Reference no: EM132283526

TAX SOFTWARE ASSIGNMENT

Jeremy Johnston and Suzanne Johnston are your tax clients. They have been married for two years. Suzanne has progressed quickly in DaveCo, the large, publicly traded firm she is working for, due to her strong tax and accounting background. Her firm has an excellent health and dental plan (cost-shared with employees) that reimburses most medical and dental expenses with few limitations.

Personal Information	Taxpayer	Spouse
Title	Ms.	Mr.
First Name	Suzanne	Jeremy
Last Name	Johnston	Johnston
SIN	527-000-129	527-000-079
Date of birth (Y/M/D)	1987-12-28	1964-01-29
Marital status	Married	Married
Canadian citizen?	Yes	Yes
Provide information to Elections Canada?	Yes	Yes
Own foreign property of more than $100,000 Cdn?	No	No
Taxpayer's Address:
123 ABC Street, Calgary, AB T2G 1A1
Phone Number (999) 999-9999
Spouse's address same as taxpayer? Yes
Dependent Children:
First Name	Georgie	Patricia
Last Name	Johnston	Johnston
SIN	527-000-319	527-000-186
Date of birth (Y/M/D)	2011/02/24	2015/07/22
Net income	Nil	Nil

Jeremy earns business income writing and editing instruction manuals on a contract basis. He has six different clients and operates under the unincorporated business name Crystal Clear Communications from an office in their home.

During the year, Jeremy was a full-time student at City Centre University for four months. He is taking courses in child psychology in order to help deal with Suzanne's son, Georgie, who has been diagnosed with a severe mental disability that qualifies him for the disability tax credit.

Business Income - Jeremy:
Revenues	56,900.17
Membership dues - Business Writers Association	281.00
Business insurance	226.16
Bank service charges	206.17
Charitable donation to United Way	700.00
Cell phone air time (for business)	365.70
Postage and courier charges	122.00
Supplies	1,952.17
Separate business phone line charge	697.86
Fees for accounting and tax advice	575.00
Air fare (business travel)	826.97
Hotels (business travel)	2,540.91
Meals when traveling on business	647.14
Meals and drinks when entertaining clients	2,087.12
Golf green fees while playing with clients	540.00
UCC of furniture - beginning of year (Class 8)	3,564.94
UCC of computer application software (Class 12) - beg. of year	594.15
UCC of computer hardware (Class 50) - beginning of year	926.00
Application software purchased June 1, 2018	1.125.00
Laptop computer purchased May 1, 2018	3,549.00
Business Use of House Costs:
Area of home used for business (square feet)	250
Total area of home (square feet)	2,800
Gas	1,732.86
Electricity	1,781.87
Insurance - house	800.55
Snow plowing contract	475.00
Installation of new gas furnace	5,500.00
Painting of house interior	3,408.50
Mortgage interest paid to Royal Bank	8,767.29
Mortgage life insurance premiums (not for collateral)	400.00
Mortgage principal paid	1,287.50
Property taxes	3,423.10
Interest on late property taxes	122.52

Tax Software Note: As the problem requires that you ignore GST/HST implications, enter all motor vehicle expenses as non-eligible for GST or HST.

Vehicle Costs: (all annual costs)
Description - Toyota Forerunner, cost = $55,000, bought 2015-02-15 January 1 odometer			94,800
December 31 odometer			132,800
Business kilometers driven			9,500
Parking			$421.71
Gas			$2,825.00
Maintenance and repairs			$586.85
Car insurance			$1,500.00
License and registration fees			$85.00
Interest on 4-year car loan granted on purchase date			$677.93
UCC of Class 10.1 - beginning of year			$12,495
T2202A - Jeremy
	BOX	AMOUNT
Tuition fees	A	$4,900
Number of Months - Part-time	B	0
Number of Months - Full-time	C	4

