Taxation: Calculation of Taxable Income and Tax Liabilities for Brenda and Steve

This article provides tax advice to Brenda and Steve on how to minimize their tax liabilities. It includes calculations of taxable income and tax liabilities for both individuals. The article also includes recommendations on maintaining receipts, making investments in tax-deductible schemes, and maximizing contributions to registered retirement funds.

Running head: TAXATION
Taxation
Name of the Student:
Name of the University:
Authors Note:

1
TAXATION
Contents
Part 1:...............................................................................................................................................2
Part 2:...............................................................................................................................................6
Part 3:...............................................................................................................................................8
Part 4:.............................................................................................................................................19
Notes:.............................................................................................................................................20
References:....................................................................................................................................22

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TAXATION
Part 1:
All amounts are in CAD:
Income of Steve
Particulars Amount ($) Amount ($)
Salary 93,000.00
Bonus 18,000.00
CPP contributions (2,564.00)
El Contributions (836.00)
Charitable deductions (720.00)
Registered retirement contribution (6,400.00)
Health and dental coverage paid by employer
taxable
800.00
Disability insurance exempt
Life insurance paid by the employer is taxable 1,020.00
Tuition payment for photography is taxable 3,500.00
Partial travelling expenses (8550 x 50%) (4,425.00)
Work related expenses

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TAXATION
Air fare (3,700.00)
Accommodation (5,720.00)
Meals (3,380.00)
Christmas gifts to customers allowed (1,600.00)
Taxable income from salary 86,975.00
Long term capital gain 217,500.00
Taxable rental income 23,303.36
Income from RRSP is tax exempt
Contribution to RRSP 13,000.00
Adjusted gross income 340,778.36
Less: Specific deductions
Medical expenses 490.00
Contribution to charity 1,200.00
Babysitting expenses except for date night (4500
+3500)
8,250.00
Sci-Fi camp expenses allowed 2,475.00

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TAXATION
12,415.00
Net income 328,363.36
(Li, Magee &
Wilkie, 2017)
Net income Brenda
Particulars Amount Amount Amount
Revenue 581,000.
00
Profit on sale of C1 building (135000 -40000) 95,000.
00
Loss on sale of delivery van (4500 - 6175) (1,675.
00)
674,325.
00
Less:
General expenses 398,250.
00

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TAXATION
Amortization on fixed assets 35,810.
00
Amortization on client list
(32000/10)
3,200.
00
437,260.
00
Income from business 237,065.
00
Income from capital gain (120000 -75000) 45,000.
00
Income from capital gains (partnership) 1,125.
00
Income from interest (Partnership) 1,125.
00
Adjusted gross income 284,315.
00
Less: Deductions specific
Food and clothing expenses is not allowed as deduction
Medical expenses 18,805.

6
TAXATION
00
Contribution to registered charities 1,900.
00
20,705.
00
Net income 263,610.
00 (Tanzi,
2014)
Part 2:
Federal tax owing from Steve
On first $46,,605 @15% 6,990
.75
From $46606 to $93208 @20.5% 9,553
.62
From $93208 to $144489 @26% 13,333
.06
From $144489 to $205482 @29% 17,792
.37
29,877.43

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TAXATION
Above @205842 @33% 40,431
.93
Federal tax owing from Steve 88,101.73
Federal tax owing from Brenda
On first $46,,605 @15% 6,990.75
From $46606 to $93208 @20.5% 9,553.62
From $93208 to $144489 @26% 13,333.06
From $144489 to $205482 @29% 17,792.37
Above @205842 @33% 19,063.44
Federal tax owing from Brenda 66,733.
24
Part 3:
Income of Steve
Particulars Amount
($)
Amount
($)
Salary 93,000

8
TAXATION
.00
Bonus 18,000
.00
CPP contributions (2,564.
00)
El Contributions (836
.00)
Charitable deductions (720
.00)
Registered retirement contribution (6,400.
00)
Health and dental coverage paid by employer
taxable
80
0.00
Disability insurance exempt
Life insurance paid by the employer is taxable 1,020
.00
Tuition payment for photography is taxable 3,500
.00
Partial travelling expenses (8550 x 50%) (4,425.

9
TAXATION
00)
Work related expenses
Air fare (3,700.
00)
Accommodation (5,720.
00)
Meals (3,380.
00)
Christmas gifts to customers allowed (1,600.
00)
Taxable income from salary 86,975.
00
Long term capital gain 217,500.
00
Taxable rental income 23,303.
36
Income from RRSP is tax exempt
Contribution to RRSP 13,000.

10
TAXATION
00
Adjusted gross income 340,778.
36
Less: Specific deductions
Medical expenses 49
0.00
Contribution to charity 1,200
.00
Babysitting expenses except for date night (4500
+3500)
8,250
.00
Sci-Fi camp expenses allowed 2,475
.00
12,415.
00
Net income 328,363.
36
Federal tax owing from Steve
On first $46,,605 @15% 6,990

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TAXATION
.75
From $46606 to $93208 @20.5% 9,553
.62
From $93208 to $144489 @26% 13,333
.06
From $144489 to $205482 @29% 17,792
.37
29,877.
43
Above @205842 @33% 40,431
.93
Federal tax owing from Steve 88,101.
73
(Azémar
&
Hubbard,
2015)
Schedules:
Notes and schedules:
Capital gain of Steve

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TAXATION
Proceed from sale of shares 30,000.
00
Less: Cost basis
(1200 x 18) 21,600.
00
8,400.
00
Sale proceeds from sale of Starbucks shares (800 x 55) 44,000.
00
Less: Brokerage paid 1,500
.00
42,500.
00
Less: Adjusted cost basis (800 x 36.50) 29,200.
00
13,300.
00
Long term capital gain 21,700.
00

