Sally Earned $210,000 During 20x8

question 5

Essay

Sally earned $210,000 during 20x8. CPP and EI were deducted from her pay, totaling $3,609, and total income tax (federal and provincial) deducted was $70,000. She also received eligible dividends in the amount of $10,000. She sold shares in a public corporation during the year and recognized a capital gain of $500,000. Sally is married. Her husband earned $100,000 during the year.
Required:
A) Calculate Sally's taxable income and her federal tax liability before the deduction of any allowable non-refundable tax credits using 1) the normal method, and 2) the alternative minimum tax method.
B) Which method would allow for a deduction of the dividend tax credit?
C) Which method will Sally be required to use in 20x8, and why? How much is her federal tax liability? (Use tax rates and amounts applicable for 2019.)

• A) Calculate Sally's taxable income and her federal tax liability before the deduction of any allowable non-refundable tax credits using 1) the normal method, and 2) the alternative minimum tax method.
• B) Which method would allow for a deduction of the dividend tax credit?
• C) Which method will Sally be required to use in 20x8, and why? How much is her federal tax liability? (Use tax rates and amounts applicable for 2019.)

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Definitions:

Equity

The residual interest in the assets of an entity after deducting liabilities, representing ownership interest.

Share Capital

Share capital refers to the amount of money a company has raised by issuing shares to shareholders, representing the ownership interest of the shareholders in the company.

Forfeited Shares

Shares that have been cancelled or surrendered because the shareholder failed to meet purchase requirements or payment deadlines.

Calls

Options that give the holder the right, but not the obligation, to buy a stock, bond, commodity, or other instruments at a specified price within a specific time frame.