Taxation Year 2017: Calculation of Net Employment Income and CCA for Instant Solutions

Mr. David Hill's Minimum Net Employment Income Calculation

Mr. David Hill has been employed for many years as an accountant in Victoria, British Columbia. His employer is a large publicly traded Canadian company. During 2017, Mr. David Hill’s gross salary was $90,000. In addition, he was awarded a $30,000 bonus to reflect his exceptional performance in 2017. Mr. David Hill arranged with his employer that none of this bonus would be paid until 2022, the year of his expected retirement.

Other Information

For the 2017 taxation year, the following items were relevant.

1. Mr. David Hill's employer withheld the following amounts from his income:

1. During the year, Mr. David Hill was provided with an automobile owned by his employer. The cost of the automobile was $50,000. Mr. David Hill drove the car a total of 20,000 kilometres during the year, of which only 8,000 kilometres were related to the business of his employer. The automobile was used by Mr. David Hill for 10 months of the year. During the other 2 months, he was away on personal leave. He was required to leave the automobile with one of the other employees of the company.

2. During the year, the company paid $2,500 to Money Financial Planners for providing counseling services to Mr. David Hill, with respect to his personal finances.

3. In order to assist Mr. David Hill in purchasing a summer cottage in 2017, the company provided him with a 5-year loan of $200,000. The loan was granted on October 1 at an interest rate of 1%. Mr. David Hill, on January 20, 2018, paid the company a total of $504 in interest for 2017. Assume that, at the time the loan was granted and throughout the remainder of the year, the relevant prescribed rate was 2%.

4. Mr. David Hill was required to pay professional dues of $2,200 during the year, which he paid.

5. On June 6, 2017, when Mr. David Hill exercised his stock option to buy 1000 shares of his employer’s common stock at a price of $15 per share, the shares were trading at $18 per share. When the options were issued, the shares were trading at $12 per share. During December, 2017, the shares were sold for $20 per share.

Required: Calculate Mr. David Hill’s minimum net employment income for the year ending December 31, 2017. Provide reasons for omitting items that you have not included in your calculations. Ignore GST and PST considerations.

Question 3 (25 marks)

For its taxation year ending December 31, 2017, Instant Solutions has determined that its Net Income For Tax Purposes before any deduction for CCA amounts to $65,000. The company does not have any Division C deductions, so whatever amount is determined as Net Income For Tax Purposes will also be the amount of Taxable Income for the taxation year.

On January 1, 2017, the company has the following UCC balances:

During 2017, the cost of additions to Class 10 amounted to $130,000, while the proceeds from dispositions in this class totaled $80,000. The capital cost of the assets retired totaled $120,000. None of the individual assets sold had proceeds of disposition that exceeded their individual capital cost. There were still assets in Class 10 on December 31, 2017.

There were no acquisitions or dispositions in Classes 1, 8 or 10.1 during 2017. The company plans to sell the Mercedes in January, 2018, and expects to receive about $80,000.

During the preceding 3 years, the company reported Taxable Income totaling $39,000 for the 3 years.

Required:

1. Calculate the maximum CCA that could be taken by Instant Solutions for the taxation year ending December 31, 2017. Your answer should include the maximum that can be deducted for each CCA class.

6. As Instant Solutions’ tax advisor, indicate how much CCA you would advise the company to take for the 2017 taxation year, and the specific classes from which it should be deducted. Provide a brief explanation of the reasons for your recommendations. In determining your solution, ignore the possibility that 2017 losses can be carried forward to subsequent taxation years.