Reference no: EM132769869
Question - You have just finished meeting with Paul and Christine, a married couple, who have come to you for some tax advice. They brought along information about Paul's employment income for 2019.
For several years, Paul has been a commission salesperson working for a company that sells technology solutions to businesses. For 2019, he earned a base salary of $180,000 plus commissions based on his sales. He travels across the country for work and is very successful. He is responsible for paying certain expenses when he is travelling, while his employer is responsible for other expenses. Paul is responsible for paying any entertainment and promotional costs he incurs, as well as air transportation, hotel, and meal costs while he is travelling for business.
Beginning March 1, 2019, Paul's employer provided him with a leased vehicle for the rest of the year. He had no car before this date. As his employer does not have an office in Vancouver, Paul operates out of his home office, where he principally conducts business. He has a desk and computer equipment that he owns. This office represents 10% of the floor space in Paul's home. While he does not see clients at his home, he does use this
Paul provides you with the following information for 2019: Paul:
Salary paid during the year $180,000
Commission income paid during the year 20,000
Expenses paid personally:
Utilities for house 2,000
Minor repairs to home 1700
Property taxes 3500
Travel costs (airline tickets and hotel costs) 15,000
Meals while travelling 5,000
Entertainment of clients 6,000
Promotional material (brochures) 200
House insurance 600
Mortgage interest 10,000
New computer and printer purchased this year 2,500
Golf membership for golfing with clients 4,000
Benefits paid for by employer:
Vacation for Paul and Christine as a reward for having = 6,000
The largest increase in sales this year = 2,000
Health and dental benefits
Long-term disability insurance with wage-loss protection = 5,000
Group term life insurance =960
Financial planning - annually, employer pays for one meeting with a financial = 1,000 planner for each employee
Gift to Paul provided on his birthday - front-row tickets to a hockey game = 900
Monthly lease payment on the company car = 750
Car operating costs (maintenance, fuel, insurance) = 6.000
Total kilometres driven = 40,000
Personal kilometres driven = 15,000
Paul has notified his employer that, if he is eligible, he will elect to use the "lesser of" calculation for the operating cost benefit on the vehicle.
Required -
a) Determine the expenses that Paul can deduct from his employment income. Calculate the expense deductions for sales and non-sales employees and explain items that are excluded from your calculations. Briefly explain whether Paul should claim expenses as a sales or non-sales employee.
b) Determine Paul's net income for tax purposes for 2019.
c) List all items excluded from your net income calculation and explain why the item has been excluded.