Self Study Four One - Tax Payable at Alternative Rates

Barba and Sally Hines are common-law partners. Neither person has any tax credits other than the
personal or common-law partner credit.
This problem will consider three different Cases involving alternative levels of 2020 Taxable Income for
each individual as follows:

Case One Case Two Case Three

Barbra’s Taxable Income $42,000 $111,000 $222,000
Sally’s Taxable Income 180,000 111,000 Nil
Combined Taxable Income $222,000 $222,000 $222,000

For each Case, determine the combined federal Tax Payable for Barbra and Sally Hines for the 2020
taxation year.

Case One
In Case One, the combined Tax Payable would be calculated as follows:
Barbra’s Tax Payable
Federal Tax Before Credits [(15%)($42,000)] $6,300
Basic Personal Credit [($13,229)(15%)] (1,984) $4,316

Sally’s Tax Payable

Tax On First $150,473 $31,115
Tax On Next $29,527 ($180,000 - $150,473) At 29% 8,563
Federal Tax Before Credits $39,678
Basic Personal Credit [(12,799*)(15%)] (1,920) 37,758
Combined Tax Payable $42,074

*The base for Sally’s basic personal amount is calculated as follows:

$13,229 - [$931] [($180,000 - $150,473) / $63,895]

Case Two
In Case Two, the Tax Payable for each individual would be the same and the combined Tax Payable would be
calculated as follows:
Barbra’s Tax Payable
Tax On First $97,069 $17,230
Tax On Next $13,931 ($111,000 - $97,069) at 26% 3,622
Federal Tax Before Credits $20,852
Basic Personal Credit [(413,229)(15%)] (1,984) $18,868

Sally’s Tax Payable

Tax On First $97,069 $17,230
Tax on Next $13,931 ($111,000 - $97,069) at 26% 3,622
Federal Tax Before Credits $20,582
Basic Personal Credit [($13,229)(15%)] (1,984) 18,868
Combined Tax Payable $37,736

Case Three
In Case Three, only Barbra would have Tax Payable, which would be calculated as follows:
Tax On First $214,368 $49,645
Tax On Next $7,632 ($222,000 - $214,368) at 33% 2,519
Federal Tax Before Credits $52,164
Basic Personal Credit [(12,298*)(15%)] (1,845)
 Common-Law Partner Credit [($12,298)(15%)] (1,845)
Barbra’s Tax Payable $48,474

*Both Barbra’s basic personal credit and her common-law partner credit would be calculated as follows:
$13,229 - [$931] [($214,368 - $150,473) / $63,895]

Self Study Four Two - Personal Tax Credits (5 Cases)

In each of the following independent Cases, determine the maximum amount of 2020 personal tax
credits, including transfers from a spouse or dependant, that can be applied against federal Tax Payable
by the taxpayer. Ignore, where relevant, the possibility of pension income splitting.
A calculation of Tax Payable is NOT required, only the applicable credits.
1. Leonard Wilkins has Net Income For Tax Purposes of $104,300, all of which is rental income. His
spouse has Net Income For Tax Purposes of $8,720. Their daughter is 13 years old, lives with
them, and has Net Income For Tax Purposes of $3,240. Their son is 24 years old and, because
of a physical disability, continues to live with them. He has no income of his own. His disability is
not severe enough to qualify for the disability tax credit.
2. Pete Webb has Net Income For Tax Purposes of $74,200, all of which is employment income. His
employer withheld the maximum EI premium and CPP contribution. He is married to Eva Aguilar
whose Net Income For Tax Purposes is $3,920. They have three children aged, 6, 10, and 12. All
of the children are in good health and none of them have income of their own.
3. Candace Hall is 78 years old and has Net Income For Tax Purposes of $69,420. This total is
made up of OAS payments of $7,200 and pension income for her former employer. Her husband
is 62 years old and has Net Income For Tax Purposes of $5,130.
4. Gladys Crawford has Net Income For Tax Purposes of $126,470, all of which is rental income.
Her husband has Net Income For Tax Purposes of $2,600. They have three children, ages 10,
14, and 20. All of these children are in good health and continue to live at home. The 20 year old
child has Net Income For Tax Purposes of $9,130. During the current year, Ms. Crawford pays
the following medical expenses:
Gladys $5,150
Her Spouse 4,240
10 Year Old Child 2,040
14 Year Old Child 3,220
20 Year Old Child 8,840
Total $23,490
5. Austin Schnieder was divorced from his wife several years ago. He has custody of their four
children, ages 5, 8, 11, and 14. The children are all in good health. His Net Income For Tax
Purposes consists of spousal support payments totalling $62,000. Only the 14 year old child had
any income for the year. The 14 year old had Net Income For Tax Purposes of $10,350 during
the year.

