Cinder and PQ are associated [ITA 256(1)(a)] and connected [ITA 186(4)] for tax purposes.
Cinder Inc. is a Canadian-controlled private corporation based in your province. The company operates a wholesale business. The following information is provided for its year ended May 31, 20X5:
1.Net income for tax purposes is $212,000. Included in this amount is the following:
• Interest income from bonds………………………… $10,000
• Interest income on overdue trade accounts receivable ….1,000
• Taxable capital gain on sale of land …………………..14,000
• Dividends from Canadian public corporations …………12,000
• Dividends from PQ Ltd. (see item 2 below) …………….6,000
2. PQ Ltd. is a Canadian-controlled private corporation. Cinder owns 60% of its common voting shares. In 20X5, PQ claimed the small-business deduction on $320,000 of its active business income. PQ paid a dividend of $10,000, of which Cinder’s share is $6,000 (60%). As a result of the dividend, PQ received a dividend refund of $1,000.
3. Cinder made contributions of $4,000 to registered charities. These amounts have been correctly adjusted for in computing net income for tax purposes.
4. At the end of 20X4, Cinder had the following tax account balances:
• Non-capital losses $5,000
• Refundable dividend tax on hand 2,000
5. On May 31, 20X5, Cinder paid a dividend of $20,000 to its shareholders.
Required:
Determine Cinder’s federal income tax payable for the 20X5 taxation year.