Lecture 2 - Solution to Self Study Problem 2-7

# Lecture 2 - Solution to Self Study Problem 2-7 - Other...

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Solution to Self Study Problem 2-7 Net employment income: Gross Salary \$72,000 Commissions 14,000 Employee RPP contributions (3,200) Disability benefit (\$2,000 – 250) 1,750 Car allowance 7,200 Automobile benefit (assume given) 2,471 Actual car expenses s. 8(1)(f): \$6,200 x 85K/92K (5,728) Life insurance benefit (1,350 x 2/3) 900 Home purchase loan interest benefit: Q1-4: \$400K x 2% x 365/365 = \$8,000 Less amount pd: (3,000) 5,000 Stock option benefit: 1000 x (7-5) 2,000 - 110(1)(d) deduction of ½ is allowed since Ex price \$5 >= FMV at grant date \$4.50 - Division C deduction – doesn’t affect net income Entertainment expenses 8(1)(f): 50% x 6,500 (3,250) Travel expenses 8(1)(f): Meals 50% x 1,300 650 Lodging 3,500 (4,150) Travel allowance (“not reasonable”) 3,600 Net employment income \$92,593

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Note : We would compare her 8(1)(f) deductions to her commission income of \$14,000: Car expenses (5,278) Entertainment (3,250)
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Unformatted text preview: Other travel (4,150) Total 8(1)(f) (12,678) is <\$14K therefore entire amount is deductible Omitted items: • Income tax withheld is not listed as an allowable deduction under s.8 therefore amount is not deductible. • Employer RPP contributions not a taxable benefit since it is specifically excluded under 6(1)(a) • Employee premiums of group disability \$250 not deductible until year benefit is received • Employer contribution to group disability plan \$250 is not taxable since it is specifically excluded under 6(1)(a) • Employee payment of life insurance premiums are not listed as an allowable deduction under s.8 therefore \$450 not deductible • Purchase of bonds is a capital expenditure therefore not deductible • Palm Pilot – non-cash gift <\$500 not included in income • Fitness membership not a taxable benefit IT470R...
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Lecture 2 - Solution to Self Study Problem 2-7 - Other...

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