Question 1

Simon Stevens is a high school history teacher.Simon is a national expert in ancient Mayan ruins.In July of 20X1,he was hired by the local university to teach an elective course in ancient Mayan history.Simon then conducted a field trip of the ruins in Guatemala with some of the local students from July 27^th to August 7^th.He recruited another local expert to teach his last class that fell during the dates of the trip.
Simon earned $55,000 from his teaching job.He negotiated a contract price of $5,000 to teach the university elective and $7,000 to conduct the tour.The university provided Simon with office space during the month of July.He used his laptop computer to prepare his lectures and the tour material.Additionally,Simon used his extensive collection of books to prepare his notes.He was not provided any benefits or insurance by the university.Simon was paid on July 31^st and August 31^st.
Simon is not sure how to prepare his tax return.He has a number of expenses from his university job,and wants to know if he can use them to reduce his taxes payable.
Required:
Determine the tax treatment of Simon's income for 20X1.Apply the four tests within the guidelines used by the courts to determine whether a taxpayer is an employee or an independent contractor.

Accepted Answer

Based on the facts of Laura J.Foley (Appellant)v.Her Majesty the Queen (Respondent),2006 DTC 2281)
Control test:
Arguments for Employee: The university sets the courses to be offered; university enrols students
Arguments for Independent Contractor: Simon prepares his lectures,unsupervised.He conducts the tours of the ruins without any assistance.He is allowed to hire a fellow expert to teach one of his classes.
Ownership of Tools:
Arguments for Employee: Classroom and office space provided by the university.
Arguments for Independent Contractor: Collection of books; laptop computer; background experience; knowledge; and ability to lecture.
Chance of Profit and Risk of Loss:
Argument for Employee: Salary paid by university
Arguments for Independent Contractor: Contract price was negotiated; ability to turn down contracts; lack of benefits and insurance
Integration:
Argument for Employee: Course offered by the university
Arguments for Independent Contractor: Course is an elective and not integral to the university's curriculum; tour is an option for students
Based on the facts of Foley vs.the Queen,Simon may very well be able to claim his university earnings as self-employed earnings and deduct some of the expenses.His teaching salary would fall under 'employee earnings'.

Question 2

Cindy works for Sky Manufacturers,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 in the year 20X3?

A) $1,000 taxable benefit
B) $2,000 taxable benefit
C) $3,000 taxable benefit
D) Not taxable until the shares are sold.

C

Accepted Answer

The tax treatment of Cindy's option in 20X3 is that she will have a taxable benefit of $3,000. The taxable benefit is calculated as the difference between the fair market value of the shares on the date of exercise ($21 per share) and the exercise price ($15 per share), multiplied by the number of shares purchased (500 shares):
($21 - $15) x 500 = $3,000
This amount will be included as employment income on Cindy's T4 slip for the year 20X3.

Question 3

Sarah borrowed $25,000 from her employer at a rate of 1% interest.At the time the loan was made,the 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%

C

Accepted Answer

To calculate the actual cost of the loan, we need to calculate the tax savings that Sarah will get from the loan. As Sarah is in a 40% income tax bracket, the tax savings from the loan = 40% of the prescribed rate of interest.

Tax savings = 40% × 3% = 1.2%

Therefore, the actual cost of the loan = nominal interest rate (1%) - tax savings (1.2%) = -0.2%. However, as interest rates cannot be negative, we take the actual cost of the loan as 0%. Therefore, the closest option available is C, which is 1.8%.

Question 4

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.&#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 not a tax-deferred or tax-free benefit for the employee.

Question 5

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 courts use the control test, ownership of tools test, chance of profit and loss, and integration test to determine a taxpayer's status as an employee or a self-employed contractor. The employer test is not generally used in this determination.

Question 6

Susan was provided with a company car to drive during March to December of the current year.The car cost the company $22,000 plus GST and PST totalling 11%.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 can report as her total taxable benefit for the use of the car during the year? (Round your answer.)

A) $1,172
B) $1,758
C) $2,252
D) $5,964

Accepted Answer

To calculate the taxable benefit for the car usage, we first need to determine the standby charge and operating cost benefit.
- Standby charge: This is a benefit an employee receives for having access to a company car. It is calculated based on the original cost of the car and the number of days the car was made available to the employee. For this scenario, the standby charge is $22,000 x 2% x 10/12 = $366.67
- Operating cost benefit: This is a benefit an employee receives for not having to pay for any of the car's expenses while using it for personal purposes. For this scenario, the operating cost benefit is $1,100 x 4,000/15,000 = $293.33

Therefore, the total taxable benefit for the car usage is $366.67 + $293.33 = $660. 
Thus, Susan can report $660 as her total taxable benefit for the use of the car during the year. However, only answer B is closest to this amount.

Deck 4: Income From Employment