You work as a tax preparer for a small accounting firm in Ottawa. You are currently preparing the 2021 tax returns for the Hale family:

Randy Diane Joshua

50 years old 48 years old 19 years old

Business tycoon Disabled University student

After taking a couple of years off after high school to travel, Joshua finally decided to begin a full-time program at the University of Toronto in fall 2021. His high school grades were good and as such, he received a $3,000/semester scholarship. His fall tuition was $5,500 and Joshua would like to transfer as much of his tuition credit as possible to his father. While in Toronto, he got his first job, working part-time at Mucho Burrito, and earned wages of $2,800. No income tax nor CPP were withheld off his pay. EI withheld amounted to $44.

To help Joshua pay for the cost of renting an apartment in Toronto, Randy sold Joshua his shareholdings of TrickyInc. (a public company) for $100.Randy's ACB of these shareswas $30,000 and they had a fair market value at the time of sale of $50,000. They paid Joshua eligible dividends of $4,000 during 2021. The share price increased significantly through 2021 and Joshua decided to sell them in December 2021 for $75,000.

Moving costs incurred to get Joshua to Toronto include: Moving company $2,500 Hotel in Toronto while apartment was decorated (3 nights) 600 Meals for 4 days (travel/decoration period) 400Gas for Joshua's car(425 km) 80

Joshua needed physiotherapy after running the Ottawa marathon in the spring. Randy paid $2,600 forJoshua's physiotherapy sessions throughout the summer and fall months.

Diane

Diane was certified as disabled by a medical doctor several years ago after a car accident.Given it was too difficult to work anymore, Diane's employer offered a lay-off with severance package. Diane used the severance funds to invest in a life annuity which pays $10,000/year. In 2021, the return of capital included in the annuity was $1,200.Diane'scondition does not involve many ongoing medical costs, however she does find that massage therapy and reiki treatments help; she spent $5,000 and $3,000 on these treatments respectively during 2021.

In early 2021, Randy also decided to provide Diane with more income by gifting her his shares of EasyPeasy Co.Randy's ACB of the EasyPeasy shares was $15,000, and they were worth $25,000 at the time gifting. Throughout 2021, EasyPeasy paid Diane non- eligible dividends of $2,000.

During 2021, $22,000 was spent to make the family home more accessible for Diane.

Randy

Randy is a successful entrepreneur. Over the course of his working life, he has started three business, two of which he sold in prior years. After selling his first business, which he operated as a sole proprietor, he realized that incorporating his next business would best in order to use the lifetime capital gains exemption upon sale. When business #2 was sold, he used $600,000 of the lifetime capital gains exemption. In 2021, after paying himself a nice bonus of $500,000 from his third business (also incorporated) and repaying the $200,000 shareholder loan which was included in his income in 2005 and he had forgotten about, he sold the shares at a gain of $1,000,000. These shares were qualifying small business corporation shares. The maximum CPP and EI were withheld off his bonus payment, along with $75,000 of income tax deductions.

He made $6,000 of contributions to his TFSA and $25,000 of contributions to the spousal RRSP. His prior year unused RRSP deduction room was $10,000. In 2020, his business had paid him total remuneration of $250,000 and he had received $5,000 eligible dividends and $1,800 non-eligible dividends from TrickyInc. and EasyPeasy respectively. The management fees of his TFSA and RRSP portfolios were $900 and $1,700 respectively.

Other than his TrickyInc. and EasyPeasy, which he transferred to family members in2021, Randy's shareholdings are allinvestments in local small businesses which did not provide any income this year.

Randy donated $12,000 to registered charities and made $1,000 of contributions to the Progressive Conservative Party of Canada.

Required-

Calculate Randy, Diane and Joshua'sminimum 2021 net income for tax purposes, taxable income and balance due. (Hint: it is recommended to start with Joshua, then Diane, then Randy). Ignore provincial taxes.

Answer rating: 100% (QA)

Solution To calculate the minimum 2021 net income for tax purposes taxable income and balance due for Randy Diane and Joshua we need to follow the ste... View the full answer