Question

Marvin Combs is 43 years old and is employed by a Canadian public company. His annual salary is $82,468, none of which is commissions. Because of his outstanding work during 2017, he has been awarded a $20,000 bonus in 2017 that was paid on December 15, 2017.

For 2017, his employer withheld the following:

EI premiums                                        $836

CPP contributions                               $2,564

Federal Income Tax                           $26,000

Professional association dues           $3,400

Registered pension plan (RPP)        $6,800

Other Information:

1.   Marvin was provided with an automobile by his employer. The vehicle was used largely for employment related activity. Total mileage for 2017 was 62,000 kilometers, with only 4,000 of this being personal use. The vehicle was leased by his employer at a rate of $456 per month, including a payment for insurance of $43 per month. It is available to Marvin for 10 months during 2017. During the other 2 months, the employer required that it be returned to their garage.

2.   In 2014, Marvin received options to purchase 300 shares of his employer’s common stock at a price of $72 per share. At the time the options were granted, the market price of the stock was $70 per share. In January, 2017, when the shares were trading at $85 per share, Marvin exercised his rights to purchase all the shares under the option. He is still holding these shares at the end of the year.

3.   Under his employer’s policy, he was granted an interest free loan of $200,000 to assist with a purchase of a house. The loan was granted on April 1, 2017. Assume that the prescribed rate is 2 percent throughout 2017.

4.   During 2017, Marvin received several gifts from his employer:

·     As a reward for winning the company’s Employee of the Month Award, he received an expense paid weekend in a local hotel. The regular price for this package was $1,200.

·     All employees received a $600 gift certificate for merchandise at a local department store, including Marvin.

·     At Christmas, the company provides all employees with a basket of gourmet food. The value of this basket is $450.

Required:

Part A:            In an Excel spreadsheet, calculate the client’s minimum Division B (net) employment income for tax purposes for the 2017 taxation year. Be sure to comment on all items not used in your computation of employment income

Marvin Combs is a Canadian Resident.

Answer 1

Marvin is employed by a Canadian Public Company and is a Canadian Citizen. Hence the solution has been approached from the perspective of Canadian Taxation Laws.
	Sub Calculation	Tax Calculation	Explanation
Annual Salary		82,468.0
Bonus		20,000.0
Automobile Cost
Monthly Leasing Cost	413		For tax purposes leasing cost does not include insurance
Number of months vehicles was available	10.0
Standby Charge	660.7		Monthly Lease Cost * No. of Months in Lease * 2/3 * (Special Standby Charge Rate for more 50% use in official purposes)
Operating expense benefit	1,000.0		No. of Miles for Personal Use * $0.25
Net Tax Liability	1,660.7	1,660.7
Stock Options
Fair market value of shares	25,500.0		In case of Public Company's the taxability of Employee Stock Options is at the time of exercise which is 2017 in the above case.
Exercise Price	21,600.0
Total Benefit	3,900.0
50% Deduction	1,950.0		A 50% Deduction is provided in case of transactions at Arms Length
Net Tax Liability	1,950.0	1,950.0
Interest Free Loan
Value of Loan	2,00,000.0
Interest Cost on Loan @ 2% annually	4,000.0	4,000.0	The estimated interest cost is a taxable benefit under canadian Law
Gifts
Weekend Stay at Local Hotel	1,200.0		An award given to your employees for performance-related reasons is a taxable benefit
Gift Certificate	600.0		a gift certificate is near cash, and therefore is not included under the gifts and awards policy. Hence Taxable
Net Tax Liability	-	1,800.0	A Non Cash gift for a holiday is considered as a Non Taxable Gift under CRA gift tax rules. Hence the Entire 450 is exempt.
Deductions
EI Contribution Maximum	836.0		Federal Income tax dedcuted represents the income tax payable and is hence not deductible. EI Contribution, CPP contribution are within prescribed limits and hence deductible. Professional Dues and RPP are also deductible under canadian law.
CPP Contribution Maximum	2,564.0
Professional Association Dues	3,400.0
RPP	6,800.0	-13,600.0
Net Taxable Income		98,278.7