Question

Question 1

For the past five years, Mr. Brooks has been employed as a financial analyst by a large Canadian public firm located in Winnipeg. During 2020, his basic gross salary amounts to $63,000. In addition, he was awarded an $11,000 bonus based on the performance of his division. Of the total bonus, $6,500 was paid in 2020 and the remainder is to be paid on January 15, 2021.

During 2020, Mr. Brooks’ employer withheld the following amounts from his gross wages:

Federal Income Tax                                                                                             $3,000

Employment Insurance Premiums 856

Canada Pension Plan Contributions 2,898

Registered Pension Plan Contributions 2,800

Donations to the United way (charity) 480

Union Dues 240

Payments for Personal Use of Company Car 1,000

Other Information:

1. Due to an airplane accident while flying back from Thunder Bay on business, Mr. Brooks was seriously injured and confined to a hospital for two full months during 2020. As his employer provides complete group disability insurance coverage, he received a total of $4,200 in payments during this period. All of the premiums for this insurance plan are paid by the employer. The plan provides periodic benefits that compensate for lost employment income.
2. Mr. Brooks is provided with a car that the company leases at a rate of $678 per month, including both GST and PST. The company pays for all of the operating costs of the car, and these amounted to $3,500 during 2020. Mr. Brooks drove the car a total of 35,000 kilometres during 2020, 30,000 kilometres of which were carefully documented as employment-related travel. While he was in the hospital (see Item 1), his employer required that the care be returned to company premises, so it was not available to him.
3. On January 15, 2019, Mr. Brooks received options to buy 200 shares of his employer’s common stock at a price of $23 per share. At this time, the shares were trading at $20 per share. Mr. Brooks exercised these options on July 6, 2020, when the shares were trading at $28 per share. He does not plan to sell the shares for at least a year.
4. In order to assist Mr. Brooks in acquiring a new personal residence in Winnipeg, his employer granted him a five year, interest free loan of $125,000. The loan qualifies as a home relocation loan. The loan was granted on October 1, 2020, and, at that point in time, the prescribed interest rate set by the CRA is 2%.
5. Other disbursements made by Mr. Brooks include the following:

Advanced financial accounting course tuition fees                                      $1,200

Music history course tuition fees                                                                       600

Fees paid to financial planner                                                                           300

Payment of premiums on life insurance                                                            642

Mr. Brooks’ employer reimbursed him for the tuition for the accounting course, but not for any of these other expenses.

Required:

Calculate Mr. Brooks’ net employment income for the taxation year ending December 31, 2020.

Answer 1

Calculation of Net Employment Income of Mr. Brooks

Basic Gross Salary     -$ 63,000

Bonus     - $ 6,500 (As paid in 2020, and taxability is assumed on payment basis)

LeaseRent of Car for 10 months @ $678 - $ 6,780 (2 Months Car was Company premises)

Operating Cost of Car - $ 3,500

Stock option benefits ($28-$20)*200 - $ 1,600

Interest Benefit on House loan @ 2% - $ 2.500

Advanced financial accounting course

tuition fees - $ 1,200

Total Income - $ 85,080

Less Recoveries/ Deductions

Federal Income Tax           $3,000

Employment Insurance Premiums $ 856

Canada Pension Plan Contributions   $ 2,898

Registered Pension Plan Contributions $ 2,800

Donations to the United way (charity) $ 480

Union Dues $ 240

Payments for Personal Use of Company Car $ 500 (Only Deduction for 5000 Kms - $3500 * (5000 Km/35000 Km)

Total Deductions $ 10,774

Net Emoluments $ 74,306

Assumptions: In the above working , following assumptions are made

1. Income is taxed according to year of receipts.

2. All the reimbursement are taxed in the hands of employee.

3. Personal usage of Car to be calculated proportionately i.e. 5000 Kms amounting $ 500.. Therefore excess deduction of $ 500 ($1000- $500) will be credited to persnal account of Mr. Brooks.

Based on the above Assumptions Net Emplyment Income for the taxation year Ending December 31, 2020 is $74,306