Taxation — Integrated Problem 4

Scenario (100 minutes)

It is July 6, 2023, and you, CPA, work for the public accounting firm Murphy and Chan
LLP. A few weeks ago, Sarah Duperron, a long-time client, met with you and provided
you with most of the information required to prepare her 2022 personal tax return. You
have done the return up to the calculation of taxable income. Sarah has now provided
you with the remaining information needed to complete her tax return. (Appendix I).

Up until now, Sarah’s husband, Murray, has always dealt with all family tax issues.
Sarah is happy with the answers you previously provided to her questions about the
calculation of taxable income. Now she would like to understand the tax credits that she
can claim in determining her tax payable.

Sarah understands her return will be filed late and anticipates being able to file her
return and pay any taxes owing by July 15, 2023. She would like you to estimate any
penalties and/or interest that she will owe because of filing her return late. Sarah has
provided a summary of information from her 2022 instalment reminder notices
(Appendix II).

Sarah’s friend mentioned that the Canada Revenue Agency (CRA) had recently sent
her a letter indicating that she had to pay some additional tax due to the sale of her
personal home. Sarah understands from your previous communication to her that she
can claim a principal residence exemption on the sale of her personal home but
wonders about the implications if the CRA reassesses her return. She would like to
know what steps can be taken if she is reassessed by the CRA, including the deadlines
for each step (if applicable).

Task #1

Starting with the taxable income calculation you previously prepared (See the solution
to IP03), determine Sarah’s federal income taxes payable (using Excel), including
personal tax credits and personal taxes payable.

Your response should be no longer than half a page, excluding any Excel files.

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2022-11-02
Taxation — Integrated Problem 4 Problem

Task #2

Prepare a memo explaining the tax credits that Sarah is entitled to claim.

Your response should be no longer than two pages.

Task #3

Prepare a memo addressing the possible penalties and/or interest arising as a result of
Sarah late paying her tax and filing her tax return late. Assume the CRA prescribed rate
for any relevant period is 2%. Also address Sarah’s concerns about the reassessment
of the sale of her house.

Your response should be no longer than three pages.

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Taxation — Integrated Problem 4 Problem

Appendix I
Additional information provided by Sarah

Tuition: Sydney attended Queen’s University full time for one semester from
September 2022 to December 31, 2022. Eligible tuition paid was $4,135.

Instalment Payment Summary

This summary shows instalment payments that we processed as of March 31, 2023.
Payments processed after this date can be viewed online immediately; otherwise they
will appear on the summary that we will mail to you in July 2023.

Date Description Amount

February 5, 2022 Payment $ 5,000.00
May 15, 2022 Payment 5,000.00
June 21, 2022 Payment 7,500.00
Total payments received for 2022 $17,500.00

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Appendix I (continued)
Additional information provided by Sarah

Date: March 24, 2022 Receipt No. 576

Donated By: Sarah Duperron
Street Address: 123 Lakeshore Drive
City: Fredericton Prov: NB PC: E3A0A3
Amount Received by Charity: $250

Authorized signature:

Grow Food at Home

GrowFood.net
Official Receipt for Income Tax Purposes
Charitable Registration #87654321900
Tax ID#: 003
Canada Revenue Agency website:
canada.ca/charities-giving

Thank you for your generosity. We appreciate your support!

DONATION RECEIPT

Date: Feb 26, 2023 Receipt No. 1234

Donated By: Sarah Duperron
Street Address: 123 Lakeshore Drive
City: Fredericton Prov: NB PC: E3A0A3

Amount Received by Charity: $250

Land Rovers
Authorized signature:
St. John’s, NL
LandRovers.org
Official Receipt for Income Tax
Purposes
Charitable Registration
#4321234512
Tax ID #: 001
Canada Revenue Agency website:
canada.ca/charities-giving

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Appendix I (continued)
Additional information provided by Sarah

Date: April 25, 2022 Receipt No. 1329

Donated By: Sarah Duperron
Street Address: 123 Lakeshore Drive
City: Fredericton Prov: NB PC: E3A0A3
Amount Received by Charity: $200

Authorized signature:
Save the Horses
Horsesrus.ca
Official Receipt for Income Tax Purposes
Charitable Registration #518495834
Tax ID #: 004
Canada Revenue Agency website:
canada.ca/charities-giving

FEDERAL POLITICAL CONTRIBUTION

Environmentalist Date: June 30, 2022 Receipt No. 9999
Party of Donated By: Sarah Duperron
Canada
Street Address: 123 Lakeshore Drive
Ottawa, ON
City: Fredericton Prov: NB PC: E3A0A3

Amount Received: $750

Authorized signature:

DONATION
RECEIPT Date: Feb. 28, 2022 Receipt No. 3212

Donated By: Sarah Duperron

Street Address: 123 Lakeshore Drive

City: Fredericton Prov: NB PC: E3A0A3

Amount Received by Charity: $500

Meaford Big Authorized signature:

Apple Fund

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Appendix I (continued)
Additional information provided by Sarah

Doctor Bob Dentist

987 Main Street
Fredericton, NB
E3A 0A5
Sarah Duperron — 123 Lakeshore Drive, Fredericton, NB E3A 0A3
Date Patient Description Performed by Amount
11-21-21 Logan Duperron Panoramic file Dr. Bob $280.00
12-21-21 Logan Duperron Extraction Dr. Bob $505.00
12-28-21 Logan Duperron Extraction Dr. Bob $505.00
02-02-22 Marisa Duperron Cleaning Dr. Bob $165.00
03-05-22 Marisa Duperron Filling Dr. Bob $175.00
04-05-22 Marisa Duperron Filling Dr. Bob $175.00
04-05-22 Logan Duperron Cleaning Dr. Bob $165.00
07-14-22 Sarah Duperron Cleaning Dr. Bob $165.00
09-23-22 Sarah Duperron Crown Dr. Bob $750.00
12-22-22 Sarah Duperron Root canal Dr. Bob $1,200.00
Balance $4,085.00
paid
All amounts were paid in full on the date performed.

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Appendix II
Summary of CRA required instalments for 2022

Payment due date Amount

March 15, 2022 $ 5,000
June 15, 2022 5,000
September 15, 2022 3,750
December 15, 2022 3,750

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