Question 1

Susan was provided with a company car to drive from March 1^st to December 31^st of the current year.The car cost the company $22,000,plus GST (5%)and PST (6%).Susan drove the car a total of 15,000 kilometres during the year.11,000 kilometres were for business purposes and the other 4,000 kilometres were for personal use.Susan's employer pays for all of the vehicle's operating costs which totaled $1,100.What is the minimum amount that Susan will report in total taxable benefits as a result of the above information? (Round your answer to the nearest dollar.)

A)$1,172
B)$1,758
C)$2,212
D)$6,901

Accepted Answer

The taxable benefit for personal use of a company car includes both the standby charge and the operating cost benefit. The standby charge is calculated as 2% of the cost of the car (including taxes) per month, prorated for personal use. The operating cost benefit is calculated as a fixed rate per personal kilometre driven.

Question 2

Which of the following,when provided by an employer,is NOT a tax-deferred or tax-free benefit for the employee?&#10;A)Premiums for private health care plans providing extended health coverage beyond a public plan&#10;B)Counselling services to prepare the employee for retirement&#10;C)Contributions to the employee's registered pension plan&#10;D)A near-cash gift for the employee's wedding

Accepted Answer

A near-cash gift for the employee's wedding is considered taxable income and is subject to payroll taxes. The other options listed are tax-deferred or tax-free benefits.

Question 3

Cindy works for Sky Manufacturers Ltd.,which is a public corporation.In 20x1 she was offered an option to purchase shares at $15 per share from her employer.The fair market value on that day was $17 per share.The option had a four year exercise time-limit.Cindy exercised her option in 20x3 and purchased 500 shares.The fair market value at that time was $21 per share.What is Cindy's tax treatment of this option on her 20x3 tax return?

A)$1,000 taxable benefit and no security option deduction
B)$1,000 taxable benefit and a 50% security option deduction
C)$3,000 taxable benefit and no security option deduction
D)$3,000 taxable benefit and a 50% security option deduction

C

Accepted Answer

Under Canadian tax law, when an employee purchases shares through a stock option plan, there is generally a taxable employment benefit. The taxable benefit is equal to the difference between the fair market value of the shares at the time of exercise and the price paid for the shares. In this case, Cindy's taxable benefit would be ($21 - $15) x 500 = $3,000.

As a public corporation, Sky Manufacturers Ltd would not qualify for the security option deduction, so Cindy would not be eligible to claim a 50% deduction on her taxable benefit. Therefore, the correct answer is C - $3,000 taxable benefit and no security option deduction.

Question 4

Sarah borrowed $25,000 from her employer at a rate of 1% interest.At the time the loan was made,CRA's prescribed rate of interest was 3%.Sarah is in a 40% income tax bracket.What is the actual cost (rate)of Sarah's loan? (Assume there are no fluctuations in the prescribed rate of interest.)

A)1%
B)1.2%
C)1.8%
D)2%

Accepted Answer

To calculate the actual cost of the loan, we need to use the formula:

Actual Interest Rate = Prescribed Rate x (1 - Marginal Tax Rate)

Plugging in the values, we have:

Actual Interest Rate = 3% x (1 - 40%) = 3% x 0.6 = 1.8%

Therefore, the answer is C) 1.8%.

Question 5

An individual has the option to receive a $1000 annual bonus and invest the after-tax amount for 25 years,or receive $1000 per annum in a registered pension plan for the next 25 years.Assuming a constant rate of return of 8% and a tax rate of 40%,what will be the total after-tax difference between the two plans? Show all of your work.

Accepted Answer

The answer of An individual has the option to receive...

Question 6

Kate Bell was employed by The Tea Shop Ltd.(a Canadian controlled private corporation)from January to December of 20x4.She earned a gross salary of $72,000.
The following were deducted from her pay during the year:
The following amounts were paid by The Tea Shop Ltd.in 20x4 on Kate's behalf:
Additional information:
On January 15,20x2,Kate was given an option to purchase 500 shares of The Tea Shop for $5.00 per share.The market value of the shares on that date was $5.50.Kate exercised her option on June 1,20x3 when the shares were valued at $7.00.She then sold the shares on March 17,20x4 when the market value was $8.00 per share.
Kate pays $50 a month for her cell phone which she uses to keep in touch with friends and family.She also pays $80 a month to dry-clean her suits,and she purchases a new suit valued at $200 every three months.Kate purchased $300 worth of merchandise (at cost)from her employer during the year.The retail value of the merchandise was $500.
Kate contributed $1,000 to her RRSP during the year.
Required:

A)Calculate Kate's minimum net income for tax purposes for 20x4,in accordance with Section 3 of the Income Tax Act.Identify items that have been omitted in your calculations.(Kate minimizes her tax liability whenever possible.)
B)Will Kate be able to deduct the stock option deduction to arrive at her taxable income? Why or why not?

