Taxation Analysis: Green Manufacturing Company Income Statement Review

This assignment analyzes the personal taxation of Mr. Douglas Hern, the 100% owner of Green Manufacturing Company, for the year 2019. It begins with an adjusted income statement for the company, detailing sales, cost of goods sold, and various expenses, with explanations for adjustments made to several line items. The assignment then calculates Mr. Hern's employment income tax from another company, including gross salary, benefits, deductions, and tax due. Further calculations involve capital gains tax from the sale of shares, car allowance, property tax, interest income, rental income, and interest expenses. Detailed assumptions and workings are provided for each section. The document also explores gifts and donations, medical expenses, and CCA (Capital Cost Allowance) calculations for various asset classes. It concludes with calculations for contributions to RRP (Registered Retirement Plan) and non-refundable tax credits, including basic personal, spousal, and medical expenses, to arrive at Mr. Hern's total tax liability. The analysis covers various aspects of personal and corporate taxation, providing a comprehensive overview of Mr. Hern's financial situation for the specified tax year.

Running head: TAX
Taxation
Name:
Institution:
Date:

TAX
GREEN MANUFACTURING COMPANY
Adjusted Statement of Income
For the Year Ending December 31st. 2019
Item $ $
Sales 16,000,000
Cost of goods sold (w.1) (8,380,000)
Gross profit 7,620,000
Less: Expenses
Salaries and wages (w.2) 640,000
Management bonuses (w.3) 240,000
Employee benefits (w.4) 130,000
Interest expense 54,000
Insurance expenses(w. 5) 29,000
Appraisal fees (w.6) 15,000
Legal and accounting fees 35,000
Repair and maintenance cost (w.7) 14,000
Travel 150,000
Advertising and promotion 100,000
Bad debt expense 80,000
Provision for sales returns(w.8) 96,000
Depreciation/armotization 135,000
Donations 18,000

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General and administrative expenses 120,000
Loss on sold shares(w.9) 15,000
Total expenses (1871000)
NET INCOME BEFORE TAX AND OTHER INCOME 5,749,000
W1.
Cost of goods sold adjusted
Cost of sales $
Opening inventory at cost 1,240,000
Purchases 8,240,000
Ending Inventory (1,100,000)
Cost of sales 8,380,000
Reason: Cost of sales was adjusted because inventory value should be calculated using the
same method at the year end as well as the beginning inventory.
W2. Salaries and wages
Item $

TAX
Total salaries and wages 1,410,000
Less:
Presidents salary (560,000)
Spouse salaries (160,000)
Bookkepers salary (50,000)
Net salary 640,000
Reason: The president, his spouse and the bookekeepers are not daily workers of the
company. Their salaries should not be included as they do not have daily activities in this
company.
W.3 management bonuses
item $
Bonuses awarded and paid during the current year 120,000
Bonuses awarded at the end of the current year and paid June 30th.2020 120,000
240,000
Reason: Bonuses awarded at the end of the current year, to be paid (with interest) at the end
of the following year should not be included since we are only dealing with bonuses for the
year.
W.4 employee benefit
Item $
Canada Pension Plan and Employment 60,0000

TAX
insurance
Contributions to the company’s pension
plan for several employees (maximum
contribution of $6,000 for each
60,000
Annual club contributions 10000
total 130,000
Reason: Lump sum past service contributions to the company’s pension plan for one
particular employee should not be inclusive as this is capital by nature.
W.5 Insurance expense
item $
Public liability insurance for the current year 14,000
Three-year fire and theft insurance premium beginning the first day of the current
year
15,000
29,000
Reason: Life insurance on the president of the company required as collateral for a bank loan
should not be an expense for the company.
W6. Appraisal fees
item $
To determine the replacement cost of business assets to establish the current
year’s fire and theft insurance requirements
15,000

