Question #1 (30 Marks)

Mr. Simpson has requested your assistance in calculating his taxes payable for 2011. He has provided you with the following information:

Mr. Simpson has total net and taxable income of $123,456. His T4 indicated that his employer withheld $787 of EI, $2,218 of CPP, $3,000 for RPP contributions and $34,567 of income taxes from his salary of $98,765.

Mr. Simpson is married with 3 children. Their relevant information is as follows:

His wife, Marge, is primarily a stay at home mom. Her income for the year totals $4,700 comprised of the UCCB for Maggie and her failed “Pretzel Wagon” business.
Bart is their oldest child. He is 15 years old. Bart plays baseball and football. The costs for those sports were $275. They qualify for the children’s fitness tax credit.
Lisa, 13 years old, is the middle child. She plays hockey and does ballet. The cost for her hockey is $575 and her ballet is $175. Both qualify for the children’s fitness tax credit. Lisa is a child prodigy and attended the University of Ottawa for the fall semester as a full-time student for 4 months. Her tuition fees totalled $3,750. As Lisa is only 13 and has no income, Mr. Simpson paid for her tuition and textbooks (an additional $650). Lisa will transfer the maximum amount possible to her father.
Maggie is the youngest Simpson. She is 5 years old.

Mr. Simpson’s father, Abe, also lives with them. Other than the occasional senior’s moment he is in perfect health. Abe is 75 years old. His net income for tax purposes is $17,500.

Mr. Simpson’s mother-in-law, Jacqueline Bouvier, is financially dependent on the Simpson’s as well. She is 70 years old and lives in a nursing home because she is mentally infirm. Her net income for tax purposes is $10,050.

Lisa takes the monorail to school. Her four monthly passes cost $50 each.

During the year Mr. Simpson turned their garage into a bar. The renovation cost $8,500 including $1,700 for a big screen TV and bar fridge.

Mr. and Mrs. Simpson made the following contributions during the year:
$500 to the United Way
$100 to CHEO for a dream of a Lifetime Lottery Ticket
$100 to Heart and Stroke Foundation
$25 to Harvest House in exchange for a Calendar

They also contributed $750 to Ralph Wiggum’s federal election campaign.

The family also incurred total medical expenses of $3,700 in the following manner: Mr. Simpson $ 100 Mrs. Simpson 50 Bart 500 Lisa 50 Maggie 0 Abe Simpson 2,500 Jacqueline Bouvier 500 $3,700

Assume Mr. Simpson’s provincial tax liability is equal to $13,579.

Required: Calculate Mr. Simpson’s basic federal tax payable, all of his tax credits and his final taxes payable/refundable.
Show all of your calculations in order to obtain full marks!
Solution to Question #1

Required: Calculate Mr. Simpson’s basic federal tax payable, all of his tax credits and his final taxes payable/refundable. Show all of your calculations in order to obtain full marks! (Round up to the dollar)

Federal Taxes Payable on Taxable Income of $123,456 On the first $83,088 $15,371 On the remaining $40,368 @ 26% $10,496
Total Basic Federal Tax Payable $25,867 (2 Marks)

Tax Credits:
Basic Personal Amount $10,527 (1 Mark)
Spousal Amount ($10,527 - $4,700) $5,827 (1 Mark)
Amount for children born 1992 or later (3 x $2,131) $6,393 (1 Mark)
Caregiver [$4,282 – ($17,500 - $14,624)] (Abe) $1,406 (2 Marks – 1 for claim; 1 if amt correct)
Infirm [$4,282 – ($10,050 - $6,076)] (Jacqueline) $308 (2 Marks – 1 for claim; 1 if amt correct)
CPP $2,218 (1 Mark)
EI $787 (1 Mark)
Canada Employment Amount $1,065 (1 Mark)
Children’s Fitness Amount – Bart $275 (1 Mark) Lisa ($750 fees max $500) $500 (1 Mark)
Public Transit Pass – Lisa (4 x $50) $200 (1 Mark)
Tuition transfer from Lisa: $3,750 + (4)($400) + (4)($65) = max $5,000 $5,000 (4 Marks) 1 mark