FINA 200 – Personal Finance
Case 1
Winter 2023, Section EC
Case 1 (due March 17, 2023, before 11:59 p.m. ET)
Covering Chapters 1 – 7
Student Name: Student ID:
PLEASE NOTE INSTRUCTIONS BELOW
Write your name and student ID above.
This is an individual assignment, to be completed by you alone.
There are 11 pages to this Case including the cover page – please ensure that you have all 11 pages.
Case 1 consists of two sections. Answer:
Section I: respond directly on the Case and highlight as well as underline your response to the multiple-choice questions.
Section II: respond directly on the Case in the space provided for each Mini-Case question.
You may submit your solution in English or French; acceptable submission formats include Word (.docx or.doc) or PDF. EXCEL is NOT accepted.
Ensure that all responses with calculations are to two decimal places.
Tables can be found at the end of the Case to help respond to some of the questions. Outside research will be required (research does not require citations).
This Case is 20% of your grade.
For marking purposes only:
|
Multiple Choice |
Mini-Case A |
Mini-Case B |
Mini-Case C |
Mini-Case D |
Mini-Case E |
Total |
|
/5 |
/2 |
/1.5 |
/6 |
/1.5 |
/4 |
/20 |
Section I: Five (5) Multiple-Choice Questions (5 marks – 1 mark each)
Highlight AND underline your response.
Samantha and Samuel both have student credit cards issued by VISA. Their credit card statements show they are at their credit card limit of $500 this month. Samantha manages her credit well and ensures that her credit card balance is paid off in full each month before the payment deadline while Samuel cannot manage to pay off the minimum amount required each month. Complete the sentence: For Financial Statement reporting purposes, __________________________________________.
It does not matter where Samantha or Samuel report the $500 as long as it is shown on one of their Financial Statements.
Both Samantha and Samuel would report their $500 on their Balance Sheet as a current liability.
Both Samantha and Samuel would report their $500 on their Cash Flow statement as an expense.
Samantha would report her $500 on her Cash Flow statement as an expense while Samuel would report his credit card debt of $500 on his Balance Sheet as a current liability.
Samantha would report her $500 on her Balance Sheet as a current liability while Samuel would report his credit card debt of $500 on his Cash Flow statement as an expense.
Geneviève is in her first year at Concordia. She is originally from Quebec City but lives near the university in downtown Montreal during the school year. She has been approached by the Bank of Montreal for a BMO Cashback Mastercard for students
for her first credit card. What would be Geneviève’s effective interest rate on her credit card if she took a cash advance? Hint: use the credit card details below as well as 365 days for compounding.
25.85%
24.59%
23.67%
24.47%
26.32%
Shelly just graduated from Concordia in December 2022 and started her full-time employment as of January 2023. She has asked you to help her calculate her taxable income for 2023 based on the following:
Employment income (gross): $72,000
Interest income: $500
Unused tuition carry over from 2022: $6,000
Engineering professional dues: $1,200
Annual union dues: $550
RRSP contribution: $3,000
TFSA contribution: $2,000
Sold 300 shares in XYZ company at $32 per share on January 10, 2023 (paid a total of $8,700 for 600 shares when she purchased them in 2022)
Net capital loss from other years of $1,400
$66,525
$61,525
$68,975
$68,700
$66,975
Maryse contributes $1,000 of her pre-tax income to her employer’s Group Registered Retirement Savings Plan (RRSP). Her employer will match her contribution to her Group RRSP. Ignore income taxes. Her disposable income will then:
Decline by $1,000
Increase by $1,000
Decline by $2,000
Increase by $2,000
Remain the same
Jax and Jackie are signing their mortgage today with regards to the purchase of their first condo. As they have no other savings other than their Registered Retirement Savings Plan (RRSP), they are required to participate in the Home Buyers Plan (HBP) for the entire down payment. To date, Jax has contributed $25,700 while Jackie has contributed $41,200. At the beginning of the year on January 1, 2023, the market value of their RRSP’s was $43,890 for Jax and $52,310 for Jackie. With the recent downturn in the markets, as of today, the market value of Jax’s RRSP is $34,150 and Jackie’s is $35,350. They need to let the bank know today how much they have for a down payment. What is the maximum amount they can withdraw from their respective RRSP’s to put towards their down payment on a home under the HBP?
$70,000
$69,500
$66,900
$96,200
$69,150
Section I completed, continue to Section II.
Section II: Five (5) Mini-Cases (20 marks)
Write your response in the template or space provided.
