Liam Howieson operates his own unincorporated business that purchases documentary films. He reports income earned from his documentary business on his T1 Return on the T2125 form. The following information pertains to his business:
· The business earned $12,000 each month for the entire year.
· Liam paid $12,000 in advertising during the 2018 taxation year. Half of which targeted the Canadian market.
· Liam spent $11,000 on business meals and entertainment during the year. Included in that amount was a family trip ($7,000), to visit his parents in Costa Rica.
· Liam pays $25 a month for life insurance. This insurance was mandatory per the loan agreement with his financial institution, who wanted it as collateral against Liam’s loan.
· Liam paid $13,500 in interest on the outstanding loan with the financial institution. It is worth noting that one third of the loan was attributable to a new deck he built at his personal residence. The remaining two thirds relate to his business.
· He paid $500 in dues to the curling club he is a member of. He solicits a lot of business from his curling connection.
· He paid $9,750 in legal fees in 2018, all of which were related to his recent divorce.
· Liam has two children aged 11 and 16, and both of them are in good health. The older child provided minor administrative support to Liam’s business and was paid $5,000 for those services, which is considered a reasonable amount. The younger child was paid $12,000; however, did not perform any work for the business.
· Liam rented his business location for $2,500 a month and the rental came fully furnished. In July 2018, Liam decided that he was fed up with renting and decided to buy a building with his inheritance (totaling $500,000), and to use it exclusively for his business. He bought the property for $290,000 and then spent $8,000 on office furniture and $5,000 (total) for two computers.
· On October 1, 2018, Liam decided to buy a vehicle for $45,000 (including taxes). Liam estimated that the vehicle was used for business purposes 25% of the time. The car incurred the following expenses:
· Gas: $1,000
· Maintenance: $1,200
· Insurance: $500
Liam paid $24,000 in spousal support to his former spouse, as per the court judgment.
Liam contributed $4,000 to his RRSP, of which $800 constituted repayments to his Lifelong Learning Plan. Liam also made contributions to both of his children’s RESPs that totalled $2,000. His 2017 Notice of (re)Assessment states that his limit was $25,000.
Liam’s eldest child was considered a prodigy at a young age and she started university at 15 years old. During the 2018 taxation year, Liam paid $8,000 in eligible tuition fees for his daughter; however, they do not want to transfer her unused credits.
Even though both children are healthy, Liam paid for the following medical expenses:
· Liam – Dentist $1,200;
· Mary – Wisdom tooth removal $2,500; and,
· Gary – Orthodontist $3,000.
Liam sold his old boat for $800 and its original cost was $900. Liam also sold an old manuscript for $2,000 that he purchased for $750 in 2011.
Liam bought and sold publicly traded shares during the 2018 taxation year. On January 2, 2018, Liam purchased 2,000 shares in Company A for $25 each, and sold all of the shares on December 1, 2018 for $37 each. Company A shares were held in his Tax Free Savings Account.
Liam bought and sold shares from Company B, which is also publicly traded. He bought 1,000 shares for $10 each on March 15, 2018, and then sold them on September 20, 2018, for $32 each. These shares were held in a non-registered account.
Liam was relieved to finally pay off his student loans in 2018. During the year he paid $138 in interest on the loan.
Liam wanted some of his inheritance to go to good use, so he made a $10,000 donation to the local animal shelter.
Liam goes to the casino twice a year with his friends. During his first trip, he won $5,000 at the Blackjack table and then lost $6,000 while playing roulette 6 months later.
Finally, Liam received $800 (grossed-up) in eligible dividends.
Required: Prepare Liam’s 2018 T1 Return. Liam wishes to minimize his tax liability and wants to claim the maximum amount of CCA.
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