Assignment
Helen Chu formally separated from her husband late in 2018. Custody of her three children ages 14, 9, and 5, was granted to her as part of an agreement (properly referenced to the Income Tax Act, as necessary) that was worked out with her husband in Family Court. The oldest child, Allen, is 20 years old, and therefore, not part of the agreement, although he lives with her and the other children when not at school. Helen received $2,500 per month in spousal support and $2,000 per month in child support from her former spouse. The payments are made pursuant to a court order.
To make a fresh start, on January 15, 2019, Helen was transferred from Ottawa to MT Ltd.'s head office in Toronto (MT Ltd. is a public corporation).
Her 2019 financial information is summarized below:
• Helen received a salary of $90,000. From this, MT Ltd. deducted Canada Pension Plan (CPP) and Employment Insurance (EI) of $3,609 and income tax of $20,000. During 2019, MT Ltd. paid Helen's premium of $800 for group term life insurance.
• Helen participates in a stock option plan with her employer. In 2018, she was granted options to purchases 1,000 shares at $4 per share while the shares were trading for $3 per share. In early 2019 while the shares were trading for $6 per share, Helen exercised her options and acquired 1,000 shares. In late 2019 the shares were trading for $9 per share, and Helen sold all 1,000 shares.
• Helen incurred moving expenses in 2019 of $7,000, which qualified as allowable deductions for tax purposes.
• Helen won $2,000 playing poker in a casino during a family trip to Niagara Falls in the summer.
• Helen withdrew $8,000 from her TFSA in June 2019 and contributed $5,000 to her TFSA during the year.
• During the year, Helen sold a work of art for $3,000 that originally cost $500.
• Helen had the following transactions in her investment accounts in 2019:
Share in High Incorporated were sold for $35,000. Helen acquired the shares by investing $15,000 in the company back in 2010.
Helen sold her shares Low Ltd., a public company, for $10,000. The shares were initially purchased at $18,000.
Helen received eligible dividends of $3,000, non-eligible dividends of $5,000 and interest from saving sources of $800 from her investments.
• Helen had the following miscellaneous expenditures in 2019:
$20,000 of child care expenses relating to the three younger children.
$500 contribution to a registered political party and $2,000 to registered charities.
Medical expenses for Helen in 2019 consisted of $5,000 paid to an orthodontist to correct her bite.
• Allen, the oldest child, attended university for full time in 2019 and paid tuition fee of $12,000. Allen has agreed to transfer the maximum amount of tuition to Helen. Allen did not earn any incomes in 2019.
• A review of Helen's 2018 tax return shows $15,000 net capital losses carried forward to 2019
Task
1. Calculate Helen's net income for tax purposes and taxable income for the 2019 taxation year. Your must show all your calculations and explain any omitted items.
2. Regardless of what you calculated in Part A, assume that Helen's net income for tax purposes and taxable income for 2019 was actually $110,500, and all other information is the same. Calculate Helen's federal income tax for 2019.