Mini-Case A: (2 marks)
Cindy graduated from Concordia in December 2021 and started her full-time job in January 2022 with a salary of $80,000. She never worked until her first job in 2022 but knew from her FINA 200 course to file a tax return throughout her university years to record her tuition so as to carry the tuition amounts forward to claim in future years when she would have income. The year 2022 will be the first year that Cindy claims the tuition non-refundable tax credit due to her employment income. Cindy’s Federal tuition tax credit in 2021 was $4,200, (same for 2020 and 2019 for total tuition carryforward of $12,600). See Cindy’s Concordia 2021 tuition tax slip T2202 below which she filed in her 2021 tax return (and was the only line item in her personal tax return as she had no income; the same zero tax filing was done in 2019 and 2020, to record the tuition amounts only).
In 2022, Cindy’s employer did not withhold sufficient income taxes and Cindy owes $2,000 to Canada Revenue Agency (CRA) on her 2022 Federal personal tax return. How much tuition can Cindy claim on her 2022 Federal personal tax return? (.25 marks)
$________________
In 2022, Cindy’s father owed $5,000 to Canada Revenue Agency (CRA) on his 2022 Federal personal income tax return so he asked Cindy to transfer her tuition tax credit and to provide him with her T2202 tax slip from Concordia. How much tuition can Cindy transfer to her father for him to use on his 2022 Federal personal income tax return? (.25 marks)
$____________________________
Complete the sentences regarding Federal tuition: (1.5 marks – .25 marks each)
In general, a student may transfer a maximum of $_________ of the current year’s federal tuition amount.
Who can claim unused tuition credits (either all or some of the remainder not claimed)?
___________, or ___________, or ___________, or ___________ or ____________.
Mini-Case B: (1.5 marks)
Lori is 45 years old and has always contributed the maximum to her Tax-Free Savings Account (TFSA) on each January 1st since the program started in 1999. As of January 1, 2023, she has contributed a total of $88,000 which includes the latest contribution of $6,500, for a total market value of $234,590! If Lori continues to contribute $6,500 each January 1st until her retirement in 20 years, how much will she have in her TFSA where she expects to earn 6% compounded weekly? Assume that we are January 1, 2023, and that TFSA contributions continue on each January 1st at $6,500 until Lori’s retirement.
Calculate Lori’s TFSA at retirement: (1.5 mark)
Mini-Case C: (6 marks – .5 marks each)
Michael turned 25 years old on March 1, 2023, and just opened a Tax-Free Savings Account (TFSA) where he deposited $6,500. Help Michael with the scenarios below. Michael is aware of the following basics regarding TFSA’s:
you can withdraw any amount from your TFSA whenever you want;
all withdrawals are tax-free;
withdrawing from your TFSA doesn’t result in lost TFSA contribution room;
withdrawals you make this year will be added to your unused contribution room the following year (i.e. withdrawing from your TFSA has no effect on your contribution room in the year that you make the withdrawal, it only affects your contribution room for the following year);
you can re-contribute any funds that you have withdrawn from your TFSA back into your account starting the year after the year in which you make the withdrawal (i.e. January 1st of the following year); and
you can carry forward any uncontributed amounts into future years indefinitely.
If Michael’s $6,500 TFSA investment decreases due to a downturn in the market to $4,000 which he then withdraws, how much can Michael recontribute? (ignore carry forward contribution room) (.5 marks) $__________
If Michael’s $6,500 TFSA investment increases to $8,000 which he then withdraws, how much can Michael recontribute? (ignore carry forward contribution room)?
(.5 marks) $____________
Michael’s friend, John just turned 23 on February 28, 2023. He recently opened a TFSA account but has yet to make a TFSA contribution. How much can John contribute to his TFSA (consider carry forward contributions). $___________ (.5 marks)
Michael’s younger brother, Sam is trying to understand his TFSA available contribution room to ensure that he does not go over the limits. Complete the TFSA Available Contribution Room Table below. (2.5 marks – .5 marks each)
TFSA Available Contribution Room Table
|
Date |
TFSA Available Contribution Room |
|
|
February 28, 2021 |
Sam turned 18 and opened a TFSA |
$________ contribution room in 2021 |
|
January 1, 2022 |
New contribution room available |
$________ contribution room in 2022 |
|
May 23, 2022 |
Contributes $12,000 |
$________ contribution room in 2022 |
|
September 1, 2022 |
Withdraws $1,000 |
$________ contribution room in 2022 |
|
Jan. 1, 2023 |
New contribution room available |
$________ contribution room in 2023 |
Sam wants to know what would happen if he over contributed to his TFSA? (.5 marks)
_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Michael’s father has never made any TFSA contributions since the program started in 2009 except for this year’s contribution of $6,500. What is the maximum amount that he can contribute to his TFSA as of March 2023? Do not forget to consider contribution room from previous years. (.5 marks)
Contribution room amount for Michael’s father: (.5 marks)
Michael has heard of some Canadians that are millionaires with their TFSA’s. If that were the case and they withdrew $1 million dollars from their TFSA account, how much tax would they pay on the withdrawn funds if they were in a 53.31% marginal tax bracket?
