Larry is 20 years old, a part-time student at Concordia and has never filed a personal income tax return.

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Larry is 20 years old, a part-time student at Concordia and has never filed a personal income tax return. He has always lived in Quebec and held a full-time job in the summertime and a part-time job throughout his studies since he was 16 years old. His employers have always withheld Federal and Provincial taxes and he has consistently earned $15,000 a year. Your best advice to Larry is:

1. Larry should file his tax returns as he may owe taxes (or could possibly be entitled to a refund); he may also be entitled to claim certain benefits and credits that may be due to him.
2. Larry can wait for the Canada Revenue Agency (CRA) to send him a request to file a return.
3. Larry should prepare and file his tax returns but only if he owes money.
4. Larry does not need to file his returns as he did not sell any property.
5. Filing a tax return will increase the chances of an audit, therefore Larry should only file if he needs to collect Unemployment Insurance.

• Sean’s part-time job allows him to save a bit each month. Once he graduates from Concordia, he would like to travel around Europe. Sean has put a budget together and is looking to save $100 at the beginning of each month for the next 4 years. His bank will pay him 3.5% interest, compounded semi-annually. How much will Sean have accumulated for his trip in 4 years?

245. $3,245.16
246. $5,141.61
247. $5,156.50
248. $4,516.41
249. $4,334.54

• The most important criteria in determining a credit score is:

1. Type of credit used.
2. Length of credit history.
3. Amount of credit owing.
4. Parents agreeing to give a guaranteefor the amount of the loan.
5. Payment history.

• Receiving a Notice of Assessment from the Canada Revenue Agency (CRA) after you have filed your personal income tax return means that the CRA fully accepts and agrees with the information you submitted on your return.

1. True
2. False

 

 

• Allison has taken a financial planning course and is working on SMART goals. She has come up with two goals so far and wants to know if her financial planner would consider them SMART?

1. Pay off credit card debt.
2. Retire at age 60 with enough savings set aside.

 

1. Yes
2. No

 

• Patrick earned $210,000 in gross salary in 2018. In addition, he received a sales commission of $20,000 for having closed a significant deal with a new customer. Patrick wants to know how much he will receive in commissions after having paid taxes (combined Federal and Quebec income taxes) on them. See Table A for the marginal tax rates.

492. $12,492.50
493. $12,507.50
494. $12,500.00
495. $9,338.00
496. $10,662.00

 

Section I completed, continue to Section II.

 Section II:   Five (5) Mini-Cases (14 marks)              

Please write (or highlight, where required) your response in the template or space provided.

 Mini-Case A:

Question 1: (1 mark)

Mariela knows that she will have a big tax bill in April 2019 as she made large withdrawals from her Registered Retirement Saving Plan (RRSP) in 2018 due to large unexpected renovations on her home from the hurricane that were not insured. She has told you that since she will not have the money to pay the tax bill in April 2019 that she sees no point in filing until she can come up with the money. 

1. What would you recommend to Mariela with regards to filing her tax return? (.5 mark)

_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________

1. What will the Canada Revenue Agency (CRA) do if she does not pay the taxes owing by April 30, 2019? (.5 mark)

_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Mini-Case B:

Question 2: (3 marks – 1 mark each)

Lori is looking to put $25,000 at the end of each year into her Registered Retirement Savings Plan (RRSP) for the next 20 years. She believes that she can earn 4% interest, compounded monthly.

 

1. How much will Lori have saved after 20 years?

Lori’s calculation: (1 mark)

 

 If Lori decides to withdraw the entire amount in one lump sum in 20 years, what would be the amount that she would receive after taxes, assuming her effective tax rate is 32% at that time?

Lori’s calculation: (1 mark)

 

1. What is the minimum annual salary that Lori needs to earn each year to make a $25,000 annual RRSP contribution?

Lori’s calculation: (1 mark)

 

Mini-Case C:

Question 3: (5 marks – 1 mark each)

At a recent class reunion that took place on October 1, 2018, a group of friends discussed Tax-Free Saving’s Account (TFSA). The discussion got heated and one of the friend’s came to you after the party to clarify some of the TFSA misunderstandings (use Table C to help with your response):

 

1. Joe is 50, what is the maximum amount that he can contribute to his TFSA in 2018 (include carry forward amounts as he has never contributed to date)? $__________________________________ . (1 mark)

 

1. Nancy has always made the maximum contributions to her TFSA except for 2018 where she has not yet contributed. She is 49 and as of today has a current fair market value of $65,200 in her TFSA. If Nancy makes the maximum TFSA contribution today for 2018, what would be the total market value of her TFSA? $____________________ . (1 mark)

 

2018. Nancy’s daughter, Krista just turned 18 on September 30, 2018. Krista received a lot of money on her birthday and decided to make her first TFSA contribution. She deposited $5,000 to her account the day after her birthday. Did Krista over-contribute or under-contribute?

 

1. over-contributed or under-contributed (highlight your response – .5 mark)
2. by how much? $_________(.5 mark)

 

998. Fred (age 51) has contributed to his TFSA for many years. He made aggressive investment choices which is why it is currently valued at $327,998. Fred is looking to withdraw this money and is not sure of his tax liability. What is the amount that Fred would receive after withdrawal (assume that Fred has an effective tax rate of 40%)?