TAX
Reason: shares as collateral for a personal loan is not a business expense but a personal
expense.
W.7 repairs and maintenance
item $
Office cleaning, snow removal, lawn
care
2,000
Cost of landscaping 4,000
Repainting several offices 8,000
14,000
Reason: Engine replacement for four delivery trucks is capital in nature therefore omitting it
as a business expense.
W.8 provisions for sales return
item $
provision 102,000
provisioned (16,000)
Actual
returned
10,000
96,000
Reason: Provision for sales returen will be affected by only $ 6000 that was actually
provisioned but not returned.
W.9 Income from Green Manufacturing Company-100% ownership

TAX
Item $
Income to the company’s president 560,000
Presidents spouse 160,000
Bookkeepers salary 50,000
Reason: Income from Green manufacturing will feature as other incomes for mr. hern but not
as an expense for the company.
Mr. Herns Income Tax –Employment Income from X ltd
Herns Employment Income Tax from X Ltd
For the years ended 2019
Item / Tax Computation CAD CAD
Gross salary 182,000
Add: Benefits
C.P.P 2,163
E.I 747
R.P.P Contributions 6,000
Income tax 30,000
Car benefits(w.3) 25,715
Less: Personal reliefs
Tax Relief
P.A.Y.E

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Total Taxable Net Pay 246625
$47,630 or less………………………………………………………………………..…15%
in excess of $47,630………………………………………………………..…………
$7,145*+ 20.5% on next $47,629
in excess of $95,259…………………………………………………………………..
$16,909 ** + 26% on next $52,408
in excess of $147,667……………………………………………………………….…
$30,535***+29% on next 62,705
in excess of $210,371…………………………………………………………………..
$48,719*** + 33% on remainder
Tax Due 114,027.9
Total Tax Due
2. Profit from sale of share/ CGT
Date No. of shares Price/share Total cost
6000- X shares 5 30,000
12/9/2019 4000 12 48,000
29/10/2019 2000 15 30,000
Sale
10/12/2019 4,500 25 112,500
Brokerage
fees
500

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Sale of shares
Sale
10/12/2019 4,50
0
25 112,500
Brokerage fees 500
Capital Gained
Transaction
Date
Total Number of share sold Share price/
share
Amount
10/12/2019 4500 @25 CAD
112,500
Less;
12/9/2019 4000 12 48,000
29/10/2019 500 15 7500
Brokerage fees 500
(56,000)
Capital gain / Profit on sale of
share
56,500
Profit on sale of shares is CAD 56,500
Assumptions and workings on CGT on Mr. Herns sale of shares

TAX
1. According to CRA, one needs to pay tax on profit from shares sold of capital gained
unless they are held in a trust or in a pension’s fund. Capital gain tax will include
profit from assets like financial products, investments trusts, shares and funds.
2. On the taxation of this assets, capital gain tax(CGT) to be paid may depend on on the
income tax band in which a person lies. For, example, Mr. Hern would fall to the
highest levels on individual income tax givers and pay a higher tax on capital gained
(Berger, & Toder, 2019).
3. For residents or non-residents, investors in Canada pay a CGT on 50% of capital gain
amount. It essentially means that if one earns in excess of $ 1000, they belong to the
highest bracket of tax payers (Kalgutkar, 2018)
4. The only way to avoid this heavy taxes in Canada is to choose the right time to sell
the shares, or donate the capital gains to charities or as donations (Sun, & Xu, 2018),.
5. There is no taxations on capital gains on shares held in unit trusts or pension funds.
6. For identical batches of shares like the ones bought by Mr. Herns acquired in different
intervals and times, the assumption is a disposal in a strict order. It will assume that
the first number of shares will be disposed first(Sammartino, Stallworth, & Weiner,
2018).
7. Buying of shares or exercising a employees shares ownership plan is not taxable or
does not attract capital gain tax (Thom, 2017).
3. Car allowance
The car allowance is a cash benefit offered to employees. If the car does not belong to the
employer, the company’s usage on the business is the benefit to the employee.
Owned car Leased car
Lease cost 0 12,204

