Tax Return of the Jedi

[Griet van Vliet]

Akarui. With Leastre also being one of the main equity partners and Griet supplying the seed money, and a few more local accountants, the last equity partner being a Kitsune, that is, Norinchukin, Griet hung her shingle, and formed an accounting firm, VPN LLP, incorporated on Akarui. For some reason she was entrusted with administering that Jedi's final Trial, the Trial of Insight. Now, she prepared a set of documents containing the complete statement of the Trial the padawan is undertaking, which is, in fact, a client undergoing its tax filings. I've never liked the traditional Trials of Insight that were historically administered. I'd rather have them be able to navigate accounting and taxation, which is a much more challenging puzzle than the others. A Shattered Order Jedi, who moved to Alzoc III with his family from M'Haeli when Taeli betrayed the Alliance. And she'd have the examinee commence the trial once all the relevant documentation is in order, with the final one being the Alzoc III Income Tax Act. However, Griet knows she will be on the hook for any issues that may arise from the padawan's wrongdoing. Knowing this, the examination is set to begin on the double.

"Welcome to VPN LLP, young padawan. I trust that you have come here for your Trial of Insight. Remember the following: while you may be able to defeat a Sith in single combat, you could be undone by something as mundane as tax filings. The cold, hard truth is that taxation is an item that can cost Jedi big without knowing it"

 

[Griet van Vliet]

"Read carefully all the information at hand, the master tax return, the schedules, before you even get started on the tax filings"

That Jedi, Pazzo Folen, was a family man from the looks of the documentation in the padawan's hands. The information at the top of the client's file pertains to his two daughters. His youngest daughter, Sabritya, a 14-year-old, had one document to her name: a T4 slip for 5,620 credits, with the following deductions: SPP for 278.19, EI for 93.29, no RPP or union dues. His older daughter, 19-year-old Harli, has more fiscal information supplied: she attends university on a full-time basis for 9 months in the standard year, with Pazzo paying for the totality of the following: 11,400 credits in tuition, 1,600 in textbook costs and residence fees of 10,400, with her salary of 4,500 for 3 months as a summer research assistant paying for her living expenses and having the following payroll deductions attached to it: SPP for 222.75 and EI for 74.70. For this reason she transfers all her tuition credit to her father. Then came Pazzo's wife: Nurma. Her only income is a 7,650-credit interest revenue from a trust fund. And the padawan's head was spinning even without any income whatsoever, nor deductions, being applied on the primary family breadwinner, nor were any income taxes withheld on any of the two children. Meanwhile, Griet was working on a client's warranty and loyalty liability aging report when the padawan asked her a question:

"Which one to file first?"

"I'm not supposed to tell you"

 

[Griet van Vliet]

The padawan had the right idea to go file the tax returns of those people first, and he was befuddled by the definition of the dependent according to the Alzoc III Income Tax Act. It was very quick to go file Sabritya's tax return, and also Nurma's, too, with Nurma not being eligible to the workforce tax credit of 177 credits, while Sabritya was, and also Harli. No income tax liability, nor refund, because there are no withholdings, nor is taxable income higher than the minimum non-contribution threshold, that is, the point below which one doesn't actually pay income taxes on, of 11,635 credits. Now, the complications came, and Griet could feel it would also be an area of problem, but then, since the taxable income of Harli was also below the non-contribution threshold, Harli could transfer the full amount of 5000 credits to her father and carry forward the remaining 6000 credits of tuition for the purposes of the tax credit to future years. I hope the Folens will stay with us in future tax years, regardless of whether or not the padawan succeds in his trial, she thought. And then came the actual nightmare. The most complicated part: Pazzo's tax filing.

 

[Griet van Vliet]

"Oops... I forgot about Pazzo's father, Ariq" the padawan told Griet, after reading the tax filing that had Ariq's name on it but no inputs whatsoever.

