L = @ PR Book your [ELTS test to Chapter Resources o] 5] plus.pearson.com ) Service Portal - Serv... 81 Outlook = SecurefFile Transfer T x | Athabasca University - e @ A0 pof [T (R SR T T T T Purple Carpet Orien... " Complete To Do -... Discover | Degreed CHAPTER 12: Taxable Income and Tax Payable for Corporations AP 12-10 (Comprehensive Corporate income Tax Payable) Kalex Inc, a CCPC, was incorporated in 2020 and chose a December 31 taxation year end. Kalex is a family-owned company with four equal shareholders, all of whom are siblings. The company employs in excess of 50 employees at its head office in Toronto, a further 80 employeses at its manufacturing facility in Oshawa, Ontario, and a further 12 employees at its office in Syracuse, New York. The company is primarily involved in the manufacture and sale of storage shelving and pallets. You have been asked to prepare the 2022 corporate income tax returns. The company provides you with its financial statements for the year ending December 31, 2022. The financial statements have been prepared using accounting standards for private enterprises (ASPE), which represents the application of generally accepted accounting principles. No attempt has been made to reconcile the net accounting income with net income for ITA purposes. Through your own observations and by asking several questions you have uncovered the following information con- cerning the 2022 income and expenses of Kalex: 1. Netincome for accounting purposes is $2,481,986 after deducting $325,000 of current income tax expenses. Other amounts either deducted or added in the determination of net income for accounting purposes are as follows: . Bond premium amortization applied and reduced interest expenses $ 8,800 . Armortization expense 615,000 . Loss from employee theft (60% was recovered through insurance) 4,750 . Deducted 10% of landscaping costs paid of $58,000 5,800 . Deducted prepaid advertising for 24 months (covers May 1, 2022, to April 30, 2024) 37200 . Deducted donations to registered charities 17400 . Deducted 100% of meal and entertainment expenses 62,500 . Deducted life insurance premiums for four shareholders, none of which was required by a creditor as security to obtain financing 22,000 . Added capital dividends received from associated company 40,000 . Deducted all of the renovation costs of adding two offices to its headquarters in Toronto 112,000 Deducted all of the operating expenses for an automobile for the shareholder/ president who uses it 40% of the time for company business 11,700 . Deducted penalties on late income tax instalments 2,900 . Deducted interest on late municipal tax payments 1.835 . Added a court-ordered damage award for breach of contract. The company would have earned a profit of $37000 had the contract been completed 33,500 . Deducted legal expenses incurred in the breach of contract 21,000 . Deducted annual aolf club membershio fees for the oresident ta entertain Chapter Resources P Pearson+ up Athabasca University - m x @ Case . Greymatter Porta X fir TAXX401v33.pdf X CPAWSB Transfer Credit X * Transfer Credit Guides - C @ https://plus.pearson.com/products/173621/pages/824?locale=&redirectURL=https://plus.pearson.com/home . . . s> Grapevine ) Service Portal - Serv... |Outlook Secure File Transfer Spam Filter 9 MimeCast @ Home - Learning to... Go Purple Carpet Orien... W Complete To Do -... 6% Discover | Degreed CHAPTER 12: Taxable Income and Tax Payable for Corporations BM 4. On January 1, 2022, Kalex had the following UCC balances: Class 1-Toronto headquarters $1,823,600 Class 1-Oshawa manufacturing 1, 197,000 iiii Class 8 648,000 Class 10 133,875 Class 13 119,000 Class 53 375,000 Elections were filed for each of the class 1 buildings to be eligible for additional CCA. As a result, the two buildings are in separate classes. The Oshawa building is used 100% for non-residential purposes that is manufacturing while the Toronto headquarters building s used exclusively (100%) for non-residential purposes that is not manufacturing. No capital expenditures were made for the Oshawa building, but capital renovations in the AA amount of $112,000 were made to the Toronto building. This amount has been deducted for accounting purposes. The amount included in each class represents the capital cost of the building only and not the land. Class 8 depreciable property represents office furniture for the two class 1 buildings. The original cost when acquired in January 2020 was $800,000. Kalex was approached by a new business in February 2022 operating out of Niagara Falls, Ontario. The business leases refurbished office furniture on long-term leases. After a round of negotiations and running the numbers, Kalex has decided to replace all of their class 8 property with leased property. Kalex signed a five-year contract at $4,000 monthly. In exchange, Kalex will receive $700,000 for all of its class 8 property. Kalex correctly expensed the lease payments in 2022. The class 10 property is composed of three two-seater delivery vans with extra storage capacity. Each of the three vans cost $75,000. After hearing of the tax incentives for zero- emission vehicles and the expanding network of charging stations, the company decided to trade in the three existing vans for three zero-emission vans that cost $95,000 each. The vans were purchased on July 2, 2022. The company received $105,000 as a trade-in allowance for the three existing vans. The company acquired a 2022 Tesla Model S in early January 2022 for $130,000. The car is used exclusively by the company president. It is estimated that the car is used by the president 40% of the time for company business Midway through 2020 the company realized that the