For the taxation year ending December 31, 2021, the income statement of Morland Industries Ltd. (MIL), a

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Question:

For the taxation year ending December 31, 2021, the income statement of Morland Industries Ltd. (MIL), a CCPC, prepared in accordance with ASPE, is as follows:

Business Revenues $1,870,100

Business Expenses:

Cost of Goods Sold ($456,000)

Selling and Administrative Expenses ( 270,000)

Amortization Expense ( 285,000)

Other Expenses ( 246,000) ( 1,257,000)

Business Income $ 613,100

Other Income and Losses

Foreign Business Income

(Net of $2,400 in foreign income tax) $ 9,400

Dividends from Taxable Canadian Corporations 37,000

Gain on sale of Building 75,000

Gain on sale of Vacant Land 51,000

Loss on sale of Vehicles ( 40,000) 132,400

2021 Accounting Income before Income Tax $ 745,500

Other Information relevant to the 2021 taxation year:

1. On January 1, 2021, MIL had the following UCC balances:

Class 1 $819,354

Class 8 985,261

Class 10 96,417

Class 13 187,000

The Class 1 balance relates to a single building purchased at a cost of $1,145,000 - the cost of the land was $200,000 and the building $945,000. On February 1, 2021, this building was sold for $1,185,000, which included $225,000 for the land and $960,000 for the building. For accounting purposes, the carrying value of land was $200,000 and $910,000 for the building.

The old building is replaced on February 15, 2021 with a new building acquired at a cost of $1,425,000, of which $260,000 is for the land and $1,165,000 for the building. The building is used 95% for manufacturing and processing (M&P) activity and an election is made to include the building in a separate Class 1.

There are no dispositions of Class 8 property during the year but there are purchases totaling $98,000.

As the Company has decided to lease all of its vehicles in the future, all of the Class 10 properties are sold during the year. The capital cost of these properties was $193,000 and the POD was $77,000. The carrying value of the Class 10 properties for accounting purposes was $117,000.

The Class 13 balance relates to a single lease that began on January 1, 2019. The lease has an initial term of 7 years, with two successive options to renew, for 3 years each. Capital expenditures on the lease were $180,000 in 2019 and $36,000 in 2020. There were no capital expenditures made in 2021. The write-off of these expenditures for accounting purposes is included in Amortization Expense.

It is the policy of MIL to deduct maximum CCA in each year.

2. Some years ago, MIL acquired land for $572,000. Until recently, they had intended to construct a new building for their business on this site. However, with the 2021 purchase of a new building, their plans changed and the company sold the land for $623,000. The buyer provided a $50,000 cash down payment, and MIL provided a mortgage for the balance of $573,000. The balance will be paid in 10 equal annual instalments beginning in 2022.

3. Selling and Administrative expenses include $32,000 in business meals and entertainment and $14,600 for membership fees that were paid for several employees in a local golf and country club. This club is used for entertaining business clients.

4. Other Expenses also includes the following:

Bond discount amortization $3,500

Donations to registered charities 16,900

Interest on late income tax instalments 900

Interest on late municipal tax payments 475

5. The Company spent $15,000 during the year on landscaping for its new building. For accounting purposes this was treated as an asset. MIL will not amortize this balance for accounting purposes as it believes the work has an unlimited life.

6. MIL has a 2019 net capital loss balance of $128,000 and a 2019 non-capital loss balance of $46,800.

7. MIL has active business income in Canada of $613,168, none of which results from M&P activity.

8. 93% of MIL's taxable income has been allocated to a province.

9. MIL is associated with several other CCPCs. MIL's share of the group's annual business limit for 2021 is $150,000. The combined Taxable Capital Employed In Canada (TCEC) of the group of associated companies is less than $10 million in both 2020 and 2021.

10. The combined Adjusted Aggregate Investment Income (AAII) of the group of associated companies is equal to $48,500 for 2020.

Required:

A. Calculate the minimum 2021 net income for Morland Industries Ltd. In addition, calculate the UCC for each class of property as of January 1, 2022.

B. Calculate the minimum 2021 taxable income for Morland Industries Ltd. for 2021. Indicate the amount, and type, of any carryovers that are available to be applied to other taxation years.

C. Calculate the minimum 2021 Part I income tax payable for Morland Industries Ltd. Assume that the foreign business tax credit is equal to the foreign income taxes withheld.