5 during the year mrs smiles traveled extensively on

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5. During the year, Mrs. Smiles traveled extensively on business . She had travel costs of $3,365 in air fares , $4,880 in travel lodging, and $2,450 in meals while on the road . She also spent $2,720 to entertain clients . Her employer reimbursed her fully for these costs on presentation of the receipts. Required : Calculate Mrs. Smiles’ minimum net employment income for the year ending December 31, 2008 . Provide reasons for omitting items that you have not included in your calculations. Ignore all GST and PST considerations.
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2. NET EMPLOYMENT SUGGESTED SOLUTION FORMAT Mrs. Smiles’ net employment income for the year would be calculated as follows: Gross Salary $53,000 Plus Taxable items: Commissions 34,500 Disability Insurance Benefit (Note One ) 2,178 Automobile Benefit (Note Two) 1,222 Loan Benefit (Note Three) 252 Less deductible Items: Employee Registered Pension Plan Contributions (3,200) No Impact Items: Employer Contributions to Registered Pension Plan Nil Employer Contributions to Group Disability Plan (Note One) Nil Employee Contributions to Group Disability Plan (Note One) Nil Employee Contributions to Canada Pension Plan (will be a credit) Nil Employee Contributions to Employment Insurance (will be a credit) Nil Stock Option Benefit (Note Four) Nil Reimbursed Travel Costs (Note Five) Nil Net Employment Income $87,952 Note One: The $2,650 in disability benefits received must be included in income as Mrs. Smiles’ employer has contributed to the plan. However, this benefit can be reduced by the $472 in total contributions that she has made in 2007 and 2008. Employer’s contributions to the Disability Insurance Plan plan are not a taxable benefit. Employee contributions to the group disability plan are not deductible, but can be applied against the $2,650 received under the plan during the year. Note Two: Based on the fact that Mrs. Smiles’ employment related usage is more than 50 percent, the automobile benefit is calculated as follows: Standby Charge [(2/3) (12)($1,220 - $127)( 10/12) x (4,000/16,670)] $1,748 ( insurance) Operating Cost Benefit - Lesser Of: [(4,000)($0.24)] = $960 [(1/2)($1,748)] = $874 874 Total Before Payments $2,622 Payments For Personal Use ( 1,400) Taxable Benefit $1,222 Note Three: The benefit on the low interest loan would be calculated as follows: [($50,000)(5% - 4%)(184 ÷ 365)] = $252 Or [($50,000)(5% - 4%)(2/4)] = $250 Note Four: As a Canadian controlled private corporation is involved and she is still holding the shares, Mrs. Smiles does not recognize an employment income inclusion in the year of exercise in 2008. Note Five: Since all of her travel and entertainment costs were reimbursed based on actual receipts , there is no effect on her income . Bonus mark: Her employer will have to apply the 50 percent limit on meals and entertainment to the reimbursed costs.
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SAMPLE PROBLEMS 3. CCA Calculations Question All Night Service Ltd. was incorporated on April 1, 2008 to supply computer service 24 hours per day. At the time of incorporation, the Company establishes December 31 as its year end for both tax and accounting purposes. On April 1, 2008 , the Company acquired a new building to be used as an office and communications centre at a cost of $250,000. This total cost is allocated $180,000 to the building and $ 70,000 to the land . The building is being used 100 percent for non-residential purpose.
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