Income tax folio s2 f3 c2

Solution to Assignment Problem Three - 10

Ms. Alexa Braxton’s net employment income for the year would be calculated as follows:

Salary $120,000

Federal And Provincial Income Tax Nil

EI Premiums Nil

CPP Contributions Nil

Union Dues ( 100)

Private Health Care Plan - Employee Portion - Item 6 Nil

Car Benefit - Item 1 3,629

Cash Award - Item 2 Nil

Stock Option Benefit - Item 3 13,000

Child Care Benefit - Item 4 Nil

Discounts On Merchandise - Item 5 Nil

Takeout Meals Eaten While Working Overtime - Item 6 Nil

Private Health Care Plan - Employer Portion - Item 6 Nil

Personal Fitness Trainer Fees - Item 6 700

Computer Related Supplies - Item 7 ( 550)

Net Employment Income $136,679

Item 1 The taxable benefit on the car would be calculated as follows:

Standby Charge [(2%)($33,600)(12)(6,000  20,004*)] $2,419

Operating Cost Benefit - Lesser Of:

[($0.26)(6,000)] = $1,560

[(1/2)($2,419)] = $1,210 1,210

Total Benefit $3,629

*[(12)(1,667)]

Item 2 As employment income is determined on a cash basis, the $2,000 will be employment income in 2019.

Item 3 While there is no employment income inclusion resulting from the exercise of the CCPC stock options, there is an inclusion of $13,000 [(1,000)($48 - $35)] when the shares are sold. This inclusion would be accompanied by a deduction of $6,500 [(1/2)($13,000)] in the calculation of Taxable Income. However, the deduction does not affect the calculation of net employment income.

Item 4 If an employer provides, at his place of business, child care that is not available to the general public, it is not considered to be a taxable benefit.

Item 5 In general, if an employer provides discounts on merchandise, it is not considered a taxable benefit. However, the discounts must be available to all employees and the discounted price cannot be below cost.

As a reminder, IT Folio S2-F3-C2, “Benefits And Allowances Received From Employment” has been withdrawn. It contained an unintended change in policy that resulted in the taxation of discounts provided to employees by their employers.

Item 6

Reimbursing employees or directly paying for meals consumed when employees are required to work overtime does not create a taxable benefit.

Employer payment of premiums for private health care does not create a taxable benefit. The employee’s share of the premiums are medical costs eligible for a credit against Tax Payable. However, this does not affect the calculation of net employment income.

While mental or physical health counseling is not considered a taxable benefit, this is not the case with a personal fitness trainer.

Item 7 The iPad has no effect on employment income because it is owned by AAAA. As she makes no personal use of the iPad, there is no taxable benefit related to this asset.

While Alexa owns the printer, as an employee she cannot deduct CCA (tax depreciation) on its capital cost. However, she can deduct the cost of cartridges and supplies.