Taxation Homework: Income Tax, Benefits, and Stock Options

This document presents a comprehensive solution to a taxation assignment, addressing various aspects of income tax calculation and taxable benefits. The solution includes detailed computations for Jessica's net income, identifying items excluded from taxable income, and calculating taxable income based on salary, bonuses, fringe benefits such as parking passes, dental plans, and company car usage. The assignment also delves into the calculation of standby charges and operating costs for both purchased and leased cars, determining the minimum taxable benefit. Additionally, it covers the taxation of employee benefits, including taxable benefits from low-interest loans and stock options, considering scenarios with both CCPC and Canadian Public Company issuers. The solution provides step-by-step calculations and explanations for each component, offering a clear understanding of the tax implications involved.

TAXATION
STUDENT ID:
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Question 1
PART A
The requisite computation of Jessica’s net income is captured in the template shown below.
PART B
The list of items that is not included in the computation of taxable income is highlighted
below.
 Lottery Winnings ($ 10,000)
 Mortgage Payments of Principal House ($32,000)
Question 2
1) Taxable (T)
2) Taxable (T)
3) Taxable (T)
4) Deductible (D)
5) Taxable (T)
6) Taxable (T)

7) Not Taxable (NT)
8) Taxable (T)
9) Not Deductible (ND)
10) Taxable (T)
Question 3
PART A
The computation of the taxable income is indicated below.
Salary (ITA 5(1)) = $75,000
The bonus for $ 10,000 would be paid in January 2017 and hence would be included in the
year ending on July 31, 2017 and not in 2016. Thus, the bonus would not form part of the
taxable income for 2016.
Parking Pass for municipal working would contribute to taxable income as it is a fringe
benefit. The amount is $4,800. Since the dental plan is private, hence the corresponding
amount of $900 would also contribute to taxable income. The reimbursement on course taken
at SAIT would not have contributed to taxable income if the course was related to profession.
But since the course is not related to profession, hence the amount of $ 400 would contribute
to taxable income.
As per ITA 6, the award in the form of Hawaii vacation is directly related to the job and
hence would contribute to the taxable income. However, the club membership would not be
included in taxable income as it is meant for company promotion. Also, the group term life
insurance is a benefit which would contribute to taxable income. Besides, the personal use of
the company car would also be a fringe benefit and hence would contribute to taxable
income.
Deduction would be available for contribution of the employee towards registered pension
plan along with insurance premium along with Canada Pension Plan.
Hence, total taxable income = 75000 + 3600 + 4800 + 900 + 400 + 6000 + 1200 = $ 91,900
PART B
The list of items that is not included in the computation of taxable income is highlighted
below.
 Employer contribution to a registered pension plan (ITA 6(1) (a))
 Charitable Donations – United Way Campaign
 Employee contribution to registered pension plan
 Canada pension plan and employment insurance premium

Question 4
1) D
2) C
3) A
4) A
5) D
6) A
7) C
8) B
9) C
10) C
Question 5
PART A
1) It is known that the cost of car is $ 20,000 and it is purchased not leased.
Standby charge = (2%)*(12)*(20000)*(9000/(1667*12) = $2,160
Operating Costs = $0.25*9000 = $2,250
Minimum taxable benefit = (1/2)*2160 + 2250 = $3,330
2) Now the car is leased and not purchased with a monthly lease of $ 500
Standby charge = (2/3)*(12*500)*(11/12)*(6000/(1667*11)) = $1,200
Operating Costs = $0.25*6000 = $1,500
Minimum taxable benefit = (1/2)*1200 + 1500 = $2,100
3) It is known that the cost of car is $ 20,000 and it is purchased not leased.
Standby charge = (2%)*(10)*(20000)*(11000/(1667*10) = $2,639
Operating Costs = $0.25*11000 = $2,750
Minimum taxable benefit = (1/2)*2639 + 2750 = $4,070
4) Now the car is leased and not purchased with a monthly lease of $ 500
Standby charge = (2/3)*(12*500)*(11/12)*(7500/(1667*11)) = $1,500
Operating Costs = $0.25*7500 = $1,875
Minimum taxable benefit = (1/2)*1500 + 1875 - 1100= $1,525
PART B
The taxable benefit is essentially the savings in the interest that the employee would reap on
account of interest rate being lower than the prescribed rate.
Taxable benefit for the second quarter = (4%-2%)*(61/365)*80000= $267.4

Taxable benefit for the third and fourth quarter combined = (3%-2%)*(184/365)*80000=
$403.28
Total taxable benefit for 2016 = $267.4 + $403.28 = $670.68
PART C
1. Since 2014 is the year of issue of stock options and also given the issuer is a CCPC, hence
there would no effect in terms of taxable benefit.
2. In 2015, the stock options are exercised but considering CCPC as the issuer, there would
not be any effect in terms of taxable benefit for the employee.
3. Employment income realised in = 500*(31.5-22) = $4,750
Taxable capital gains realised at time of sale in 2016 = 500*(38.75-31.5)(1/2) = $1,812.5
Hence, total taxable benefit arising at the time of sale in 2016 = 4750 +1812.5 = $ 6,562.5
PART D
1. Since 2015 is the year of issue of stock options and also given the issuer is a Canadian
Public Company, hence there would no effect in terms of taxable benefit.
2. Taxable benefit in 2016 would arise due to option being exercised by the employee and
the issuing entity being a Canadian Public Company.
Employee Income = 1000*(26-20) = $6,000
3. Taxable benefit in 2017 would be realised in the form of capital gains realised at the time
of sale = 1000*(26-20)(1/2) = $3,000