Prepare a critical thinking analysis to determine whether the sale of the cottage would be considered business income or a capital gain. If you determine the sale would be a capital gain, then determine whether it would qualify for the principal residence exemption.  

Required: Using MICROSOFT Excel ONLY, respond to the following requirements. All work must be shown to obtain full marks.


Part A

Prepare a critical thinking analysis to determine whether the sale of the cottage would be considered business income or a capital gain. If you determine the sale would be a capital gain, then determine whether it would qualify for the principal residence exemption.


Part B

Prepare a calculation to determine the best use of the principal residence exemption. Clearly indicate the years designated to each property included in your analysis.


Part C

Determine John’s minimum Business Income for 2022.


Part D

Determine the minimum Net Income for Tax Purposes and Taxable Income for John, Mary, Dean, Rowena, Crowley and Castiel. Ignore any GST or PST considerations. Show all work, even if the result is zero.


Part E

Determine minimum Federal Taxes Payable and Net Federal Taxes Owing for the 2022 taxation year for John, Mary, Rowena and Castiel only (not required for Dean or Crowley). When a credit can be claimed by either John or Mary, include it in John’s taxes unless it is more beneficial to have Mary claim it. Ignore any GST or PST considerations. For any amounts provided but excluded from your calculations explain why they have been excluded.


Part F

Determine any amounts available for carry forward by the family at the end of 2022.




Exhibit I

John’s Electrical


John received $193,000 for the work he performed for customers in 2022.  He incurred the following costs related to this work:


Supplies                                             $38,100

Webpage                                                  900

Business insurance                               2,600

Truck operating costs                          13,800            Note 1

Salary                                                   15,000            Note 2

Entertainment                                       1,800            Note 3

Charitable donations                              6,000

CRA installment payments                  20,000



  1. John purchased a truck in 2022 for $59,400 that he uses both personally and for the above contracts. Based on his log, he used the truck 92% to get to the customers’ locations and back home.
  2. Salary was paid to Castiel to prepare the paperwork for John’s customers. He could have hired someone else for $500 per month to complete the same work.


  1. Entertainment costs include $800 for tickets to a theatre production that John, Castiel and Mary attended in December. The remainder was for meetings with 10 potential customers to discuss their renovation plans. Only eight of the customers hired John.


  1. John does not have a formal office. He uses the basement of house to keep his tools, supplies and paperwork for the business. The basement comprises 25% of the total house space. The following are the house expenditures for the year:


Mortgage interest                                           6,500

Property taxes                                               3,900

Home insurance                                            2,500

Utilities                                                           1,500

Cleaning service                                            4,800

Chair and desk for office                               1,300





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