Chapter 13 Flashcards
If a corporation has a LRIP (low-rate income pool), ________.
a) dividends declared by the corporation will be designated as eligible dividends until the LRIP balance is exhausted
b) dividends declared by the corporation will be designated as other than eligible dividends until the LRIP balance is exhausted
c) the corporation’s taxable income will be taxed at a lower corporate rate until the LRIP is exhausted
d) the corporation’s taxable income will be taxed at a higher corporate rate until the LRIP is exhausted
b) dividends declared by the corporation will be designated as other than eligible dividends until the LRIP balance is exhausted
Which of the following tax events during the current year will add to a corporation’s GRIP (general rate income pool) at the end of the year?
a) payment of eligible dividends to its shareholders
b) issuance of a capital dividend to its shareholders
c) taxable income in excess of the corporation’s allowable small business deduction
d) receipt of non-eligible dividends as investment income
c) taxable income in excess of the corporation’s allowable small business deduction
The GRIP (general rate income pool) account ________.
a) represents the cumulative balance of taxable income of a CCPC that was NOT fully taxed
b) represents the cumulative balance of full rate taxable income of a corporation other than a CCPC
c) represents the cumulative balance of full rate taxable income of a CCPC
d) represents the cumulative balance of taxable income of a corporation other than a CCPC that was NOT fully taxed
c) represents the cumulative balance of full rate taxable income of a CCPC
LRIP (low rate income pool) is BEST described as ________.
a) a running balance of income received by a corporation that has been subject to favourable tax rates
b) the cumulative amount of dividends a corporation has received on its investment income that have not been subsequently passed through to its shareholders
c) the amount of a corporation’s taxable income that will be taxed at favourable rates for its current tax year
d) an account that represents a corporation’s cumulative profits available for distribution as dividends
a) a running balance of income received by a corporation that has been subject to favourable tax rates
Which of the following items improves integration of the Canadian income tax system and assists in avoiding double taxation of investment income earned in a corporation and distributed as dividends to individual shareholders?
a) subsequent repatriation of the dividends
b) the small business deduction
c) refundable taxes in the corporation
d) capital cost allowance
c) refundable taxes in the corporation
The Additional Refundable Tax (“ART”) on investment income is designed to ________.
a) maintain tax integration while preventing use of a corporate entity to defer significant amounts of taxes payable
b) redistribute the corporate tax burden from low income corporations to higher income corporations
c) achieve a lower overall (corporate and shareholder) rate on income from investments in Canadian companies
d) encourage Canadian corporations to invest in other Canadian corporations, rather than foreign corporations
a) maintain tax integration while preventing use of a corporate entity to defer significant amounts of taxes payable
A company’s RDTOH account balance is ________.
a) an account that represents the amount a company has received from the payor of dividends in the form of a dividend gross-up
b) a separate tax account that represents the amount a company can distribute to its shareholders free of tax
c) an account that represents a calculation of the cumulative refundable taxes of the company
d) a separate account that tracks actual taxes previously paid on dividends received by the company
c) an account that represents a calculation of the cumulative refundable taxes of the company
A corporation’s dividend refund for the year is determined as ________.
a) the corporation’s federal tax rate
b) the amount of dividends paid by a corporation and designated as eligible dividends
c) the corporation’s taxable income will be taxed at a lower corporate rate until the LRIP is exhausted
d) the lesser of the corporation’s refundable dividend tax on hand account balance at the end of the year and certain portion of the dividends declared by the corporation during the year
d) the lesser of the corporation’s refundable dividend tax on hand account balance at the end of the year and certain portion of the dividends declared by the corporation during the year
Which of the following BEST describes aggregate investment income of a corporation?
a) As per ITA 129(4), aggregate investment income is a term used to describe investment income of a Canadian corporation.
b) Aggregate investment income is used to calculate all types of refundable taxes for a corporation.
c) As per ITA 129(4), aggregate investment income is the net property income, from both Canadian and foreign sources, of a corporation.
d) Unlike the typical definition of investment income or property income, aggregate investment income includes net taxable capital gains for the year reduced by net capital loss carry overs deducted during the year.
d) Unlike the typical definition of investment income or property income, aggregate investment income includes net taxable capital gains for the year reduced by net capital loss carry overs deducted during the year.
