Description

Question 1

Betty Booth has established herself as a very effective sales representative for products related to health care services. While she has worked independently for a number of years, she has received two very attractive offers of employment. Both of these offers would require that she begin work on January 2, 2021.

Offer One

This offer would provide her with a fixed salary of $ 225,000 per year with no commissions on her sales. The employer would provide an allowance of $ 30,000 per year to cover hotel, meals, and airline costs. The employer believes that the CRA will consider this allowance to be reasonable in the circumstances. With respect to advertising and promotion expenses, no allowance or reimbursement would be provided.

This employer would provide her with an automobile which would be leased at a cost of 

$ 850 per month, including a $ 75 per month payment for insurance. The employer will pay all of the operating costs of the automobile.

This employer would provide her with a $ 200,000 interest free loan in order to facilitate her investment activities. The loan will have to be repaid after five years.

Offer Two

This offer would provide her with a fixed salary of $ 175,000 per year, plus a commission on all of her sales. Ms. Booth estimates that for 2021, these commissions will total 

$ 85,000. The employer would reimburse her hotel, meal, and airline costs. With respect to advertising and promotion expenses, no allowance or reimbursement would be provided.

While this employer will not provide her with an automobile, the business will provide her with an allowance for using her own automobile of $ 1,500 per month. Ms. Booth estimates that for 2021 the total costs associated with driving her own vehicle will be as follows:

Operating Costs $ 10,600

Capital Cost Allowance (Tax Depreciation) (100%) 4,500

Financing Costs 1,800

Total $ 16,900

Other Information

The following information is applicable to either of the alternative offers.

1. She estimates that her employment related expenses during 2021 would be as follows:

Travel Costs (Hotel and Airline Costs) $ 18,000

Travel Costs (Meals) 8,500

Advertising and Promotion 23,000

2. Whether it is the employer’s automobile or her own personal vehicle, she would use the car throughout 2021. She expects to drive this vehicle a total of 53,000 kilometers during 2021, with 37,000 of these kilometers required by her employment activities.

3. Both offers include a group disability insurance plan for which the company will pay all of the premiums. The plan provides periodic benefits that compensate for lost employment income. This will cost the employer $ 4,500 per year.

4. Both offers include a $1,000,000 face value life insurance policy. All of the premiums, which will total $ 3,800 per year, will be paid by the employer.

5. Assume that the prescribed rate is 2 percent throughout 2021.

Required:

Based on the estimates made by Ms. Booth, calculate Ms. Booth’s minimum 2021 net employment income for each of the two offers. Ignore PST and GST considerations.

Question 2

Computer Wizards Ltd. has determined that its Net Income for Tax Purposes, before any CCA deductions, was $ 80,000, for the taxation year ending December 31, 2020. As Computer Wizards Ltd. does not have any Division C deductions, Taxable Income before any deductions for CCA would also amount to $ 80,000.

On January 1, 2020, Computer Wizards Ltd. had the following UCC balances:

Class 1 (Two Buildings) $ 700,000

Class 8 210,000

Class 10 140,000

Class 10.1 (BMW - Cost $ 195,000) 20,000

Class 10.1 (Mercedes - Cost $ 240,000) 40,000

Class 12 50,000

Class 13* 94,500

Class14.1 (Pre January 01, 2017 Acquisition) 195,300

* This balance reflects leasehold improvements made on January 1, 2018 at a total cost of $ 126,000. The original term of the lease was 4 years. However, there are two available renewal options, each allowing Computer Wizards Ltd. to renew for a period of two years.

During 2020, the cost of additions to Class 8 amount to $ 90,000, while the proceeds from dispositions in this class totaled $ 40,000. In no case did the proceeds of disposition exceed the capital cost of the assets retired, and there were still assets in the class as of December 31, 2020.

Instruction Files