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:

Question

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:

Quizplus · Accepted Answer

The Answer is

Omitted items:
Employer's portion of CPP, EI
Income tax deducted
Employer's contribution to RPP - specifically exempt
Kate's CPP, EI - deduction not allowed, eligible for non-refundable tax credit
Cell phone, dry-cleaning, suits - not deductible - personal expenses
Merchandise at cost-tax-exempt benefit
B) The shares are from a Canadian controlled private corporation. Therefore, Kate either has to hold the shares for two years after acquisition, or the option price must be equal to or greater than the fair market value at the option date. Neither of these requirements has been met. Therefore, Kate will not be able to deduct the stock option deduction in arriving at her taxable income.

Kate Bell Was Employed by the Tea Shop Ltd