Jeremy was previously married and has a 19-year-old daughter from the previous marriage. As part of the property settlement, he received the house that he and his family had lived in. Since Suzanne already owned a much nicer home, he moved in with her when they were married in 2016 and rented out the other property. The details of his rental property are as follows:

Address - 767 Stampede Street, Calgary, AB, T3M 5G5
Gross rents	$15,000.00
Property taxes	4,610.00
Insurance	1,650.00
Interest on mortgage	6,787.25
Payment on principal	1,998.27
Wiring and furnace repairs	1,272.43
Snow removal and landscaping annual contract	450.00
Building purchased May 1, 2004 for $170,000 - UCC beginning of year	170,000.00
Appliances purchased June 6, 2015 for $1,700 - UCC beginning of year	1,600.00

Jeremy believed that, in June, he had paid an income tax instalment of $7,500 for 2018, but could find no record of it. You call the CRA and find that the June payment was towards his 2017 tax liability.
Jeremy had tax owing of more than $12,000 for 2017 and has not completely paid off the liability yet. He actually has paid $3,000 in instalments for 2018.

During 2017, one of his clients convinced Jeremy to take out a demand loan to purchase shares in a public company, Big Gain Ltd., for $40,000. Later that year, the company's president was indicted for fraud. In 2017, Jeremy sold his shares for $6,000 and used the proceeds to pay down his demand loan. During 2018, Jeremy did not have sufficient funds to pay off the demand loan, but managed to reduce the principal by $10,000.

The interest and penalties paid by Jeremy during 2018 were as follows:

Interest on credit cards for business expenses	$ 566.56
Interest on loan to buy laptop and software for business	145.97
Interest on loan to make 2017 RRSP contribution	188.50
Interest on loan to purchase Big Gain Ltd. shares	1,200.00
Interest on late payment of 2017 income tax	163.87
Interest on insufficient tax instalments for 2017	38.90
Interest on late GST/HST payments	180.29
Penalty on late filing of 2017 tax return	293.25

Suzanne has invested in the stock market over the years and has done well. Jeremy holds no securities outside of his RRSP during 2018. Suzanne has received her T3 and T5 information slips from her stockbroker and bank. The interest from the TD Bank is from a joint savings account in the name of both Suzanne and Jeremy.

T5 Issuer Recipient Actual amount of eligible dividends	BOX     24	Slip 1 Flower Corp. Suzanne $4,000.00	Slip 2 TD Bank Joint 50% each
Taxable amount of eligible dividends	25	$5,520.00
Interest from Canadian sources	13		$940.12
T3 Issuer - TD Asset Management Recipient - Suzanne Johnston Foreign country - United States Foreign non-business income (Canadian dollars)		BOX     25	AMOUNT     1,897.75
Foreign income tax paid - investment (Canadian dollars)		34	277.00
Other income - interest		26	578.00
Actual amount of eligible dividends		49	750.00
Taxable amount of eligible dividends		50	1,035.00

Suzanne also received the following T4 from her employer:

Suzanne - T4	BOX	AMOUNT
Issuer - DaveCo
Employment income (includes option)	14	$157,690.08
Employee's CPP contributions	16	2,593.80
Employee's EI premiums	18	858.22
RPP contributions	20	Nil
Income tax deducted	22	43,875.88
Stock option deduction 110(1)(d)	39	3,750.00
Charitable donations	46	1,700.00
Medical plan premiums	85	2,000.00

Suzanne paid no instalments for 2018 as she has received tax refunds in the last two years. Suzanne had options to purchase 500 shares of DaveCo at $45 per share. When she received the options, the shares were trading at $40 per share. On December 20, 2018, when the shares were trading at $120 per share, she exercised her options for 100 shares. (Note: the taxable benefit is included in her T4.)