"What's the fiscal information about it? No need to answer"

Ariq is a 73-year-old guy, with a RRIF withdrawal of 17,300 credits, and no other revenues, but the old-age non-refundable credit claim of 7,225 credits makes it so that the deductible basis is no longer 11,635 but 18,860. Very straightforward, and, once again, no tax refund, nor tax payments due, but the real challenge lies ahead: Pazzo. A mountain of documents awaited the poor padawan, who seemed to be overwhelmed by the sheer amount of information. That case was one of the most complicated that she saw and... paddies were made to suffer tax returns that were much more complicated than what they would likely file themselves, if they were stationed on a planet where Jedi had no tax exemption: a feeling of dread Griet could feel emanating from that paddy. Oh boy. Poodoo, the padawan thought, while feeling that there were dozens of items to be taken into account. The T4 slip had a long list of notes and, included therein, was a list of tax and other withholdings that was much, much longer than the kids' payroll deductions. The paddy took a deep breath before reading the T4 slip in detail.

 

[Griet van Vliet]

The padawan struggled to even grasp the mountain of documents related to Pazzo's employment income: signing bonuses, house purchasing, loan documents, insurance documents, disability and health insurance, non-cash gifts, pension plan contributions, and soon, so forth. He seemed to be freezing out, unable to even get started filling out the employment income schedule. Meanwhile, Griet was busy juggling with Facehow Industries' warranty-and-loyalty aging. Although, for fiscal purposes, warranty expenses had to be voided, to the extent they did not result in outlays for the purpose of servicing warranty requests; said outlays were tax-deductible whereas warranty expenses to match the warranty liability account weren't. Which meant that Facehow Industries could deduct, for tax purposes, 164,000 credits. Facehow's net sales were 5.4 million in hairdressing equipment and 1.8 million in hair care products; the estimated warranty reserves were 2% of net sales. Also, the balance in warranty liabilities at the beginning of the financial year was 136,000 credits. Which would leave, before any additional warranty expenses for financial reporting purposes, a debit balance of 28,000 credits in the warranty liability account and the new balance was 108,000 credits, so the entries are the following: Dr. Warranty Liability 164,000, Cr. Payables 164,000, Dr. Payables 164,000, Cr. Cash 164,000, Dr. Warranty Expense 136,000, Cr. Warranty Liability 136,000.

 

[Griet van Vliet]

She was watching the padawan go through the documents, seemingly lost but slowly starting to get a hold of himself. Since he was unsatisfied with the apparent vows of poverty taken by the NJO, and hence no fiscal traces whatsoever of his time in NJO service, he decided to enter service on Alzoc III once the GA collapsed, although he didn't turn to the dark side. Serving for 2/3 of the fiscal year on Alzoc III, Pazzo sold his old home on M'haeli, acquired for 375,000 credits before there even was a GA presence on that planet, and forced to sell it for 275,000 credits when the GA collapsed, losing 100,000 credits. He also bought a home about six months after he entered service on Alzoc III for 420,000 credits. Since it is generally accepted galaxy-wide that capital gains or losses on primary residences are not taxable (respectively tax-deductible), the first document not related to the housing situation the padawan comes across is the T4 slip: 12,000-credit signing bonus, 120,125 credits in salary (with 3,875 to be paid next year) with 18,650 credits in withheld income taxes, the maximum amounts for SPP and EI (2,564 and 836 credits respectively), 3,700 credits for RPP, and 880 credits' payments for use of the employer's vehicle.

----------------------------------------

Griet, on her side, cleared up two of the five major items required of Facehow Industries' warranty-and-loyalty aging, now focusing on the loyalty portion. Customers accrue 1 point for each credit spent on hair care products, and they may exchange 200 points plus 20 credits for a set of deluxe hair care products, costing Facehow Industries 34 credits to manufacture, and estimates 60% of the points are redeemed. A total of 6,500 sets of deluxe hair care products were kept in escrow and there were 1.2 million points redeemed this year. The inventory of premiums left in escrow was 1,175 units at the start of the year, worth 39,950 credits on a FIFO basis (indicating that they kept their per-unit costs unchanged with respect to the set as a whole, even though each component may change production costs individually), and an estimated liability for premiums of 44,800 credits. However, only the actual costs of redeeming the points were tax-deductible; yet, redeeming 1.2 million points work out to 6,000 sets redeemed. And then the inventory of premiums kept in escrow is 1,675 units, worth 56,950 credits, again on a FIFO basis.

