Mr. Neville owns 100% of First Gear Ltd, a CCPC, and 33% of Second Gear Ltd, another CCPC. His wife, Mrs. Neville, owns 33% of Second Gear Ltd. The last 33% of Second Gear Ltd. is owned by their adult son, Alex. Assume that all shares are common voting shares.

Second Gear Ltd.'s taxable capital employed in Canada is $15 million. Second Gear has no investment income. Their active business income and taxable income in 2022 is $10,000, and they have already claimed a Small Business Deduction on the entire amount ($1,900).

In 2022, First Gear Ltd. calculated their Division B income for tax purposes as follows:

 

First Gear Ltd.'s taxable capital gain includes $3,000 from the sale of investments, and $6,000 from the sale of a truck used in business.

The company donated $60,000 to registered charities during 2022. Their carry-forward balances include: $10,000 of donations carried forward from 2021, and $2,000 of net capital losses from 2016.

Assume investment income earned in the prior year is the same as the amount earned in the current year. First Gear Ltd. has $20 million of taxable capital in Canada.

Calculate the Small Business Deduction that First Gear Ltd. may claim for the 2022 tax year. 

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Canadian active business income. Dividends from taxable Canadian public corporations. Other Canadian investment income: rental income interest income. - royalty income - taxable capital gain Income under Division B $159,000 8,000 $115,000 15,000 1,000 9,000 $307,000 Canadian active business income. Dividends from taxable Canadian public corporations. Other Canadian investment income: rental income interest income. - royalty income - taxable capital gain Income under Division B $159,000 8,000 $115,000 15,000 1,000 9,000 $307,000

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Answer First Gear Ltd has a total of 300000 in income under Division B This includes 159000 in Canadian active business income 8000 in dividends from taxable Canadian public corporations 115000 in oth... View the full answer