Question

In 2020, Melinda is a resident of Quebec and earns a gross salary of $100,000 from Bombardier. In her investment portfolio she sold 1,000 of her Spotify shares for $15,000 (she had originally purchased 2,000 shares a few years back for $8,000). She also received taxable dividends of $15,000 (eligible dividends). On October 1, 2020, Melinda made a Registered Retirement Savings Plan (RRSP) contribution of $10,500 which she will claim on her 2020 tax return. On the same day, she also made a contribution to her Tax-Free Savings Account (TFSA) for $2,000. Which statement is false?

a.Melinda’s dividends have been grossed-up and are eligible for a dividend tax credit on the $15,000 Melinda has capital gain of $7,000

b.Melinda has a taxable capital gain of $5,500

c.Melinda’s total income is $120,500

d.Melinda’s taxable income is $110,000

Answer 1

Option a) is a false statement as Capital gain is $11,000 NOT $7,000.

Wrokings:

1) Caiptal Gain Calculation-

Capital Gain is the total profit gained from the sale of stocks, bonds, precious metals and property i.e. net of aquisition amount and amount at which the shares are sold.

As per 'Revenu Quebec 2020'; 50% of realized capital gains are taxable in canada-Quebec.

S.No.	Particulars	Amounts in USD
i	1000 Share Acquired at (8000 USD/2000 shares)* 1000 shares sold	4000
	Selling Price	15000
	Capital Gain (acquired- sold)	11000
ii	Taxable Capital Gain (11000*50%)	5500

2) Dividend of $15000:

Any dividend(eligible) which is paid by canadian corporation to a resident of canada; will be available to claim tax credit on dividend amount i.e. $15000.

3) Tax-Free Savings Account (TFSA) for $2,000:

Contribution to TFSA are not deductible while calculating taxable Income, however income earned in a TFSA is tax free.

4) Taxable Total Income Calculation:

S.No.	Particulars	Amounts in USD
i	Gross Salary	100,000
ii	Taxable Capital Gain (11000*50%)	5,500
iii	Eligible Dividend	15,000
iv	Total Income	120,500
v	Less: RRSP Contribution	(10,500)
vi	Taxable Total Income	110,000