TAX
Gas and Oil 5000 6000
insurance 1400 600
license 90 0
maintenance 1500 2000
Amount taxable
=35,000/40000
=87.5%-car owned
18,000/20000*100= 90%
7990 20804
Employee benefit 6,991 18,724
Total 25,715
Assumptions
1. For car allowance, the employee benefit is the use of the leased car and the personal
car on the business side. For this the cars were used for 35,000 km out of the total
40,000 used for the car.
4. Property tax
Property purchase tax, or a tariff on property bought in Canada is 1.5%. However, in 2019,
the fair value market interest rates were as follows
quarter Fair value market interest rates
1st quarter 4%

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2nd quarter 5%
3rd quarter 6%
4th quarter 2%
Mr. Hern bought a $580,000 condo in May. This is quarter 2.
Quarter Interest
2nd quarter- 5%* 580,000 29,000
5. Interest income/ income from investments
Interest income from inheritance from his father
Item C$
TD Bank –Interest earned 3,500
2016-personal income tax interest on income 1500
Short –term investments 1,000
Accrued interest on $20,000 GIC 10,000
Treasury Bill-Canadian Govt –Maturity Date Dec 31st 2019 12,000
Dividends income-Canadian resident public corporation 24,000
Cash dividends from U.S corporations 34,000
Total 86,000
Assumptions

TAX
1. Dividend income is taxable at source.
2. Treasury bills interest income are calculated as normal interst income when taxing.
3. Dividend from u.s corporation is taxed at source
6. Rental income
Property
1
Property 2
Rental income 60,000 92,000
Less: Expenses
utilities 12,000 16,000
repairs 3000 9600
Mortgage interest 20000 32000
Opening UCC Class 1(4%) 14728 20809
(49728) (78409)
Net Rental Income 10,272 13,951
Assumption
1. Rental income is net of all utilities

TAX
8. Interest Expenses
Item $
Interest on bank line credit-share investement 50,000
Loan interest – duagters graduation car 6,400
Purchase of land- vacant land 10,000
Total Net interest expense 66,400
Assumption
1. Interest expense are all non-allowable expenses in taxation.
9. Gifts and Donations
Item $
Donations to Canadian wildlife foundation 10,000
Conservative party of Canada 10,000
Assumptions and Notes
1. Donations to charitable organizations is allowable deductions
2. Political party contributions are highly subsidized to a 33.33% of the amount over
$750.

TAX
10. Mr. Herns medical expenses -2019
item $
Chiropractors fees 2,500
Dental bills 8,000
Bills for eye surgery 6,750
Total medical
expenses
17,250
Mr. Hern’s employment income Tax
For the Tax year Ended 2019
Tax Computation CAD CAD
Earned Income :
Salary 182,00
0
C.P.P 2,163
E.I 747

TAX
R.P.P Contributions 6,000
Add : Benefits
Car benefits(w.3) 25,715
House allowance 13,000
Total Earned Income 143,916
Less: Personal deductions
Mortgage Interest- Property 1-$20,000
Property 2-$32,000
(52,000)
Gift Aid Scheme Donations –Canadian Wildlife Foundation (10,000)
Total Personal Deductions (62,000)
Add : other incomes
Income from-Green Manufacturing company 560,000
Rental income-Property 1 & 2 24,223
Interest income-Fathers investment 86,000
Dividend income 58,000
Profit from sale of shares 56,500
CCA-Class 3 buildings (5%)
Year Adjustments to UCC
from purchases &
Dispositions
Base UCC
amount
for
CCA($)
CCA($) Remaining
UCC
Tax
savings
due to
CCA
January Building-1,562,000 78,100