Case 1
Leonard Wilkins will qualify for the following credits:
Basic Personal Amount $13,229
Spousal ($13,229 - $8,720) 4,509
Canada Caregiver 7,276
Total Credit Base $25,014
Rate 15%
Total Credits $3,752

Case 2
Pete Webb will qualify for the following credits:
Basic Personal Amount $13,229
Spousal ($13,229 - $3,920) 9,309
EI (Maximum) 856
CPP (Maximum) 2,732
 Canada Employment 1,245
Total Credit Base $27,371
Rate 15%
Total Credits $4,106

Case 3
Candace Hall will qualify for the following tax credits:
Basic Personal Amount $13,229
Spousal ($13,229 - $5,130) 8,099
Age [$7,637 - (15%)($69,420) - $38,508)] 3,000
Pension Income 2,000
Total Credit Base $26,238
Rate 15%
Total Credits $3,949

Note that, because her income is below the $79,054 income threshold, there will be clawback of Ms. Hall's OAS
receipts.
Case 4
Gladys Crawford will qualify for the following tax credits:
Basic Personal Amount $13,229
Spousal ($13,229 - $2,600) 10,629
Medical Expenses (See Note) 20,819
Total Credit Base $44,677
Rate 15%
Total Credits $6,702

Note: the claim for medical expenses is determined as follows:

Expenses For Gladys, Her Spouse, and Under 18 Children
($5,150 + $4,240 + $2,040 + $3,220) $14,650
Reduced By the Lesser Of:
● [(3%)($126,470)] = $3,794
● 2020 Threshold Amount = $2,397 (2,397)

20 Year Old’s Medical Expenses $8,840

Reduced By the Lesser Of:
● [(3%)($9,130)] = $274
● $2,397 (274) 8,566
Allowable Medical Expenses $20,819
Case 5
Austin Scheider will qualify for the following credits:
Basic Personal Amount $13,229
Eligible Dependant (See Note) 13,229
Total Credit Base $26,458
Rate 15%
Total Credits $3,969

Note: the eligible dependent credit can be taken for any child. It should not be claimed for the 14 year old as the
amount of the credit would be reduced because of his income.

Self Study Four Three - Personal Tax Credits (6 Cases)

In each of the following independent Cases, determine the maximum amount of 2020 personal tax
credits, including transfers from a spouse or dependant, that can be applied against federal Tax Payable
by the taxpayer.
A calculation of TaxPayable is NOT required, only the applicable credits.
 1. Ms. Jones is married and has Net INcome For Tax Purposes of $123,000, none of which is
employment income or income from self-employment. Her husband is currently unemployed, but
has interest income from investments of $3,750. Her 20 year old dependent son attends
university and lives at home. Her son has Net Income For Tax Purposes of $4,800 and does not
agree to transfer his tuition credit to her.
2. Ms. Martin is 66 years old and has Net Income For Tax Purposes of $28,750. This total is made
up of OAS of $7,400, plus pension income of $21,350 from a former employer. Her husband is 51
years old and blind. He has no income of his own. Ignore the possibility that Ms. Martin would
split the pension income with her husband.
3. Mr. Sharp has Net Income For Tax Purposes of $72,350, none of which is employment income or
income from self-employment. He lives with his common-law partner and her three children from
a previous relationship. The children are aged 13, 15, and 20. The 20 year child is dependent
because of a physical disability. However, the disability is not sufficiently severe to qualify for the
disability tax credit. Neither the common-law partner nor any of the children have any source of
income.
4. Mr. Barton was divorced two years ago and maintains a residence separate from his former
spouse. He has custody of the three children of the marriage, aged 8, 9, and 10, and receives
$2,500 per month in child support payments. Mr. Barton has Net Income For Tax Purposes of
$62,300, none of which is employment income or income from self-employment. None of the
children have any income on their own.
5. Ms. Cole has Net Income For Tax Purposes of $175,000, all of which is employment income. Her
employer has withheld and remitted the required EI and CPP amounts. She was married on
December 1, 2020. Her new husband is an accounting student with a large firm. His salary for the
period January 1 through November 30, 2020, was $33,000. For the month of December, 2020,
his salary was $3,000.
6. Mr. Smead has Net Income For Tax Purposes of $85,000, none of which is employment income
or income from self-employment. He lives in a residence that he has owned for many years. He
does not currently have a spouse or common-law partner. However, he has custody of his 10
year old son who lives with him. Also living with him with his 68 year old widowed mother. She
has a physical infirmity. However, it is not sufficiently severe for her to qualify for the disability tax
credit. Mr. Smead’s son had no income during the year. His mother had OAS benefits and
pension income totaling $18,500 during the year.

