Question 8 (32 minutes) [Chapter 3]

Ima N. Employee, a senior production manager and corporate director of Valleytown Industries
Ltd. (VIL), of Dundas, Ontario, received the following amounts and benefits from her employer
during 2022. The corporation is a Canadian-controlled private corporation, having no shares
listed on a stock exchange.
1.
Salary, gross $140,000
Payroll deductions:
Income taxes $38,000
Canada Pension Plan premium (enhance portion is $461) 3,500
Employment Insurance premium 953
Group accident disability insurance premiums 600 (43,053)
Net pay $ 96,947

2. Director's fees of $3,400 received from VIL.

3. Ima exercised a stock option to buy 1,000 shares of VIL at $25 per share. The fair market
values at the date of grant (August 2021) and purchase (July 2022) were $24 per share and $27
per share, respectively. Also, in 2022, Ima was granted an option on an additional 1,000 shares,
which had a fair market value of $29 per share at the time. The exercise price is $26.

4. A cash birthday gift of $450 was paid to Ima. VIL corporate policy was to deduct such gifts.

5. Ima and her life partner were provided with the company's condo in Colorado for two weeks
during the winter ski season. They had to pay VIL $1,500 for accommodations that would
otherwise have cost them $3,400. Ima was not involved in any business activities during this
trip.

6. Ima’s life partner accompanied her on a business trip to Cuba that was paid for by her
employer. The main purpose of the trip was for Ima to work with a customer. Her life partner
performed no business function during the trip. They did not extend their trip to include a
vacation. Ima’s expenditures of $5,000, including applicable taxes, were paid by VIL and
were reasonable in relation to the business function. The portion of the travelling expenses
related to Ima’s life partner were also paid by VIL and amounted to $1,000, including
applicable taxes.

7. During 2022, VIL paid for Ima to have her income 2021 tax return prepared by the
company’s accountants at a cost of $375, including HST.

8. During the year, VIL provided its employees with free meals in the company cafeteria. Ima’s
meals cost the company $1,100 to prepare and serve. The meals would have cost Ima $1,900
in a similar commercial restaurant.
9. VIL provided Ima with a car, which they bought January 3, 2021.

Capital cost of the car including applicable taxes $38,529

Capital cost allowance claimed by company in 2021 15,255
Operating costs paid by the company 4,300
Kilometres driven in 2022 as per Ima’s log:
Business use 7,600
Personal use 2,400
Amount paid by Ima to VIL for personal use at $0.20 per kilometre
(2,400 km × $0.20) 480

10. In May 2022, Ima was in a production accident and was unable to work for six weeks. During
this period, she received disability payments totalling $11,538 from Star Life and Disability
Assurance Co. All disability insurance premiums were paid by Ima through payroll
deduction.

11. VIL paid Ima an allowance of $18,000 to cover the cost of moving from Gander,
Newfoundland, to Dundas, Ontario, plus a $35,000 payment in respect of an actual loss on
the sale of her former home. Ima's newly acquired home in Dundas required some major
renovations. While the Dundas property was not inhabitable, VIL provided Ima with a
company-owned apartment. Ima stayed in the apartment for two months, paying $300 per
month, while rent in this building for a similar unit was $1,000 per month.

12. VIL made available in-house staff to provide Ima with tax planning advice valued at $800,
including applicable taxes.

13. During the holiday season in 2022, VIL gave all of its employees wrist watches that cost the
company $150, including applicable taxes. The company claimed these costs as a business
expense in computing corporate taxable income.

14. The company installed recreational facilities at its head office. All employees are permitted to
use these facilities free of charge. The equivalent value for similar facilities at a private club
would be $1,100 per year, including applicable taxes.

Required:

(a) Calculate Ima’s employment income inclusions for 2022 in accordance with the
provisions of the Act and the CRA’s administrative position as reflected in IT-470R and
related announcements.

(b) Briefly explain why any items were omitted from the calculations above.