Marty is 68 years old and retired from his employment with Toys Ltd., a Canadian public corporation, 30, 2016. Marty has asked you to help him prepare his 2016 tax return and to advise him on certain other tax matters. Information regarding his financial activities for 2016 is summarized below.
1. Marty's gross salary to August 30, 2016, was 110,000. From this amount, Brick Ltd deducted income tax of $28,000 and CPP and EI of $3,499. In addition to salary, Brick Ltd paid $23,000 directly into Marty's self-directed RRSP at a local bank. Marty paid the annual RRSP administration fee of $100. During the year, until August 30, 2016, Marty had the use of the employer's automobile. Brick Ltd paid the monthly lease cost of $980 plus monthly operating expenses of $300.Marty drove the car a total of 16,000 km, of which 4,000 km was for personal use.
2. Marty suffered an illness in 2016 and was off work for six weeks. During this period, the employer's group sickness and accident insurance policy paid Marty $11,000 for lost salary. The entire premium of $800 was paid by Brick Ltd in 2016. Due to his illness, Marty incurred medical expenses of $5,000 in 2016.
3. In 2013, Brick Ltd granted Marty an option to acquire up to 4,000 of its shares at $11 per share. At that time, the shares were trading at the same price. In January 2016, he purchased 5,000 shares when they were trading at $27 per share. He purchased an additional 1,000 shares in July 2016, when they were trading at $29 per share. In November 2016, Marty sold 2,000 shares at $28 per share after receiving a cash dividend (Eligible) of $1,200.
4. In 2015, as a sideline, Marty began carving wood bowls for sale. He hoped to generate a small profit and keep himself occupied during his retirement. He made his first sales in 2016, which resulted in a loss of $7,850. This excludes amortization but includes a deduction of $4,000 for the full cost of Class 29 woodworking equipment.
5. On January 2, 2016, Marty gifted his stamp collection to his grandson. He had acquired the collection over the past 15 years at a cost of $5,500. The collection has recently been appraised at $11,000. At the same time, he gifted a convertible bond valued at $18,000 to his wife. The bond had been purchased in 2011 for $11,000.
6. Marty is married and lives with his wife. She retired in 2015 and will begin receiving her pension in 2017. During 2016, she earned interest income of $4,000, which includes $800 from the convertible bond she received from her husband.
7. Marty's tax return from the previous year showed the following balances:
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Listed personal property losses forwarded to 2016
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$ 4,000
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Maximum RRSP deduction available in 2016
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20,000
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Required:
1. Determine Marty's taxable income (Line 260 of T1 Return) for the 2016 taxation year.
2. Based on your answer to question 1, calculate Marty's minimum federal income tax liability for the 2016 taxation year.
3. Now that Marty is retired, can he make a contribution to his RRSP in 2017? If so, estimate the maximum deduction available.