Financial Report for Diana Homes: Tax Calculation and Investment Planning

Diana Homes is a management consultant by profession, and she works as a freelance consultant for 3 prominent corporations in British Columbia.

Following are some personal details of Diana Homes

1. Full Name – Diana Jones Homes
2. Date of birth - January 14th, 1988
3. Status in Canada – Canadian Citizen

Diana is married to David and the Homes family has one child; marie who is currently 3 months old. (In this assessment your focus will be on Diana and her annual income). For the year 2021, Diana recorded a total income of $132,000 and qualifies for both the federal and provincial tax credits (the federal basic personal amount $13,808 applied at a 15% tax rate, the provincial basic personal amount $11,070 applied at a 5.06% tax rate). Furthermore, Diana donated $15,000 to a church located in Burnaby, BC.( Diana plans to claim all donations to reduce her effective tax rate)

Diana banks with the Royal Bank of Canada (RBC), in which she maintains a chequing and a savings account. On the day of filing tax Diana’s bank details were as follows;

Chequing account balance - $ 6,500 Savings account balance - $ 82,000

The marginal tax rate for each tax bracket is as follows.

Source – taxtips.ca

Furthermore, Diana uses a visa credit card from RBC and her average spending per month amounts to $2000. Diana currently lives on rent, and she plans to purchase her first apartment in the year 2028. Considering her forecasted income, she plans to purchase an apartment within a price range of $500,000 - $600,000 from the lower mainland.

Diana is currently looking for options to grow her funds as well as defer her tax through low-risk investment options. (She expects her income to grow every year). Hence, she is looking for your advice. Now, Diana is considering two options for her former objective

• Registered Retired Savings Plan (RRSP)
• Tax-Free Savings Accounts (TFSA)

Diana has an RRSP contribution limit of $12,200 and a TFSA contribution limit of $10,600 for 2021.

Assume you are a financial consultant and you have received all the above information regarding Diana, and she wishes to clarify the following from you. An extract from her email to you is as follows;

“To – Financial Consultant From – Diana Homes

Dear Financial Consultant,

Considering my financial situation and future plans, can you please compile a report which addresses the following;

1. The amount of tax I will pay to the CRA (without any contributions to RRSP or TFSA). Please ignore my husband’s income since I wish to know the amount I will pay to the

CRA individually. For knowledge purposes, please show me workings for each step of the former calculation.

2. I am planning to invest $10,000 in an RRSP with a rate of return of 3% per annum which would mature in 5 years’ time (Guaranteed Investment Certificate). If I go ahead with this

1. 1. Calculate the revised tax payable ( for me individually) to the CRA along with the former contribution to the
   2. Advise/Recommend me, when my investment grows, how will this defer my tax while in the RRSP?
   3. Considering my annual income and my current financial status, is it a good move to purchase my first house? If so, how do you think I should invest in the former? justify your arguments as to why you think it is both feasible and beneficial for me.
   4. Advise/Recommend me of the implications if I access funds in the RRSP to buy my first ( what government benefits can I get, please quantify your alternatives with suitable justifications)

3. I am also interested in a TFSA; can you please advise me on the following;

1. 1. How does a TFSA differ from an RRSP?
   2. Recommend me as to how does the TFSA fit into my portfolio? What should I invest in?
   3. Recommend me, how much should I invest in a single TFSA investment? considering my financial situation.