SENECA COLLEGE OF APPLIED ARTS AND TECHNOLOGY SENECA BUSINESS ACC 540 Personal Taxation Final Exam Version A

SENECA COLLEGE OF APPLIED ARTS AND TECHNOLOGY

SENECA BUSINESS

ACC 540

Personal Taxation

Final Exam

Version

A

DATE: 8/11/2020 TIME ALLOWED: 150 Minutes

PROFESSOR(S): Ganesh Kandiah

Allowable Examination Aids: (check applicable boxes)

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Answers to be completed on:

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TOTAL MARKS: 100 PERCENTAGE OF FINAL GRADE: 40%

INSTRUCTIONS: Please answer the questions on excel worksheet and upload to the blackboard

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“…2.3 Should there be a suspected violation of this policy (e.g.…cheating, falsification, impersonation or plagiarism), the academic integrity

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STUDENT NAME: STUDENT NUMBER: STUDENT SIGNATURE:

APPROVED BY: Mark Hanna

Mark Hanna, Chair or Deanna MacDonald, Program Manager School of Accounting and Financial Services

Question 1 (48 Marks)

You have been asked to reconcile accounting income to Division B income for tax purposes and to compute taxable income for your client, Waterloo Industries Ltd. The income statement for the year ended December 31, 2019 is shown below:

Themes Industries Ltd. Statement of Income Year Ended December 31, 2019

Sales $4,780,000

Cost of sales 3,560,000

Gross profit $1,220,000

Expenses:

Selling $ 395,000

General and administrative 305,000

Amortization 230,000

Interest on long-term debt 37,000

Other interest 55,000

$1,022,000 Other income:

Gain on sale of fixed asset $ 1,900 Income from other investments 109,000 $ 110,900 Income before income taxes $ 308,900 Income taxes:

Current $ 93,000

Provision for future income taxes 4,500 $ 97,500

Net income $ 211,400

During your review of the working paper file and last year’s tax return, you have made the following notes to yourself, because you think that there might be tax implications associated with these items:

1. The December 31, 2019 finished goods inventory is stated net of a reserve for a possible decline in market value of $57,000.

2. Included in general and administrative expenses are the following transactions:

(a) landscaping $17,000

(b) cost associated with the valuation of land 2,800 (c) donations consisting of $63,000 to registered charities and $1,000 to

registered political parties 64,000

(d) premium for term life insurance policy on the president in which the company is the beneficiary and the policy is used as collateral for a bank

operating line of credit 22,200

(e) memberships in private clubs for senior executives 3,200

(f) meals and entertainment with clients 12,000

(g) cost of employee training seminar to teach employees about new provincial

workplace safety laws 7,200

(h) cost of seasonal holiday party to which all employees were invited 17,700 (i) warranty provision (actual warranty costs: $18,000) 28,000

(j) reserve for decline in value of marketable securities 13,000

(k) accrued bonuses, paid July 30, 2020 30,000

3. Included in interest expense on long-term debt and other interest are the following transactions: (a) bond interest paid to November 30, 2019

bond interest accrued to December 31, 2019

$10,000 950 (b) interest on deficient income tax instalments

interest on late municipal property taxes

1,200 500 4. Included in other income are the following transactions:

(a) sale of capital property

Cost Proceeds

Truck (not class 10.1) $ 80,000 $25,000 Class 1 NRB— (purchased Feb 2010) 956,183 650,000

Building Class 1 50,000 37,200

Patent limited life — Class 44* _{160,000 50,000} Computer system hardware** _{65,000 10,000} * _{This was the only asset in the class}

(Purchased 2016) ** _{No separate class used}

(b) the gain on sale of fixed asset arose from the sale of an oil painting hung in the office of the Director of Taxation; the painting cost $18,000 in 2011 and was sold for $19,900

(c) income from other investments includes the receipt of a cash dividend of $7,500 from the subsidiary corporation

5. The company had the following balances in its tax accounts on January 1, 2019:

Class 1 $225,000 Class 1-NRB Class 8 615,048 55,000 Class 10 354,000 Class 12 Nil Class 44 78,750

6. The following purchases of assets were purchased also in February 2019.

office furniture $ 1,000

computer system — hardware 55,000 — applications

software

12,000

7. The balances in the following tax accounts on January 1, 2019 were: charitable donations carry forward from

2015

$ 7,000 non-capital loss carry forward from 2016 97,000 net capital loss from 1999 1,800

Required:

B. List under the heading “Omitted”, with a very brief explanation why, any of the above items which were omitted from the reconciliation.

Question 2 (52 Marks)

Ms. Kyle Mark is employed by BMW Ltd.,a public corporation as a Sales Manager. She is married. Her husband, Neil Mark,66, is unemployed for the year since the family moved from Regina to Calgary. She supports her two children during the year. Harry is 19-year-old studying at a University has no income for the year. Kyle paid his tuition fee of $6,200.

Information relating to her financial affairs for the year 2019 is given below. 1. The T4 slip issued to her for the year had the following:

Salary 92,000

Canada Pension Plan 2,749

Employment Insurance 860

For Income tax deducted 22,000 Contribution to Registered Pension Plan 4,000 BMW paid $720 for group term life insurance.

The employer is also contributing same amount to the RPP plan.

2. Kyle negotiated contracts for her employer and was also paid 1% of the value of the contract. For the year, this amounted to $22,000 and was paid in two installments of $11,000 on September 30, 2019 and January 15, 2020.

3. For the taxation year 2018, the breakdown of Kyle’s income was as follows:

Employment income 80,000

Automobile expense -3,600

Registered pension plan contribution -3,000

Business income 6,000

Rental loss -4,000

Total 75,400

4. Kyle sold shares of BMW for $30,000. She had acquired the shares in 2017 under a stock option plan for $12,000. At the time of the purchase, the shares were valued at $14,000. BMW has indicated that all of the shares are being used in an active business. Kyle received non-taxable dividend of $3,000 from BMW Ltd. for the year.

5. She incurred a moving expense as follows.

Travelling 1,200

Legal fee 1,400

Commission paid agent 2,500

Total

6. Her employer presented with an original work of art costing $2,500 in honour of her service when she moved to Calgary.

7. To carry out his employment duties Kyle used a company car that was available for personal use. She drove the car 40,000 km for business and 18,000 km for personal use in 2019. BMW leased the car for $4,494. In addition, the employer paid operating cost of $3,800.

8. As a condition of employment Kyle had work from home office. The home office occupied 80 square meters of her 800 square-meter home. The home expense for the entire year as follows:

Mortgage Interest $ 4,200

Utilities 2,200

Property Taxes 2,600

Insurance 800

Minor repairs and maintenance 1,200

Total 11,000

9. Kyle paid the employer $51,500. This covered the full principal repayment of an employee loan of $50,000 plus an interest of $1,500 for the full year. The prescribed rate for the year was 6%. Kyle used the fund to repair the home and invest in shares.

10. In order perform her employment duties, Kyle incurred the following sales related expenses:

Advertising $1,000

Meals for client 1,375

Entertainment for client 400

11. Kyle donated $2,000 for united way for this year.

12. Kyle made a contribution of $6,000 to RRSP on January 15, 2020. For the year 2018, she reported a pension adjustment of 6,000. She also have opening balance of $9,500 per notice of assessment.

Required:

A. Calculate Ms. Kyle’s net Income for tax purposes for the taxation year 2019. B. Calculate Ms. Kyle’s Taxable Income for tax purposes for the taxation year 2019. C. Calculate the tax payable (including credits) for the taxation year 2019.