Question

Ever since his wife’s death, John Ambush has faced difficult personal and financial circumstances. His job provides him with fairly good income but requires him to hire a caregiver for his daughters, ages 8 and 10, nearly 20 days a month. This requires him to use in-home child care services that consume a large part of his income. Since the Ambushes live in a small apartment, this arrangement has been very inconvenient. Although John has created an investment fund for his daughters’ education and for his retirement, he has not sought to select investments that offer tax benefits. Overall, he needs to look at several aspects of his tax-planning activities to find strategies that will best serve his current and future financial needs. John has assembled the following information for the current tax year:

Earnings from wages $57,300

Interest earned on GIC $ 235

RRSP deduction $ 2,500

Savings account interest $ 65

Federal income tax deducted at source $ 4, 959

Total non-refundable tax credit amounts $13,200

Child care deduction $ 6,500

Filing status: Head of household

Calculate the following

a) What is John’s 2016 federal taxable income?

b) What is his total 2016 federal tax liability? What is the average 2016 federal tax rate?

Taxable Income	Tax Rate
0–$45,282	15%
$45,282–$90,563	20.5%
$90,563–$140,388	26%
$140,388-$200,000	29%

c) Will John receive a tax refund or owe additional taxes to the federal government for 2016?

Answer 1