Reference no: EM133395730

Case: It is currently April24, 2023, and your friend John Winchester has called you in a panic. His accountant was arrested for fraud and John can't get his documents back from her. John is hoping you can help him out by completing his family's taxes as well as answering some questions.

Johnis married to Mary Winchester,and they have a 2-year-old son,Sam. John's 17-year-old son Dean from a previous marriage also lives with the family. John is a self-employedelectricianspecializing in residential dwellings while Mary attends SAIT part time to complete her Avionics Technology diploma.Mary's tuition for 2022 was $2,800. Information on Sam's business is in Exhibit I. (Instructor note - Self-employed CPP on business income is calculated as 11.4% of net business income.)

Mary's brother 31-year-old Crowley also lives with John and Mary due to his severe cerebral palsy. Crowley lives off his withdrawals from a Registered Disability Savings Plan. In 2022, Crowley withdrew $15,900 of which $8,100 is considered to be return of contributions. (Instructornote - Crowley would be considered a child of John and Mary for childcare expenses).Mary's 24-year-old brother Castiel also lives with the family while he goes to university full time. In exchange for free room and board, he helps look after Sam and Crowley when he is not at school. Castiel paid $11,700 in tuition in 2022. John has also arranged with a neighbour to watchSam and Crowley when none of the adults are available due to work or school. This was fortunate as Mary was hospitalized for 4 weeks from food poisoning. For 2022, he paid his neighbour $8,500.

John's father passed away in 2018. His 73-year-old mother Rowena has stage 6 dementia that requires her to reside in an assisted living residence. Her income consists of $15,600 in social assistance and $7,900 in Old Age Security. John is Rowena's only child, so he is her sole caretaker.

In March 2020John purchased a dilapidated cottage at Sylvan Lake for $186,000. While the family planned to use it for vacations, John recognized that it was in a prime location. Since then, the family has spentmost of July and August each year and many weekends at the cottage. This allowed them to enjoythe lake while they also renovatedthe cottage. In September 2022, a neighbour offered to purchase the cottage for a premium price of $259,800. The Winchesters decided to accept the offer.The renovations cost $33,000.

The family also sold their townhouse on Jan 3 for $436,000 and purchased a single-familyhouse in Calgary for $650,000. The townhouse cost $386,000 in 2013. The family has never had a real estate sale before 2022. Real estate agent fees were 2% of the price for both the cottage and the townhouse.

During the move, John found a cuckoo clock that his father had purchased for $200 while in Germany. Itwas valued at $1,400 when John inherited it. John sold it an antique show for $5,800. John also sold an autographed Harry Potter book for $790 that he had purchased for $30.

John sold all of his 400 shares in Chuck Ltd, a US company, on December 28, 2021, for $30 per share. He original purchased them for $50 per share. The share price rebounded on some positive news, so on January 17, 2022John repurchased 300 of the shares for $34 per share. He received a $8 per share dividend prior to selling all the shares for net proceeds of $20,000 on December 23, 2022. US withholding taxes on the dividends were 10%.

John has $700 in net capital losses carry forward from 2016.

Mary withdrew $500 from her TFSA and $300 from her RRSP for a family vacation in December. John contributed $2,500 into a RESP for Sam in 2022.

Mary owned the followinginvestments at the beginning of the year:

• 5,000 shares Singer Ltd (Singer), a private Canadian company -adjusted cost base $53,900
• 1,000 shares Ruby Inc. (Ruby), a public Canadian company -adjusted cost base $15,000
• $20,000 3-yearGIC with 2% interest and principal due at maturity December 31, 2022 - adjusted cost base $20,000
• 5-yearBobby Bonds $8,000 face value with 4% annual interest paid annually. Bonds maturedon March 31, 2022. Their adjusted cost base was $8,460 with an effective interest rate of2.75%.

Mary made the following purchases and sales during 2022:

• Purchased 2,000 shares of Singerfor $65/share on January 31
• Purchased 1,400 shares of Singer for $68/share on March 31
• Sold1,000 shares of Singer to Dean on September 1 for $30 per share. Shares were valued at $75 per share on that date. Dean sold the shares for $81 per share on December 15.
• Sold 400 sharesof Ruby to Johnon September 15 for $18 per share when fair market value was $30 per share. John sold 100 of the shares on December 3 for $29.

Note:
o All share purchases and sales are subject to a 1.5% brokerage fee except the sales between family members.
o Singer shares paid a $3.00 per share non-eligible dividend on December1.
o Ruby shares paid a $2.00 per share eligible dividend on October15.

Required: Using MICROSOFT Excel ONLY, respond to the following requirements. All work must be shown to obtain full marks.

Part A Prepare a critical thinking analysis to determine whether the sale of the cottage would be considered business income or a capital gain. If you determine the sale would be a capital gain, then determine whether it would qualify for the principal residence exemption.

Part B Prepare a calculation to determine the best use of the principal residence exemption.Clearly indicate the years designated to each property included in your analysis.

Part C DetermineJohn's minimum Business Income for 2022.

Part D Determine the minimum Net Income for Tax Purposes and Taxable Income for John, Mary, Dean, Rowena, Crowley and Castiel. Ignore any GST or PST considerations. Show all work, even if the result is zero.

Part E Determine minimum Federal Taxes Payableand Net Federal Taxes Owing for the 2022 taxation yearfor John, Mary, Rowena and Castiel only (not required for Dean or Crowley). When a credit can be claimed by either John or Mary, include it in John'staxes unless it is more beneficial to have Mary claim it. Ignore any GST or PST considerations. For any amounts provided but excluded from your calculations explain why they have been excluded.

Part F Determine any amounts available for carry forward by the family at the end of 2022.