(.5 marks)
Tax calculation on $1 million TFSA withdrawal: (.5 marks)
Michael wants to know in point g), if the taxpayer withdrew $1 million dollars from their TFSA account, how much could they re-contribute to their TFSA the following year? Ignore previous year’s and 2024 contribution room. (.5 marks)
$____________
Mini-Case D: (1.5 marks)
Gerry is a resident of Quebec and has been with the same employer, XYZ company for the last 3 years.
Facts:
Gerry’s gross salary in 2022: $96,000
ignore non-refundable tax credits for this problem
Using Table A, 2022 tax rates, calculate Gerry’s taxes payable (1 mark)
Gerry’s Taxes Payable (1 mark)
Calculate Gerry’s average tax rate and marginal tax rate. (.5 marks):
|
Tax calculation |
|
|
Average tax rate |
(.25 marks) |
|
Marginal tax rate |
(.25 marks) |
Mini-Case E: (4 marks)
Eva and Jorge just received the call from their real estate agent that their offer of $350,000 was accepted on a Montreal condo! Money will be tight since it took all their savings for a 10% down payment. They are trying to monitor their costs to avoid any surprises. The Canada Mortgage Housing Corporation (CMHC) mortgage loan insurance premium is 3.10% of the mortgage amount which they have decided to pay at the time of closing instead of adding it to their monthly mortgage. Other fees include a $650 bank appraisal fee, a $800 home inspection fee, $1,800 notary fees, land transfer tax (also known as the “Welcome tax” or “Transfer duties” – see table below) and $850 for title insurance and homeowner’s insurance of $1,000.
https://montreal.ca/en/articles/how-property-transfer-duties-are-calculated-9279
How much will Eva and Jorge need to cover at closing including the down-payment?
(2 marks)
Calculation: (2 marks)
Complete the sentence: Eva and Jorge do not have a ________________ mortgage as they do not have the 20% down payment. (.25 marks)
Eva and Jorge’s bank just called as they calculated their Gross Debt Service (GDS) ratio as 32%, how much will the monthly mortgage payment be based on this ratio? Eva’s gross annual income is $120,000 while Jorge’s is $115,200. The monthly heating would be $475, condo fees of $800 per month, and annual property taxes would be $3,600 along with monthly debt payments of $1,755. (1 mark)
Calculation: (1 mark)
Eva decided to buy a house with Jorge, even though she knows he is terrible with money and has a poor credit score. Eva has always been a saver while Jorge is a big spender which is why they only have 10% as a down payment and require mortgage loan insurance, which Eva had hoped to avoid. They also have a high interest rate on their mortgage due to his poor credit card management (i.e. at capacity as he only pays the minimum amounts each month). Provide Jorge with 3 ways that he can improve his credit score:
(.75 marks-.25 marks each)
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
The End
Good luck!
TABLE A
TABLE B
TABLE C
|
Tax-Free Savings Account (TFSA): Annual Limits |
|||
|
Years |
Annual Limit |
Years |
Annual Limit |
|
Year started 2009 – 2012 |
$5,000/year |
2016 – 2018 |
$5,500/year |
|
2013 – 2014 |
$5,500/year |
2019 – 2022 |
|
|
2015 |
$10,000/year |
2023 |
$6,500/year (estimated) |
TABLE D
|
Registered Retirement Savings Plan (RRSP): Annual Limits Formula for RRSP contribution limit: 18% of your previous year’s earned income less your previous year’s pension adjustment to an annual maximum. |
|
|
Year |
Annual maximum contribution limit |
|
2020 |
$26,500 |
|
2020 |
$27,230 |
|
2021 |
$27,830 |
|
2022 |
$29,210 |
TABLE E
Home Buyer’s Plan (HBP)
Withdraw up to $35,000 per borrower and up to $70,000 per couple.
15 years to pay back the amount withdrawn
TABLE F
Time Value of Money Formulas
Simple Interest
Future (FV) of a single dollar amount
Present Value of a single dollar amount
Future Value of an annuity
Present Value of an annuity
Interest Rate Conversion
Time Value:
FV = Maturity value or Future value
PV = Principal or Present value
PMT = Periodic annuity payments
n = Number of compounding periods per year
i = Annual interest rate
t = Time (in years)
EY = Effective yield
Simple interest:
I = Interest earned
P = Principal or Present Value
r = annual interest rate
t = time (in years)