Accepted Answer

The answer of Kate Bell was employed by The Tea...

Question 7

Andy worked for High Speed Bikes Inc.from March 1^st to December 31^st during 20x1.He earned a monthly base salary of $4,000,plus 1% commission on all of his sales.During 20x1,Andy's sales totaled $800,000.Andy was required by his employer to pay for his employment expenses.He traveled out of his city most days in order to sell to customers in surrounding towns.He received a monthly allowance of $500 to cover his traveling costs (which has been accurately recognized as 'unreasonable').Andy and his employer each contributed $2,000 to the company's registered pension plan in 20x1
Andy provided you with the following receipts for 20x1:

Andy worked for High Speed Bikes Inc.from March 1<sup>st</sup> to December 31<sup>st</sup> during 20x1.He earned a monthly base salary of $4,000,plus 1% commission on all of his sales.During 20x1,Andy's sales totaled $800,000.Andy was required by his employer to pay for his employment expenses.He traveled out of his city most days in order to sell to customers in surrounding towns.He received a monthly allowance of $500 to cover his traveling costs (which has been accurately recognized as 'unreasonable').Andy and his employer each contributed $2,000 to the company's registered pension plan in 20x1 Andy provided you with the following receipts for 20x1: Andy purchased a new vehicle for work during the year,and drove it a total of 25,000 kms while employed at High Speed Bikes.12,000 of these kilometres were for business.The vehicle cost Andy $32,000 plus GST of 5% and PST of 5%.Work-related interest payments on the car loan totaled $200 per month. Required: Calculate Andy's employment income for 20x1 in accordance with Section 3 of the Income Tax Act<div style=padding-top: 35px>

Andy purchased a new vehicle for work during the year,and drove it a total of 25,000 kms while employed at High Speed Bikes.12,000 of these kilometres were for business.The vehicle cost Andy $32,000 plus GST of 5% and PST of 5%.Work-related interest payments on the car loan totaled $200 per month.
Required:
Calculate Andy's employment income for 20x1 in accordance with Section 3 of the Income Tax Act

Accepted Answer

The answer of Andy worked for High Speed Bikes Inc.from...

Question 8

Steven is employed by Big Rigs Inc.,a Canadian controlled private corporation.Steven earned $85,000 in 20x1.During the year,the following occurred:
A cash bonus of $8,000 was announced on December 3^rd,to be paid to Steven on January 10^th of the following year.
Steven was provided with a company car which he drove all year.The cost of the car (including taxes)was $40,000.All operating costs were paid by the employer.Steven drove the car 21,000 kilometres in 20x1,of which 10,000 kilometres were for personal use.
Steven and Big Rigs each contributed $5,000 towards Steven's registered pension plan.
Steven was presented with a watch from Big Rigs,valued at $200,on his birthday.
The company provided Steven with a $200 cell phone to be used for business purposes.
In January of 20x1,Big Rigs loaned Steven $15,000 at a rate of 1% interest.The CRA's prescribed rate of interest during the year was 3%.
In January,Steven was offered a stock option to purchase 2000 shares in Big Rigs at a cost of $8.00 per share.At that time,the fair market value per share was $9.00.Steven exercised his option in February when the market value had risen to $9.50 per share.At the end of the year,Steven had not sold any of the shares,and he was hoping to purchase more shares in the company in the upcoming year.
Big Rigs provided Steven with a $25 meal allowance every week due to the two hours of overtime that he was required to work each Wednesday immediately following his eight hours of regular work.
Steven's annual union dues totaled $850,which was deducted from his pay.
Required:

A)Calculate Steven's minimum employment income for tax purposes in accordance with Section 3 of the Income Tax Act.
B)Identify any items that have been omitted in your calculations,and briefly explain why.

Accepted Answer

The answer of Steven is employed by Big Rigs Inc.,a...

Question 9

Which of the following factors are used by the courts in order to determine a taxpayer's status as an employee or a self-employed contractor?&#10;A)control test, ownership of tools test, chance of lawsuit, integration test&#10;B)control test, employer test, chance of lawsuit, integration test&#10;C)control test, ownership of tools test, chance of profit and loss, integration test&#10;D)control test, employer test, chance of profit and loss, integration test

Accepted Answer

The factors used by the courts to determine a taxpayer's status as an employee or a self-employed contractor are:
1) Control test: Whether the taxpayer has the right to control the details of how the work is performed
2) Ownership of tools test: Whether the taxpayer provides their own tools and equipment
3) Chance of profit and loss: Whether the taxpayer bears the financial risk of the business
4) Integration test: Whether the taxpayer's work is an integral part of the employer's business
Option C correctly lists all of these factors. Option A is incorrect because it includes "chance of lawsuit" instead of "chance of profit and loss". Option B is incorrect because it includes "employer test" instead of "ownership of tools test". Option D is also incorrect because it includes "employer test" instead of "ownership of tools test".

Deck 4: Income From Employment