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(A) Calculate Diana’s earned income for the purpose of determining her maximum 2020 RRSP contribution
by listing the items and amounts that would be included in her earned income. List separately the items that are
not included in the earned income calculation.
(B) Based on the above information, calculate Diana’s maximum deductible RRSP contribution for 2020.
Show all calculations.
Question 4)
Aldo Broome is 39 years old and has been married to Cynthia Broome for 17 years. They have a 13 year old son Martin,
and an 8 year old daughter Ruth, both of whom are in good health. Martin has income from part time jobs of $1,400,
while Ruth has no income of her own.
Other family information for 2022 is as follows:
• Aldo worked 212 hours as a search and rescue volunteer. He received no compensation for this work.
• The family’s medical expenses, all of which were paid for by Aldo, were as follows:
Hair Replacement Fees for Aldo $4,300
Prescription Contact Lenses for Cynthia 850
Teeth Whitening Fees for Cynthia 950
Prescription Glasses for Martin 350
Psychologist Counselling Fees for Martin 1,500
Physiotherapy Fees for Ruth 725
Total 2022 Medical Expenses $8,675
Aldo’s Business Income
Aldo is an accountant who carries on his professional practice as a sole proprietor. His business uses a December 31
fiscal period.
When he began his practice in 2017, he purchased an office building for $750,000, of which $180,000 was for the land
and $570,000 for the building. It was a new building and had been allocated to a separate Class 1. Aldo uses all of the
building for his practice. On January 1, 2022, the UCC of the was $431,676.
In an attempt to attract a wealthier clientele, Aldo upgrades his office in March, 2022. He spent $204,000 on new
furniture and fixtures. The capital cost of the old furniture and fixtures was $93,000 and were sold for $31,000. The UCC
of the class containing the furniture and fixtures was $34,284 at the time.
Other purchases of capital property in 2022 included the following:
New Computer $ 1,200
Applications Software 2,044
Client List from retiring accountant 41,000
As many of his clients are elderly or disabled, his business requires an automobile to be used to provide in-home
services. On January 1, 2022 he purchased a new non-zero-emission automobile at a cost of $42,000. In 2022, it was
driven a total of 32,000 kilometers, of which 29,000 related to providing in-home services for his clients and 3,000
kilometers were for personal use. Operating expenses for the year totaled $4,800.
Other business expenses for 2022, determined on an accrual basis, are as follows:
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Building Operating Expenses $24,300
Payments to employees 42,000
Miscellaneous Office expenses 17,500
Meals with clients 15,300
In 2022, Aldo’s total billed and unbilled work in process totaled $354,800.
Cynthia’s Employment Income
Cynthia works for a large Canadian public company. Her 2022 salary is $62,000, none of which includes commissions.
Her employer withholds the following amounts during the year:
RPP Contributions* $2,500
EI Premiums 953
CPP Contributions 3,500
*Cynthia’s employer makes a matching RPP contribution of $2,500.
In order to deal with her employer’s out-of-town customers, Cynthia is required to travel on occasion. She uses her own
non-zero-emission automobile for the travel which she purchased on January 1, 2022 at a cost of $38,000. In 2022, she
drove 36,000 kilometers, of which 31,500 were employment related and 4,500 were for personal use. Her operating
expenses for the year totaled $3,465.
In addition to automobile costs, Cynthia has other travel expenses as follows:
Hotels $3,200
Food on out of town trips 1,300
Cynthia’s employer provides her with the following travel allowances, in addition to her salary:
Hotels and Food $4,400
Use of personal automobile ($100 Per Week) $5,200
Investment Information
Through careful spending for himself and his family, Aldo has been able to accumulate an investment portfolio of over
$500,000. All of these funds have been invested in Mutual trust funds and, in 2022, trust fund distributions totaled
$36,960. The breakdown of these distributions is as follows:
Capital Gains $22,960
Eligible Dividends 8,500
Interest Income 5,500
Total $36,960
All of these investments are owned by Aldo. Cynthia has no property income or capital gains or capital losses in 2022.
RRSP Information
Both Aldo and Cynthia have invested regularly in RRSPs. Information for these plans is as follows:
Aldo’s Plan — At the beginning of 2022, there was $11,000 in unused deduction room in Aldo’s RRSP. There were also
$13,000 in undeducted contributions in the plan. In 2022, he contributes $22,000 to his plan. He plans to take the
maximum deduction available on the basis of this information.
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In December, 2019, Aldo withdrew $25,000 from his RRSP under the provisions of the Home Buyers’ Plan (HBP). In
January, 2020, he used these funds, along with funds from his savings account, to purchase a new home. Because he
purchased the home for a lower price than anticipated, he repaid $10,000 of the HBP balance in 2020. He did not make
any repayment in 2021 or 2022.
Aldo’s Earned Income for 2021 was $123,000. There was no 2021 pension adjustment (PA).
Cynthia’s Plan — At the beginning of 2022, there was unused deduction room in Cynthia’s plan of $7,000. She had no
undeducted contributions.
In February, 2020, Aldo made a contribution to Cynthia’s plan of $5,000 and deducted it in his 2019 income tax return.
Since then he has learned of the attribution rules associated with spousal plans and has made no further contributions
to Cynthia’s plan.
In December, 2022, Cynthia withdraws $7,000 from her RRSP to loan to her brother. In February, 2023, her brother,
after a successful trip to Las Vegas, pays her back the $7,000, along with a gift of $5,000 for being such a great sister.
Cynthia immediately contributes the $7,000 to her RRSP. She plans to take the maximum deduction available for 2022
based on this information.
At the beginning of 2022, Cynthia’s employer agrees to increase the benefit formula for the RPP. In prior years the
benefit was based on 1.5% of pensionable earnings for each year of service. The new agreement calls for a benefit based
on 1.75% of pensionable earnings for each year of service. This change will be applied retroactively. Cynthia has been a
member of the plan since 2019. Her pensionable earnings during those years are as follows:
Year Pensionable Earnings
2019 $40,000
2020 45,000
2021 48,000
Cynthia’s 2021 earned income was $51,000. Her employer reported a 2021 PA of $4,800.
Aldo and Cynthia will allocate tax credits between them to minimize the family’s total income tax liability. Where either
spouse can claim the credit and it makes no difference in the combined income tax payable, Aldo will claim the credit.
Required: Ignore GST/HST & PST considerations in your solution and utilize CRA T1 General for your submission but
use 2022 values
https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years.html or (if you have access)
a summary of tax software (CANTAX etc) download
A. Determine Cynthia’s 2022 Net Income and Taxable Income.
B. Determine Aldo’s 2022 Net Income and Taxable Income.
C. Determine Cynthia’s 2022 federal income tax payable.
D. Determine Aldo’s 2022 federal income tax payable.