KK Inc. is a CCPC and operates an active business. Required a. Under Part I of the Income Tax Act, calculate KK's minimum net income for tax purposes and minimum taxable income for the 2022 taxation year. b. Based on your answer to part (a), calculate the minimum Part I and Part IV federal income tax, refundable dividend tax on hand (RDTOH), and dividend refund (if any) for the 2022 taxation year (ignore M & P deduction).

 KK INC. 2022 Financial Information

 

 1. KK's net income for accounting purposes for 2022 is summarized as follows: Income from operation $199,000 Income from subsidiary 100,000 Interest income 1,000 Dividend income 10,000 Gain on sale of assets 40,000 $ 350,000

 

2. Dividend income of $4,000 (eligible) comes from the investment in the share of a public company. $6,000 dividend income (non-eligible) is coming from PP Ltd. KK also owns 15% of the shares of PP Ltd., a CCPC operating an active business. In 2022, PP paid a dividend of $40,000. For its year ended December 31, 2022, PP earned $150,000 of active business income and claimed a dividend refund of $10,000.

 

3. KK owns 100% of the shares of Little Co. Little was incorporated on January 1, 2022, and in its first year of operation, it had a business income of $100,000. It claimed SBD on the full amount.

 

4. A review of KK's 2021 corporate tax return provides the following information: Capital dividend account $ 5,000 RDTOH (eligible) NIL RDTOH (non-eligible) 2,500 Capital loss carry forward 1,000

 

5. On January 1, 2022, KK sold its existing facility for $240,000 (land $50,000; building $190,000). The original cost of the property was $200,000 (land $40,000, building $160,000). KK moved into leased premises under a 10-year lease. This lease can be renewed by another 5-year term. (Ignore any recapture income or terminal loss)

 

6. The income statement for the year ended December 31, 2022, included the following: Amortization of $ 32,500 Advertising expenses 57,850 Reserves for bad debt 19,000 Reserves for potential theft 11,000 Promotion expenses 12,500 Legal and audit Fees 15,000 Other expenses 21,000 Land Scaping 5,000 Advertising expenses included $30,000 paid in advance on Dec 31, 2022, to an advertising agency to develop a TV commercial for next year. $7,000 was paid to the foreign broadcasting company for advertising targeting the Canadian market. Promotion expenses include $5,000 for meals and entertainment to entertain suppliers and $4,000 for media advertising. Other expenses included the purchase of an electronic process control system for $10,000. A $6,000 donation is given to a charitable organization, $3,000 for the annual membership dues of a golf club used for business purposes, and $2,000 paid for acquiring a permanent mailing list for the business. Legal and audit included $2,000 for the collection of bad debts, $5,000 for negotiating and drafting an agreement for a long-term loan from a private investor group, and $5,500 for audit fees for 2022.

 

 7. Capital cost allowance calculation was correctly done as $40,000. 8. On December 31, 2022, KK paid its shareholders a non-eligible dividend of $35,000. Use all the available options to save the taxes on the dividend payment.