BUSN-0171 Taxation 1

Assignment 1
Question 1

Ms. Sharon Herzog is employed with a large, publicly traded company. Her employment duties require
her to travel and the employer provides her with an automobile.

Sharon is allowed to use the automobile for personal use. However, there are some periods during the
year when she does not need the car for employment purposes and during these periods she is required
to return the car to her employer's premises where it can be used by other employees.

The car that she will use was purchased by her employer in 2021 for $45,200, including $5,200 in HST.
During the years 2021 and 2022, the company claimed maximum CCA.

During 2023, Sharon drove the car a total of 37,000 kilometers. The company pays all of her operating
costs which, during 2023 totaled $11,340.

Required: Indicate the minimum automobile benefit for 2023 in each of the following independent Cases:

Case 1 — The car is available for 9 months of the year. Personal use during the year totals 6,000
kilometers with 31,000 kilometers for employment purposes.
Case 2 — The car is available for 11 months of the year. Personal use during the year totals 28,000
kilometers with 9,000 kilometers for .employment purposes.
Case 3 — The car is available for 7 months of the year. Employment use during the year totals 18,600
kilometers and personal use 18,400 kilometers.
Question 2

Opting Inc. has a very generous stock option plan that allows all of their long term employees to
participate. Sandra has worked for the Company for over 10 years and has participated in this plan on a
regular basis. With regards to the last options granted to her, the following information is relevant:
• On January 1, 2021, Sandra was granted options to acquire 275 of the Company's shares at a price of
$15.00 per share.
• At a later point in time, when Sandra exercises these options, the Company's shares have a FMV of
$17.50 per share.
• On December 1, 2023, all of the shares acquired with the options are sold.

Required: Indicate the income tax consequences to Sandra of the transactions that took place during 2021,
2022, and 2023 under each of the following independent Cases. Your answer should include the effect on
employment income, net income and taxable income. Where relevant, identify these effects separately.

Case A — Opting is a CCPC. At the time the options were granted, the FMV of the Company's shares was
$16.00 per share. The options are exercised on February 28, 2021. When the shares are sold, the proceeds
of disposition are $20.25 per share.
Case B — Opting is a Canadian public company. At the time the options were granted, the Company's
shares were trading at $16.00 per share. The options are exercised on February 28, 2021. When the shares
are sold, the proceeds of disposition are $16.00 per share.
Case C — Opting is a Canadian public company. At the time the options were granted, the Company's
shares were trading at $14.00 per share. The options are exercised on July 1, 2022. When the shares are
sold, the proceeds of disposition are $19.75 per share.
Case D — Opting is a CCPC. At the time the options were granted, the Company's shares had a FMV of
$14.00 per share. The options are exercised on July 1, 2022. When the shares are sold, the proceeds of
disposition are $21.50 per share.
Question 3

Mr. Wallace Burns is a very successful executive with a Canadian public company. During 2023, he had
net and taxable income of $96,000, all of which was employment income.

The following five independent Cases make assumptions with respect to Wallace's marital status and
number of dependants, as well as provides other information that is relevant to the determination of his
2023 Federal income tax payable. In all cases, his employer withholds the required EI premiums ($1,002)
and CPP contributions ($3,754).

Case A — Wallace is married to Sharon Burns. Sharon has net income of $6,750. Their 20 year old son
Kenneth attends university on a full time basis during 11 months of the year. Wallace pays all of his son's
costs including $9,850 for tuition and $1,350 for textbooks. Through part time jobs, Kenneth has net
income of $4,620. Kenneth has agreed to transfer the maximum tuition amount to his father.

Case B — While Wallace has never been married, he obtained custody of his 8 year daughter Sheila,
when her mother, his high school girl friend, was killed in a car accident. Although he graduated several
years ago, Wallace still has a Canada Student Loan outstanding of $35,000. During the year, interest paid
on this loan totaled $1,750 and he paid down $5,000 of the principal.

Case C — Wallace is married to Sharon Burns. Sharon has net income of $4,580. Wallace's 82 year old
father, Wilbur and Sharon's 63 year old mother, Samantha live with Wallace and Sharon. Wilbur had net
income of $18,450, while Samantha had net income of $8,750. Both Wilbur and Samantha are in good
health.

Case D — Wallace is married to Sharon Burns. Sharon has net income of $5,785. Wallace and Sharon have
two children who are both in good health, Sonia is 10 years old and Zack is 8 years old. Neither child has
any net income. The family's eligible medical expenses were as follows:

Wallace $ 800
Sharon 1,200
Sonia 4,600
Zack 3,700
Total $10,300

Case E — Wallace has never been married and has no dependants. He is being treated by a psychologist
for post traumatic stress disorder, but it is not severe enough to obtain a doctor's certificate for the
disability tax credit. During the year he won $100,000 in the provincial lottery. He donates the entire
amount to Planned Parenthood, a registered Canadian charity. For 2023, he claims only $45,000 of the
total donation. Wallace also makes contributions to a federal political party in the amount of $1,200.
Required: In each Case, calculate Wallace's minimum 2023 Federal income tax payable. Indicate any
carry forwards available to him and his dependants and the carry forward provisions. Ignore any tax
amounts that Wallace might have had withheld or that might have been paid by instalments.