Reference no: EM132737144

PROJECT 1

Before beginning work on the project, refer to the Project Formatting document for instructions on formatting and submitting the required work.

There are two projects for you to complete during this course. Project 1 covers material from Weeks 1 to 3 and is due at the end of Week 3, and Project 2 covers material up to Week 5 and is due at the end of Week 5.

The following information pertains to Project 1. It is recommended that you read the case details for Project 1 in conjunction with the Student Notes to get familiar with the requirements. The case details below include several income and expense items. As you read the Student Notes, make note of relevant sections that pertain to the specific events or transactions in the case.

Note: Round all amounts to the nearest dollar and ignore GST and provincial taxes. Show the full detail of all steps in your calculations, even if the result is zero.

QUESTION 1

You have just finished meeting with Paul and Christine, a married couple, who have come to you for some tax advice. They brought along information about Paul's employment income for 2019.

For several years, Paul has been a commission salesperson working for a company that sells technology solutions to businesses. For 2019, he earned a base salary of $180,000 plus commissions based on his sales. He travels across the country for work and is very successful. He is responsible for paying certain expenses when he is travelling, while his employer is responsible for other expenses. Paul is responsible for paying any entertainment and promotional costs he incurs, as well as air transportation, hotel, and meal costs while he is travelling for business.

Beginning March 1, 2019, Paul's employer provided him with a leased vehicle for the rest of the year. He had no car before this date. As his employer does not have an office in Vancouver, Paul operates out of his home office, where he principally conducts business. He has a desk and computer equipment that he owns. This office represents 10% of the floor space in Paul's home. While he does not see clients at his home, he does use this space exclusively for business.

Paul:

Salary paid during the year	$180,000
Commission income paid during the year	20,000
Expenses paid personally: Utilities for house	$2,000
Minor repairs to home	1,700
Property taxes	3,500
Travel costs (airline tickets and hotel costs)	15,000
Meals while travelling	5,000
Entertainment of clients	6,000
Promotional material (brochures)	200
House insurance	600
Mortgage interest	10,000
New computer and printer purchased this year	2,500
Golf membership for golfing with clients	4,000

Benefits paid for by employer:

Vacation for Paul and Christine as a reward for having the largest increase in sales this year          $6,000

Health and dental benefits	2,000
Long-term disability insurance with wage-loss protection	500
Group term life insurance	960
Financial planning - annually, employer pays for one
meeting with a financial planner for each employee	1,000
Gift to Paul provided on his birthday - front-row tickets
to a hockey game	900
Monthly lease payment on the company car	750
Car operating costs (maintenance, fuel, insurance)	6,000
Total kilometres driven	40,000 km
Personal kilometres driven	15,000 km

Gift from customer:

Golf clubs as a gift from a very happy customer                                                                                                                     $1,200

Paul's payment to his employer for personal use of the

vehicle within 45 days of the year end                                                                                                                        $1,500

Paul has notified his employer that, if he is eligible, he will elect to use the "lesser of" calculation for the operating cost benefit on the vehicle.

Required:

a) Determine the expenses that Paul can deduct from his employment income. Calculate the expense deductions for sales and non-sales employees and explain items that are excluded from your calculations. Briefly explain whether Paul should claim expenses as a sales or non-sales employee.

b) Determine Paul's net income for tax purposes for 2019.

c) List all items excluded from your net income calculation and explain why the item has been excluded.

Note: Round all amounts to the nearest dollar and ignore GST and provincial taxes. Show the full detail of all steps in your calculations, even if the result is zero.

QUESTION 2

Fernando, CPA, started his own public accounting practice in 2019 when the company he had worked for since 2010 went bankrupt and he lost his job. During all the years Fernando worked for the company, he was only involved in the preparation of simple personal tax returns. Since he started his practice, Fernando has not yet had the time to take tax courses or seminars, and he has not purchased any tax-related manuals or subscribed to any tax reporting service.

One of his new clients, Sharon, has consulted him on a complex corporate tax matter involving a foreign affiliate. Sharon requires an answer in two days' time.

Required:

Comment on the major ethical issues Fernando should consider.

QUESTION 3

You have just finished meeting with Christine Connors, a sole proprietor, who is looking for some help with her tax situation for 2019.

