Deck 4: Income From Employment

Question 1

Keegan received $25,000 by way of an employee loan at a rate of 1% interest when the CRA's prescribed rate of interest was 3%.Keegan is in a 40% income tax bracket.What is the actual cost (rate) of Keegan's loan? (Assume there are no fluctuations in the prescribed rate of interest.)

A)1%
B)1.2%
C)1.8%
D)2%

Answer 1

C

Question 2

Which of the following factors are used by the courts in order to determine a taxpayer's status as an employee or a self-employed contractor?

A)control test, ownership of tools test, chance of lawsuit, integration test
B)control test, employer test, chance of lawsuit, integration test
C)control test, ownership of tools test, chance of profit and loss, integration test
D)control test, employer test, chance of profit and loss, integration test

Answer 2

C

Question 3

Which of the following, when provided by an employer, is NOT a tax-deferred or tax-free benefit for the employee?

A)Premiums for private health care plans providing extended health coverage beyond a public plan
B)Counselling services to prepare the employee for retirement
C)Contributions to the employee's registered pension plan
D)A near-cash gift for the employee's wedding

Answer 3

D

Question 4

Ali was provided with a company car to drive from March 1^st to December 31^st of 2020.The car cost the company $22,000, plus GST (5%) and PST (6%).Ali drove the car a total of 15,000 kilometers during the year.11,000 kilometers were for business purposes and the other 4,000 kilometers were for personal use.Ali's employer paid for all of the vehicle's operating costs which totaled $1,100.What is the minimum amount that Ali will report in total taxable benefits as a result of the above information? (Round your answer to the nearest dollar, and apply tax rules for 2020.)

A)$1,172
B)$1,758
C)$2,212
D)$6,901

Question 5

Min-ju Yang is employed as a salesperson and earns both a salary and commission income.In 2020, Min-ju's commissions totaled $5,500.Min-ju is required to pay for numerous employment expenses each year which are identified on the annual T2200.Min-ju paid $6,200 for advertising and promotion during the year.Min-ju uses a personal vehicle for work purposes, and in 2020, the total capital cost allowance for the car was $12,000, and $320 of interest was paid per month on a loan for the car.Min-ju drove the car a total of 20,000 kilometres in 2020.8,000 of these were for work purposes.How much is Min-ju's total salesperson deduction for 2020?

A)$0
B)$11,760
C)$12,460
D)$21,850

Question 6

Kelly Kerr is a high school history teacher, and a national expert in ancient ruins.In July of 2020, Kelly was hired by the local university to teach an elective course in ancient Mayan history.Kelly then conducted a field trip of the ruins in Guatemala with some of the local students from July 30^th to August 10^th.Kelly recruited another local expert to teach the last class that fell during the dates of the trip.
Kelly earned $55,000 from the teaching job, and negotiated a contract price of $5,000 to teach the university elective and $7,000 to conduct the tour.The university provided Kelly with office space during the month of July.Kelly's personal laptop and collection of books were used to prepare the lectures and the tour material.Kelly was paid on July 31^st and August 31^st and was not provided any additional benefits or insurance by the university.
Required:
Determine the tax treatment of Kelly's income and expenses for 2020.Apply the four tests within the guidelines used by the courts to determine whether a taxpayer is an employee or an independent contractor.

Question 7

Alex Briem works exclusively from home as an employed salesperson for SET Co., and during the year Alex earned $21,000 from SET Co.Alex's office occupies 8% of the home's square footage.The following costs were incurred for the entire home during the year: property taxes $3,000, insurance $1,500, utilities $2,400, and mortgage interest $6,000.How much can Alex deduct for the year?

