York Imports Ltd. is a Canadian controlled private corporation. Its basic business activity is importing a variety of consumer products for distribution to wholesalers in Canada.
The before income taxes Income Statement of York Imports Ltd. for the year ending December 31, 2020, are as follows:

York Imports Ltd.
Income Statement Before Income Taxes Year Ending December 31, 2020

Sales $ 7,387,700
Dividend Income 24,000
Interest Revenue 10,000
Gain On Sale Of Equipment 57,000
Total Revenues $ 7,478,700
Cost Of Goods Sold $6,071,400
Rent 118,000
Selling Expenses 283,000
Wages And Salaries 266,500
Employee Benefits 32,000
Office Expenses 158,000
Fees For Professional Services 43,000
Interest 47,000
Promotional Expenses 99,000
Amortization Expense 29,500
Charitable Donations 25,000
Vehicle Costs 74,000
Total Expenses Not Including Income Taxes $ 7,246,400
Income Before Taxes $ 232,300

Other Information: The following additional information is available with respect to the 2020 operations of York Imports Ltd.:

1. On January 1, 2020, the equipment, which is all in Class 8, had a UCC of $256,000.

2. The gain on the sale of equipment resulted from selling display fixtures and equipment with an original cost of $62,000 and a net book value of $27,500, for cash proceeds of $84,500.

3. A small group of new shares were issued during the year. The cost of printing these shares was $950 and was included in office expenses.

4. The interest income came from corporate bonds that had been held for four years and sold during the year. The bonds were purchased and sold at their maturity value.

5. Included in promotional expenses is a $2,800 membership fee to a local golf and country club. In addition, there were charges at this club for business meals and entertainment totaling $6,720.

6. The company provides cars for the principal shareholder and the manager of the company. Both of these individuals are considered to be employees of the company. Included in vehicle costs are lease payments of $500 per month, for 12 months, for each car, and a total of $11,000 in operating costs associated with providing these cars. While these individuals use the cars for some business purposes, it is estimated that over 80 percent of their usage is personal.

7. The dividend income of $24,000 was York’s share of a non-eligible dividend paid by Sarco Ltd., a 60 percent owned subsidiary company. As a result of declaring the dividend, Sarco received a total dividend refund of $5,000. None of the annual limit for the small business deduction was allocated to Sarco.

8. For 2019 York and Sarco’s combined ADJUSTED Aggregate Investment Income was $110,000. Their combined Taxable Capital Employed in Canada was $4,500,000 for 2019.

9. On January 1, 2020, York Imports Ltd. had a nil balance in both its Eligible RDTOH and Non-Eligible RDTOH.

10. York Imports Ltd. declared or pay $8,000 non-eligible dividends during 2020.

11. During 2020, the company decided that it had grown to the point where additional space was needed and, rather than continue to rent space, it has decided to acquire its own premises. It paid a fee of $3,500 (included in fees for professional services) to a site consultant and, on the basis of his recommendation, acquired land at a cost of $385,000. The site was purchased on April 1, 2020, and construction of the new facility is to begin early in 2021. The company’s other expenses included $12,300 in interest on the mortgage used to finance this land.

Required:

Show all of the calculations used to provide the following required information, including those for which the result is nil.

A. Determine York Imports Ltd.’s minimum Net Income For Tax Purposes and Taxable Income for the year ending December 31, 2020.

B. Determine York Imports Ltd.’s active business income for the year ending December 31, 2020.

C. Determine York Imports Ltd.’s minimum federal Tax Payable for the year ending December 31, 2020. This should include both Part I and Part IV Tax Payable, net of any dividend refund.

D. Determine the December 31, 2020, balances in York Imports Ltd.’s Eligible RDTOH and Non-Eligible RDTOH.

E. Determine the amount of any dividend refund resulting from the payment of dividend.

Answer rating: 100% (QA)

A Net Income for Tax Purposes Sales 7387700 Dividend Income 24000 Interest Revenue 10000 Gain on Sal... View the full answer