Olin Packett is a CGA-CPA and has been employed for over 5 years by a Canadian private corporation and recently promoted to a management position. He works in their Victoria, BC office.   For 2018, h 1

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Olin Packett is a CGA-CPA and has been employed for over 5 years by a Canadian private corporation and recently promoted to a management position.  He works in their Victoria, BC office.

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For 2018, his gross salary was $150,000.  While he does not receive commissions, he was awarded a bonus of $10,000 for 2018 based on the performance of the business.  One-half of this was paid in December 2018, with the balance paid in March 2019.

The following amounts were withheld from his gross salary in 2018:

Federal Income Tax                                                         $25,000

Employment Insurance Premiums                                          858

Canada Pension Plan Contributions                                    2,594

Registered Pension Plan Contributions                               5,000

Charitable contributions (Centraide)                                    1,000

Other Information:

1.   During 2018, Olin was provided with an automobile that the corporation bought at a cost of $82,500, including all taxes. The total operating costs of the car were $0.50/km for the year and they were all paid by the corporation. The car was available to Olin the entire year, except that he didn’t use the car for a 3-month period while he was on a disability leave.  Olin drove the car a total of 30,000kms during the year, all but 9,700kms were employment related (fully documented).  Olin reimbursed his employer $950 for his personal use of the automobile for the year.

2.   During 2015, Olin was granted the option to buy 1,000 shares of his employer’s common shares at a price of $31.00 per share.  At that time, the shares were worth $33.00 each.  On June 1, 2016, Olin exercised his option and acquired 1,000 shares at $31 each.  At that time, the shares were worth $40.00 each.  Olin sold all the 1,000 shares on May 1, 2018 for proceeds of $50.00 per share.

3.   In order to assist Olin in purchasing a new luxury boat, his employer granted him a 3-year, interest-free loan of $100,000.  The loan was granted on July 1, 2018.  At that time, the interest rate on an open 5-year loan was 5%.  The prescribed interest rate for 2018 was 2.5% for the period of July to September and 3% for the period of October to December 2018.

4.   Olin has been a member of his employer’s defined benefits Registered Pension Plan (“RPP”) for the last 3 years. For 2018, his employer made a $5,000 matching contribution to the RPP on his behalf. 

5.   Other disbursements made by Olin during 2018 include the following:

            Tuition fees for a business management course                          $1,500

            Tuition fees for a sailing course                                                    $1,000

            Professional dues paid to CPA association                                  $1,600

            Premiums paid on life insurance policy                                           $720

            Mortgage payments on home                                                     $24,000

      Olin’s employer reimbursed the tuition fees for both the business management and the sailing courses but none of the other costs paid personally by Olin, given his recent promotion to a manager’s position.

Required:

Calculate Olin’s net employment income for tax purposes for the year 2018. 

Explain your answer, including detailed calculations, and provide reasons for omitting items that you have not included in your calculations.  Ignore all GST/HST considerations.  Assume all applicable elections were made.



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