The following information relates to the investment income earned by Mrs. Prudence Pennywise for 2020:

(1) Eligible dividends received from taxable Canadian corporations:

(a) DuPont of Canada Limited $ 480 (actual amount)

(b) Bell Canada Limited 1,125 (actual amount)

(c) Cott Corporation 2,375 (actual amount)

(2) Mrs. Pennywise owns shares in Good Investments Limited, a Canadian-controlled private corporation. During 2020, the company paid dividends out of its capital dividend account. Mrs. Pennywise received $ 2,300 of these dividends.

(3) On January 2, 2020, Mrs. Pennywise transferred her ownership of 1,000 shares of Denison Mines Inc., a taxable Canadian corporation, to her daughter Penelope, as birthday present for her sixteenth birthday. The original cost of these shares was $ 5,000. The Fair Market Value of these shares was $ 6,500 at the date of transfer to her daughter. Penelope received $ 500 (actual amount) in dividends on these shares during 2020.

(4) During 2019, Mrs. Pennywise transferred a Hydro One bond to her husband, Peter. Peter received interest on this bond in the amount of $1,825 during 2020. Mrs. Pennywise did not recognize any capital gain or loss in 2019 as a result of this transfer.

(5) On June 1, 2019, Mrs. Pennywise purchased a five-year Guaranteed Investment Certificate in the amount of $ 10,000 at an interest rate of 7.5%.

(6) On September 1, 2020, Mrs. Pennywise purchased a 90-day, $15,000 Treasury Bill at a cost of $ 14,352.

(7) During 2020, Mrs. Pennywise received dividends from IBM Corporation, a U.S. company. The actual amount of dividends received in 2020, net of withholding taxes of 15%, was $ 1,275. Assume that the average exchange rate for 2020 was $1.00 U.S. = $1.1341 Canadian.

(8) Mrs. Pennywise paid the following amounts in 2020:

(a) Accounting fees (not for preparation of her tax return) $ 300

(b) Interest on funds borrowed to purchase investments 1,600

(c) Interest on house mortgage 2,575

REQUIRED:

(a) Calculate Mrs. Pennywise's NET INVESTMENT INCOME for 2020.

(b) Calculate the federal dividend tax credit, which Mrs. Pennywise will be able to claim on her 2020 personal income tax return.

(c) Indicate any additional tax implications for Mrs. Pennywise as a result of the transfer of her shares to her daughter, as described in part (3).

Answer rating: 100% (QA)

Answer a The NII of Mrs Pennywise is 9464 b The FDTC for the year 2020 is 1066 c The additional Tax Implications are that Mrs Pennywise would be liabl... View the full answer