 

[Griet van Vliet]

And the employer's RPP statement shows 3,700 credits as a matching contribution, so the total contribution is 7,400 credits. The padawan was happy to see that Pazzo's current employer paid him 562 credits in health insurance premiums, so perhaps his current station involved some mid-to-high-level security duties to the paddy's eyes. And a 10,600-credit bonus was accrued to him, receiving half of it before year-end, and the other half three weeks later. And two non-cash gifts, respectively worth 350 and 300 credits with the bills to prove it, with the bill from Leastre for 1,200 credits paid by his employer just underneath said bills, plus the home loss compensation of 50,000 credits. Meanwhile, Griet was making the finishing touches to the warranty-and-loyalty aging and the corresponding journal entries; if 60% of the 1.8 million points were redeemed, then 1.08 million points must be planned for, and that works out to 5,400 units at 14 credit apiece. And hence a premium expense of 75,600 credits (the tax-deductible amount, on the other hand, is 204,000 credits, with the correspond revenue of 120,000 credits, a net expense of 84,000 credits), and the calculation of the liability: if, at the beginning, the liability was 44,800, the expense was 75,600 and the outflow of goods was 84,000, the ending liability was 36,400 credits. Dr. Cash 120,000, Dr. Premium Liability 84,000, Cr. Premium Inventory 204,000, Dr. Unearned revenue 120,000, Cr. Sales revenue 120,000, Dr. Premium Expense 75,600, Cr. Premium Liability 75,600.

 

[Griet van Vliet]

After the padawan read the interest-free loan statement, he realized that Pazzo was granted a 220,000-credit, interest-free loan 2 months before fiscal year-end, so he jumped to the next two documents, union dues of 1,600 credits, with 800 credits paid by the employer, and also the bill for a curling club membership, paid by the employer, for 1,300 credits, with the employer writing on the bill that high-level meetings with other officials take place there. And the data related to the use of the squad speeder: purchased this fiscal year for 45,200 credits, VAT included, used by Pazzo since he began working there, driving the speeder a total of 52,000 km, of which 40,000 were driven on patrol. The employer paid for all the expenses, a total of 8,900 credits, and withheld 110 credits/month for that. Finally, for the last two months, his home office related costs were as follows: Office furniture 3,400, Computer purchase 896, Stationery and office supplies 147, Monthly comm line charge (for 2 months) 60, Employment-related long-distance calls 110, Electricity charge (for 2 months) 350, Paint 165 and property insurance (for 2 months) 175.

"Already the employment income picture is bad enough, I don't feel good seeing the remaining stuff"

"Just fill the schedule to the best of your ability"

 

[Griet van Vliet]

After taking a deep breath, the padawan re-read the usage of the home for office space, he used 45 square meters out of 375 square meters. He then started filling out the schedule based on his rather rudimentary knowledge of taxation:

• Signing bonus 12,000
• Salary 120,125 (cash-basis)
• Withheld income taxes Nil
• SPP Nil
• EI Nil
• RPP deduction (3,700) since only the employee's contributions are deductible
• Group health insurance Nil
• Bonus 5,300 (cash-basis)
• Non-cash gifts Nil (because of his fiscal rights as a Jedi)
• Financial counseling 1,200
• Home loss compensation 17,500 = (50,000-15,000)/2; only half of the amounts paid for home loss compensation beyond the first 15,000 credits are taxable
• Imputed interest benefit 733.33 = 2*(220,000*2%)/12 (because the prescribed rate is calculated and accrued monthly, assumed to be 2% all year)
• Union dues paid (1,600)
• Union dues reimbursed 800
• Club dues Nil
• Speeder Standby Charge 6,507.50 = 2%*8*45,200*12,000/13,336 (since he drove the squad speeder 40,000/52,000 = 77% > 50% for work, the numerator of the reduction factor is the mileage driven for personal purposes and the denominator is for 8 months at a legally prescribed 1,667 km, and 2%/month)
• Speeder Operating Benefit 3,000 (the lesser of 50% of the standby charge, 3,253.75 or 0.25 credits/km = 12,000)
• Employee reimbursement (880)
• Work Space In The Home costs (61.80) = (350+165)*12% because he is using (45/375 = 12%) of the space for professional purposes, and no CCA can be taken on home equipment, nor can he deduct the base cost of the comm line, or property insurance. However, he can deduct maintenance and utilities
• Administrative expenses (257) = (110+147)
• Total employment income 160,667.03

