ACCT226 Chapter 4 Exam Exercise #7 PDF

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Exam Exercise Chapter Four - Transfer Of Credits From A Spouse John Trask is 67 years old and his spouse is 66 years old. He has Net Income For Tax Purposes of $63,200, largely from various pension funds. His spouse has no income of her own as she is not eligible for OAS payments. During 2019, his s...

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Exam Exercise Chapter Four - Transfer Of Credits From A Spouse John Trask is 67 years old and his spouse is 66 years old. He has Net Income For Tax Purposes of $63,200, largely from various pension funds. His spouse has no income of her own as she is not eligible for OAS payments. During 2019, his spouse attended university on a full time basis. Her tuition fees for the attendance were $8,200 and, in addition, she spent $800 on textbooks. Determine John’s maximum tax credits for 2019. Ignore the possibility of splitting his pension income with his spouse.

Exam Exercise Chapter Four - Political Contributions Tax Credit Mr. Allen Dion contributes $826 to the Canadian Political Alliance, a registered federal political party. Determine the amount of his federal political contributions tax credit.

Exam Exercise Chapter Four - Refundable Medical Expense Supplement During 2019, Mr. Chris Mackey has Net Income For Tax Purposes and Taxable Income of $28,248. Mr. Mackey and his common-law partner, Emily, have total medical expenses of $10,325. Emily has no income of her own. Determine Mr. Mackey’s minimum Tax Payable for 2019.

Exam Exercise Chapter Four - EI And OAS Clawbacks For 2019, Mr. Oliver Clemens has net employment income of $67,200, receives EI payments of $9,460, and receives $7,400 in Old Age Security (OAS) payments. No amount was withheld from the OAS payments because he had very low income in the previous two years due to large business losses. Determine Mr. Clemens’ Net Income For Tax Purposes for 2019.

Exam Exercise Chapter Four - Tax Payable With OAS Clawback Agnes is 66 years old. During 2019, she received OAS payments of $7,400, CPP payments of $10,000 and investment income of $65,000. No federal tax was withheld at source. Her total federal tax credits for 2019 (including charitable donations) are $2,500. Taking the OAS clawback into consideration, what is her federal balance owing?

Exam Exercise Solution Chapter Four - Transfer Of Credits From A Spouse John’s tax credits would be calculated as follows:

Basic Personal Amount

$12,069

Spousal Amount

12,069

Age [$7,494 - (15%)($63,200 - $37,790)]

3,683

Pension Income

2,000

Spousal Age Transfer

7,494

Spousal Tuition Amount - Lesser Of: •

$5,000

•

$8,200

5,000

Credit Base

$42,315

Rate

15%

Total Credits

$ 6,347

Exam Exercise Solution Chapter Four - Political Contributions Tax Credit Mr. Dion’s $500 credit would be calculated as follows:

Contributions

Credit Rate

Tax Credit

First

$400

3/4

$300

Next

350

1/2

175

76

1/3

25

Remaining Maximum Credit

$826

$500

Exam Exercise Solution Chapter Four - Refundable Medical Expense Supplement The regular medical expense credit would be calculated as follows:

$10,325

Medical Expenses Lesser Of: •

[(3%)($28,248)] = $847

•

2019 Threshold Amount = $2,352

(

847)

Allowable Amount Of Medical Expenses

$ 9,478

Rate

15%

Total Credits

$ 1,422

The refundable supplement would be calculated as follows:

Lesser Of: •

$1,248 (2019 Maximum)

•

[(25/15)($1,422)] = $2,370

$1,248

Reduction [(5%)($28,248 - $27,639)]

( 30)

Refundable Medical Expense Supplement

$1,218

Mr. Mackey’s total Tax Payable (Refund) would be calculated as follows:

Tax Payable Before Credits [(15%)($28,248)]

$4,237

Non-Refundable Credits: Basic Personal Common-Law Partner Allowable Medical Expenses

$12,069 12,069 9,478

Total

$33,616

Rate

15%

( 5,042)

Tax Before Refundable Supplement

Nil*

Refundable Supplement

( 1,218)

Tax Payable (Refund)

($1,218)

* As Tax Before Refundable Supplement can only be reduced to nil, the net result cannot be negative for this subtotal.

Exam Exercise Solution Chapter Four - EI And OAS Clawbacks Mr. Clemens’ income before deducting either the EI or OAS repayment would be calculated as follows:

Net Employment Income

$67,200

EI Benefits

9,460

OAS Benefits

7,400

Income Before Deductions

$84,060

Dealing first with the EI repayment, Mr. Clemens would have to repay the lesser of: •

$2,838 [(30%)($9,460)]

•

$5,306 [(30%)($84,060 - $66,375)]

Using this deduction, the clawback of the OAS payments would be the lesser of: •

$7,400

•

$546 [(15%)($84,060 - $2,838 - $77,580)]

As a result, his Net Income For Tax Purposes would be as follows: Income Before Deductions

$84,060

ITA 60(v.1) Deduction (EI)

( 2,838)

ITA 60(w) Deduction (OAS) Net Income For Tax Purposes

( 546) $80,676

Exam Exercise Solution Chapter Four - Tax Payable With OAS Clawback Before the deduction of any OAS repayment, Agnes had income as follows:

OAS Payments

$ 7,400

CPP Payments

10,000

Investment Income

65,000

Income Before Deduction

$82,400

The OAS clawback would be the lesser of:

•

$7,400

•

$723 [(15%)($82,400 - $77,580)]

This results in a Taxable Income of $81,677 ($82,400 - $723). Using this figure, the Tax Payable for Agnes would be calculated as follows:

Tax On First $47,630 Tax On Remaining $34,047 ($81,677 - $47,630) At 20.5 Percent

$ 7,145 6,980

Tax Before Credits

$14,125

Tax Credits (Given)

( 2,500)

Tax Payable Before Clawback

$11,625

Plus: OAS Clawback

723

Total Amount Due

$12,348...