Reference no: EM132942328
Mary Smith had a busy year in 2020. During the year, she formally separated from her husband and retained custody of her five-year-old daughter, Peggy. She also decided that she needed a fresh start in another city, so she quit her job in London, Ontario, and got a new job in Toronto. Mary and her daughter moved to Toronto, Ontario, in November 2020.
In order to help you, she has prepared the following list of all the transactions which she thinks might be of interest to you.
(1) Her employment income from her employer in London for the first 11 months of 2020 was $65,000. Her deductions at source included CPP/EI of $3,754 and income tax of $17,000.
(2) Her new employer in Toronto agreed to pay some of her moving expenses, but in order to simplify things, they were going to give her an allowance of $9,000. She was responsible, then, for her own expenses.
Her moving costs were as follows:
Moving company charges................................................................$ 6,500
Gas for trip to Toronto at the time of the move (350 kms driven)...175
Motel in London for one night on the day of the move....................275
Meals during the day of the move and during the trip to Toronto....102
Lease cancellation charge in London............................................... 300
=
$ 7,352
She had made a trip to Toronto to look for an apartment for her and Peggy and she had incurred the following expenses:
Gas for trip to Toronto...................................................................$ 150
Motel costs in Toronto...................................................................250
Meals.............................................................................................. 85 ==> $ 485
(3) Her income from her new employer in Toronto during the month of December was $6,500.
(4) During the year she incurred the following expenses for the care of Peggy:
Food and clothing...........................................$ 9,000
Babysitter costs while she was at work.......... 7,000
(5) Mary incurred legal fees of $4,200 to establish her right to support payments in connection with the finalization of the separation agreement. She feels that this was well spent, since her lawyer was successful in getting her husband to pay child support to her for Peggy in the amount of $1,200 per month, starting in February 2020. So far, her husband has been making these payments on time.
She also had trouble with her 2018 tax return and had to pay her previous accountant $800 to deal with the CRA. It turns out that the CRA has correctly assessed her return.
(6) She is totally confused by the RRSP rules, so she wants you to tell her what the maximum amount is that she can contribute to her RRSP for 2020. Her earned income for RRSP purposes is equal to her employment income for 2019. Mary's notice of assessment showed unused RRSP deduction room at the end of 2019 of $6,000. Her a pension adjustment for 2019 was $3,000. For the current year the estimated pension adjustment will be $4,500. She wants you to assume that she will make these payments within the time deadlines when you calculate her tax liability.
(7) Mary gave you a copy of her 2019 tax return and it showed employment income of $60,000, child care expenses of $5,000 and taxable dividends of $20,000 from public shares which she bought for $40,000 5 years ago and she still owns.
REQUIRED
Problem 1: Calculate Mary's income under Division B for 2020. Explain why you omitted any amounts from your calculations. Show all calculations.