"Phew... that was a lengthy calculation for line 101"

 

[Griet van Vliet]

Was I too hard on the paddy? Of course, it isn't one's ordinary Trial of Insight, she thought, while processing the next big transaction for Facehow Industries: it issued 1.1 million credits of five-year, zero-interest-bearing bonds, receiving 1 million for the notes and warrants, with warrants issued to buy a total of 1 million common shares. The lightbulb in Griet's mind was Dr. Cash 1,000,000, Cr. Bonds payable PV of 1,000,000 at 11% for 5 years, Cr. Contributed surplus (the remainder) since the debt portion of a bond with detachable warrants was to be booked first. Calculating said present-value on her financial calculator yielded 652,796, so the contributed surplus was 347,204. Meanwhile, the next big item for Pazzo's tax return was forthcoming: he used the 175,000 credits left after accounting for the interest-free mortgage to buy stocks whose total dividends received were for 32,400 credits, and he also took out another mortgage to buy a cottage for 215,000 credits, of which 65,000 reflects the land and he spends some time in the cottage and deciding, at year-end, to rent it out. However, since the transaction was done at year-end, there was no CCA available to him, nor was there any revenue.

 

[Griet van Vliet]

The padawan made it clear that CCA ought not to be taken since there are no revenues from renting the cottage; therefore, the UCC balance of the furnishings is 42,000 credits, and the fair market value of the cottage at the time of change-in-use is 235,000 credits, of which 75,000 can be allocated to the land (he believes the cottage's opening UCC to be the same as the fair-market value of the cottage but this is more of an issue for the next fiscal year). He was given 1,000 units of ReCan Investment Trust last year at 40 credits each, thanks to a successful Jedi mission; these units made a distribution of 2 credits per unit, of which 0.75 is a return of capital. The redistributed capital was then used to purchase more shares at 42 credits per unit, to the nearest integer, selling them at year-end for 39 credits per unit. In addition, he received 1,000 Facehow Industries shares three years ago at 17 credits/share as a donation, with a 30% stock dividend declared the year after he received the donation, at 19 credits/share, selling 400 of those shares to make up for an expensive mission last year, at 21 credits/share, bought 600 extra with his signing bonus, at 22 credits/share, and finally sold all of that stuff at year-end, also at 22 credits/share. By the Force! How often did NJO Jedi receive donations in securities? Griet thought, realizing that she never received securities as donations in her personal name regardless of which faction she served. Speaking of securities, the adjusting entry at year-end for Facehow Industries' interest on that bond is Dr. Interest Expense 71,807 Cr. Bonds Payable 71,807.

 

[Griet van Vliet]

While she saw the paddy struggle with the tax treatment of the securities being donated to Pazzo in his personal name, Griet finished the tax filings of Facehow Industries. Also, that amount of interest expense would not have to be taken into account in any calculation of diluted EPS, since it's a bond with a detachable warrant, rather than convertible debt, so the incremental EPS would then be... based on the incremental number of stocks that can be bought for the 347,204 credits booked as the value of the warrants when the debt was issued, at the balance sheet date's fair market value of the stock: that's 1 million less 15,782 (347,204/22), so the total incremental share number for EPS dilution is hence 984,218. Well, in fact, no. The base amount per share for that determination is the exercise price of 22. Now, at year-end, a quarter of the warrants are actually exercised, so the journal entry is thus Dr. Cash 5,500,000, Dr. Contributed surplus 86,801, Cr. Common share capital 5,586,801. And now the tax filings could begin with the gross income for tax purposes of 7.32 million. Then the list of expenses began, as if on an income statement, which will come soon, after the tax filings are over, and the statement of changes in equity will then be forthcoming afterward:

• Direct materials 1.4 million
• Direct labor salaries 1.1 million
  Factory utilities 157,000
• Factory depreciation 443,000
• Indirect materials 930,000
• Indirect labor salaries 570,000

