Calculate carlisle and esmes net income for tax purposes

Reference no: EM132564436

Question 1

Bella originally paid $30,000 for common shares in Twilight Inc. (a public company), which pays an annual dividend of $2,000. Bella is considering transferring these shares to either her husband Edward, or her 3 year-old daughter, Renesmee. At the time of consideration of the transfer, the shares are worth $50,000.
a) What are the income tax consequences if Bella gifts the shares to Edward
i. With the automatic rollover?
ii. If they opt out of the rollover?
b) What are the income tax consequences if Bella sells the shares to Edward for $30,000
i. With the automatic rollover?
ii. If they opt out of the rollover?
c) What are the income tax consequences if Bella gifts the shares to Renesmee?

Consider the following in your response:
• What are the Proceeds of Disposition for Bella? Will she have a capital gain/loss immediately?
• What is the ACB for Edward?
• Will double taxation occur?
• Will attribution of the dividend occur subsequent to the transfer? Why or why not?
• Will attribution of the capital gain occur (when the shares are finally sold to a third party)? Why or why not?

Question 2

Carlisle and Esme are married and successfully completed an adoption in 2019 for Rosalie, a 2-year-old, spending $21,000 in 2019 on eligible adoption expenses in the process.

Carlisle is a young teacher in a rural town who operates a lawn maintenance business during the summer months. He has provided you with the following information:

	2019	2018
Teaching employment	see T4	82,000
Health/dental plan premiums paid by Carlisle	see T4 (box 85)	900
Dividends on public co shares (cash received)	see T3	3,000
Net income from lawn maintenance business	12,000	1,000
Capital gain on sale of public co shares	18,000	-
Capital loss on sale of mutual fund units	(14,000)	-
Capital loss on shares of private co (qualifies as SBC)	(15,000)	-

Carlisle makes annual spousal and child support payments to his ex-wife in the amounts of $6,000 and
$10,000 respectively.

Carlisle had unused RRSP contribution room from the prior year of $10,000. He made RRSP contributions of $16,000 in April 2019 and withdrew the $30,000 total he had in his RRSP five months later to purchase his first home. Carlisle has used $6,000 of his capital gain exemption in the past to eliminate capital gains on small business investments. Carlisle also spends 250 hours of time in the year as a volunteer firefighter in his rural community. He does not receive any income for these services. Carlisle and Esme have unused federal tuition amounts being carried-forward of $4,000 and $6,000 respectively.

Esme is employed at a local marketing company (see T4). She had accumulated significant vacation time over the last few years and so took 2 months off when Rosalie arrived, but returned to work after that and Rosalie entered daycare. Daycare costs amounted to $10,000 in 2019, and an additional $2,000 was spent on food/clothing/supplies for Rosalie. Esme has limited investments but did contribute $5,000 to her TFSA in 2019. She also made donations of $300.

In past years, Carlisle and Esme have not had sufficient medical expenses to claim anything, but they suspect that they have incurred enough recently to finally be able to claim the medical expense credit. Details below:

	Description	Date	Amount
Carlisle	Physiotherapy	Evenly from December 2018 - June 2019	$2,400 (50% of this was reimbursed by health plan)
Esme	Prescription drugs, net of health plan coverage	October - November 2019	$400
Carlisle	Eye exam, glasses	December 2018	$500
Esme	Eye exam, contacts	March 2019	$450
Rosalie	Prescription drugs, net of health plan coverage	August 2019	$75
Esme	Multivitamins and iron supplements	Evenly throughout 2019	$250
Carlisle	Laser eye surgery	January 2020	$4,500

Required -

a) Calculate Carlisle and Esme's net income for tax purposes and taxable income for 2019. Identify any loss carry-overs that exist, if any, at the end of the year.

b) Assume Carlisle and Esme have Provincial Taxes Payable of $2,000 and $1,000 respectively. Calculate Carlisle and Esme's balance due/refund.

c) Briefly explain why any 2019 items have been omitted from your calculations in parts (a) and (b).

Reference no: EM132564436

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