Caneco Lts. Is a Canadian-controlled private corporation, owning a portfolio of investments including stocks, bonds and rental properties. The financial statements for the year ended June 30, 2020 show a profit of $124,300, summarized as follows:

Bond interest	$60,000
Taxable dividends from Canadian corporations	$30,000
Gain on sale of assets	40,000
Rental loss	(5,700)
Income before income taxes	$124,300

Additional financial information is outlined below.

1. The previous year’s corporation tax return includes the following tax account balances:
2. Undepreciated capital cost

Building A – Class1                  $126,000

Building B – Class 1                     35,000

Building C –Class 1                      46,000

3. Taxable Canadian dividends totalling $30,000, include $18,000 from public corporations and $12,000 from XYZ ltd, a Canadian-controlled private corporation. Caneco owns 30% of the X Ltd’s common shares.
4. The rental properties were purchased prior to March 18, 2007 as follows:

Land Cost                    Building Cost                  Total

Property A       $20,000                       $130,000                     $150,000        

Property B       35,000                            40,000                        75,000

Property C       21,000                            49,000                        70,000        

On February 28^th, 2020 Property A was sold for $170,000 (land $30,000, building $140,000) and property B was sold for $77,000 (land $40,000, building $37,000).

 

The combined rentals resulted in a loss of $5,700 after deducting amortization/ depreciation of $3,000 for the year ended June 30, 2020. The rental revenue includes a $1,000 rental deposit applied to the last two months’ rent on a lease expiring December 1, 2021.

 

For the year ended June 30^th 2019, Caneco Ltd deducted a reserve for unpaid rents of $2,000. In January 2020, $1,000 of the unpaid rents was received and credited to the rent receivable account. No reserve has been claimed at June 30^th 2020. However, $1,200 of the current year’s rents remains unpaid.

 

Required:

 

Determine Caneco’s minimum net income for tax purposes for the 2020 taxation year.

(Work must be shown for marks to be awarded, and explanations if there are any omitted items

Answer rating: 100% (QA)

Computation of Income from Rental Property Income from Property A 17000015... View the full answer