You are an employee of a Canadian public corporation. On February 1, 2019 you received options to purchase 5,000 shares of your employer's common stock at a price of $75 per share. You exercised the options and purchased 5,000 shares on March 1, 2019. You sold all of the shares on June 1, 2020. The market price of her employer's common stock was $74 per share on February 1, 2019; $79 per share on March 1, 2019 and $85 per share on June 1, 2020. Hint: Net Income is Division B and Taxable Income is Division C. Part one –show calculations) The effect on your 2019 tax return is: A) increase in Net Income for Tax Purposes of $12,500; increase in Taxable Income of $12,500. B) increase in Net Income for Tax Purposes of $25,000; increase in Taxable Income of $12,500. C) increase in Net Income for Tax Purposes of $10,000; increase in Taxable Income of $10,000. D) increase in Net Income for Tax Purposes of $20,000; increase in Taxable Income of $10,000. Part two – show calculations)The effect on her 2020 tax return is: A) increase in Net Income for Tax Purposes of $15,000; increase in Taxable Income of $15,000. B) increase in Net Income for Tax Purposes of $30,000; increase in Taxable Income of $15,000. C) increase in Net Income for Tax Purposes of $25,000; increase in Taxable Income of $25,000. D) increase in Net Income for Tax Purposes of $50,000; increase in Taxable Income of $25,000.
You are an employee of a Canadian public corporation. On February 1, 2019 you received options to purchase 5,000 shares of your employer's common stock at a price of $75 per share. You exercised the options and purchased 5,000 shares on March 1, 2019. You sold all of the shares on June 1, 2020. The market price of her employer's common stock was $74 per share on February 1, 2019; $79 per share on March 1, 2019 and $85 per share on June 1, 2020. Hint: Net Income is Division B and Taxable Income is Division C. Part one –show calculations) The effect on your 2019 tax return is: A) increase in Net Income for Tax Purposes of $12,500; increase in Taxable Income of $12,500. B) increase in Net Income for Tax Purposes of $25,000; increase in Taxable Income of $12,500. C) increase in Net Income for Tax Purposes of $10,000; increase in Taxable Income of $10,000. D) increase in Net Income for Tax Purposes of $20,000; increase in Taxable Income of $10,000. Part two – show calculations)The effect on her 2020 tax return is: A) increase in Net Income for Tax Purposes of $15,000; increase in Taxable Income of $15,000. B) increase in Net Income for Tax Purposes of $30,000; increase in Taxable Income of $15,000. C) increase in Net Income for Tax Purposes of $25,000; increase in Taxable Income of $25,000. D) increase in Net Income for Tax Purposes of $50,000; increase in Taxable Income of $25,000.
Chapter19: Deferred Compensation
Section: Chapter Questions
Problem 54P
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You are an employee of a Canadian public corporation. On February 1, 2019 you received options to purchase 5,000 shares of your employer's common stock at a price of $75 per share. You exercised the options and purchased 5,000 shares on March 1, 2019. You sold all of the shares on June 1, 2020.
The market price of her employer's common stock was $74 per share on February 1, 2019; $79 per share on March 1, 2019 and $85 per share on June 1, 2020. Hint: Net Income is Division B and Taxable Income is Division C.
Part one –show calculations) The effect on your 2019 tax return is:
- A) increase in Net Income for Tax Purposes of $12,500; increase in Taxable Income of $12,500.
- B) increase in Net Income for Tax Purposes of $25,000; increase in Taxable Income of $12,500.
- C) increase in Net Income for Tax Purposes of $10,000; increase in Taxable Income of $10,000.
- D) increase in Net Income for Tax Purposes of $20,000; increase in Taxable Income of $10,000.
Part two – show calculations)The effect on her 2020 tax return is:
- A) increase in Net Income for Tax Purposes of $15,000; increase in Taxable Income of $15,000.
- B) increase in Net Income for Tax Purposes of $30,000; increase in Taxable Income of $15,000.
- C) increase in Net Income for Tax Purposes of $25,000; increase in Taxable Income of $25,000.
- D) increase in Net Income for Tax Purposes of $50,000; increase in Taxable Income of $25,000.
Transcribed Image Text:You are an employee of a Canadian public corporation. On February 1, 2019 you
received options to purchase 5,000 shares of your employer's common stock at a price
of $75 per share. You exercised the options and purchased 5,000 shares on March 1,
2019. You sold all of the shares on June 1, 2020.
The market price of her employer's common stock was $74 per share on February 1,
2019; $79 per share on March 1, 2019 and $85 per share on June 1, 2020. Hint: Net
Income is Division B and Taxable Income is Division C.
Part one -show calculations) The effect on your 2019 tax return is:
A) increase in Net Income for Tax Purposes of $12,500; increase in Taxable Income of
$12,500.
B) increase in Net Income for Tax Purposes of $25,000; increase in Taxable Income of
$12,500.
C) increase in Net Income for Tax Purposes of $10,000; increase in Taxable Income of
$10,000.
D) increase in Net Income for Tax Purposes of $20,000; increase in Taxable Income of
$10,000.
Part two – show calculations)The effect on her 2020 tax return is:
A) increase in Net Income for Tax Purposes of $15,000; increase in Taxable Income of
$15,000.
B) increase in Net Income for Tax Purposes of $30,000; increase in Taxable Income of
$15,000.
C) increase in Net Income for Tax Purposes of $25,000; increase in Taxable Income of
$25,000.
D) increase in Net Income for Tax Purposes of $50,000; increase in Taxable Income of
$25,000.
Transcribed Image Text:Part 1 (ITA 3)
Division B Net Income to Division C Taxable Income to Taxes Payable for Individuals
ITА 3(a)
+ Bin #1- Net Employment - losses carry forward 20 years and carry back 3 years (carrying baskets)
+ Bin # 2 - Net Business & Property – losses carry forward 20 years and carry back 3 years (carrying baskets)
+ Bin # 4 - Other Income
ITА 3 (b)
+ Bin # 3 – Net Capital – losses carry forward for infinity and carry back 3 years (carrying basket)
IТА З (c)
- Bin # 5 - Other Deductions
= Sources of Income
ITA 3 (d)
Losses in current year from Bins 1, 2, 4
= Division B Net Income
Equivalent to Capital Gains Deduction for Employee Stock Options
ITA 110
Payments included to calculation Division B but not included for Division C (e.g. social assistance)
- Losses from other years (carrying baskets Bin #1 & 2)
ITA 111
Losses from other years (carrying basket Bin #3 limited to Net Capital Income included in ITA 3 (b)
= Division C Taxable Income
x Applicable Tax Rates
ΙΤΑ 118
Tax Credits
= Division E Taxes Payable for Individuals
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