[*]Overhead 2.1 million
[*]Total cost of goods sold 4.6 million
[*]Gross profit 2.72 million
[*]SG&A expenses:
[*]Administrative salaries 570,000
[*]Depreciation and amortization 326,000
[*]Premium Expense 204,000
[*]Warranty Expense 164,000
[*]Utilities 25,000
[*]Supplies 12,000
[*]Other expenses 37,000
[*]Total SG&A expenses 1,422,000
[*]Taxable income 1,298,000
[*]Income Tax Payable (30%) 389,400

 

[Griet van Vliet]

Hopefully the stuff will be less puzzling to the padawan once out of the donations-in-securities-land. Pazzo decided to sell his vintage ship, which, for tax purposes, was deemed acquired in damaged condition in a prior year, with a FMV that was then 10,000 credits, and spending 24,627 credits to restore it to flyability. He was thus able to sell it for 50,000 credits near year-end. He also bought a stamp collection for 8,000 credits and sold it for 12,000 later in the year, while also selling an oil painting that was donated to him (probably one of the people that donated securities to Pazzo earlier in his Jedi career) for 700 credits, while the FMV was estimated at the time of donation for 4,000. He used part of the proceeds from the ship's sale to donate 5,000 to registered charities and, finally, a schedule of medical expenses was being produced while Griet was simultaneously making the journal entries for the income tax expense: Dr. Current tax expense 389,400, Cr. Income tax payable 389,400. Now to calculate the deferred portion of the income tax expense... she has to get the EBIT under IFRS first, then calculate the difference between taxable income and EBIT, and then subject it to a 30% rate. Here was the listing of medical expenses for Pazzo:

• Root canal for Nurma 1500
• Cavities for Sabritya 875
• Physiotherapy (back pain) for Nurma 1300
• Surgery (tummy tuck) for Pazzo 1800
• Total medical expenses 5475

"One last thing: before you make the final determination of income tax liability, calculate the maximum RRSP contributions he can make in the first 60 days, and also whether or not he has to pay taxes by installments; if so, what amount should be earmarked for tax installment payments next year"

 

[Griet van Vliet]

"RRSP? Installment payments? These weren't in the instructions given to me by the Jedi Temple! I went through all the documents you gave me"

"The instructions were incomplete, young padawan"

This was shaping up to be a nightmare to the padawan; never have personal tax filings been so... harrowing for that padawan. In the meantime, the income statement was shaping up, and, since Facehow Industries is based on a different planet with a much simpler corporate tax regime than the Talz's, the tax filings were much more straightforward to make, and the tax reconciliation required asked her to separate from temporary and permanent differences: there were three temporary differences and two permanent ones. The temporary differences were a 120,000 shortfall in income, a reduction in the premium expense of 128,400 and an increase of 28,000 in the warranty expense, for tax benefits of 36,000, (38,520) and 8,400 respectively, and the permanent differences being the 71,807 credit amortization on the zero-interest bond and the 593-credit traffic fines. Thus the journal entry for the temporary differences is Dr. Deferred tax asset 5,880, Cr. Deferred tax benefit 5,880. And then came the EPS calculations: there were no preferred shares, only 9.3 million common shares issued and outstanding all year (except on Dec. 31, where 250,000 warrants were exercised), and an unlimited number authorized. But since the options had no incremental shares under the treasury share method, the basic and diluted EPS are the same.

• Sales revenue 7.2 million
• Direct materials 1.4 million
• Direct labor salaries 1.1 million
  Factory utilities 157,000
• Factory depreciation 443,000
• Indirect materials 930,000
• Indirect labor salaries 570,000

[*]Overhead 2.1 million
[*]Total cost of goods sold 4.6 million
[*]Gross profit 2.6 million
[*]SG&A expenses:
[*]Administrative salaries 570,000
[*]Depreciation and amortization 326,000
[*]Premium Expense 75,600
[*]Warranty Expense 136,000
[*]Utilities 25,000
[*]Supplies 12,000
[*]Interest Expense 71,807 (bond amortization is not allowed, only cash outlays)
[*]Other expenses 37,593 (a 593-credit traffic fine was disallowed for tax purposes)
[*]Total SG&A expenses 1,254,000
[*]EBIT 1,346,000
[*]Income Tax Expense (30%) 383,520