Oshawa facility lacked the necessary storage space to accommodate its expanding inventory. They reached out to a local developer who agreed to lease the company a warehouse that had sat empty for a few years. A five-year lease was signed with a renewal option for an additional five vears. The lease provides that 758 > 10:17 PM US 2024-07-02[t Book your [ELTS test to Chapter Resources T x | Athabasca University - e TAXA0 N33 pof CPAWSB Transfer Credit X T b P J ey =g O 5] plus.pearson.com Grapevine () Service Portal - Serv.. 0% Outiock =7 SecurefileTransfer [ SpamFiter [ MimeCast (D Home - Leaming to.. Purple Carpet Orien.. " Complete To Do - Discover | Degreed CHAPTER 12: Taxable Income and Tax Payable for Corporations original cost when acguired in January 2020 was $800,000. Kalex was approached by a new business in February 2022 operating out of Niagara Falls, Ontario. The business leases refurbished office furniture on long-term leases. After a round of negotiations and running the numbers, Kalex has decided to replace all of their class 8 property with leased property. Kalex signed a five-year contract at $4,000 monthly. In exchange, Kalex will receive $700,000 for all of its class 8 property. Kalex correctly expensed the lease payments in 2022 The class 10 property is composed of three two-seater delivery vans with extra storage capacity. Each of the three vans cost $75,000. After hearing of the tax incentives for zero- emission vehicles and the expanding network of charging stations, the company decided to trade in the three existing vans for three zero-emission vans that cost $95,000 each. The vans were purchased on July 2, 2022. The company received $105,000 as a trade-in allowance for the three existing vans. The company acquired a 2022 Tesla Model S in early January 2022 for $130,000. The car is used exclusively by the company president. It is estimated that the car is used by the president 40% of the time for company business. Midway through 2020 the company realized that the Oshawa facility lacked the necessary storage space to accommodate its expanding inventory. They reached out to a local developer who agreed to lease the company a warehouse that had sat empty for a few years. A five-year lease was signed with a renewal option for an additional five years. The lease provides that Kalex can make any improvements or renovations it considers necessary but that no payment will be made by the lessor at the end of the lease as compensation for those improvements. The company spent $140,000 on modifications in 2020 and another $150,000 in July of 2022. Assume that the expenditures are categorized as class 13. In March of 2022 Kalex purchased a client list for $80,000 from a local competitor who was on the verge of closing its doors. In May of 2022 the company purchased new manufacturing machinery for $900,000 that would double its output at the Oshawa facility. Company policy is to claim the maximum CCA in each year. When the company began operations in early 2020 it purchased a vacant Iot not far from the Oshawa facility for $150,000. The plan was to eventually build a warehouse, but the company opted to lease a warehouse instead. The company, as part of the leasing arrangement, agreed @e-cHEAOWCRC O RAD ~oez U e s L = @ PR Book your [ELTS test to Chapter Resources o] 5] TSR ) Service Portal - Serv... 81 Outlook = SecurefFile Transfer T L Athabasca University - e @ A0 pof [ SpamFiter [ MimeCast () Home - Leaming to.. Purple Carpet Orien... " Complete To Do -... Discover | Degreed CHAPTER 12: Taxable Income and Tax Payable for Corporations HIUIB I Sy U 01T 1TSS GG 1S 19 Uy 10 The U.S. business operations resulted in net profits of C$410,000. Kalex paid U.S. income taxes on those profits of C$77,900. For accounting purposes, however, the company only added the U.S. profits in excess of the U.S. income taxes, or $332,100 [$410,000 - $779001. Kalex has no non-capital losses but experienced a net capital loss of $52,000 in 2021 on the sale of investments in public company shares. Kalex's active business income in 2022 is $1,815,000, $1,288,000 of which represents its Canadian M&P profits. . Kalex has been associated with one other CCPC since its incorporation in 2020. Both compa- nies have a December 31 taxation year end and have shared the annual small business limit equally and will continue to do so for 2022. The TCEC of the associated group in 2021 was $11.0 million and is $12.2 million in 2022. In addition, the AAIl of the associated group in 2021 was $77500 and is $92,300 in 2022 Required: A Calculate the minimum 2022 net income for Kalex with a reconciliation that begins with net accounting income before income taxes of $2,481,986. Make all necessary adjustments, including CCA for each class of property together with the UCC balance as of January 1, 2023 Show all supporting calculations. Calculate the minimum 2022 taxable income for Kalex. Indicate the amount and type of any carry overs that are available at the end of the year. Calculate the minimum 2022 federal income tax payable for Kalex. The province of Ontario is one of two provinces and one territory in Canada (Saskatchewan, and Yukon are the others) that provides a reduced income tax rate for M&P activity. The determination of the M&P cred- its in those jurisdictions uses the federal calculations, and as a result a separate calculation of the federal M&P deduction is required Assume (1) that the foreign tax credit for foreign business income is equal to the foreign income taxes paid of $77900 and (2) that the additional refundable tax (ART) is equal to 10 2/3% of aggregate investment income of $16,500 (CPAWSB Transfer Cred| Transfer Credit Guides 1027 PM 2020700 B