Ch. 24 - Taxes Payable (Corporate)

Question 1

Taxes Payable (Detailed Approach):
- CCPC Summary

Answer 1

\+ Basic federal tax
- Federal Abatement
- small business deduction
- MFG and Processing 
  deduction
- General rate reduction
\+ Additional refundable tax
- Foreign tax credits
- Investment tax credits
= Federal Part I Tax
\+ Provincial tax
\+ Part IV Tax
- Dividend Refund
= Tax payable before 
   instalments

Question 2

Taxes Payable (Detailed Approach):
- Non-CCPC Summary

Answer 2

\+ Basic federal tax
- Federal Abatement
- MFG and Processing 
  deduction
- General rate reduction
- Foreign tax credits
- Investment tax credits
= Federal Part I Tax
\+ Provincial tax
= Tax payable before 
   instalments

Question 3

Taxes Payable:

- different income sources

Answer 3

- Aggregate Investment 
   Income (AII)
- Active Business Income 
   (ABI)
- Foreign Business Income

Question 4

Aggregate Investment Income:

- Calculations

Answer 4

\+ Interest
\+ Net rental income
\+ Royalties
\+ Dividends
\+ Net taxable capital gains
= AII in net income (Division 
   B income)
- Division C (Dividends)
- Division C (net capital 
  loss carryforwards)
= Aggregate Investment Income

Question 5

Net CDN Active Business Income:

Calculation

Answer 5

\+ Net income for Tax 
   purposes
- AII in net income
- Foreign Business Income
= Net CDN ABI

Question 6

Taxes Payable:

- basic federal tax rate

Answer 6

• 38%

Question 7

Federal tax abatement

1. what percent and of what

Answer 7

1. 10% of taxable income

Question 8

Permanent Establishment

- criteria for a PE

Answer 8

1. a fixed place of business (office, branch, mine, oil well, farm, timberland, factory, workshop, warehouse) and
   if no fixed place of business,
   a. where corp’s principal place of business; or
   b. where the corp carries on business through an employee or agent who can contract on behalf of the corp

Question 9

Provincial Income Allocation

- calculation

Answer 9

average of:

i. gross revenue earned in a province / total gross revenue
ii. salaries and wages expense for a province / total salaries and wages

Question 10

Small Business Deduction:

- reduction in SBD

Answer 10

1. if taxable capital of corp 
   and associated corps is 
   greater than $10M
2. if AII of corp and group is 
   over $50,000

Question 11

Small Business Deduction:

- calculation

Answer 11

• 19% x least of:
  i. ABI earned in Canada
  ii. taxable income less ((100/2/ x foreign tax credit on foreign non-business income) and (4 x FTC on foreign business income))
  iii. annual business limit

Question 12

Taxable Capital Business Limit Reduction

- Calculation

Answer 12

Reduction = A x (B / 11,250)
A = amount of annual limit for the year
B = 0.225% of PY taxable capital over $10M

Question 13

Taxable Capital:

- calculation

Answer 13

+ share capital
+ contributed surplus
+ retained earnings
+ reserves not deductible in determining net income for tax purposes
+ loans and advances payable
+ indebtedness
- allowance for investments in debt and equity of other corporations

Question 14

Aggregate Investment Income Reduction:

- calculation

Answer 14

(BL/$500K) x 5 x (AAII - $50K)

Question 15

MFG and Processing Credit:

- calculation

Answer 15

• 13% x the lesser of:
  i. M&P profits, less amounts eligible for SBD
  ii. taxable income, less sum of:
  1. amount eligible for SBD
  2. 4 x FTC on foreign business income
  3. AII (for CCPCs only)

Question 16

General Rate Reduction:

- calculation

Answer 16

\+ Taxable Income
- income eligible for SBD 
  (CCPCs only)
- Income eligible for M&P 
  deduction
- AII included in taxable 
  income (CCPCs only)
x 13%

Question 17

Additional Refundable Taxes (ART):

• who pays
• paid on what income
• calculation

Answer 17

• paid by CCPCs
• paid on aggregate investment income
• 10 2/3% of the lesser of
  i. AII included in taxable income
  ii. taxable income less amount eligible for SBD

Question 18

Foreign Tax Credit (FTC) for non-business income:

- calculation

Answer 18

• lesser of:
  i. foreign tax paid
  ii. ((net foreign non-business income)/adjusted net income) x tax otherwise payable

Question 19

Foreign Tax Credit (FTC) for business income:

- calculation

Answer 19

• lesser of:
  i. foreign tax paid
  ii. ((net foreign business income) / adjusted net income) x tax otherwise payable
  iii. Basic Part I tax less non-business FTC

Question 20

Part IV Tax:

- calculation

Answer 20

\+ 38 1/3% of dividends 
  received from non- 
  connected taxable 
  Canadian corporations
\+ investors share of 
  dividend refund received 
  by a connected 
  corporation

Question 21

Dividend Refund Received:

- calculation

Answer 21

• lesser of:
  i. 38 1/3% of taxable dividends paid
  ii. RDTOH at the end of the year

Question 22

Refundable portion of Part I tax

Answer 22

Lesser of

1. (Taxable income - SBD) x 30 2/3%
2. AII x 30 2/3%
3. Part I federal tax