U.P.I. Industries Ltd., a Canadian corporation, has recently been designated a public corporation. Its shares are traded on the Winnipeg
Selected financial information for the company€™s current fiscal period is presented below.
2. At the end of the previous year, the company had net capital losses of $90,000 and non-capital losses of $120,000 that were available for carry-forward.
3. The Alberta branch location includes a building and equipment. The company€™s accountant is in the process of determining the corporation€™s tax liability and indicates that the annualized cost of manufacturing capital employed in the Alberta branch is $200,000 and that the corporation€™s total annualized cost of tangible property used amounts to $800,000.The accountant also indicates that the manufacturing labour in the Alberta branch amounts to $120,000. This amount has been calculated in accordance with the income tax rules for determining manufacturing labour.
4. The assumed provincial corporate income tax rate is 12% in Manitoba and 10% in Alberta. When organizing the Alberta expansion, management had considered establishing a separate corporation. They decided instead on the branch structure because of anticipated losses in the first year of expansion. As it turned out, the branch generated a small profit of $10,000. Management is now considering converting the branch into a separate subsidiary corporation. U.P.I. already owns two separate subsidiaries in Manitoba that account for the dividend income described earlier.
1. For the current year, determine U.P.I.€™s
(a) net income for tax purposes;
(b) taxable income; and
(c) federal and provincial tax liabilities.
2. How would the overall federal and provincial tax liabilities be different if the Alberta branch had been incorporated from the outset? Show calculations.
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