Assignment 1 Spring Taxation 2016 Question 1 Ms. I.M. Outovit formally separated from her husband late

Assignment 1 Spring Taxation 2016
Question 1
Ms. I.M. Outovit formally separated from her husband late in 2014. Custody of her three children, ages
14, 10, and 6, was granted to her as part of an agreement (properly referenced to the Income Tax Act, as
necessary) that was worked out with her husband in Family Court. The oldest child, Real, is 20 years
old and, therefore, not part of the agreement, although he lives with her and the other children when
not at school. To make a fresh start, on January 15, 2015, she resigned from her position in Elmira,
Ontario, where she had been employed by the same employer since November 1980. She took a
position in Dundas, Ontario, about 65 kilometres away.
Ms. Outovit had always prepared her own tax return in previous years, but because of the extraordinary
events of 2014 and 2015, she is having some difficulty with the preparation of her return. She has come
to you for help, having already correctly calculated her income under Subdivisions a, b, and c of
Division B, as follows:
2014
Subdivision a
Salary (from both employers in 2015)
Taxable group term life insurance premium
(paid by both employers in 2015)
Taxable car benefit
Deductible professional fees
Deductible RPP contributions (defined benefit plans)
Net Subdivision a income
Subdivision b
Business income (loss) from partnership share
(drawings from partnership in both years: $4,000)
Property income:
Net rental income (loss) from apartment building
(loss is before CCA)
Grossed-up dividends from active business income of a CCPC
Canada Savings Bond interest
Deductible interest on loan to buy shares
Net Subdivision b income
Subdivision c
Taxable capital gain on sale of shares
Taxable capital gain on sale of cottage
Taxable capital gain on sale of painting
Net Subdivision c income
Total income from above sources

2015

$ 86,500

$ 95,000

450
495
4,350
5,000
(350)
(400)
(4,800)
(5,500)
$ 86,150 $ 94,595

$ (1,000)

$ 6,000

10,050
1,100
3,300
(200)
$ 13,250 $
$ 6,200
$ 6,200
$ 105,600

(2,000)
1,200
3,500
(200)
8,500

$ 6,500
8,000
1,200
$ 15,700
$ 118,795

Additional Information for 2015:
(1) She made a lump-sum direct transfer of $27,000 to her RRSP out of the RPP of her former
employer who had made vested contributions since January 1, 1987.
(2) During 2015, she received a retiring allowance of $63,000 for long service from her previous employer.
(3) During 2015, she made the following selected expenditures:
(a) contribution to her RRSP in respect of 2015, consisting of $42,000 in January 2015 and another
$14,000 in October 2015. Her employer reported a pension adjustment (PA) of $7,500 for 2014.
(b)

legal fees —
•
•

for representation in Family Court
for appealing an income tax assessment which she lost

$ 2,600
900
$ 3,500

(c)

care for her children —
•
•
•
•

(d)

food and clothing
babysitter for half days during 30 weeks of school term ($110 per week)
babysitter for full days during 15 weeks of summer and other vacations
($105 per week)
overnight summer camp for 14-year-old child for four weeks

$ 6,500
3,300
1,575
1,000
$12,375

move to Dundas —
unsuccessful trip to find accommodation
•
•
•
•

car expenses
hotel for two nights ($150 per night)
meals for three days ($30 per day)
long distance calls to realtor to find accommodation

$

$

50
300
90
35
475

move with family
•
•
•
•
•

(e)

cancellation of lease on Elmira apartment
hotel for two nights near Dundas after movers
packed and while household effects in transit
meals for two days during packing and in transit
car expenses
transportation, packing and unpacking of household effects

$

550

300
200
25
3,195
$ 4,270

maintenance payment for husband by virtue of agreement
made pursuant to a court order —
•
•

total of monthly payments for his maintenance
total of monthly payments made directly to his apartment landlord

$ 4,800
3,600
$ 8,400

(4) Ms. Outovit had net capital losses of $4,200 in 1999 which were available for carryforward.
(5) Ms. Outovit had the following amounts withheld from her salary in 2015:
Canada Pension Plan
Employment Insurance

(6)

(7)

$ 2,480
931
$3,411

Ms. Outovit’s oldest child, Real, attends the University of Waterloo and paid tuition of $4,000
for eight months of full-time attendance during 2015. Real earned gross employment income of
$2,500 during the summer. No amounts were withheld from his pay. Ms. Outovit’s other
children do not have any income.
Ms. Outovit made total contributions to registered charities of $700.

Required:Showing all calculations, whether or not necessary to the final answer, calculate the following:
(A)
(B)
(C)

Subdivision d inclusions and Subdivision e deductions for 2015, noting briefly why any items
were not used in your calculations (consider in these notes the amount of any RRSP overcontribution, its consequences and how it should be dealt with),
taxable income for 2015, and
federal taxes payable for 2015