Reference no: EM133036852
Problem: Shawn Green was employed by ABC Ltd. (a Canadian controlled private corporation) from January to December of 2020. Shawn earned a gross salary of $72,000. ()
The following deductions were made during the year:
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Income tax
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$20,000
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Canada Pension Plan
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$ 2,898
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Employment Insurance
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$ 856
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Registered Pension Plan contribution
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$ 3,000
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The following amounts were paid by ABC Ltd. in 2020 on Shawn's behalf:
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Canada Pension Plan
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$2,898
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Employment Insurance
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$1,198
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Registered Pension Plan
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$3,000
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Group life insurance
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$1,200
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1. Additional information:
On January 15, 2018, Shawn was given an option to purchase 500 shares of ABC for $5.00 per share when the market value was $5.50. Shawn exercised the option on June 1, 2019 when the shares were valued at $7.00, and sold the shares on March 17, 2020 when the market value was $8.00 per share. Shawn pays $50 a month for a personal cell phone. Shawn purchased $300 worth of merchandise (at cost) from ABC Ltd. during the year. The retail value of the merchandise was $500. Shawn also contributed $1,000 to an RRSP during the year.
Required:
A) Calculate Shawn's minimum net income for tax purposes for 2020, in accordance with Section 3 of the Income Tax Act. ()
B) Identify items that have been omitted in your calculations. (Shawn minimizes the tax liability whenever possible.))
C) Will Shawn be able to deduct the stock option deduction to arrive at taxable income? Why or why not?
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