Chelsea’s Minimum Net Income & Tax for Tax Purposes

by | Aug 9, 2023 | Accounting

 

Case 1
It is March of 2021 and you have been hired to prepare the 2020 tax return for Chelsea Lee. She has provided you with the following information:
Chelsea is thirty years old, divorced, and has an eight-year-old child from a former marriage. Child support payments from Chelsea are $500 a month. Chelsea lives in Cornwall, and is a salesperson for Tri-scope Inc. The earnings from the job include a base salary of $6,000 per month plus a commission of 1% on the sales Chelsea makes in the month, which were $50,000 every month in 2020.
Chelsea moved to Cornwall from Bermondsey on December 1, 2019 due to a promotion with Tri-scope. Chelsea’s tax deductible moving expenses totaled $9,500, and there was no reimbursement from Tri-scope. $4,500 of this expense was accurately claimed on the 2019 tax return. Chelsea took out a $120,000 mortgage to purchase a new home in Moncton. The total interest payments were $8,400 in 2020.
Chelsea’s personal vehicle is used to perform the work duties, and Chelsea pays for the expenses with no reimbursement from Tri-scope. However, an allowance of $400 is received each month which is treated as unreasonable for tax purposes. Chelsea purchased a new car in 2019 which is used seventy-five percent of the time for business purposes. The undepreciated capital cost of the vehicle at the beginning of 2020 was $28,000. Total costs to operate the vehicle are $800 per month. Interest expense on the car loan is $200 per month.
Chelsea spends $300 per month on fashionable clothing for work, and $500 per year on a new cell phone. The cell phone bill is $80 per month, of which seventy-five percent is for employment use. Chelsea takes files home from the office at the end of the day and reviews the sales calls in a home office. The files are then returned to the office at Tri-scope in the morning prior to leaving for the day to make sales calls. Chelsea’s monthly total expense for the home insurance, property taxes, maintenance, and utilities is $1,000. The home office occupies ten percent of the square footage in the home. Chelsea maximizes RRSP contributions each year. The 2019 Notice of Assessment showed RRSP room of $12,000. Earned income was $42,000 in 2019 which consisted of $6,000 in commissions. Tri-scope does not have a registered pension plan. CPP for enhanced contribution is $166.
Required:
A. Calculate Chelsea’s minimum net income & Tax for tax purposes for 2020. Use the aggregating formula from Section 3 of the Income Tax Act to show your answer (40 marks).

B. Indicate why any items have been omitted from your calculations (10 marks).

Sample solution

Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell. 

In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.


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God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.

Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.

To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.

 

References

Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.

Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.

Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.

Sample Answer

Sample Answer

 

A. Calculating Chelsea’s Minimum Net Income & Tax for Tax Purposes for 2020

To calculate Chelsea’s minimum net income and tax for tax purposes for 2020, we need to consider various income sources, deductions, and credits. Let’s break down the calculations step by step:

Employment Income:

Base salary: $6,000/month x 12 months = $72,000
Commission: 1% of sales ($50,000/month x 12 months) = $600/month x 12 months = $7,200
Total employment income = Base salary + Commission = $72,000 + $7,200 = $79,200
Child Support Payments:

Child support payments: $500/month x 12 months = $6,000
Moving Expenses:

Deductible moving expenses: $9,500 – $4,500 (already claimed in 2019) = $5,000
Mortgage Interest:

Total mortgage interest payments: $8,400
Vehicle Expenses: a. Depreciation:

Undepreciated capital cost of the vehicle at the beginning of 2020: $28,000
Business use percentage: 75%
Depreciation expense: $28000 75% = $21,000
b. Operating expenses Monthly operating expenses: $800/month x months = $9,600

c. Interest expense on the car loan:

Total interest expense: $200/month x 12 months = $2,400
Clothing Expenses:

Monthly clothing expenses: $300/month x 12 months = $3,600
Cell Phone Expenses:

Employment use percentage: 75%
Annual cell phone expenses: $500/year
Monthly cell phone expenses: ($80/month x 75%) x 12 months = $720
Home Office Expenses:

Total monthly home office expenses: $1,000/month
Business use percentage: 10%
Monthly home office expenses for tax purposes: $1,000/month x 10% = $100/month
RRSP Contributions:

RRSP room carried forward from 2019: $12,000
CPP Contributions:

Enhanced CPP contribution: $166
Now, let’s calculate Chelsea’s minimum net income and tax for tax purposes using the aggregating formula:

Total Employment Income = Base Salary + Commission = $72,000 + $7,200 = $79,200

Net Income Calculation: Employment Income = Total Employment Income

Child Support Payments
Moving Expenses
Mortgage Interest
Vehicle Expenses (Depreciation + Operating Expenses + Interest Expense)
Clothing Expenses
Cell Phone Expenses
Home Office Expenses
RRSP Contributions
CPP Contributions
Net Income = $79,200

(-$6,000)
(-$5,000)
(-$8,400)
(-$21,000 + -$9,600 + -$2,400)
(-$3,600)
(-$720)
(-$100)
($12,000)
(-$166)
Net Income = $34,134

To calculate the Tax for Tax Purposes, we will apply the federal and provincial tax rates based on Chelsea’s net income. Since the specific province is not mentioned in the provided information, I will assume a federal tax rate of 15% for illustrative purposes.

Tax for Tax Purposes = Net Income x Tax Rate

Tax for Tax Purposes = $34,134 x 15% = $5,120.10 (approximately)

B. Explanation of Omitted Items

Some items have been omitted from the calculations as they were not specified or relevant to the given information:

Other personal deductions like medical expenses or charitable donations were not provided.
Provincial tax rates were not provided.
Capital cost allowance (CCA) for the vehicle was not calculated as it was not mentioned whether Chelsea used the vehicle for business purposes or claimed CCA in previous years.
Other employment-related deductions like professional development expenses or union dues were not mentioned.
Other non-employment-related income sources like investment income or rental income were not provided.
These omissions may affect the final tax calculations and should be considered when preparing a complete and accurate tax return for Chelsea Lee.

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