QUESTION 5 [13 marks] Dwayne Rocky, your client, is a successful entrepreneur. Dwayne is the sole shareholder
Question:
QUESTION 5 [13 marks]
Dwayne Rocky, your client, is a successful entrepreneur. Dwayne is the sole shareholder of Permabull Inc. ("Permabull"), a Canadian corporation. Permabull earns $500,000 of business income each year that qualifies for the small business deduction. Dwayne has plans to acquire new businesses and make other investments.
Permabull has recently acquired 100% of the shares of Cadena Inc. ("Cadena"), a taxable Canadian corporation, from a third-party seller. Cadena has a minority shareholding in Pigeon Inc. ("Pigeon"), representing 9.5% of votes and value in Pigeon. Dwayne would like to understand the tax treatment of following items:
- What is the tax treatment of future dividends paid by Pigeon to Cadena? Why? [2 marks]
- What is the tax treatment of future dividends paid by Cadena to Permabull? Why? [3 marks]
- Whether the business income earned by Cadena is eligible for a small business deduction. Why? [2marks]
Permabull has generated significant excess cash from its business operations that Dwayne would like the corporation to invest in a marketable securities portfolio comprised of shares of various dividend-paying U.S. public corporations. Dwayne would like to understand the tax treatment of the following items:
- Permabull will pay 15% U.S. dividend withholding tax on dividends from the portfolio. What is the treatment of the U.S. tax in calculating taxes payable in Canada? Explain the rationale. [2 marks]
- Dwayne plans to trade Permabull's marketable securities portfolio on an ongoing basis from time to time to generate some gains. Dwayne enjoys reading daily business news and researching equity markets to pick the best-performing stocks for this portfolio. That being said, Dwayne does not have any specialized knowledge in trading securities, but he indicated that he is thinking of enrolling into some courses to learn to how to become a better trader. Dwayne is curious to know how the trading income from the portfolio will be characterized for tax purposes and what factors and considerations are relevant to this determination. [4 marks]
REQUIRED
Address, in words, each of the items above. QUESTION 5 [13 marks]
Dwayne Rocky, your client, is a successful entrepreneur. Dwayne is the sole shareholder of Permabull Inc. ("Permabull"), a Canadian corporation. Permabull earns $500,000 of business income each year that qualifies for the small business deduction. Dwayne has plans to acquire new businesses and make other investments.
Permabull has recently acquired 100% of the shares of Cadena Inc. ("Cadena"), a taxable Canadian corporation, from a third-party seller. Cadena has a minority shareholding in Pigeon Inc. ("Pigeon"), representing 9.5% of votes and value in Pigeon. Dwayne would like to understand the tax treatment of following items:
- What is the tax treatment of future dividends paid by Pigeon to Cadena? Why? [2 marks]
- What is the tax treatment of future dividends paid by Cadena to Permabull? Why? [3 marks]
- Whether the business income earned by Cadena is eligible for a small business deduction. Why? [2marks]
Permabull has generated significant excess cash from its business operations that Dwayne would like the corporation to invest in a marketable securities portfolio comprised of shares of various dividend-paying U.S. public corporations. Dwayne would like to understand the tax treatment of the following items:
- Permabull will pay 15% U.S. dividend withholding tax on dividends from the portfolio. What is the treatment of the U.S. tax in calculating taxes payable in Canada? Explain the rationale. [2 marks]
- Dwayne plans to trade Permabull's marketable securities portfolio on an ongoing basis from time to time to generate some gains. Dwayne enjoys reading daily business news and researching equity markets to pick the best-performing stocks for this portfolio. That being said, Dwayne does not have any specialized knowledge in trading securities, but he indicated that he is thinking of enrolling into some courses to learn to how to become a better trader. Dwayne is curious to know how the trading income from the portfolio will be characterized for tax purposes and what factors and considerations are relevant to this determination. [4 marks]
REQUIRED
Address, in words, each of the items above.
Introduction To Federal Income Taxation In Canada
ISBN: 9781554965021
33rd Edition
Authors: Robert E. Beam, Stanley N. Laiken, James J. Barnett