Case One
Ms. Jones will qualify for the following credits:
Basic Personal Amount $13,229
Spousal ($13,229 - $3,750) 9,479
Total Credit Base $22,708
Rate 15%
Total Credits $3,406

There is no tax credit available for her son.

Case Two
Ms. Martin will qualify for the following credits:
Basic Personal Amount $13,229
Spousal Including Infirm Amount ($13,229 + $2,273) 15,502
Age 7,637
Pension 2,000
 Spouse’s Disability 8,576
Total Credit Base $46,944
Rate 15%
Total Credits $7,042

As Ms. Martin’s Net Income For Tax Purposes is less than the relevant income thresholds, there will be no reduction
in her age credit or clawback of her OAS benefits.

Case Three
Mr. Sharp will qualify for the following credits:
Basic Personal Amount $13,229
Spousal 13,229
Canada Caregiver Amount (20 Year Old Child) 7,276
Total Credit Base $33,734
Rate 15%
Total Credits $5,060
Case Four
Mr. Barton will qualify for the following credits:
Basic Personal Amount $13,229
Eligible Dependant (Any Child) 13,229
Total Credit Base $26,458
Rate 15%
Total Credits $3,969
Case Five
Ms. Cole will qualify for the following credits:
Basic Personal Amount
$13,229 - [$931] [$175,000 - $150,473) / $63,895) $12,872
Spousal ($12,872 - $36,000) Nil
EI (Maximum) 856
CPP (Maximum) 2,732
Canada Employment 1,245
Total Credit Base $17,705
Rate 15%
Total Credits $2,656
Her husband’s income will have to be considered for the entire year and, with him having total income of $36,000
($33,000 + $3,000), the spousal credit will be eliminated.
Case Six
Mr. Smead will qualify for the following credits:
Basic Personal Amount $13,229
Eligible Dependant - Son 13,229
Canada Caregiver - Mother [$7,276 - ($18,500 - $17,085) 5,861
Total Credit Base $32,319
Rate 15%
Total Credits $4,848

Given the mother’s high level of income, the eligible dependent credit should be claimed for the son. This will allow
for the Canada caregiver credit to be claimed for the mother.

Self Study Four Five - Comprehensive Tax Payable

Mr. John Barth has been employed for many years as a graphic illustrator in Kamloops, British Columbia.
His employer is a large publicly traded Canadian company. During 2020, his gross salary was 82,500. In
addition, he was awarded a $20,000 bonus to reflect his outstanding performance during the year. As he
was in no immediate need of additional income, he arranged with his employer that none of this bonus
would be paid until the 2025 year of his expected retirement.
For the 2020 taxation year, the following items were relevant.
1. Mr. Barth’s employer withheld the following amounts from his income:
Federal Income tax $16,000
Employment Insurance Premiums 856
Canada Pension Plan Contributions 2,898
United Way Donations 2,000
Registered Pension Plan Contributions 3,200
Payments For Personal Use of Company Car 3,600
2. During the year, Mr. Barth is provided with an automobile owned by his employer. The cost of the
automobile was $47,500. Mr. Barth drove a total of 10,000 kilometres during the year, of which
only 4,000 kilometres were related to the business of his employer. The automobile was used by
Mr. Barth for ten months of the year. During the other two months, he was out of the country and
he was required to leave the automobile with one of the other employees of the corporation.
3. During the year, the corporation paid Mega Financial Planners a total of $1,500 for providing
counselling services to Mr. Barth with respect to his personal financial situation.
4. In order to assist Mr. Barth in purchasing a ski chalet, the corporation provided him with a five
year loan of $150,000. The loan was granted on October 1 at an interest rate of 1%. Mr. Barth
paid the corporation a total of $375 in interest for 2020 on January 20, 2021. Assume that, at the
time the loan was granted and throughout the remainder of the year, the relevant prescribed rate
was 2%.
5. Mr. Barth was required to pay professional dues of $1,800 during the year.
6. One June 6, 2020, when Mr. Barth exercised his stock options to buy 1,000 shares of his
employer’s common shares 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 2020,
the shares were sold at $18 per share.
7. Mr. Barth lives with his wife, Lynda. Lynda is blind and qualifies for the disability tax credit. She
has Net Income For Tax Purposes of $1,250.
8. His 22 year old dependent daughter, Marg, is a full time student for eight months of the year. She
has Net Income For Tax Purposes and Taxable Income of $15,300. She had withheld from her
employment income EI premiums of $242 [(1.58%)($15,300)] and CPP contributions of $620
[(5.25%)($15,300 - $3,500)]. Mr. Barth paid Marg’s tuition for 2020 of $6,300. She has agreed to
transfer the maximum tuition amount to her father.
9. Mr. Barth paid the following medical costs during the year:
For Himself $200
For His Wife 3,550
For Marg 720
Total $4,470
Calculate, for the 2020 taxation year:
a) Marg’s minimum federal Tax Payable and any carry forward amounts available to her at the end of the
year.

