Margaret Lykaios is the president and major shareholder of Measureup Ltd., a Canadian-controlled private corporation that operates a construction business in Regina, Saskatchewan. Measureup earns only business income which is all subject to the small business deduction.
In 2023, she had a number of financial transactions. She has asked you to help her prepare her 2023 tax return and provide advice on other tax matters. The following additional financial information is provided for 2023:
- Margaret’s gross salary was $99,000, from which Measureup deducted the following amounts.
Income tax
$
30,000
CPP and EI premiums
4,756
Private health insurance premiums
600
Group sickness and accident insurance premiums
400
In addition to her salary, Measureup paid $2,000 to a deferred profit-sharing plan, $600 of private health insurance premiums, and $400 of group sickness and accident insurance premiums.
- Margaret is required to use her own automobile for company business. For this, Measureup pays her an annual allowance of $4,000. She purchased a new automobile for $67,400 plus HST (13%), and received $18,000 as a trade on her old car. At the end of the previous year, the old car had an undepreciated capital cost balance of $16,000 (class 10.1). Of the 20,000 km driven in 2023, 13,000 km were for employment purposes. Margaret incurred automobile operating costs of $5,700.
- For three months during the 2023, Margaret was sick and could not attend work. She received $9,900 from the company’s group sickness and accident insurance plan. Since the plan’s inception, Margaret had paid premiums totalling $2,000.
- Margaret purchased a warehouse property and leased it to Measureup to store construction equipment. The property cost $272,000 (land - 30,000, building - 242,000). The building was originally constructed after March 18, 2007. The price for the land includes $2,200 of permanent landscaping completed just after acquisition. The 2023 rental income is summarized in the following chart.
Rent received
$
21,500
Expenses:
Insurance
$
(1,200
)
Property taxes
$
(4,000
)
Interest
(10,000
)
Repairs:
General maintenance
(800
)
Storage shed addition
$
(3,300
)
$
(19,000
)
Income
$
2,200
- Margaret is a 25% partner in a computer software business but is not active in its management. The partnership financial statement shows a profit of $40,000 for the year ended December 31, 2023. The profit consists of $32,000 from software sales and $8,000 from interest earned.
- On July 1, 2022, Margaret purchased a three-year guaranteed investment certificate for $20,000 with interest at 9%. The interest compounds annually but is not payable until July 1, 2025.
- Margaret received (made) the following additional receipts (disbursements).
Receipts:
Dividends (Eligible) from Canadian public corporations
$
2,200
Dividends (Non-eligible) from Measureup
3,300
Dividends from foreign corporations (net of 10% foreign withholding tax)
1,800
Winnings from a provincial lottery
12,000
Disbursements:
Dental expenses for children
3,500
Donation to a charity
2,000
Safety deposit box
100
Life insurance premium used as collateral for personal bank loan
900
Investment counsel fees
1,100
Required:
Determine Margaret’s net income for tax purposes in accordance with the aggregating formula of Section 3 of the Income Tax Act for 2023. Assume other deductions total $8,000.
