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Employment - EMPLOYMENT INCOME IN-CLASS PROBLEMS SUGGESTED...

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EMPLOYMENT INCOME IN-CLASS PROBLEMS SUGGESTED SOLUTIONS PROBLEM 1 REQUIRED: Determine the tax consequences of each of the following independent situations. All relate to the current taxation year. Cite an ITA or IT reference where applicable. (a) During the year, Susan won an expense paid holiday to Las Vegas in a contest sponsored by her employer. Her prize was for out-performing her fellow workers. Both she and John, her husband, went on the trip. The cost to the company was $4,000. John and Susan would have had to pay $6,000 for a similar trip. IT-75 and IT-470 indicate that the fair market value of prizes won in a work-related situation is the amount to be included in the employee’s income. According to IT- 470, the cost to the employer of an employer-paid vacation trip is considered the amount of the taxable benefit. Even though Susan and John would have had to pay $6,000 for the trip, since the cost to the company is $4,000, the CRA would view $4,000 as the amount of the employee benefit. Therefore, Susan reports $4,000 as a benefit enjoyed by virtue of her employment. (b) Jacob eats daily in his company’s cafeteria. He estimates that this arrangement saves him at least $500 a year. Jacob’s saving is not considered a taxable benefit by the CRA, provided that Jacob pays a reasonable amount for each meal (IT-470). (c) On January 2, 20X5, Bridget’s employer made an interest-free loan of $10,000 to Bridget, allowing her to pay a number of personal debts. She repaid $4,000 of the principal on January 31, 20X6. (Assume the prescribed rate is 4%.) Bridget’s taxable benefit is the amount of the prescribed rate of interest, times the principal outstanding, less her interest payments during the year and within the following 30 days. Therefore, her taxable benefit is $400 (4% X $10,000).
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(d) Mr. Executive, employed as a sales manager by a national retail store chain, purchased two season tickets to The Arena at a cost of $600 per ticket. His intention was to have major suppliers accompany him to most of the hockey games. The company did not require him to purchase the tickets. There is no indication that this employed sales manager is in receipt of commission income. Nor is he required by the company to purchase the tickets. Therefore, the company is not likely to sign Form T2200: Declaration of Conditions of Employment [ITA 8(10)]. Furthermore, the expenditure is essentially personal in nature. Therefore the taxpayer would not be able to deduct this amount. (e) Simon was required to move from Regina to Edmonton in late 20X4 to take a job with an Edmonton employer. His wife and children continued to live in their Regina residence until May 31, 20X5. Simon paid $500 per month to rent an apartment in Edmonton until May 31, 20X5, when he and his family moved to Edmonton and purchased a home. The $500 per month Simon paid from late 20X4 to May 31, 20X5 to rent the apartment in Edmonton is not deductible. There is no deduction in ITA 8 for such expenses. Furthermore, they are personal in nature.
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