Fred’s calculation: (1 mark)

 

899. Fred’s TFSA investments are currently valued at $327,998 as of October 11, 2018 however at the start of the year on January 1^st, it was valued at $436,899. Fred would like to claim a loss on his tax return due to the decrease in the value since the start of the year. What would be Fred’s loss that he could claim on his tax return?

Fred’s calculation: (1 mark)

 

 

 

 

 

Mini-Case D:

Question 4: (2 marks)

Chantal wants to buy a condo and is trying to make better decisions on her debt situation. She is researching the following:

 

1. A credit scoreis a three-digit rating that indicates a person’s __________________for a mortgage, loan or credit Your score can affect whether or not you are approved for credit as well as the ___________________ you will be charged. (1 mark – .5 mark each)

 

1. Chantal knows that affordability is key to mortgage lenders. Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS) are two mortgage formulas that lenders use to determine exactly how much money they are willing to lend you. Chantal is wanting to make these calculations for herself before applying for her mortgage to avoid any surprises. Calculate her GDS and TDS ratio based on the information she has provided. (1 mark – .5 mark each)

 

Annual gross salary: $85,000	Monthly student loan $50
Estimated monthly mortgage payment: $1,650	Transportation (yearly metro pass) $935
Estimated annual property taxes: $1,500	Weekly food $110
Estimated monthly heating: $35	Monthly car payments $200
Estimated annual condo fees $500	Weekly entertainment expenses $60

 

 

Calculate GDS ratio: (.5 mark)

 

 

Calculate TDS ratio: (.5 mark)

 

 

 

Mini-Case E:

Question 5: (3 marks)

Donald is 35 years old and does not work as he was looking to travel the world for a year. Just before leaving on his travels, he was in a car accident in September 2018 and sustained some injuries.    Donald has medical expenses of $3,500 for physiotherapy plus $6,500 for prescription medication and contact lenses (note that his Net Income is $35,000 – from interest income on his investments). Donald has already calculated his Federal Taxes but is struggling in calculating his Federal Non-Refundable Tax Credits for 2018. His doctor has not completed a T2201 as his doctor has concluded that Donald is not eligible for this disability certificate. (Only respond to this question for Federal taxes, ignore Quebec provincial taxes for this problem. Use Table B and outside resources to answer the question.)

 

2. Calculate Donald’s Federal Non-Refundable Tax Credits (2.5 marks)

Description	Federal Non-Refundable Tax Credits: 2018
Basic Personal Amount	(.5 mark)
Disability Amount	(.5 mark)
Medical Expenses (hint: use formula Lesser of: a)      3% x net income or b)      $2,302)	(1 mark)
Total
Federal Non-Refundable tax rate	(.5 mark)
Total Federal Non-Refundable Tax Credits

 

Facts:

Donald’s Federal Taxes on Taxable Income in 2018: $5,250

Donald’s Federal Income Taxes remitted to the Federal government in 2018 as instalments: $2,250

 

1. Calculate whether Donald is entitled to a refund or has an amount owing (.5 mark):

	Calculation
Federal Taxes on Taxable Income (given)	$5,250
Federal Income Taxes Remitted  (given)	$2,250
Non-Refundable Tax Credits (calculated above)
Refund or balance owing	$                            (.25 mark)                              Refund or balance owing or nil (highlight your response) (.25 mark)

 

The End

 

 

TABLE A

2018 Combined Federal and Quebec Personal Income Tax Brackets and Tax Rates
2018 Taxable Income	2018 Tax Rates	2018 Taxable Income	2018 Tax Rates
first $43,055	27.53%	over $93,208 up to $104,765	45.71%
over $43,055 up to $46,605	32.53%	over $104,765 up to $144,489	47.46%
over $46,605 up to $86,105	37.12%	over $144,489 up to $205,842	49.97%
over $86,105 up to $93,208	41.12%	over $205,842	53.31%

                                                                        

TABLE B

 

2018 Federal Basic Personal Amount and Quebec Basic Personal Amount
2018 Federal Basic Personal Amount	2018 Quebec Basic Personal Amount
$11,809	$15,012
Tax rate 15%	Tax rate 15%

 

TABLE C

Tax-Free Savings Account (TFSA): Annual Limits
Years	Annual Limit	Years	Annual Limit
Year started 2009	$5,000	2014	$5,500
2010	$5,000	2015	$10,000
2011	$5,000	2016	$5,500
2012	$5,000	2017	$5,500
2013	$5,500	2018	$5,500

 

TABLE D

Registered Retirement Savings Plan (RRSP): Annual Limits
Year	Contribution limit
2014	$24,270
2015	$24,930
2016	$25,370
2017	$26,010
2018	$26,230

 

                                                                           TABLE E

	Time Value of Money Formulas
Simple Interest		I = P x R x T
Future (FV) of a single sum
Future Value of an Annuity or series of payments
Present Value (PV) of a single sum
Present Value of an Annuity or series of payments		or
Time Value: FV = Future value             i = Annual interest rate PV = Present value            n = Number of time periods PMT = PMT or regular annuity		When compounding is more than once a year, FV = PV (1 + i/m)nm m = Number of compounding periods per year