Reference no: EM132726416
It is late March 2020. You have just met with your client Arham about his taxes. Arham has several tax issues for the 2019 taxation year that he needs your help with.
1. Arham had two employers during 2019.
Employer 1 Employer 2
Employment income $59,281 $65,000
CPP deducted 2,749 2,749
EI deducted 860 860
Income tax deducted 12,000 12,500
2. Arham had the following additional sources of income:
non-eligible dividend - $5,000
capital gain on sale of shares in a public company - $5,500
3. Arham is a single parent to his daughter Zarish, who is 16. Arham's mother, Zahara, is 67 years old. She lives with Arham and Zarish and is physically infirm as well as financially dependent on Arham. Her only income is $7,200 per year from Old Age Security.
4. The family incurred the following medical expenses during the year, all of which were paid for by Arham. There are no receipts from the prior period.
Prescription glasses for Arham $ 550
Hair implants for Arham 1,200
Various prescription drugs for Zarish 200
Hearing aids for Zahara 4,000
5. From 2017, Arham has a net capital loss carryover of $4,000 and a non-capital loss carryover of $15,000.
6. Arham owned 5,000 shares in Applesoft Computers Inc., a public company, with an adjusted cost base of $200,000. In order to save tax on the annual eligible dividend, he transferred these shares to Zarish as a gift when they were worth $250,000, on December 20, 2018. Zarish received a $15,000 dividend from the shares on December 15, 2019. On December 30, 2019, Zarish sold the shares for proceeds of $260,000 and invested the funds in a guaranteed investment certificate earning interest at 2.5%.
7. Arham made a $3,000 donation to a registered charity in 2019.
Required:
Problem a) Calculate net income for tax purposes and taxable income for Arham for 2019.
Problem b) Note any loss carryover amounts that Arham may be able to use in years prior to 2019 or in future years, along with any restrictions on the use of the loss and the year of expiry, if any.
Problem c) Determine the 2019 net income for tax purposes and taxable income for Zarish. Briefly discuss the tax consequences regarding the Applesoft shares for Arham and Zarish in both 2018 and 2019.
Problem d) Determine the 2019 federal Part I tax payable for Arham, taking advantage of all tax credits or reductions. Explain any amounts that are excluded from the calculation. Show full calculations including amounts where the result is nil. Calculate any refund or tax owing that would occur for Arham. Ignore provincial taxes.