Falko Ltd. is canadian controlled privated corporation with a december31 year end. For its year ending december 31, 2020, its acounting net income before taxes before taxes, as determined using generally accepted accounting principles, was $1,029,700. Relevant information for the 2020 year necessary to make the appropriate reconciliation adjustments to net income or tax purposes, taxable income, and federal taxes payable is as follows.

-Falko's amortization expense was $494,500. 

Maximum deductible CCA for the year was $713,000. 

Company policy has always been to deduct the maximum available CCA.

 -The company's revenues included foreign source investment income of C$44,000. 

The amount recieved, however, was only C$36,080 as a result of foreign withholding income taxes of 18 percent, or $7,920. 

The comany only recorded the amount received as revenue.
 -Falko sold one of its buildings that required costly renovations in favour of leasing a building. the total sales price was $1,725,000 with $500,000 allocated to the land and $1,225,000 to the building. the original cost of the land and therefore its adjusted cost base was $650,000. The capital cost and adjusted cost base of the building was $1,000,000 and its UCC at the time of sale was $885,000. For Accounting purposes the net book value of the building was $710,000. The company records accounting gains and accounting losses based on the net book value for the building and the original cost of the land.
 -during the year the company earned the following amounts of canadian source investment income, all of which have been included in net income for accounting purposes :Interest on long term investments $28,700
Non-eligible dividends from A 100% Owned Subsidiary $77,500
Eligible dividends on bank of nova scotia shares $53,300

5.Falko is only associated with one company - its wholly owned subsidiary lands inc. after acquiring all of its shares in 2016. Lands recieved a dividend refund of $26,475 as a result of the dividends paid to falko in 2020. since lands' non-eligible RDTOH was insufficient to recover all of the dividend refund it was forced to partially rely upon its eligible RDTOH. lands' GRIP account balance was nil at year end, preventing it from designating any of the dividends paid to falko as eligible. of the dividend refund, 43 percent was attributable to its eligible RDTOH and 57 percent to its non-eligible RDTOH.

6.Company expenses for accounting purposes included (1) $39,800 spent on business meals and entertainment; (2) a write-down of inventory (for obsolescence) beyond that permitted in valuing inventory for tax purposes; the excess amount is $11,400; (3) life insurance premiums totaling $14,375 paid on the life of two of the principal shareholders; and (4) bonuses to the same two shareholders for $75,000 each. The bonuses were never paid.

7.Falko's active business income for the year was $796,400, which includes $427,000 of Canadian manufactuing profits that qualify for the M&P deduction (ITA 125.1). Since the company operates in a province that provides a special rate for M&P profits, the company calculates the federal M&P deduction every year.

8.During the year ending December 31, 2020, the company used its existing cash resources to pay taxable dividends of $285,000. it is the policy of the company to only designate dividend as eligible to the extent they generate a dividend refund.

9. At December 31, 2019, Falko had an eligible RDTOH balance of $19,446, a non-eligible RDTOH balance of $73,670, and a GRIP balance of $24,000. During 2019, falko paid taxable dividends of $118,800, $18,800 of which were designated as eligible. As a result of paying the dividends, falko received a dividend refund of $45,540[(38-1/3%)($118,000)]; $7,207 of the dividend refund [($18,800)(38/1/3%)] was attributable to the eligible RDTOH and the remainder of $38,333 [($100,000)(38/1/3%)] was attributable to its non-elibible RDTOH.

10.The combined Adjusted Aggregate Investment income for the two associated corporations for the 2019 year is $47,190 and will be $62,770 for 2020. The taxable Capital Employed in cananda of the two associated corporations totals  $6,445,000 for the 2019 year and will equal $10,960,000 for 2020.

11.Falko has a 2016 non-capital loss carry forward balance of $112,000 and a 2018 net capital loss carry forward balance of $16,930. Falko's Management has indicated that they wish to deduct the maximum amount of these losses possible for it's 2020 taxation year.

12.Falko and its wholly owned subsidiary Lands have agreed to split the small business limit 50-50 for the 2020 taxation year.


Required: 

Show all of the clculations used to provide the followoing required information, including those for which the result is nil.


A. Calculate Falko's minimum net income for tax purposes and taxable income for the year ending Deember 31, 2020.

B. Assume the foreign non-business tax credit is equal to the foreign tax withheld. Calculate Falko's part 1 Tax Payable for the year ending December 31, 2020. As the corporation opeates in a province that has a reduced rate for M&P activity, a separate calculation of the federal M&P deduction is required.

C. calculate the refundable portion of alko's part 1 tax payable for 2020

D. calculate Falko's Part IV Tax payable for the year ending December 31, 2020

E. determine the december 31, 2020, balance in Falko's GRIP account.

F. determine the December 31, 2020, balances in Falko's Eligible RDTOH and the Non- Eligible RDTOH.

G. Calculate Falko's dividend refund for the year ending December 31, 2020, showing separately the amount attributable to eligible dividends and the amount attributable  to non-eligible dividends.

Answer rating: 100% (QA)

A Net Income for tax purposes 1029700494500535200 Taxable Income 53... View the full answer