The Johnston family also incurred medical expenses as follows:

Orthodontist for Georgie	$3,000.00
Other medical expenses for Georgie	$8,350.00
Prescription drugs for Patricia	$ 250.00
Medical marijuana for Jeremy	$3,250.00

Jeremy's mother, who is infirm, also lives with the family and is dependent on Jeremy and Suzanne. Her net income was $7,039 and Jeremy paid $3,025 in medical expenses on her behalf. Her birthdate is January 13, 1946. (You do not have to do her tax return.)

When Suzanne's grandmother died in 2015, she inherited some pieces of jewelry, as well as a dining room set and a chandelier. Since the jewelry is not suited to Suzanne's modern style of dress, she sold some pieces during 2018. She replaced the dining room set and chandelier and sold them separately to two colleagues at work.

Asset Dispositions Description	Disposition #1 Diamond Pendant	Disposition #2 Gold Ring	Disposition #3 Pearl Broach
Year of acquisition	2015	2015	2015
Date of disposition	July 20	July 20	July 20
Proceeds of disposition	$5,000.00	$750.00	$1,700.00
FMV at grandmother's death	$5,400.00	$100.00	$ 920.00
Asset Dispositions Description Year of acquisition Date of disposition Proceeds of disposition	Disposition #4 Dining room set 2015 July 20 $2,000.00	Disposition #5 Crystal chandelier 2015 July 20 $1,800.00
FMV at grandmother's death	$3,000.00	$ 700.00

Jeremy has made all of the required payments to his ex-wife, Sheeza DeVille, in 2018. In your files, you have noted that his 2013 divorce agreement requires Jeremy to pay spousal support to his ex-wife of
$1,000 per month. He also pays her child support of $500 per month for his 19-year-old daughter, Faye.

Suzanne tells you that her parents have established an RESP for Georgie in 2018, and are the sole contributors. They have contributed $2,500 in lieu of Christmas and birthday presents. She does not know much about RESPs and wonders if this is a good idea and how it may affect her and Jeremy's taxes.

Suzanne has also learned that Jeremy's mother purchased Canada Savings Bonds in Georgie's name in 2018. The bonds paid interest of $155 in 2018 which Jeremy had spent without advising her. She expects a T5 to be issued in Georgie's name.

Jeremy and Suzanne also paid for childcare for Georgie during 2018. The amount and details are as follows:

Child	Organization Name	# of weeks	Amount
Patricia	Little Lambs Daycare Inc.	48	$14,000.00
Georgie	No Worries Childcare Inc. (after-school and summers)	48	$6,100.00
Georgie & Patricia	Rusty Griswald (babysitter)	2	$900.00

(evenings when Jeremy and Suzanne had to work)

On January 10, 2019, you receive a phone call from Suzanne Johnston. She has just received a T4RSP in the mail which shows that Jeremy had withdrawn $50,000 of funds from his RRSP without her knowledge. She knows this could substantially increase Jeremy's tax liability and is very concerned. She provides you with the following T4RSP and RRSP receipt for the contributions that she has already made, as well as information related to her and Jeremy's RRSP limits.

RRSP Contribution Information - Suzanne	(Y-M-D)	Amount
Issuer of receipt - TD Asset Management	2018-12-27	$ 9,400
Issuer of receipt - TD Asset Management	2019-01-09	$15,900
Unused deduction room at the end of 2016		$16,854
Earned income for 2017		$140,000
T4RSP - Jeremy	BOX	AMOUNT
Issuer of receipt - Royal Bank
Withdrawal payments	22	$50,000
Income tax deducted	30	$15,000

REQUIRED:

With the objective of minimizing the tax liability for the family, prepare Suzanne's 2018 income tax return and Jeremy's 2018 return using tax software (preferably TaxFreeway). You may submit either the tax return file (if using TaxFreeway) or a paper copy if using another program (Sent in pdf format).

In a separate Word document, list any assumptions you have made and provide any explanatory notes and tax planning issues you feel should be placed in the file to be shared with the Johnston family. (No more than 1 - 2 pages should be necessary.)

Note: Must be under the Canadian tax act