Ch 4 AP 1,2,5,9,11,12,21 and Solutions

Ch 4 AP 1,2,5,9,11,12,21 and Solutions - AIT805 Selected...

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AIT805 Selected Practice Assignment Problems with Solutions Problem 1 (Basic) Each of the following employee perks were provided to a senior executive of IPL Engineering Services: Value of university tuition fees for the employee's child (age 21) $2,800 Out-of-town meals for a three-day management seminar 150 Entertainment meals for clients (reimbursement) 1,500 Professional dues to Civil Engineering Society 250 Notebook computer provided for employment use 3,500 Membership to Centre Health Club (client promotion) 1,400 Interest-free loan for the purchase of company stock 40,000 Premiums paid for group term life insurance 150 Reimbursement for engineering systems software 2,000 Assumptions: (a) Prescribed rate of interest throughout the year is 6%. (b) The senior executive takes the notebook computer home to complete IPL assignments and memos. Personal use is minimal. REQUIRED For each of the above, discuss and quantify the income tax implications to the employer and to the employee. Solution 1 (Basic) Employee Perk Employee Taxable Benefit Employer Impact Tuition fees for the child of employee $2,800 may be a taxable benefit, but possibly an exempt scholarship for the child. Deductible as compensation expense Out-of-town meals Not taxable to employee 50% deductible for employment duties Entertainment for clients Not taxable to employee 50% deductible for employment duties Professional dues Not taxable to employee Deductible employment expense for employment duties Notebook computer for employment Not taxable to employee Deductible CCA for employment duties Membership for health club Not taxable if employment-related Not deductible for company promotion Interest-free loan $40,000 is subject to an imputed interest taxable benefit (deductible by the executive as was used to invest in company shares) No impact on employer Life insurance premiums $150 taxable benefit Deductible as compensation expense Reimbursement for supplies Not taxable to employee Deductible CCA for employment duties AIT805 Chapter 4 Page 1 of 10
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Problem 2 (Basic) Samuel, an employee of the Fish Company, needs a vehicle to complete his employment duties. Samuel generally drives approximately 10,000 kilometres for personal reasons. His manager estimates that Samuel will need to drive 7,000 kilometres to complete employment duties. Samuel estimates that his total operating expenses will be $2,500. The corporation offered Samuel three alternatives: (a) Twelve months use of a leased vehicle plus a reimbursement for 100% of the total operating expense. The leased vehicle costs the corporation $400 per month (including GST/PST). (b) The same vehicle can be purchased for a total cost (including GST and 8% PST) of $22,000 and Samuel would be reimbursed for the total operating expense. (c)
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Ch 4 AP 1,2,5,9,11,12,21 and Solutions - AIT805 Selected...

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