Ch.24 Tax Payable- Corp

Question 1

Aggregate investment income (AII)

Answer 1

Interest$XXXX

Net rental incomeXXXX

RoyaltiesXXXX

DividendsXXXX

Net taxable capital gains XXXX

AII in net income (Division B income)XXXX

Less: Division C deductions related to AII

Net capital loss carryforwards deducted under Division C
(XXXX)

Dividends deducted under Division C(XXXX)

AII$XXXX

Question 2

Net Canadian active business income (ABI)

Answer 2

ancillary income is interest income earned as a result of a temporary investment of excess cash. This type of interest income would not be included in AII
Net income for tax purposes (before Division C deductions) $ XXXX

Less:
AII in net income (above) (XXXX
Foreign business income (XXXX)

Net Canadian ABI $ XXXX

Question 3

step 1. Calculate basic tax

Answer 3

The starting point for calculating corporate taxes, for both a CCPC and a non-CCPC, is to apply the 38% general corporate rate to taxable income.

Question 4

step 2. Calculate federal tax abatement

Answer 4

A federal tax abatement of 10% is available on taxable income earned in a province or territory of Canada. The purpose of the 10% abatement is to leave room for the provinces to levy provincial taxes. Taxable income is allocated to each province or territory in which the corporation has a permanent establishment.

Question 5

step 3:Calculate the small business deduction

Answer 5

2020=19%
The maximum amount of income on which the SBD may be claimed is $500,000, and the $500,000 limit must be shared among associated corporations.
The business limit of a CCPC or associated CCPCs is reduced in either of the following two situations:
• The combined taxable capital employed in Canada for the preceding year of the CCPC and associated CCPCs is greater than $10,000,000 (the taxable capital business limit reduction)
• The adjusted aggregate investment income for the preceding taxation year of the CCPC and associated CCPCs is greater than $50,000 (the passive income business limit reduction)

The SBD is 19% multiplied by the least of three amounts:
1. ABI earned in Canada
2. Taxable income, less
• 100/28 × foreign tax credit (FTC) on foreign non-business income, and
• 4 × FTC on foreign business income
3. Annual business limit ($500,000) allocated to the company

Question 6

taxable capital business limit reduction

Answer 6

Reduction = A × (B / 11,250)

A = amount of the corporation’s annual business limit for the year (currently $500,000)

B = 0.225% (0.00225) of the corporation’s taxable capital employed in Canada, in the previous year, in excess of $10,000,000

Question 7

Taxable capital

Answer 7

Taxable capital employed in Canada is determined as follows:
Add:
• share capital
• contributed surplus
• retained earnings
• reserves not deductible in the determination of net income for tax purposes
• loans and advances payable
• indebtedness represented by bonds, debentures, notes, mortgages, and so forth
• other indebtedness outstanding for more than 365 days before the year end

 Deduct: •     allowance for investments in debt and equity instruments of other corporations
       = total taxable capital for the year

 Multiply by: •     federal abatement %
       = taxable capital employed in Canada

Question 8

Adjust aggregate investment income

Answer 8

Adjusted aggregate investment income of a private corporation for a taxation year includes the following:
Add: AII in net income as defined above
Deduct: Net taxable capital gains realized in the year from the disposition of active assets*
Deduct: Division C deduction for dividends from connected corporations
* Active assets are defined as property used principally in an active business carried on in Canada by the CCPC or a related CCPC. Net taxable capital gains on the disposal of active assets is excluded from the definition of AAII to ensure that corporations can continue to invest in active assets to expand their businesses.
Alternatively, AAII may be determined as follows:
Add net property income included in net income (other than dividends from Canadian corporations).
Add dividends from non-connected Canadian corporations.
Add net taxable capital gains on disposal of passive assets (non-active assets).

Question 9

Calculate manufacturing and processing credit

Answer 9

M&P profit credit is 13% × the lesser of:
a) M&P profits, less amounts eligible for the SBD
b) Taxable income, less the sum of:
• amount eligible for the SBD
• 4.00 × the FTC on foreign business income
• AII (CCPC only)

Question 10

Calculate GRR

Answer 10

Taxable income $XXXX

Less:

Income eligible for the SBD (CCPC only) (XXXX)

Income eligible for the M&P profits deduction (XXXX)

AII included in taxable income (CCPC only) (XXXX)

Full rate taxable income $XXXX

13%

GRR $XXXX

Question 11

Claim investment tax credits

Answer 11

include investments in M&P equipment in certain geographic areas, or amounts spent on qualifying scientific research and experimental development (SR&ED) expenditures.

Question 12

Determine Part IV tax

Answer 12

Part IV refundable tax is determined as follows:
• 38 1/3 % × dividend received from non-connected taxable Canadian corporations (referred to as portfolio dividends),
PLUS
• Investor’s share of dividend refund received by a connected corporation *

Question 13

Determine the dividend refund out of refundable dividend tax on hand (RDTOH)

Answer 13

lesser of:

1. 38 1/3 % of taxable dividends paid
2. RDTOH * at the end of the year (before the dividend refund)