Question

Olin Packett is a CGA-CPA and has been employed for over 5 years by a Canadian private corporation and recently promoted to a management position. He works in their Victoria, BC office. For 2017, his gross salary was $120,000. While he does not receive commissions, he was awarded a bonus of $10,000 for 2017 based on the performance of the business. One-half of this was paid in February 2018, with the balance paid in March 2018. The following amounts were withheld from his gross salary in 2017: Federal Income Tax $25,000 Employment Insurance Premiums 955 Canada Pension Plan Contributions 2,544 Registered Pension Plan Contributions 5,000 Charitable contributions (Centraide) 1,000 Other Information: 1. During 2017, Olin was provided with an automobile that the corporation bought at a cost of $75,300, including all taxes. The total operating costs of the car were $4,200 for the year and they were all paid by the corporation. The car was available to Olin the entire year, except that he didn't use the car for a 2-month period while he was in hospital due to a sky-diving accident. Olin drove the car a total of 33,000 kms during the year, all but 7,500 kms were employment related (fully documented). Olin reimbursed his employer $1,000 for his personal use of the automobile for the year. 2. During 2014, Olin was granted the option to buy 1,000 shares of his employer's common shares at a price of $31.00 per share. At that time, the shares were worth $33.00 each. On June 1, 2015, Olin exercised his option and acquired 1,000 shares at $31 each. At that time, the shares were worth $37.00 each. Olin sold all the 1,000 shares on May 1, 2017 for proceeds of $45.00 per share. 3. In order to assist Olin in purchasing a new luxury boat, his employer granted him a 3-year, interest-free loan of $175,000. The loan was granted on July 1, 2017. At that time, the interest rate on an open 5-year mortgage was 4.5%. The prescribed interest rate for 2017 was 2% for the period of July to September and 2.5% for the period of October to December 2017. 4. Olin has been a member of his employer’s defined benefits Registered Pension Plan ("RPP") for the last 3 years. For 2017, his employer made a $5,000 matching contribution to the RPP on his behalf. 5. Other disbursements made by Olin during 2017 include the following: Tuition fees for a business management course $1,500 Tuition fees for a sailing course $1,000 Professional dues paid to CPA association $1,600 Premiums paid on life insurance policy $720 Mortgage payments on home $24,000 Olin's employer reimbursed the tuition fees for both the business management and the sailing courses but none of the other costs paid personally by Olin, given his recent promotion to a manager's position. Required: Calculate Olin's net employment income for tax purposes for the year 2017. Explain your answer, including detailed calculations, and provide reasons for omitting items that you have not included in your calculations. Ignore all GST/HST considerations. Assume all applicable elections were made.

Answer 1

Calculation of net employment income of Olin Packett (CGA, CPA) for tax purposes for the year 2017
Particulars	Amount ($)	Amount ($)
Gross Salary	1,20,000
Bonus (to be considered on cash / receipt basis in 2018)	-	1,20,000
Automobile (Perquisite):
Operating cost borne by the company	4,200
Less: reimbursed by Olin to the company	-1,000	3,200
(The capital cost of the automobile, number of kilometers travelled, etc. would be irrelevant here)
Sale of company's shares earlier purchased at discounted price (Capital Gain):
1000 shares sold @$45/- per share	45,000
Less: cost of the shares (being the market price of $37/- per share) (Since Olin must have already paid tax in the respective year on the differential amount of market price being $37/- and the exercise price being $31/- as a perquisite)	-37,000	8,000
Interest free loan (Perquisite):
Market rate of interest would be taxable in the hands of Olin ($1,75,000@2% for 3 months + $1,75,[email protected]% for balance 3 months)		1,969
Registered Pension Plan ("RPP") (Perquisite):
Olin's contribution paid by the employer		5,000
Tution fees reimbursed by the employer (Perquisite):
Tuition fees for a business management course	1,500
Tuition fees for a sailing course	1,000	2,500
Less: Deductions from income:
Tuition fees for a business management course paid by Olin	-1,500
Tuition fees for a sailing course paid by Olin	-1,000
Professional dues paid to CPA association	-1,600
Premiums paid on life insurance policy	-720
Mortgage payments on home	-24,000
Employment Insurance Premiums	-955
Canada Pension Plan Contributions	-2544
Registered Pension Plan Contributions	-5000
Charitable contributions (Centraide)	-1000	-38,319
Olin's Net Income for the year 2017 ---->		1,02,350
Note: Federal Income tax of $25,000 would be reduced from the total tax liability on the income calculated as above and the net shall be paid to the government.