Which of the following does not provide an accurate description of refundable taxes?
a) There are three different components of tax that can be refunded on the payment of dividends: Refundable portion of Part I tax, Additional Refundable Tax on Investment Income, and Part IV tax.
b) The only purpose for refundable taxes is to create perfect integration in the Canadian tax system.
c) The basic concept of refundable taxes is that a portion of the corporate tax paid on investment income is refunded to the corporation when the income is distributed to shareholders in the form of dividends.
d) One purpose of refundable taxes is to keep corporate tax rates high to discourage accumulation of investment income in a corporation.
b) The only purpose for refundable taxes is to create perfect integration in the Canadian tax system.
Janex Inc. has correctly determined net income for tax purposes and taxable income in the current taxation year as follows:
Active Business Income $235,500
Taxable Income $274,800
Based on this information, which of the following is the correct aggregate investment income for Janex Inc.?
$34,100
Which of the following BEST describes the refundable portion of Part I tax?
a) The refundable portion of Part I tax is calculated as 30 2/3% of the least of aggregate investment income, taxable income, and Part I federal tax for a corporation.
b) The purpose of refunding a portion of Part I tax is that with the inclusion of additional refundable tax on investment income (ART), tax on investment income earned by a CCPC is too high, creating an imperfection in the system of integration.
c) The purpose of refunding a portion of Part I tax is to reduce the overall tax rate on investment income earned by a CCPC, which allows a CCPC to temporarily shelter passive income from high individual tax rates.
d) The refundable portion of Part I tax is equal to additional refundable tax on investment income (ART) of 10 2/3% of aggregate investment income.
b) The purpose of refunding a portion of Part I tax is that with the inclusion of additional refundable tax on investment income (ART), tax on investment income earned by a CCPC is too high, creating an imperfection in the system of integration.
Which of the following BEST describes refundable Part IV tax?
a) Refundable Part IV tax is calculated as 38 1/3% of dividend income earned in the taxation year.
b) The purpose refundable Part IV tax is to increase the overall tax rate on investment income earned by a corporation to avoid the use of a corporation to temporarily shelter passive income from high individual tax rates.
c) The purpose of refundable Part IV tax is to improve integration of the Canadian tax system by eliminating the deferral of taxes on investment income earned by a corporation and distributed as a dividend to a related corporation.
d) Refundable Part IV tax is calculated as 38 1/3% of portfolio dividends received in the current taxation year plus 10 2/3% of dividends received from connected corporations in the current taxation year.
c) The purpose of refundable Part IV tax is to improve integration of the Canadian tax system by eliminating the deferral of taxes on investment income earned by a corporation and distributed as a dividend to a related corporation.
Pearl Inc. is a Canadian controlled private corporation (CCPC) that owns 100% of the voting shares of Oyster Ltd. and 25% of the voting shares of Shell Corp. The fair market value of the Shell Corp. shares owned by Pearl Inc. is equal to 25% of the fair market value of all Shell Corp. shares. In the current year, Pearl Inc. received the following dividends:
As a result of paying the $30,200 dividend, Oyster Ltd. received a dividend refund of $7,550. Shell Corp. received no dividend refund for its dividend payment. Which of the following is the correct amount of Part IV tax payable by Pearl Inc. as a result of receiving these dividends?
$10,425
Which of the following dividends received by Ion Corp. would NOT be subject to Part IV tax?
a) Dividends received from a wholly owned subsidiary of Ion Corp. and the wholly owned subsidiary did not receive a dividend refund in the current year.
b) Dividends received from a wholly owned subsidiary of Ion Corp. and, as a result of distributing this dividend, the wholly owned subsidiary received a dividend refund of $5,000.
c) Dividends received from Ion Corp.’s portfolio of investments that are deductible in the calculation of taxable income for Ion Corp.
d) Dividends received from an unconnected company that is deductible in the calculation of taxable income for Ion Corp.
a) Dividends received from a wholly owned subsidiary of Ion Corp. and the wholly owned subsidiary did not receive a dividend refund in the current year.