TAX
2019
Modifications-800,000 40,000
1989 Cost of building
2,400,000
n/a
118,100
Notes and assumption
Include in Class 3 the cost of any additions or alterations made after
1987 to a Class 3 building that does not exceed the lesser of the
following two amounts:
 $500,000
 25% of the building's capital cost (including the cost of
additions or alterations to the building included in Class
3, Class 6,or Class 20 before 1988)
The cost of building purchased in 1989 is not eligible since it exceeds the amount $ 500,000
recommended.
CCA-Class 8 furnitures and fittings (5%)
Year Adjustments to UCC
from purchases &
Dispositions
Base UCC
amount
for
CCA($)
CCA($) Remaining
UCC
Tax
savings due
to CCA
January
2019
Furnitures &
equipment-278,000
55,600
additions-72,000 14,400
Total CCA 70,000

TAX
CCA-Class 10 vehicles (30%)
Year Adjustments to UCC
from purchases &
Dispositions
Base UCC
amount
for
CCA($)
CCA($) Remaining
UCC
Tax
savings
due to
CCA
January
2019
vehicle-204,000 61,200
Additions (3 passenger
vehicles@ 21,000)-
800,000
18900
1989 Disposition(truck 37,000)
2,400,000
(11,100)
69,000
CCA-Class 43 manufacturing equipment (30%)
Year Adjustments to UCC
from purchases &
Dispositions
Base UCC
amount
for
CCA($)
CCA($) Remaining
UCC
Tax
savings due
to CCA
January
2019
cost-126,000 23430

TAX
Dispositions 163,000 48,900
Total CCA 72,330
Assumptions
CCA rate of 30% eligible machinery and equipment used in Canada
primarily to manufacture and process goods for sale or lease
CCA-Class 13 leasehold improvement –straight
Year Adjustments to UCC
from purchases &
Dispositions
Base UCC
amount
for
CCA($)
CCA($) Remaining
UCC
Tax
savings due
to CCA
January
2019
Lease -47,000
(8years)
5875
Leasehold improvement
125,000
15625
Total 21500
Assumption
Amortized in 8 years
Leasehold improvements are amortized on a straight line basis for a minimum period of 5
years and the maximum period of 40 years
Total CCA

TAX
Class CCA ($)
Class 3 118,100
Class 8 70,000
Class 10 69,000
Class 43 72,330
Class 13 21,500
Total 350,930
Contributions to RRP
Source of RPP/RRP ($)
X-company 9,000
Green manufacturing
company
40,000
Total contributions to
RRP
49,000
Assumptions
1. Pension adjustment by the employer is always what is used in this case it is $9,000
instead of $6,000
Non-Refundable 2019 Tax credits
Dollar
base
Rate threshold

TAX
Basic Personal 12,069 15
Spouce 12,069 15
Family caregiver 7140
Charitable gifts(200 @15%and remainder @29% 2872
Medical expenses = A(B-C)
Chiropractor’s
fees………………………………………………………………………..$2,500
Dental
bills……………………………………………………………………………………..
8,000
Bills for eye
surgery…………………………………………………………………………
6,750
15%(17250-2352)
2235
CPP maximum(15% of 2163) 325
EI maximum( 15% of 747) 112
total 36,822
References
Berger, D., & Toder, E. (2019). DISTRIBUTIONAL EFFECTS OF INDIVIDUAL INCOME
TAX EXPENDITURES AFTER THE 2017 TAX CUTS AND JOBS ACT.

TAX
Kalgutkar, P. (2018). Tax awareness and tax planning on wealth creation of individual
assessees. Journal of Management, 2(1), 11-23.
Sun, P., & Xu, W. (2018, July). Research on the Restrictive Factors and Coping Strategies of
Individual Income Tax Reform. In International Conference on Frontier
Computing (pp. 909-914). Springer, Singapore.
Sammartino, F., Stallworth, P., & Weiner, D. (2018). The effect of the TCJA individual
income tax provisions across income groups and across the states. Washington, DC:
Retrieved, 5(7), 2018.
Thom, M. (2017). Taxing Individual Income: Misunderstood, but Seldom Forgotten. In Tax
Politics and Policy (pp. 57-97). Routledge.