Question

Sahar’s income for tax purposes for 2020 and 2021 is as follows:

2020
2021
Salary
$100,000
$110,000
Taxable benefits under sections 6 and 7
$8,000
$8,000
Travel expenses under section 8
$3,000
$2,000
Registered pension plan contributions under s. 8
$4,200
$4,200
Business losses
$1,000
$1,200
Rental income (net of expenses and CCA)
$3,200
$3,600
Spousal support paid
$12,600
$12,000
Net income under Division B .
$90,400
$102,200
Which of the following statements is correct?
A. The earned income that should be used to calculate her child care expense deduction for 2021 is $110,000
B. The earned income that should be used to calculate her RRSP deduction for 2021 is $106,400
C. The earned income that should be used to calculate her child care expense deduction for 2021 is $102,000
D. The earned income that should be used to calculate her RRSP deduction for 2021 is $94,600

Answer 1

The earned income that should be used to calculate Sahar's RRSP deduction for 2021 is $106,400.

Step-by-step explanation:

The correct statement is B. The earned income that should be used to calculate Sahar's RRSP deduction for 2021 is $106,400.

To calculate Sahar's RRSP deduction, we need to consider her earned income under Division B. In 2021, her net income under Division B is $102,200. However, we need to add back her business losses of $1,200 to get her total earned income for RRSP purposes, which is $103,400.

Since the formula to calculate RRSP deduction is 18% of the earned income, the RRSP deduction for Sahar in 2021 will be 18% of $103,400, which is $18,612. This amount is capped at the RRSP limit, so Sahar's RRSP deduction for 2021 will be $18,012.

Answer 2

The correct earned income for childcare expenses deduction would include the salary and potentially other earned income, not investment or rental income. For RRSP contributions, it typically includes salary and net rental income, minus business losses. However, the figures in the options provided do not align with the standard tax calculation rules, so the most accurate answer, considering standard practices, is not listed.

Step-by-step explanation:

The question presented is related to the calculation of earned income for tax purposes, specifically for determining deductions related to childcare expenses and RRSP (Registered Retirement Savings Plan) contributions. Deductions and net income require specific inclusions and exclusions according to tax laws.

For childcare expense deductions, earned income generally includes salary, wages, and other forms of compensation, but does not include investment income or other sources not related to employment or business activities. Based on Sahar's income statement, her earned income for childcare expenses for the year 2021 would include her salary ($110,000) and potentially other qualifying earned income not detailed in the statement.

When calculating the maximum RRSP deduction, we generally consider earned income that includes salary, net rental income, and other qualifying earnings, but excludes taxable benefits and pension plan contributions. The spousal support payments would also typically not be included. Using this guideline, Sahar’s earned income for RRSP purposes would be her salary ($110,000) plus net rental income ($3,600), minus the business losses ($1,200), totaling $112,400. The correct answer for the RRSP calculated deduction is not presented as an option here.