• Current Tax Expense 389,400
• Deferred Tax Benefit (5,880)

[*]Net income 962,480
[*]EPS (basic and diluted) 0.10

 

[Griet van Vliet]

She could now move on to the changes in equity portion, while the padawan had to consider the net employment income, plus employee RPP contributions, and a bunch of other stuff, none of which are part of the documents provided to the padawan. Pazzo could thus go contribute the lesser of 26,230 credits or 18% of the total eligible income, minus total RPP contributions made during the year (7,400). So it was a total of 164,367.03*18% = 29,586.07 > 26,230 so he could, in fact, only contribute 18,830 credits towards the RRSP in the first 60 days of the fiscal year. But Pazzo wasn't in the business of financial counseling, so he had no clue about that sort of things.

 

[Griet van Vliet]

Facehow Industries​

Statement of Changes in Equity​

For the Year Ended December 31, 853 ABY​

Beginning equity balance: Contributed surplus 0 Common stock 195,300,000 Retained earnings 4,400,000 Total: 199,700,000
Add: 347,204 to Contributed surplus
Add: 962,480 to Retained earnings
Add: 5,500,000 to Common stock by issuance of warrants
Add: 9,300,000 to Common stock by revaluation
Less: 86,801 to Contributed surplus
Ending equity balance: Contributed surplus 260,403 Common stock 210,186,801 Retained earnings 5,362,480 Total 215,809,684

Phew: that's the equity portion of the balance sheet done, she thought, while the hard part was the assets. That, even though there were no AFDAs, or even A/Rs (as was the case with the Utai Magic Circle), and the balance of the Unearned Revenue is now 0. They had very few liabilities, so it puzzled her all the more as to why they would even issue debt in the first place. They could have just issued equity and be done with it. Equity brought in a lot more money than debt. Now, the rest of the income tax return for that guy would begin in earnest. For some bizarre reason the Talz seem to treat every dividend, regardless of source, as requiring some gross-up of either 38% or 17%, and then a tax credit for 6/11 or 21/29 (depending on whether the dividends come from a publicly-traded or private company, respectively) of said gross-up, to be deducted from income tax payable. Since all of the guy's donations in securities and other securities purchases are for publicly-traded companies, the calculations for the dividends are as follows: Dividends (line 120): 32,400*1.38 = 44,712, tax credit = 6*32,400*0.38/11 = 6,715.63.

 

[Griet van Vliet]

Facehow Industries​

Balance Sheet​

As at December 31, 853 ABY​

Assets:

Current assets:

Cash 12,823,000
Short-term investments 0
Deferred tax benefit 5,880
Inventory 1,223,000

Total current assets: 14,051,880

Non-current assets:

Construction in process 190,145,607
Property, plant and equipment 17,487,000
Less: Accumulated depreciation 4,616,000

Total non-current assets 203,016,607

Total assets: 217,068,087

Liabilities:

Current liabilities:

Warranty liability 108,000
Premium liability 36,400
Income tax payable 389,400

Total current liabilities 533,800

Non-current liabilities:

Bonds payable 724,603

Total liabilities 1,258,403

Equity:

Contributed surplus 260,403
Common stock 210,186,801
Retained earnings 5,362,480

Total equity 215,809,684

Total liabilities and equity 217,068,087

Oh, they paid for major capital expenditures using equity, and they are keeping cash in reserve to furnish it upon completion? she thought, now seeing the balance sheet for what it is. The hard part: cash flows. Meanwhile, the padawan was tackling the non-security portion of the capital gains, while remaining mindful that Talz capital gains tax laws ask for separating land and building (although it seemed to be more of use for CCA than for capital gains) and that every eligible capital gain would be instead taxable at only 50%. So 20,000 in capital gains, only 10,000 of which is taxable, and also 10,000 of which is on the cottage (Pazzo can only add half that sum to the cottage's UCC next year, which is a class 1 asset on which he can deduct 4% of the yearly starting balance, but the padawan needs not be concerned about this, no more than he needs to be concerned about the 42,000 credits in furnishings being Class 8 assets at 20% declining balance for CCA purposes), and he decides to stop for a bit before going for the securities part of the trial.

