Question 1 Mr. Robert Paris is a salesman for Eiffel Ltd. , a public corporation. He provides you with the following information. Salary income$30,000 Commission Income$45,000 He is covered by his employer’s group term insurance plan for 2x his salary income. The premium paid by Eiffel Co. is $8 for each $1,000 of coverage. On January 1, 2007, he received the following loan from Eiffel Co: • $80,000 to purchase a home (he transferred from Quebec City on December 2006) The loan carried an interest at 2%. As at December 31, 2007, no interest has been paid on the loan and no portion of the capital has yet been repaid on these loans.
His contribution to the company’s defined benefit plan is $4,000. He bought a new car in 2007 for $26,000 and incurred the following expenses in earning his commission income: • Automobile expenses (re: total of 20,000 km driven) $8,000 • Meals and entertainment $2,600 • Convention expenses of $2,000 on conference entitled “The Art of Enticement – a Salesman Approach” • Other travelling expenses (taxi, train, hotels) of $1,600 Note: 70% of his 20,000 km pertain to employment On June 5, 2007, he acquired 150 shares through the employee stock option plan for $18/share.
At the time the shares were trading on the Toronto Stock Exchange for $30. Mr. Paris was granted the option in 2007 at a time when the shares were trading for $18. On December 3, 2007, he sold 100 shares fro $40 each. Prior to June 5, 2007, Mr. Paris did not own any shares of Eiffel Ltd. and he did not make any election. For 2007, the prescribed rates for employee loans are as follows: Q1 4% Q25% Q35% Q45% Required – compute Mr. Paris’ minimum 2007 net income. Ignore GST/QST. Question 2 Martinez Power Tool Corporation Ltd. as carried on business in Canada since its incorporation under the Canada Business Corporations Act in 1972. Its net income for the year ended 2007, as determined under generally accepted accounting principles, is as follows: Martinez Power Tool Corporation Limited INCOME STATEMENT For the year ended December 31, 2007 Sales$8,500,000 Cost of goods sold: Inventory, January 1, 2007$ 800,000 Purchases 7,000,000 7,800,000 Inventory, December 31, 2007 600,000 COGS(7,200,000) Gross Profit 1,300,000 Selling expenses 500,000 General and administrative expenses 100,000 (600,000) 700,000
Other income 60,000 760,000 Provision for income taxes (300,000) Net Income$ 460,000 Included in the summary of the financial results of Martinez Power Tool Corporation Ltd. are the following details: 1. Closing inventory was written down, for a possible future impairment of FMV below cost, but $40,000 in 2007 and $25,000 in 2006. 2. Selling expenses included: Meals and entertainment$11,500 Golf club memberships 10,000 Charitable donations 5,000 Bonus declared by unpaid 20,000 Provincial payroll taxes 18,000 3. General and administrative expenses included: Depreciation 29,000 . Other income includes: Gain on disposal of indefinite life license (POD $44,000, purchased in 1995 for $20,000)$5,000 Gain on disposal of truck (POD $10,000, NBV $7,500)$2,500 Interest income 3,000 5. The truck sold during the year had an original cost of $15,000. A replacement truck was purchased in the year at a cost of $20,000. 6. The corporation has operated from leased premises since 2005 when it spent $30,000 on infrastructure during the first year of a five-year lease with two three-year renewal options. During 2007, improvements were made to the premises at a cost of $6,000. . In 1991, the corporation purchased goodwill for $36,000 and an indefinite-term license for $20,000. The balance in the CEC account on January 1, 2007 was $20,327. The 2006 T2 Schedule 8 prepared by the corporation indicates that at December 31, 2006, the corporation had the following undepreciated capital cost balances: Office equipment$43,000 Trucks 64,000 Leasehold improvements 25,500 Required – calculate the minimum income for business or property of the company for the year ended December 31, 2007 under the provisions of the Income Tax Act.
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