Question

Your client, Mr. X began a self-employed, unincorporated coffee business 123 Ltd. Mr. X would like some assistance in preparing his 2020 tax return. You have been provided with the following information:

123 Ltd.
Statement of Income
For the year ended December 31, 2020
Revenue								$                78,000
Less: cost of goods sold								$                 25,450
Gross profit								$               103,450
Expenses:
Travel - meals								$                    1,750
Travel - accommodation								$                   4,400
Trave - total operating expenses - car (note a)								$                   4,500
Sales manager's convention								$                    1,100
Salaries paid to staff								$                58,000
Health club due								$                   1,500
Child care and housekeeping expenses (nanny - single parent) (note b)								$                 10,500
Home office expenses (note e)								$                       990
Telephone bills								$                        115
Office supplies								$                    1,650
Entertainment - drinks and meals								$                   2,400
Private dental plan - for staff members								$                   2,350
Restaurant structural renovation costs (note d)								$                 12,500
Straight-line amortization								$                   3,600
								$               105,355
Accounting business loss before tax								$                  (1,905)

You have been provided with the following supplemental info:

Note a: Mr. X used his personal automobile for all his business travel. The amount represents his total expenses for the 12-month period.

His travel log included business mileage of:

Business mileage: 16,000 km

Total kilometers: 23,000 km

Note b: Mr. X would like to deduct all of his nanny expenses against his income as he needed to incur them to concentrate on the business.

Note c: There are no unrecorded revenues. However, Mr. X believes a portion of the AR balance is uncollectible (as a customer has recently declared banktruptcy).

Mr. X did not provide for this bad debt expense in his financial statements.

The total portion of the AR balance that is uncollectible is: $650

Note d: The structural renovation of the coffee shop included new walls, flooring, an office for Mr X. and a kitchen.

Note e: To ease the burden of being a single parent, Mr. X set up a home office. He uses the office to complete his administration work in the evenings.

The home office expenses relate to a proportion of heat, light and power.

Given the income statement above, Mr. X has asked you to make the necessary adjustments to calculate the company's income from a business for tax purposes (Division B business income).

For note e (home office) and other expenses (bad debt expense), the following expenses should be adjusted:

Answer 1

Calculation of Net Income	$	$
Accounting Loss before Tax		-1905
Add Expenses disallowed for tax purposes
Travel - Meals and Accomodation	6150
Trave - Operating Expenses Car (personal use)	1369.57
Health Club fee due	1500
Child Care and housekeeping expenses	10500
Entertainment - Drinks and meals	2400
Restaurant Structural renovations - Capital Expenditure	12500
Straight Line Amortization (as capital allowances are claimed for tax purposes)	3600
	39780.43
Total Net Income for tax purposes		36114.57