Prof. Don Jones, CPA/CA/LPA/CMA/MBA/AMCT

Course 0470-361-01

Fall Term 2013

Prof. Don Jones, CPA/CA/LPA/CMA/MBA/AMCT

Personal Tax Return Problem

Due Date:Hardcopy of tax return required by November 29 by noon. Submit to Stephanie Miller (Admin. Assistant to Accounting Faculty on the 4th floor of Odette).

Donna Ma, a 42 year old resident of Windsor, Ontario, has asked you to prepare her 2012 personal tax return based on the following financial transactions that occurred in 2012.

1.In 2012 Donna earned a salary of $ 80,000. She contributed $ 5,000 to her employer’s registered pension plan and also paid an allowable contribution of $ 9,000 to her RRSP.

2.Donna sold the following properties in 2012:

1937 classic automobile $ 35,000

Camper trailer 7,000

Shares of Tex Inc., a public corporation 6,000

Donna purchased the classic automobile, which she drove only on warm summer days, in 2001 for $ 8,000. Additional restoration costs incurred were $ 6,000. Donna acquired the camper trailer in 2002 for $ 16,000 and the Tex Inc. shares that same year for $ 60,000.

3.In 2005 Donna invented a board game and incurred $ 6,000 in legal fees to obtain a patent. Donna intended to manufacture and market the game herself, but a feasibility study showed that she did not have the necessary financial resources or management expertise. As a result, she sold the patent and the distribution rights to a marketing company in 2012 for $ 36,000 plus an annual royalty on sales. In 2012 her royalty receipts were $ 12,000.

4.In 2010 Donna purchased, for $ 30,000, a three-hectare parcel of land in a rural area. In 2012, two of the three hectares were sold separately for $ 20,000 per hectare. She used the proceeds to construct a greenhouse on the remaining land. She will use the greenhouse to grow and sell vegetables in her spare time. Donna could have acquired a one-hectare site in 2010 but opted for the larger property in the hope that she could sell part of the property at an increased value and raise funds to help pay for the cost of constructing the greenhouse. Donna paid property taxes of $500 per year on the three hectare site.

5. In 2012 Donna sold her 500 shares in Seaco Ltd, a public corporation, for $20 per share. Her adjusted cost base per share was $ 14.50.

6.Donna’s father died several years ago and left her a house valued at $90,000 and a gold bracelet worth $600. Donna’s brother is using the house until it is sold.

In 2012, a land developer paid Donna $6,000 for an option to purchase the house. As of December 31, 2012, the option had not been exercised. Also, in 2012, Donna sold the gold bracelet for $2,000. Donna’s 2011 tax return showed an unused listed personal property loss of $400 carried forward from the prior year.

7.In 2001 Donna purchased shares of Pluto Inc. , a Canadian controlled private corporation, for $20,000. After several years of financial problems, the corporation ceased operations in 2012 and is insolvent. When operations ceased, all of Pluto’s assets were being used in an active business.

8. Donna is divorced and made a lump sum spousal support payment to her former spouse of $30,000 in 2012.

9. Donna has two children who live with her in her home. Corry is 10 years old and Betsy is 19 years old. Betsy started school at the University of Windsor in 2012 and paid tuition of $6000 in the Bachelor of .Commerce program. Betsy received a scholarship of $3000 in 2012 and earned no additional income. Corry has a hearing disability and Donna paid $3500 in medical expenses in 2012 related to Corry’s disability.

10.Donna cares for her mother, Louise, who is 68 years old and resides with Donna. Louise’s only source of income in 2012was pension income of $17,000 which she received from her deceased husband’s pension plan.

11. Donna uses the public transit system to travel to work each day. She purchased an annual pass for 2012 for the bus which cost $800.

12. Donna purchased her first home in Windsor in 2012 at a cost of $175,000.

13. Donna made donations of $ 4,400 to the United Way in 2012.

Required:

1.Calculate Donna’s taxable income and income taxes payable (Federal and Ontario) under the Income Tax Act of Canada for the 2012 taxation year.

2.Submit a hardcopy of the personal tax return (including all schedules) that you prepared for Donna by November 29, 2013 by noon to Stephanie Miller . Attach a hardcopy of calculations performed for information inserted into the return.