The Tax Payable calculation for Marg is as follows:

Taxable Income $15,300
Basic Personal Amount (13,229)
EI (242)
CPP [(4.95%)($15,300 - $3,500)] (584)
Canada Employment (1,245)
Subtotal $Nil
Note 1: Marg has a tuition amount available of $6,300. Because her Tax Payable is nil, she cannot use any of this
credit. This means the maximum of $5,000 can be transferred to her father. This will leave her with a carry forward
amount of $1,300 ($6,3000 - $5,000).

Since Marg’s medical expenses were paid for by her father, she cannot claim them herself and they must be claimed
by her father. Even if she had paid for them herself and claimed them, she would not increase the transfer to her
father as the medical expense tax credit is not taken into consideration in determining the tuition amount that can be
transferred.

b) Mr. Barth’s minimum Taxable Income and Federal Tax Payable (Refund).

Mr. Barth’s minimum Net Employment Income for the year would be calculated as follows:
Gross Salary $82,500
Additions:
Bonus (Note 2) 20,000
Automobile Benefit (Note 3) 7,580
Counseling Benefit (Note 4) 1,500
Imputed Interest Benefit (Note 5) 375
Stock Option Benefit [($18 - $15)(1,000)] (Note 6) 3,000
Deductions:
Registered Pension Plan Contributions (3,200)
Professional Dues (1,800)
Net Employment Income $109,955

Note 2: as the bonus is not payable until more than three years after the end of the employer’s taxation year, it is a
salary deferral arrangement and must be included in income under ITA 6(11).

Note 3: since Mr. Barth’s employment -related usage is not more than 50%, there is no reduction of the full standby
charge. In addition, he cannot use the alternative calculation of the operating cost benefit. Given this, the automobile
benefit is calculated as follows:
Standby Charge [(2%)($47,500)(10)] $9,500
Operating Cost Benefit [(6,000)($0.28)] 1,680
Payments Withheld (3,600)
Taxable Benefit $7,580

Note 4: counseling services, with the exception of those items specified under ITA 6(1), are considered taxable
benefits. The items specified under ITA 6(1)(a)(iv) are counseling with respect to mental or physical health or with
respect to re-employment or retirement. As a consequence, the counseling on personal finance is a taxable benefit.

Note 5: the imputed interest benefit is calculated as follows:

Taxable Benefit [($150,000)(2%)(3/12)] $750
Reduction For Interest Paid (375)
Net Addition to Employment Income $375

Note 6: as the option price was greater than the market price at the time the options were issued, one-half of this
amount can be deducted in the determination of Taxable Income. The adjusted cost base of the stock option shares is
equal to their fair market value at the exercise date ($18 per share). Since they were sold for $18 per share, there is
no capital gain or loss.

Taxable Income
Mr. Barth’s Taxable Income would be calculated as follows:
Net Employment Income $109,955
Deductible CPP ($2,898 - $2,732) (166)
Net Income For Tax Purposes 109,789
Stock Option Deduction [(½)($3,000)] (Note 6) (1,500)
Taxable Income $108,289

Tax Payable
Mr. Barth’s Tax Payable would be calculated as follows:
Tax on First $97,069 $17,230
Tax on Next $11,220 ($108,289 - $97,069) at 26% 2,917
Federal Tax Before Credits $20,147
 Basic Personal Amount ($13,229)
Spousal Including Infirm Amount ($13,229 + $2,273 - $1,250) (14,252)
Spouse’s Disability (8,576)
EI (856)
CPP (2,732)
Canada Employment (1,245)
Medical Expenses (Note 7) (1,614)
Marg’s Tuition Transfer (See Part A) (5,000)
Credit Base ($47,504)
Rate 15% (7,126)

Charitable Donations (Note 8)

[(15%)($200) + (29%)($2,000 - $200)] (552)
Net Federal Tax $12,469
Federal Income Tax Withheld During Year (16,000)
Federal Tax Payable (Refund) $3,531

Note 7: allowable medical expenses are as follows:

John and Spouse Medical Expenses ($200 + $3,550) $3,750
Reduced by the Lesser Of:
● [(3%)($109,955)] = $3,297
● 2020 Threshold Amount = $2,397 (2,397)

Marg’s Medical Expenses $720

Reduced by the Lesser Of:
● [(3%)($15,300)] = $459
● $2,397 (459) 261
Allowable Medical Expense $1,614

Note 8: as none of his income is taxed at 33%, this rate will note be applicable to the calculation of the charitable
donations tax credit.