Jim, age 45, is a widower since the year of 2011 when his wife suddenly passed away.
He has calculated his net income for tax purposes, for 2014, to be $86,000, which is
comprised of $80,000 in employment income and $4,000 of net taxable capital gains.
He has a net capital loss carryforward from 2009 of $6,000 which he would
like to utilize if possible. Other important data about Jim, for 2014, is as follows:
a) He has two children, Sarah, age 10, and Sam, age 6
b) Sarah is a dancer and he spends $5,000 per year on her competitive dance
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ASSIGNMENT #1 -Non refundable tax credits and Adv Cap Gains Rules
c) Sam is a hockey player and he spends $2,500 on his hockey fees/tournaments
d) Jim spend $3,000 on braces for Sarah in 2014. All other medical expenses
are covered by his employer's health plan.
e) Jim contributed to several charities in the year: Hospital for Sick Kids - $200 and
Princess Margaret Hospital - $1500.
f) Jim takes the TTC to work with a monthly pass at a cost of $120 per month.
g) Jim bought his first home this year. Prior to this, he lived with his mother as she
helped him with the kids.
Required:
a) Calculate Jim's Taxable income for 2014.
b) Calculate Jim's minimium taxes payable (federal only) for 2014 after deducting non-refundable
tax credits. Use the tax rates and NRFTC amounts from the back of the KPMG book.
4
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#1 step 1
House Cottage
years owned 2011 - 2015 2013-2015
5 3
# step 2
500,000 250,000
(400,000) (150,000)
(20,000) (10,000)
--------------- ----------------
GG 80,000 90,000
step3
80000/5 90000/3
16 000 30000
step4
3 2
step5
80000 90000
(1+3)/5 x 80000 (64000)
(1+2)/3 x 90000 (90000)
----------------------------------------------------------------------------
CG after exemption 16000 0
TCG 8000 0
To calculate Jim's taxable income for 2014, we need to consider the following:
1. Employment Income: Jim earned $80,000 from his job.
2. Net Taxable Capital Gains: Jim had $4,000 of net taxable capital gains.
3. Net Capital Loss Carryforward: Jim has a net capital loss carryforward from 2009 of $6,000.
To calculate Jim's taxable income, we start with his total income and subtract any allowable deductions:
Total Income = Employment Income + Net Taxable Capital Gains
= $80,000 + $4,000
= $84,000
Taxable Income = Total Income - Deductions
= $84,000 - $6,000
= $78,000
Therefore, Jim's taxable income for 2014 is $78,000.
Now, let's calculate Jim's minimum taxes payable (federal only) for 2014 after deducting non-refundable tax credits. To calculate this, we need to consider the following non-refundable tax credits:
1. Children's Fitness Tax Credit: Jim spends $2,500 on hockey fees/tournaments for Sam.
2. Children's Arts Tax Credit: Jim spends $5,000 per year on Sarah's competitive dance.
3. Medical Expense Tax Credit: Jim spent $3,000 on braces for Sarah.
4. Charitable Donations: Jim contributed $200 to the Hospital for Sick Kids and $1,500 to Princess Margaret Hospital.
5. Public Transit Tax Credit: Jim takes the TTC to work with a monthly pass at a cost of $120 per month.
To calculate Jim's minimum taxes payable, we need to calculate the total non-refundable tax credits and subtract them from his federal tax payable. Let's calculate each component:
- Children's Fitness Tax Credit: The maximum eligible expenses for this credit are $500 per child, so Jim can claim a maximum of $500 for Sam's hockey fees/tournaments.
- Children's Arts Tax Credit: The maximum eligible expenses for this credit are $500 per child, so Jim can claim a maximum of $500 for Sarah's dance expenses.
- Medical Expense Tax Credit: Jim can claim the full amount of $3,000 paid for Sarah's braces since it exceeds the minimum threshold based on net income.
- Charitable Donations: Jim contributed $200 to the Hospital for Sick Kids and $1,500 to Princess Margaret Hospital. He can claim these amounts as charitable donations.
- Public Transit Tax Credit: Jim can claim the total cost of his monthly pass, which is $120 per month, for a total of $1,440.
Let's calculate the total non-refundable tax credits:
Total Non-Refundable Tax Credits = Children's Fitness Tax Credit + Children's Arts Tax Credit + Medical Expense Tax Credit + Charitable Donations + Public Transit Tax Credit
= $500 + $500 + $3,000 + $1,700 + $1,440
= $7,140
To calculate Jim's minimum taxes payable (federal only), we multiply his taxable income by the applicable tax rate and subtract the non-refundable tax credits:
Minimum Taxes Payable = Taxable Income * Tax Rate - Non-Refundable Tax Credits
= $78,000 * Tax Rate - $7,140
To determine the tax rate, we need to refer to the tax rate tables provided by the KPMG book or the relevant tax laws for the specific year.