Problem
Ms. Henderson comes to you for advice in February 2020. Last year, 2019 was a year of considerable change and turmoil for her. Her job in Ottawa, with Losing Ltd., evaporated on March 31, 2019, as a result of a reorganization of the company's business after a merger with a competitor. She found another job in Dundas (an improvement), but it required her to move there. Her divorce from her former husband became final during 2018. Ms. Henderson, who was already a single parent of a nine-year-old daughter, decided to adopt a five-year-old child locally on May 1st of 2019. By June 2019, after completing her move to her new job, the adoption was finalized. The court costs, legal cost, and administrative costs were $18,000.
Other information on receipts and benefits:
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Salary earned in 2019 ($44,000 in Ottawa, $50,000 in Dundas)
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$94,000
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Profit from sale of cosmetics at home parties held in spare time
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5,850
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Interest on saving accounts
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1,800
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Spousal support made pursuant to a court order ($700 per month for her support and $550 per month for the support of her daughter, age 9)
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15,000
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Moving allowance
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7,500
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Dividends received (eligible $3,500 and non-eligible $2,000)
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5,500
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Proceeds from disposal a work of art (original cost $800)
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5,000
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Disbursements and withholdings:
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Employment Insurance premium withheld
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$860
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Canada Pension Plan contributions withheld
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2,749
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Union dues
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500
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Net rental loss (for tax purposes) on investment property
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(4,800)
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Registered retirement savings plan contributions, made on February 14, 2019 (2018 earned income was $127,000)
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25,750
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Registered education savings plan payments 2019 ($60 per month)
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720
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Tuition fees for 4 months part-time at a local University
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3,800
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Payment on cancellation of lease for Ottawa apartment
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580
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Security deposit on apartment in Dundas
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475
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Gasoline and direct car expenses incurred in move to Dundas
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120
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Trailer rental for move to Dundas
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180
|
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Cost of shipping remainder of household effects
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2,600
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Cost of hotel and meals in Dundas while awaiting delivery and unpacking of household effects (one day)
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220
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Payment to babysitter for care of both children after school and during school holidays
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12,500
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Medical expense paid for family dental care
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5,800
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Donations (registered political party $500 and registered charities $2,000)
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2,500
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A review of Ms. Henderson's 2018 tax return shows $5,000 net capital losses carried forward to 2019
Required (Use tax rules applicable to 2019):
1. Calculate Ms. Henderson'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. Also, explain any further tax implications / advice on RRSP in relating to Ms. Henderson's situation.
2. Regardless of what you calculated in Part A, assume that Ms. Henderson's net income for tax purposes and taxable income for 2019 was actually $108,000 and all other information is the same. Calculate Ms. Henderson's federal income tax for 2019.