Canadian-controlled private corporation located in New Brunswick. For its fiscal year ended December 31, 2020, the corporation
Question:
Canadian-controlled private corporation located in New Brunswick. For its fiscal year ended December 31, 2020, the corporation had calculated its income for tax purposes under Division B as follows:
Domestic sources:
Wholesale income ,……………………………………………………….......................……. ……….$45,500
Dividends from non-connected taxable Canadian corporations……non eligible……13,000
Interest income from 10-year Term Deposits …………………………………….............…....33,000
Interest income on outstanding accounts receivable in retailing business………,,,….29,000
Maintenance income ..……….. ………………………………........................……………… ………107,000
Profit on the sale of excess land (Note 1) ………………………………….................… …......145,000
Recapture of CCA (Note 2) ………………………………………………………........................…..…17,000
Rental income (Note 3)……………………………………………………..........................………..…...36,000
Retailing income ……………………………………………………………….……...........................…. 202,000
Royalty income from the sale of a trade name ………………………………,,,,,,,,,,,,,,,,,………..22,000
Taxable capital gains net of losses on sale………..inactive assets...………,,,,,,,,,,,,,…...… .21 000
Dividends from subsidiary…30%ownership…non eligible .………Note 5…….........……..18,000
Foreign sources:
Foreign business income in Cdn. $ (Note 4)……………………….…………....................……….40,000
Division B net income for tax purposes……..………………………...................………………$728,500
Notes:
- The land had been held for approximately two years. It had been held vacant in order to realize a profit on its sale at the right time.
- The recapture resulted from the sale of some fixtures used in the retailing business.
- The rental income was derived from leasing the entire space on a five-year lease to a subsidiary who income was derived from active business
- Foreign income tax on the net-tax foreign business income of $40,000 earned through an unincorporated branch in the U.S. was paid in the amount of Cdn. $8,000.
- The subsidiary received a dividend refund of $3,000
Additional information:
(A) made the following selected payments during the year:
Charitable donations…………………………………………………………12,000
Political donations…………………………………………………………… 21,000
(B) Four quarterly dividends of $45,000 were declared on the last day of each calendar quarter of 2020 and paid two weeks later. A dividend of $25,000, declared in the last quarter of 2019, was paid in January 2020.
(C) had allocated all but $150,000 of its business limit to other associated corporations.
(D) The corporation has permanent establishments in New Brunswick and the U.S. Its gross revenue and salary and wages information is as follows:
Gross Revenue Salary and Wages
New Brunswick 85.5% 88.5%
U.S 14.5 % 11.5%
(E) The balance in the tax accounts on January 1, 2020 were:
Charitable donation carry forward…2019 …………………………………… $ 2,500
Unused business foreign tax credit………...………..…………………………......13,000
Non-capital losses from 2015……………………………………………….......…… 46,500
Net capital losses from 2016 …………………………………………......………..25,500
Refundable dividend tax on hand …………………………………………….....…..18,500
Dividend refund for 2019………….………………………………………….......…….. 8,500
(F) taxable capital including it associated companies was $10,750,000
Required:
(A) Compute the federal Part I tax and provincial tax at a 17% rate on federal taxable income payable by the corporation for the 2020 taxation year. Show in detail the calculation of all tax deductions in the computation, using a separate schedule for each special tax deduction.
(B) Compute the refundable tax on hand balance as at December 31, 2020, showing in detail your calculation and compute the dividend refund for the 2020 taxation year
Managerial Accounting Tools for Business Decision Making
ISBN: 9781119403999
5th Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly