ADMS4561 Winter 2022- Midterm all Questions
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Midterm Question 1 (28 marks, 50 min.) released at 5:00 pm (60 minute deadline 6:00 pm
) It is January 15, 2021. PPE Inc. (“PPE”) is a Canadian-Controlled Private Corporation located in Toronto which manufactures personal protective equipment and is a GST/HST registrant. PPE is examining the benefits it provides to its employees and has asked you to comment on the income tax and GST/HST implications the following potential benefits to both PPE and the employees: 1. Group Disability Insurance.
The premiums will be split 50/50 between PPE and the employee 2. Private Medical Plan. The premiums will be split 50/50 between PPE and the employee. 3. Employee Share Ownership Plan (Stock Option Plan). PPE plans to establish an employee share ownership plan for senior employees. The employees are arm’s length with PPE. PPE will initially grant options to each qualifying employee to purchase 3,000 shares at $5 per share. The fair market value of the shares at the time of grant is estimated to be $7 per share. The options will be exercisable at 1,000 shares per year for 2022, 2023 and 2024. When exercised, each employee will own less than 1% of PPE. 4. Share Loan.
PPE is planning to provide loans to the employees to purchase the shares in point 4. The loans will bear interest at 1% and the employees will sign a loan agreement with bona fide repayment terms to repay the loan over 5 years. 5. Company Cars. PPE is planning to provide company cars to its sales force. It is going to purchase zero emission vehicles which will cost $65,000 each plus HST. PPE would like an example taxable benefit calculation assuming the employee has the car for 11 months in the year and drives 30,000 km in the eleven months of which 22,500 are for work purposes. PPE will not pay car operating expenses but will provide the employee with a Form T2200 certifying that the employee is required to pay them. REQUIRED: Provide PPE with the information requested. Ignore any COVID modifications.
Midterm Question 2 (22 marks, 40 min.) released at 6:00 pm (50 minute deadline 6:50 pm) Beth and Ripley, a married couple, own 51% and 49%, respectively, of RanchCo., a Canadian controlled private corporation (“CCPC”), that provides equestrian equipment to horse farms across Canada. RanchCo. does not have any customers outside of Canada. RanchCo. has a small investment portfolio and also owns 95% of SubCo., a CCPC. Ripley, owns 100% of HoldCo., a CCPC., which owns the remaining 5% of SubCo. All corporations have a December 31 fiscal year-end. Information regarding each entity and activity during the 2021 year is provided below. SubCo. In March 2021, SubCo. paid a $60,000 non-eligible dividend. SubCo. It is expected that SubCo. will receive a dividend refund of $10,000: $7,000 from its NERDTOH and $3,000 from its ERDTOH. SubCo. did not have any further activity during 2021, other than a small amount of interest income earned from the corporation’s savings account. HoldCo. HoldCo. owns the land and building in which RanchCo. operates its business. RanchCo. pays HoldCo. $100,000 per year of rental income for the use of the premises. HoldCo. incurs $50,000 of deductible expenses per annum for general maintenance and upkeep on the property. HoldCo. will always claim the small business deduction to the extent that it can. HoldCo. does not have any employees. The only other income HoldCo. earned in 2021 was the dividend income from SubCo. RanchCo. In 2021, earned $950,000 of active business income, which has been computed correctly. In addition to this active business income and SubCo. dividend income detailed above, RanchCo. earned $25,000 of interest income from its bond portfolio and $32,000 of eligible dividend income from shares of Canadian public corporations. RanchCo.’s Part I tax is correctly calculated as $125,167. In 2021 RanchCo. paid an eligible dividend of $50,000. RanchCo. did not pay any dividends in 2020. Continued on next page
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