Caperdic LLP (Caperdic) is 100% owned by Colin Caperdic, a resident of Canada. The company has a December 31 year-end. You have been provided with the following information for Caperdic:

For the year ended December 31, 2021, Caperdic reported an accounting net income of $747,500. Current and future income taxes reported in the income statement were $103,600.

Selling general and administrative expenses includes meals and entertainment of $16,200 and golf club membership fees of $9,800 for Colin. He uses the club exclusively to entertain clients of Cardiac.

For accounting purposes, Caperdic records its short-term investments at fair market value. During fiscal 2020, Caperdic paid $28,700 to acquire shares of Rennock Co. (Rennock). The fair value of Caperdic’s investment in Rennock was $26,500 and $31,600 on December 31, 2020, and 2021, respectively. Caperdic received a dividend of $1,400 on this investment in 2021.

Caperdic owns 25% of the shares of Gurnell Co. (Gurnell). It accounts for this investment using the equity method. Caperdic reported equity income on this investment of $32,800 during 2021. Caperdic received $20,900 of dividends on this investment during 2021. Gurnell had designated 20% of these dividends as eligible dividends and the remaining 80% as non-eligible dividends. Gurnell received a refund from NERDTOH at a rate of 10% of the non-eligible dividends paid, and from ERDTOH at a rate of 25% of the eligible dividends paid.

In 2021 Caperdic earned $24,600 in rental income (net of CCA) on a warehouse rented out to a neighboring business.

Late in 2021, Caperdic shut down one of its factories and sold the land, building, and equipment, the details are as follows:

Selling Original

Price Cost NBV UCC

Land $ 374,000 $ 295,000

Building 432,000 346,000 265,000 302,000

Cardiac made a charitable donation of $16,800 in 2021.

Assume that the CCA claim for other depreciable assets is equal to the amortization expense reported in accounting net income and that the CCA claim does not include any recapture or terminal losses on disposal of depreciable capital assets.

Information about carry forwards from the 2020 notice of assessment are as follows:

Net capital loss from 2017 $5,750

Non-capital loss available for carry forward 38,900

Charitable donations available for carry forward 4,800

NERDTOH account balance (1) 8,400

(1) Caperdic did not declare or pay any dividends during 2020. During 2021, Caperdic declared and paid dividends of $95,000.

Caperdic’s taxable capital employed in Canada in 2020 was less than $10,000,000 and its adjusted aggregate investment income in the that year was less than $30,000. Caperdic is not associated with any other corporations.

Required:

Part A

a) Determine net income for tax purposes for Caperdic for 2021.

b) Determine taxable income for Caperdic for 2021.

c) Determine property income and taxable capital gains included in net income for 2021.

d) Determine aggregate investment income

e) Determine net Canadian active business income for Caperdic for 2021.

Part B

a) Determine federal tax payable before the dividend refund for Caperdic for 2021.

b) Assume none of the dividends declared and paid in the year will be designated as capital dividends. Determine the optimal dividend mix assuming Colin, the shareholder manager, wishes to minimize personal tax paid on the dividends and determine the dividend refund and federal tax payable after the dividend refund.

Answer rating: 100% (QA)

Net income for tax purposes for Caperdic for 2021 747500 Taxable income ... View the full answer