ACCT2028 - Tax Communication Memo Assignment

Assignment Task

1. Residency

Mr. Byrde has been employed as a full-time analyst in Toronto, Ontario since 2014. He is employed by a Canadian subsidiary of a U.S. company that has its head office in Lake of the Ozarks, Missouri. While he has permanent resident status in Canada, he is a U.S. citizen.

The U.S. parent company has offered Mr. Byrde a significant promotion that involves a large increase in salary. This promotion requires that he move to the company’s head office in Missouri no later than June 1, 2022. Mr. Byrde finds this to be an offer he cannot refuse.

As Mr. Byrde is a U.S. citizen, moving to the United States presents no problems for immigration however he is unsure of how much it will take to move – he and his spouse have three children, all of whom are attending school in Toronto, Ontario. They would like to remain in Toronto until the end of the school year. The Byrdes will need to advice on what to do with their club memberships, bank accounts and investments. In addition, the Byrdes own their home in Toronto and they are unsure how long it might take to sell it or if it might be better to keep it as an investment property.

Required: Write a short memo advising Mr. Byrde on the potential tax consequences of his move specifically on the issue of his residency status for purposes of Canadian income tax.

2. Employed vs Self-Employed

The Alberta Motor Association (AMA) carried on a business of training and providing instruction to individuals who wanted to obtain vehicle operator’s licenses. Mr. Snell had an arrangement with AMA to provide such instruction. AMA had treated Mr. Snell as an independent contractor from 2020 to 2022. Mr. Snell was claiming that he was an employee of the Alberta Motor Association in 2022.

Other information about the arrangement is as follows:

• Mr. Snell was hired as a driving instructor
• Mr. Snell entered into a written contract with AMA stating that Mr. Snell was a contractor and not an employee
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• Mr. Snell had been under contract with AMA since 2020
• Mr. Snell earned a set fee of $26 per hour
• Mr. Snell also received fees for new bookings, student home pickups, and a fuel subsidy
• Mr. Snell invoiced AMA
• Mr. Snell did not receive any employee benefits such as health, dental, or vacation pay
• AMA did not guarantee Mr. Snell a minimum amount of pay
• AMA’s hours of operation were from 8:00 a.m. to 5:00 p.m. Monday to Saturday
• Mr. Snell set his own schedule of hours and days of work
• Mr. Snell could work anytime between 8:00 a.m. and 10:00 p.m. Monday to Sunday
• Mr. Snell did not have a set minimum number of hours of work required
• Mr. Snell kept a record of his hours worked
• AMA provided Mr. Snell with the names of the students
• Mr. Snell contacted the students and scheduled the road instruction
• AMA provided Mr. Snell with an in-vehicle lesson guide
• Mr. Snell chose the routes for the lessons
• Mr. Snell was able to hire his own helper for administrative tasks
• Mr. Snell provided the major tool, which was the vehicle
• AMA provided vehicle signage, mirrors, traffic cones, and an emergency brake
• Mr. Snell paid for the installation and removal of the emergency brake provided by AMA
• Mr. Snell incurred operating expenses, including vehicle expenses, liability insurance, and a driver training endorsement
• Mr. Snell’s vehicle expenses included insurance, maintenance, and fuel
• AMA’s intention was that Mr. Snell was a contractor and not an employee
• Mr. Snell had operated his own taxi business since 2004
• Mr. Snell maintained his own business books and records
• Mr. Snell declared business income and business expenses on his 2020, 2021, and 2022 income tax returns

Required: Write a short memo to Mr. Snell about whether he would be viewed as an employee of the Alberta Motor Association or, alternatively, an independent contractor by the CRA. List all of the factors that should be considered in reaching a conclusion.

3. Employer-Provided vs. Employee-Owned Car

Ruth Langmore was hired by Navarro Sales at the end of 2021 to fill an executive position in the company. She is scheduled to begin work on January 2, 2022. Navarro Sales plans to transfer her to their Mexican office after two years.

As part of her compensation package, Ruth has considered having the company provide her with a car for her personal use. She does not require the vehicle for her employment duties and, therefore, it will be used for personal purposes only.

Ruth anticipates that she will drive the car about 65,000 kilometres in both 2022 and 2023. Through negotiations with Navarro, they have mutually agreed on a Tesla Model S with a purchase price of $150,000. The estimated operating costs of the car are $0.45 per kilometre and it is estimated that the car can be sold for $70,000 after the two years.

he company has offered Ruth the following two options with respect to the car:

1. They will purchase the car and allow Ruth to use it for the calendar years 2022 and 2023. Ruth will pay her own operating costs and the company will take possession of the car after the two years.

2. They will provide Ruth with a $150,000 signing bonus. This bonus will be paid on January 2, 2022. She will use the funds to purchase one of the cars personally.

Ruth’s combined federal/provincial marginal tax rate is expected to be 51% in both 2022 and 2023.

Assume that the prescribed operating cost benefit will be $0.29 per kilometre for both 2022 and 2023.

Required: Write a short memo advising Ruth as to which option would be more beneficial given the tax consequences.

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