 

[Griet van Vliet]

Facehow Industries​

Statement of Cash Flows​

For the Year Ended December 31, 853 ABY​

Beginning cash and equivalents balance 4,873,313

Operating cash flows

Net income 962,480
Plus: Increase in income taxes payable 89,400
Plus: Interest expense 71,807
Plus: Depreciation expense 326,000

Net operating cash flows 1,449,687

Financing cash flows

Issuance of bonds 1,000,000
Issuance of common stocks 5,500,000

Net financing cash flows 6,500,000

Net Investing cash flows 0

Ending cash and equivalents balance 12,823,000

Phew, the financial statements are done for Facehow Industries; however, the paddy isn't done with the net income for tax purposes yet, she thought, while she began writing the litany of notes to these financial statements, the disclosures, while the biggest item that didn't change was the note regarding the significant policies. FIFO inventory and whatnot. Meanwhile, the donations-in-securities are the thing that puzzled the padawan most, starting with the year-end statement from ReCan Investment Trust. The starting balance was 40,000, and his interest revenue from the trust 5,000; capital returns are non-taxable, but he used the 3,000 credits in capital redistribution to buy more units at 42 credits/unit, up to the nearest integer unit (you can't buy fractions of a unit with that specific mutual fund). The adjusted cost base thus covered not simply the original donation of 1,000 units, but the 1,071 units, for an ACB of 39,982 credits that are then sold at 39 credits/unit, which are then sold for 41,769 credits, hence a capital gain of 1,787 credits.

 

[Griet van Vliet]

Griet could then bill Facehow Industries for the 15,000 credit auditing, tax filings and financial statement production fees; the next client will, hopefully, be much more straightforward. An unincorporated lawyer practice on a location that levies neither VAT nor payroll taxes, but that still use the Talz's CCA system for tax purposes as well as their tax brackets. That client's unbilled WIP at the start of the fiscal year is 33,600 credits, it also billed 1,840 hours at a rate of 300 credits/hour, the unbilled WIP balance being 27,600 credits at year-end, and the other deductible expenses are 31,462 for office supplies and expenses, 72,000 for office space and equipment rent, and finally 24,650 credits in business meals and entertainment. Meanwhile, the padawan was doing the second half of the tax treatment of disposing of the donated securities: 1,000 shares at 17 credits, 300 shares at 19 credits, so there were 900 shares left at that average cost (15,715.38) before he purchased 600 more at 22 credits/share, and selling all 1,500 at 22 credits/share. So the proceeds of 33,000 came from a total cost of 28,915.38 so the capital gain was 4,084.62, but the taxable amount is 2,042.31.

 

[Griet van Vliet]

More information relevant to that practice: the beginning Class 8 UCC balance is 27,648, she replaces items whose capital cost is 18,000, for higher-end items costing the client 31,500, and the trade-in allowance is 5,000. That is the client's only CCA class, 20% declining-balance, with the Talz's half-year rule in place. So only one-half of the 26,500 can count against CCA, and added to the 27,648 existing balance. With that said, since the client was using accrual basis, the revenue is 546,000 (552,000 + 27,600 - 33,600), from which 115,787 credits in professional expenses are made before CCA, so the depreciable UCC is 40,898, and the CCA is hence 8,179.60. On the other hand, now that the padawan cleared the hurdle called the securities donations, there was one last item left to clear up before the net income for tax purposes (and taxable income) could be tabulated. The vintage ship has an ACB of 34,627 since the 24,627 is capitalized; the capital gain is hence 15,373 from that source, and the stamps have accrued 4,000 in capital gains, while losing 3,000 (because the minimum deemed acquisiton and disposition value for collectible LPPs is 1,000) from the painting, so these three items total 16,373 credits in capital gains. The total capital gains are (20,000+4,084.62+1,787+15,373+4,000-3000) = 42,244.62 but the filed amount is thus 21,122.31.