Taxation 1: Homework 3 - AP 3-5, 9, 11 PDF

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Shiraz Charania...

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3 Ways to reduce Taxable Benefit: Use the car so the employment use is over 50% Do not use more than 1,667km/month for personal use Use a Leased vehicle opposed to a Purchased vehicle as Lease Calculation results in LOWER benefits. Ms. Bambi Caplan Employment use; 21,000km < Personal use; 36,000km Owned Leased Standby Charge = Operating Cost Benefit = Reimbursement = Total Benefit =

$4,320 $10,080 ($2,400) $12,000

[(2/3)(12)($650-110)] [(57,000km – 21,000km)* $0.28] [12mos * $200]

 Since 50% of the km are employment related, there is no reduction in the standby charge. In addition, the alternative Operating Cost Benefit calculation cannot be used. Sheldon Caplan Employment use; 32,600km > Personal use; 1,700km Owned Leased Standby Charge = $748 Operating Cost Benefit = $476 $374 $374 Total Benefit = $1,122

[(2/3)(8)($1,100)(1,700km/(8*1,667))] [(1,700km)* $0.28] [(1/2)($748)]

 Since more than 50% of vehicle usage was employment related, there is a reduction in Standby Charge. In addition, Sheldon can choose to use either calculations for Operating Cost Benefit. Ideally using the lower of the two (1/2 the STB) would result in less taxable benefits. Ms. Melissa Caplan Employment use; 23,000km < Personal use; 39,000km Owned Leased Standby Charge = Operating Cost Benefit = Total Benefit =

$38,500 $10,920 $49,420

[(2%)(11)($175,000)] [(62,000km – 23,000km)* $0.28]

 Since employment related km were less than 50%, she cannot reduce the Standby Charge or use the alternative calculation for Operating Cost Benefit. Mr. Jerome Caplan Employment use; 69,000km > Personal use; 24,000km Owned Leased Standby Charge = $14,840 Operating Cost Benefit = $6,720 $7,420 $6,720 Total Benefit = $21,560

[(2%)(12)($74,200)(16,670/16,670)] [(93,000km – 69,000km)* $0.28] [(1/2)($14,840)]

 Since more than 50% of km were for employment use, Jerome is eligible for reduced Standby Charge calculation. In addition, he is eligible for the alternative Operating Cost Benefit, however it would increase his Taxable Benefit more than necessary.

January 2018 (Grant Date): Share Price - $32.00 Exercise Date (Options Exercised): Share Price - $37.80 November 15, 2020 (Shares Sold) Case 1 (CCPC; In the money) 2018: There would be no tax effects in 2018 resulting from granting of options. 2019: There would be no tax effects in 2019 resulting from granting of options. 2020: Shares are sold resulting in the following addition to NITP and Taxable Income. FMV at Exercise $15,498 [(410)($37.80)] [(410)($32.00)] Cost of Shares ($13,120) NITP $4,018 Deduction ($2,829) [1/2 Increase in NITP due to ITA 110(1)(d)] Taxable Income $2,829

POD ACB Capital Gain (Loss) Inclusion Rate TCG (ACL)

$18,778 $(15,498) $3,280 50% $1,640

[(410)($45.80)] [(410)($37.80)]

Case 2 (CCPC; Out of the money) 2018: There would be no tax consequences in 2018. 2019: There would be no tax consequences in 2019. 2020: Shares are sold resulting in the following addition to NITP and Taxable Income. FMV at Exercise $15,498 [(410)($37.80)] Cost of Shares ($13,120) [(410)($32.00)] Employment Inc. $2,378 POD ACB Capital Gain (Loss) Inclusion Rate TCG (ACL)

$17,712 $(15,498) $2,214 50% $1,107

[(410)($43.20)] [(410)($37.80)]

NITP Deduction Deduction Taxable Income

$3,485 nil ($1,107) $2,296

[$2,378 + $1,107] [1/2 Increase in NITP due to ITA 110(1)(d)] [1/2 Increase in NITP due to ITA 110(1)(d.1)]

Case 3 (CPC; In the money) 2018: There would be no tax effects in 2018 resulting from granting of options. 2019: Options were exercised resulting in the following addition to NITP and Taxable Income. FMV at Exercise $15,498 [(410)($37.80)] [(410)($32.00)] Cost of Shares ($13,120) NITP $2,378 Deduction ($1,189) [1/2 Increase in NITP due to ITA 110(1)(d)] Taxable Income $1,189 2020: Shares are sold resulting in the following addition to NITP and Taxable Income. POD $17,261 [(410)($42.10)] ACB $(15,498) [(410)($37.80)] Capital Gain (Loss) $1,763 Inclusion Rate 50% TCG (ACL) $881.50

Case 4 (CPC) 2018: There would be no tax consequences in 2019. 2019: Options were exercised resulting in the following addition to NITP and Taxable Income. FMV at Exercise $15,498 [(410)($37.80)] Cost of Shares ($13,120) [(410)($32.00)] NITP $2,378 Taxable Income $2,378 2020: Shares are sold resulting in the following addition to NITP and Taxable Income. POD $12,710 [(410)($31.00)] ACB $(15,498) [(410)($37.80)] Capital Gain (Loss) $2,788 Inclusion Rate 50% TCG (ACL) ($1,394)

Work Space in the Home Costs (25%) Mortgage Interest Property Taxes House Utilities House Insurance House Maintenance Automobile Costs (82.69% = 43km/52km) Operating Costs Interest Car CCA

ITA 8(1)(f) Limited to $21,460

ITA 8(1)(h) and (h.1)

ITA 8(1)(i) and (j)

$937.50

-

$481.25

265 1,050 9,030

9,030 3,721 2,274.04

Travel Costs Travel Expenses Deductible portion of Meals Non-Deductible Meals Entertainment [1,920+864+(10,500-2,850)] Non-Deductible Entertainment [$10,434/2] Professional Dues

26,900 15,600 2,150 (5,650) 10,434 (5,217)

Totals

$36,700

Salary Commissions Option Benefit Gifts Total Expenses Under ITA 8(1)(h) & (h.1) Expenses Under ITA 8(1)(i) & (j) RPP Professional Training Net Employment Income

26,900 15,600 2,150 (5,650)

422

$175,000 21,460 1,125 550 $198,135 (30,280) (7,948) (4,100) (422) $155,807

$30,280

$7,948...