A)$0
B)$192
C)$552
D)$1,032

Question 8

Izumi Tanaka is employed by TSK Inc., a Canadian controlled private corporation.The following information pertains to the tax year in question:
$\bullet$ Izumi earned $90,000 from TSK.
$\bullet$ A cash bonus of $8,000 was announced on December 3^rd, to be paid to Izumi on January 10^th of the following year.
$\bullet$ Izumi was provided with a company car for the entire year.The cost of the car (including taxes) was $40,000.All operating costs were paid by TSK.Izumi drove the car 21,000 kilometers in 2020.10,000 kilometers were for personal use.
$\bullet$ Izumi and TSK each contributed $2,000 towards Izumi's registered pension plan.
$\bullet$ Izumi was presented with a watch from TSK, valued at $200, as a birthday gift.
$\bullet$ TSK provided Izumi with a $200 cell phone to be used for business purposes.
$\bullet$ In January, Izumi was granted a stock option to purchase 2000 shares in TSK at a cost of $8.00 per share.At that time, the fair market value per share was $9.00.Izumi exercised the option in February when the market value had risen to $9.50 per share.
$\bullet$ Izumi took a $15,000 low-interest loan from TSK on January 1^st, with a 1% interest rate.The CRA's prescribed rate during the year was 3%.
$\bullet$ TSK provided Izumi with a $25 meal allowance every week due to the two hours of overtime that was required to work each Wednesday immediately following eight hours of regular work.
$\bullet$ An annual union due of $850 was deducted from Izumi's pay in 2020.
Required:

A) Calculate Izumi's minimum employment income for tax purposes in accordance with Section 3 of the Income Tax Act.
B) Identify any items that have been omitted in your calculations, and briefly explain why.

Question 9

Piper works for Moon Co., which is a public corporation.Piper was granted a stock option in 2018 to purchase shares at $15 per share from the company when the fair market value was $17 per share.Piper exercised the option in 2020 and purchased 500 shares.The fair market value at that time was $21 per share.What is Piper's tax treatment of this option for the 2020 tax year?

A)$1,000 taxable benefit and no security option deduction
B)$1,000 taxable benefit and a 50% security option deduction
C)$3,000 taxable benefit and no security option deduction
D)$3,000 taxable benefit and a 50% security option deduction

Question 10

Wyatt Harris worked for RET Co.from March 1^st to December 31^st during 2020.Wyatt earned a monthly base salary of $4,000, plus 1% commission on sales.During 2020, Wyatt's sales totaled $800,000.Wyatt was required by RET to pay for employment expenses.Wyatt travelled out of the city most days in order to sell to customers in surrounding towns, and received a monthly allowance of $500 to cover travel costs (which has been accurately recognized as 'unreasonable').Wyatt and RET each contributed $2,000 to Wyatt's registered pension plan in 2020.
Wyatt provided you with the following receipts for 2020:

Wyatt purchased a new vehicle to use for employment at RET.12,000 of the 25,000 kms driven in 2020 were for business purposes.The vehicle cost Wyatt $32,000 plus HST of 11%.Work-related interest payments on the car loan totaled $200 per month.
Required:
Calculate Wyatt's minimum employment net income for tax purposes for 2020 in accordance with Section 3 of the Income Tax Act.

Question 11

Shawn Green was employed by ABC Ltd.(a Canadian controlled private corporation) from January to December of 2020.Shawn earned a gross salary of $72,000.
The following deductions were made during the year:

The following amounts were paid by ABC Ltd.in 2020 on Shawn's behalf:
Additional information:
On January 15, 2018, Shawn was given an option to purchase 500 shares of ABC for $5.00 per share when the market value was $5.50.Shawn exercised the option on June 1, 2019 when the shares were valued at $7.00, and sold the shares on March 17, 2020 when the market value was $8.00 per share.Shawn pays $50 a month for a personal cell phone.Shawn purchased $300 worth of merchandise (at cost) from ABC Ltd.during the year.The retail value of the merchandise was $500.Shawn also contributed $1,000 to an RRSP during the year.
Required:

A) Calculate Shawn's minimum net income for tax purposes for 2020, in accordance with Section 3 of the Income Tax Act.
B) Identify items that have been omitted in your calculations.(Shawn minimizes the tax liability whenever possible.)
C) Will Shawn be able to deduct the stock option deduction to arrive at taxable income? Why or why not?