Personal Tax, Assignment 1

Question 1 (15 marks)

Jen Javron is an architect. She was employed by Ultimate Design Ltd. until March 12, 2010. From January 1 to March 12, 2010, she earned $48,000 in salary and other taxable benefits.

After taking a few weeks of vacation, she started to work as a self-employed architect on April 1, 2010. The fiscal period of her business will end on December 31.

Since Jen has no tax knowledge, she has come to consult with you on a few matters:

a. Jen needs $30,000 as working capital for her business. She also wants to buy a condo for her personal use. The cost of the condo is $325,000. Jen presently has $70,000 at her disposal. She would like to know if it would be better, from a tax point of view, to make a $70,000 down payment on the condo and borrow $30,000 from a bank to supply the working capital for the business, or to personally supply the $30,000 working capital and make a $40,000 down payment on the condo.

b. To operate her business, Jen purchased a small building on Main Street. The building is old, and major repairs were needed to continue efficient operations. Jen wants to know if the expenses for additional repairs to the building will be entirely deductible in the year they are made. The following expenses are anticipated:

* installing a new roof

* replacing all the old pipes in the building

* electrical rewiring of the whole building

* adding a covered porch at the back of the building

c. Jen is taking out professional liability insurance for the period covering April 1, 2010 to December 31, 2011. Jen wonders if the premiums will be deductible and if so, how.

Required

Answer each query Jen Javron has submitted to you. Justify your answers and give the appropriate references to the ITA. (5 marks for each query)

A) How to most affectively use her personal financial resources of $70,000.

Jen would be best to put 100% of her $70,000 down on her personal property for two reasons. First, it will...