Reference no: EM133102706
Question 1 - Excess RRSP Contributions - As she was attending university during 2017, 2018, and 2019, Karla had no earned income for RRSP purposes in any of these three years. However, before returning to university she had been employed and, reflecting this, on January 1, 2019, she has RRSP deduction room of $21,300.
She also has un-deducted contributions on this date of $15,250.
She returned to work on a part-time basis in 2020, resulting in earned income for RRSP purposes of $19,100. Also during 2020, she receives a bequest from the estate of her father in the amount of $225,000. She immediately contributes $25,000 of this inheritance to her RRSP. She does not deduct any RRSP contributions during this year. She also makes sufficient charitable donations that her 2020 federal income tax payable is reduced to nil.
During 2021, she resumes full-time employment, resulting in a 2021 earned income of $47,800.
While she claims her maximum RRSP deduction for 2021, she makes no further contributions to the plan during the year.
Required -
A. Determine Karla's maximum RRSP deduction for 2021.
B. Determine the Part X.1 penalty tax (ITA 204.1) (excess RRSP contributions) that would be assessed to Karla for the year ending December 31, 2021.
C. Determine the amount of contributions that Karla would have to withdraw from her RRSP on January 2, 2022, to avoid being assessed the penalty tax under Part X.1 (ITA 204.1). What advice would you give to Karla regarding her retirement savings?
Question 2 - Net Income and RRSP Contributions - During the year ending December 31, 2021, Valerie Arnold carried on a business as a sole proprietor. Her 2021 business income, determined using accounting principles (ASPE), is $140,823.
Information related to this business is as follows:
As a result of meetings with various clients and suppliers, Valerie incurred meal and entertainment expenses of $7,250. This amount was deducted in determining accounting business income.
Amortization in the amount of $21,350 was deducted in the determination of accounting business income. Maximum CCA, which Valerie intends to deduct, was determined to be $29,730.
During 2021, the business sold depreciable property that had a capital cost of $65,000.
On January 1, 2021, the carrying value of the property for accounting purposes was $51,000 and the UCC balance of the respective CCA class was $43,248. The depreciable property was sold for $35,000. It was the only property in the class and no additions were made to the class before the end of the 2021 taxation year.
Other Information
Other information required to complete Valerie's 2021 income tax return is as follows:
1. At the beginning of 2021, Valerie had unused RRSP deduction room of $8,400. She had made contributions of $9,300 on February 27, 2021, that she forgot to claim in her 2020 income tax return. She would like to claim that contributions on her 2021 income tax return.
2. In 2021 she earned the following amounts of investment income and realized the following capital gains:
Interest on her savings account $960
Capital gains from the sale of personal property 29,400
Capital losses from the sales of shares (7,600)
Eligible dividends received 5,650
3. She received royalties of $9,340 during 2021 on a Study Guide she had written for a univer-sity course.
4. She paid spousal support during 2021 of $18,000.
Required -
A. For the 2021 taxation year, calculate Valerie's minimum net income before any RRSP deduc-tion. Ignore CPP contributions in your calculations.
B. Calculate the maximum RRSP deduction that can be made by Valerie for 2021. In making this calculation, assume that Valerie's 2020 earned income is equal to her 2021 earned income. Determine the amount of any additional contributions that she would have to make in order to maximize her RRSP deduction.
Canadian tax principles, George brown college, Canada Chapter-10, Byrd & Chen's Canadian Tax Principles 2021-2022 EDITION.