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Assignment Problem Four - 4 (Tax Payable With Employment Income) ...

Assignment Problem Four - 4 (Tax Payable With Employment Income) 

For the past five years, Mr. Brooks has been employed as a financial analyst by a large Canadian public firm located in Winnipeg. During 2015, his basic gross salary amounts to$63,000. In addition, he was awarded an $11,000 bonus based on the performance of his division. Of the total bonus, $6,500 was paid in 2015 and the remainder is to be paid on January 15, 2016.

During 2015, Mr. Brooks’ employer withheld the following amounts from his gross wages:

           Federal Income Tax                                                                              $3,000

          Employment Insurance Premiums                                                          931

          Canada Pension Plan Contributions                                                     2,480

          Registered Pension Plan Contributions                                                2,800

          Donations To The United Way                                                                  480

          Union Dues                                                                                                  240

          Payments For Personal Use Of Company Car                                    1,000

Other Information:

1. Due to an airplane accident while flying back from Thunder Bay on business, Mr. Brooks was seriously injured and confined to a hospital for two full months during 2015. As his employer provides complete group disability insurance coverage, he received a total of $4,200 in payments during this period. All of the premiums for this insurance plan are paid by the employer. The plan provides periodic benefits that compensate for lost employment income.

2. Mr. Brooks is provided with a car that the company leases at a rate of $678 per month,including both GST and PST. The company pays for all of the operating costs of the car and these amounted to $3,500 during 2015. Mr. Brooks drove the car a total of 35,000 kilometers during 2015, 30,000 kilometers of which were carefully documented as employment related travel. While he was in the hospital (see Item 1), his employer required that the car be returned to company premises.

3. On January 15, 2014, Mr. Brooks received options to buy 200 shares of his employer’s common stock at a price of $23 per share. At this time, the shares were trading at $20 per share. Mr. Brooks exercised these options on July 6, 2015, when the shares were trading at $28 per share. He does not plan to sell the shares for at least a year.

4. In order to assist Mr. Brooks in acquiring a new personal residence in Winnipeg, his employer granted him a five year, interest free loan of $125,000. The loan qualifies as a home relocation loan. The loan was granted on October 1, 2015 and, at this point in time,the interest rate on open five year mortgages was 5 percent. Assume the relevant ITR 4301 rate was 2 percent on this date. Mr. Brooks purchases a house for $235,000 on October 2, 2015. He has not owned a home during any of the preceding four years.

5. Other disbursements made by Mr. Brooks include the following:

       Advanced financial accounting course tuition fees                                                                           $1,200

       Music history course tuition fees(University of Manitoba one week intensive course)                   600

      Fees paid to financial planner                                                                                                                     300

      Payment of premiums on life insurance                                                                                                   642

Mr. Brooks’ employer reimbursed him for the tuition fees for the accounting course, but not the music course.

6. Mr. Brooks is a widower. His wife was killed in a car accident two years ago that injured his 8 year old son, Harold, so badly that he qualifies for the disability tax credit. While Mr. Brooks received $720 in Universal Child Care Benefits during the year, he has elected to include these payments in the Net Income For Tax Purposes of Harold. Harold has no other Net Income for the year.

7. Mr. Brooks’ mother, Grace, lives with Mr. Brooks and cares for Harold. Grace is 67 years old and her Net Income For Tax Purposes is $7,500. Grace refused to take any payments for caring for Harold as she received a large inheritance in the previous year. As a result, Mr. Brooks did not pay any child care or attendant costs for Harold.

8. Mr. Brooks paid the following eligible medical costs:

          For Himself                                                                $ 9,300

          For Harold                                                                    2,450

         For Grace                                                                      1,265

         Total                                                                          $13,015

9. Mr. Brooks buys public transit passes for his son, his mother and himself. The monthly cost of these passes is $26 (son), $50 (mother) and $60 (himself). He purchased these passes for 10 months of the year.

10. As Mr. Brooks contributes every year to the United Way, he is not eligible for the first-time donors super credit.


Required: Calculate, for the 2015 taxation year, Mr. Brooks’ minimum Taxable Income and federal Tax Payable (Refund).

Answer & Explanation
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