1. Following is the income statement for Christine's business to December 31, 2019 (ignore GST):

Sales                                                                                                                $500,000

Less:

Wages	$123,000
Rent	104,000
Meals and entertainment	15,250
Insurance	2,000
Interest on car loan and line of credit	5,960
Convention expenses	12,225
Charitable donation	650
Interest and penalties on late filing of 2018 tax return	1,200	264,285
Net income		$235,715

2. Christine provided the following information with respect to amounts on the income statement:
• The income statement has been prepared on an accrual basis, but the proceeds from sale of capital assets are not included in the income calculation.
• There is one account receivable for $5,000 that is currently outstanding, and Christine feels that it may be uncollectable. She has never had a problem with collecting accounts in the past and is unsure how to deal with this. The amount has been included in the accounts receivable balance for 2019.
• Meals and entertainment include the following items:
o annual holiday party for all employees - $8,250
o lunches and dinners purchased for staff working long hours - $3,000
o Christine's tennis club membership, which she uses to network with fellow business people - $4,000
• Christine borrowed the money necessary to purchase a new car on January 1, 2019. Interest paid on the loan totalled $5,010. Christine also has a line of credit for her business to help her manage her cash flow requirements. The interest paid on this line of credit for 2019 was $950.
• Christine declared a bonus at December 31, 2018, in the amount of $25,000 payable to her assistant. This amount was paid in December 2019, and the entry was debited to the bonus payable account. Assume the 2018 return was filed correctly.
• The amount shown for convention expenses includes a three-day conference of an organization of Canadian sales professionals held in Hawaii. The cost of attending this conference was $10,500 in conference fees and $1,725 for meals.
• The business makes a donation every year to a registered charity that provides clothing to women returning to work. The amount of the donation was $650 in 2019.
• Christine points out that the interest and penalties on her late-paid taxes are included on the income statement.

3. Christine's business has the following UCC balances as of December 31, 2018:Class 8: Office furniture - $32,000 Class 10: Delivery vehicle - $21,250
Class 10.1: Christine's car - $17,850 Class 13: Leasehold improvements - $90,000

4. The business purchased a new passenger vehicle on January 1, 2019. The cost of this vehicle was $62,000. The old vehicle, purchased in 2016 at a cost of $45,000, was sold for proceeds of $31,000.

5. Expansion during the year required the purchase of an additional $25,000 in leasehold improvements. The original leasehold improvements were purchased in 2016 at a cost of $120,000. The lease was signed in 2016 for a seven-year term with one three-year renewal term.

6. The only other vehicle was a delivery vehicle with a cost of $25,000 that was purchased in 2018. It was not used as frequently as Christine had planned and was not generating any additional revenue. As a result, she sold it on July 31, 2019, for $15,000.

7. During the year Christine purchased a franchise on March 15, 2019, at a cost of $60,000. The franchise agreement will be in place for 10 years from the date of purchase.

8. Christine purchased new office equipment at a cost of $2,000. She sold some older equipment that had a cost of $10,000 for proceeds of $5,000.

Required:

a) Determine the maximum CCA that Christine can deduct in computing her business income, including any terminal loss or recapture. Calculate the ending UCC balances in all CCA pools. Ignore leap years.

b) Determine Christine's net business income for tax purposes by preparing a reconciliation of accounting income to net income for tax purposes, starting with net income for accounting purposes and adding and subtracting items as needed. Briefly explain any items that were excluded from the calculation. Show all your calculations.

QUESTION 4

It is late March 2020. You have just met with your client Ahmed about his taxes. Ahmed has several tax issues for the 2019 taxation year that he needs your help with.

1. Ahmed has two T4 slips from 2019, as he moved during the year:

	Ontario employer	Nova Scotia employer
Employment income	$62,200	$65,000
CPP deducted	2,749	2,749
EI deducted	860	860
RPP contributions	2,500	1,500
Pension adjustment	4,000	3,000
Income tax deducted	12,000	12,500

2. Ahmed and his daughter Zeinab moved from Ontario to Nova Scotia during 2019 for work, which he began right away. Their moving expenses include the following items:

Movers - packing and transporting furniture and belongings	$6,000
Selling costs of Ontario home	4,000
Legal costs to acquire new home in Nova Scotia	1,250
Costs related to vacant former home while up for sale	5,500
Costs to repaint new home	4,000
Gas to drive family car to Nova Scotia	200
Two nights in hotel for the family	400
Meals during the trip to Nova Scotia	200

For tax purposes, Ahmed would like to use the detailed method for calculating gas and meals expenses related to moving.

3. Ahmed owned a rental property in Toronto for several years. The property cost
$500,000, with $150,000 allocated to the land and $350,000 for the building. It was put up for sale at the end of 2018 and was sold in July 2019 for $650,000, with
$175,000 allocated to the land. The UCC balance on December 31, 2018, was
$322,000. In anticipation of the sale, the tenant had moved out on December 31, 2018, and the property had been vacant until it was sold.

Ahmed used the proceeds of the sale to purchase another residential rental property in Halifax on August 1, 2019. He does not want to defer any gains or recapture.

Ahmed gave you the following income and expenses for this property for the year, along with its cost:

Rental income	$ 30,000
Total expenses	36,000
Total cost of property	480,000
Portion of cost allocated to land	80,000