now imagine you are a student who read this question and understood the concepts,

now he want to make notes of the concepts so that he does not have to revisit to
read the entire question, he can just quickly look at key concept discussed in this
question and see how to treat it. Carol Tse is employed as a marketing manager for
TX Ltd., a Canadian-controlled private corporation. She is divorced and supports
her two children. In September 2022, Carol was transferred from Regina,
Saskatchewan, to TX Ltd.’s head office in Calgary, Alberta. Her 2022 financial
information is summarized below.
Carol receives a salary of $192,000. From this, TX deducts Canada Pension Plan
(CPP) of $3,500, Employment Insurance (EI) of $953, and income tax of $65,000.
During 2022, TX paid Carol’s premium of $720 for group term life insurance. She
sold shares of TX Ltd. for $30,000. She acquired the shares in 2018 under a stock
option arrangement for $12,000. At the time of purchase, the shares were valued at
$14,000. TX Ltd. indicated that all of its assets are being used in an active
business. In 2022, Carol received non-eligible taxable dividends of $3,000 from TX
Ltd.
Carol incurred moving expenses in 2022 of $7,000, which qualify as allowable
deductions for tax purposes.
In 2020, Carol inherited a small farm acreage. The farm is operated by a neighbour
who assumes 25% of the farm’s revenues and expenses. In 2022, Carol's share of the
profits was $6,000.
During the year, Carol sold a work of art for $3,000 that originally cost $2,000.
Carol’s 19-year-old daughter attended university for eight months in 2022 and paid
tuition fees of $8,000. She earned a salary of $6,000, from which the employer
deducted CPP/EI of $237. Carol’s son is 14 years old and earned income of $1,000
from a bond inherited from his grandmother. During 2022, Carol paid dental fees of
$2,500 on behalf of her son.
In 2022, Carol contributed $500 to a registered political party and $2,000 to
registered charities.
A review of Carol’s 2021 tax return shows the following amounts carried forward to
2022:
Net capital loss $    4,000
Listed personal property loss 2,000
Restricted farm loss 8,000
Unused capital gains deduction 210,000
Cumulative net investment loss (CNIL) 4,790
Required:
For the 2022 taxation year, calculate Carol’s net income for tax purposes, taxable
income, and federal income tax.
Solution (based on 2022 rates and amounts):
Before we complete the calculation, a few items require comment. 
Provincial tax  Carol earned income in two provinces in 2022. However, she will be
subject to provincial tax in Alberta because it is the location of her residence on
the last day of the taxation year (the Alberta tax is excluded from the
calculations). 
TX Ltd. shares  The TX Ltd. shares sold in 2022 are qualified small business
corporation shares and therefore eligible for the capital gains deduction. Also,
the shares were part of a stock option arrangement from 2017. The employment income
from the exercise of the option in 2017 is taxable in 2022 (the year of sale)
rather than in the year of acquisition, as would be the case if the shares were
from a public corporation (see Chapter 4). 
Page 394
CPP enhanced contributions  (5.7% – 4.95%) × (pensionable earnings $64,900 – basic
exemption $3,500) = $461 are the enhanced contributions and are deductible in
computing net income for tax purposes. The difference between the CPP contributions
deducted from the salary, $3,500 [5.7% × ($64,900 – $3,500)], and the enhanced
contributions of $461 are the base CPP contributions, $3,039, which are a non-
refundable tax credit.
Some items in the calculation can be claimed at the option of the taxpayer. These
were claimed in 2022 and are discussed in the solution.
Net income for tax purposes and taxable income:
Paragraph 3(a) Income
Employment income:
Salary     $192,000 
Group term life insurance premium     720 
Stock option (TX shares): 
         2,000 
194,720 
Business income: farming     6,000 
Property income: Non-eligible Canadian dividends

            3,450 
      204,170 
Paragraph 3(b) Capital gains & capital losses
Taxable capital gains:
TX shares:
  $8,000  
Net gain from listed personal property:
 Work of art: 
$1,000     
  LPP loss carried forward (1,000)    –0–      8,000 
      212,170 
Paragraph 3(c) Other deductions      
     CPP enhanced contributions (461)
     Moving expenses        (7,000)
Net income for tax purposes     204,709 
 
Deduct—Division C deductions:
Stock option reduction:     
(employment benefit)     (1,000)
Net capital loss      (4,000)
Restricted farm loss (to the limit of 2022 farming income)     (6,000)
Capital gains deduction (see note below)        (2,660)
   Taxable income     $191,049 
As indicated, the gain on the TX shares of $8,000 is eligible for the capital gains
deduction and there is a sufficient amount of unused deduction available ($210,000
as given in the question). However, the eligible gain of $8,000 must be reduced by
the net capital loss claimed in 2022 and the CNIL at the end of the year. The
capital gains deduction is therefore reduced to $2,660, as follows:
Table Summary: The table has three columns. Column one, rows three, five, and six
are indented; row seven is blank. Column two, rows one to four, and seven are
blank. Column three, rows two, four, and five are blank.
Qualified gain for the year   $8,000 
Deduct:
Net capital loss claimed   (4,000)
CNIL:    
Balance at end of 2021 4,790   
2022 property income: dividends (3,450) (1,340)
$2,660 
Page 395
It is important to remember that the deduction of the net capital loss in the
current year is optional. If it is not claimed in the current year, it can be
carried forward indefinitely. This would increase the amount available for the
capital gains deduction in the current year by $4,000. It may be prudent to do this
as there is always a possibility that the capital gains deduction will be cancelled
in a future year or that Carol will not have gains eligible for the capital gains
deduction
Federal income tax:    
On the first                     $155,625        $32,180 
29% × the remainder          35,424        10,273 
                                        $191,049   42,453 
Deduct personal tax credits:
Basic personal amount $14,398 – (net income $204,709 – taxable income above which
the 29% bracket begins $155,625) × ($1,679/$66,083)*  
$(13,151)
 
Equivalent to spouse (son has lowest income): 
 
(12,151)  
CPP/EI ($3,039 + $953) (3,992)  
Employment    (1,287)  
Tuition credit transfer from daughter (below)    (5,000)  
Total personal tax credit amounts $(35,581)  
Tax credit: 
$(5,337)  
Medical expenses:
(3)  
Charitable donations:
    (552) (5,892)
Deduct dividend tax credit—Non-eligible:
   
       (312)
      Basic federal tax   36,249 
Deduct other tax credit:
Political contributions:
      (350)
Total federal tax   $35,899 
$1,679 = maximum personal amount $14,398 – minimum personal amount $12,719.
$66,083 = Top tax bracket starting point $221,708 – 29% tax bracket starting point
$155,625
Tuition transfer from daughter  Since the daughter’s taxable income ($6,000) is
less than her basic personal tax credit amount, $14,398, none of the tuition is
needed to reduce her federal tax to nil. The maximum amount that can be transferred
to the parent is $5,000. The remaining $3,000 unused amount is available to be
claimed by the daughter in any future year. Remember, the transfer of the unused
tuition credit is optional. The daughter can choose to retain the unused credit and
carry it forward (indefinitely) to be used in a future year when she earns
sufficient income. So the daughter could keep the entire amount for her own future
use.