Paprika Ltd. is a CCPC that operates exclusively in Atlantic Canada with a December 31 year-end. Its 2021 Net Income for Tax Purposes contains the following:

Active Business Income $950,000

Net Taxable Capital Gains $113,000

Interest Income $45,250

Dividends (Note 1) $583,750

NIFTP $1,692,000

Note 1: Total dividends received in the 2021 year are made up of the following amounts:

Eligible portfolio dividends from Canadian companies $142,435

Non-eligible dividends from Sage Ltd. (Note 2) $230,000

Non-eligible dividends from Thyme Ltd. (Note 3) $211,315

Total Dividends $583,750

Note 2: Sage Ltd. is a wholly-owned subsidiary of Paprika Ltd. since Paprika owns all of its shares. As a result, Sage is connected to Paprika for the purposes of Part IV. In 2021, the payment of the dividend to Paprika resulted in a dividend refund of $79,200, all of which was attributable to Sage’s non-eligible RDTOH.

Note 3: Paprika owns 60% of the voting shares of Thyme Ltd. As a result, Thyme is controlled by Paprika and is therefore connected for the purposes of Part IV. In 2021, the payment of the dividend to Paprika resulted in a dividend refund of $62,700. Thyme had no GRIP balance at year-end, resulting in all dividends paid to Paprika being designated as non-eligible. Thyme had insufficient non-eligible RDTOH, however, and was forced to use all of its eligible RDTOH to maximize its dividend refund. Assume that 20% of Thyme’s dividend refund is attributable to its eligible RDTOH and 80% to its non-eligible RDTOH.

Additional information:

1. On December 16, 2021, Paprika paid taxable dividends to its shareholders totaling $315,000. No other dividends were paid during the year. The company’s policy is to designate dividends paid as eligible to the extent that it will result in a dividend refund.
2. Paprika has a 2017 net capital loss balance of $76,000. In addition, there is a 2019 non-capital loss balance of $40,500. Paprika would like to deduct the maximum amount of these carryforward losses possible for the 2021 tax year.
3. Paprika has controlled both Sage and Thyme since 2017, and as a result, the three corporations are associated. The companies have agreed that Paprika will be allocated $325,000 of the annual business limit for 2021, Sage $100,000, and Thyme $75,000. All three corporations use a December 31 year-end.
4. The combined adjusted aggregate investment income for the three associated corporations is $48,700 for 2020 and $58,500 for 2021. The taxable capital employed in Canada of the three associated corporations totals $9,125,000 for 2020 and $11,660,000 for 2021.
5. On December 31, 2020, Paprika had an eligible RDTOH balance of $26,875, a non-eligible RDTOH balance of $103,850, and a GRIP balance of $167,000. During 2020, Paprika paid taxable dividends of $96,500, $16,500 of which were designated as eligible. As a result of paying the dividends, Paprika received a dividend refund of $36,991 [(38.33%)($96,500)].

REQUIRED: For Paprika Ltd.’s 2021 tax year, calculate the following items. Show all supporting calculations and explanations.

1. Taxable income.
2. Part I tax payable.
3. The refundable portion of Part I tax is payable.
4. Part IV tax payable.
5. The balance in the GRIP account was on December 31, 2021.
6. The balance in both the eligible RDTOH and non-eligible RDTOH is on December 31, 2021.
7. The dividend refund. Separate the amount attributable to eligible dividends and the amount attributable to non-eligible dividends.
8. Total federal tax payable (net of any dividend refund).

Answer rating: 100% (QA)

a Paprikas taxable income for 2021 is 1692000 This is comprised of the following Active business income 950000 Net taxable capital gains 113000 Interest income 45250 Dividends 583750 Paprikas total di... View the full answer