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TAXATION
Property
1
Property
2
Total
Gross rent received 22,000.
00
14,000.
00
Advertisement expenses (420.
00)
120.
00
Property taxes allowed as deduction (3,500.
00)
(2,100.0
0)
Utilities not allowed
Depreciation (3,563.
64)
(4,800.0
0)
Taxable rental income 14,516.
36
7,220.
00
21,736.
36
Rental income form new property
Gross salary received 17,500.00
Advertisement (60.00)

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TAXATION
Property tax (4,200.00)
Mortgage interests (11,673.00)
1,567
.00
Long term capital gain from sale of property
Sale proceeds from property 308,000.00
Less: Cost basis 112,200.00
195,800.
00 (Clarke
&
Kopczuk,
2017)
Brenda:
Net income Brenda
Particulars Amount Amount Amount
Revenue 581,000.

15
TAXATION
00
Profit on sale of C1 building (135000 -40000) 95,000.
00
Loss on sale of delivery van (4500 - 6175) (1,675.
00)
674,325.
00
Less:
General expenses 398,250.
00
Amortization on fixed assets 35,810.
00
Amortization on client list
(32000/10)
3,200.
00
437,260.
00
Income from business 237,065.
00
Income from capital gain (120000 -75000) 45,000.

16
TAXATION
00
Income from capital gains (partnership) 1,125.
00
Income from interest (Partnership) 1,125.
00
Adjusted gross income 284,315.
00
Less: Deductions specific
Food and clothing expenses is not allowed as deduction
Medical expenses 18,805.
00
Contribution to registered charities 1,900.
00
20,705.
00
Net income 263,610.
00
Federal tax owing from Brenda

17
TAXATION
On first $46,,605 @15% 6,990.
75
From $46606 to $93208
@20.5%
9,553.
62
From $93208 to $144489
@26%
13,333.
06
From $144489 to $205482
@29%
17,792.
37
Above @205842 @33% 19,063.
44
Federal tax owing from Brenda 66,733.
24
(Legree
&
Wolfson,
2015)

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TAXATION
Part 4:
MEMO
To: Brenda and Steve
From: (Name of the student)
Subject: Tax advice
This memo is in reference to the above subject matter. With the objective of minimizing the tax
liabilities the following recommendations are provided:
Maintenance of all receipts and documents for expenditures incurred on car:
Steve should maintain all receipts and document in relation to the expenditures incurred on car to
claim deduction on such expenses.
Minuteness of vehicle log book:
Maintenance of vehicle log book is essential to claim the expenditures incurred for work
purposes.
Payment of salaries:
Brenda should paid salaries to Reid and Oliver to reduce the operating profit from business.
Payment to salaries to Reid and Oliver up-to a reasonable limit will be allowed as deduction in
computation of taxable income from business.
Making investment in tax deductible schemes:

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TAXATION
There are number of investment schemes which provide tax benefits to the citizens in the country
both Brenda and Steve shall invest in such tax incentive schemes to reduce their income tax
liabilities (Christensen & Woodland, 2018).
Books of accounts:
Brenda should maintain proper books of accounts for its business to claim all expenditures
incurred in running the business activities.
Maximizing their contribution to registered retirement funds:
Both Brenda and Steve should contribute maximum amount to their respective registered
retirement funds to reduce their taxable income and resultant income tax liabilities.
Date: 5 December 2018
Place:
Notes:
In relation to the calculations of taxable incomes and tax liabilities of Brenda and Steve the
following notes are essential:
I. The expenditures incurred on children have been deducted from the parent who has higher
income of the two parents. In this case since Steve has higher income than Brenda hence the
expenditures incurred on children and their educations which are allowed as deductions have
been deducted from the gross adjusted income of Steve (Ono & Uchida, 2018).
II. The expenses incurred for business purposes by Brenda have been deducted to compute the
taxable profit from business.

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III. CPP contributions, El contributions, registered retirement contributions have been deducted
in computing the taxable income of Steve as per the income tax provisions in the country.
IV. Income tax withheld is not considered in determining the taxable income of Steve.
V. Tuition fees paid by the employer for the personal enjoyment of Steve is liable to be taxed as
it is benefit provided by the employer to the employee.
VI. The car related expenses has not been considered as it seems Steve has not maintained any
documentation and vehicle log book.
VII. Utilities paid is not a tax deductible expenses to compute taxable rental income.
VIII. Charitable contributions made to registered charitable organizations are allowed as
deductions in computing taxable income of Steve and Brenda.

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References:
Azémar, C., & Hubbard, R. G. (2015). Country characteristics and the incidence of capital
income taxation on wages: An empirical assessment. Canadian Journal of
Economics/Revue canadienne d'économique, 48(5), 1762-1802.
Christensen, A. L., & Woodland, A. (2018). An Investigation of the Relationships Among
Volunteer Income Tax Assistance (VITA) Participation and Ethical Judgment and
Decision Making. Journal of Business Ethics, 147(3), 529-543.
Clarke, C., & Kopczuk, W. (2017). Business Income and Business Taxation in the United States
Since the 1950s. Tax Policy and the Economy, 31(1), 121-159.
Legree, S., & Wolfson, M. C. (2015). Private Companies, Professionals, and Income Splitting--
Recent Canadian Experience.
Li, J., Magee, J. E., & Wilkie, J. S. (2017). Principles of Canadian Income Tax Law. Thomson
Reuters.
Ono, T., & Uchida, Y. (2018). Capital Income Taxation, Economic Growth, and the Politics of
Public Education.
Tanzi, V. (2014). Inflation, indexation and interest income taxation. PSL Quarterly
Review, 29(116).