022, it purchased goodwill, related to an acquisition of a business, for $1M

• All purchases were new assets bought from arm’s length parties unless otherwise indicated

• Ignore immediate expensing for CCPCs (Mrs. Money is not interested in this at this time)

• Ignore GST/HST

Answer rating: 100% (QA)

Dear Mrs Money As per your request we have prepared a memo detailing the federal income tax consequences related to any payments made or benefits or l... View the full answer