Chapter 13 Flashcards
123.3
Refundable Part 1 Tax
* Refundable Part 1 Tax is only paid by a CCPC with Aggregate Investment Income, and the tax is refunded when dividends are paid out
* S. 123.3 lays out the calculation for Additional Refundable Tax (ART), as 10 2/3% * the lesser of
a) The corporation’s aggregate investment income from 129(4) for the year
b) The amount, if any, by which the corporation’s taxable income for the year exceeds the amount that is eligible for the small business deduction calculated in 125(1) – the least of 3 calculation
* The ART is refunded to a corporation when dividends are paid; there is an additional part of a corporation’s tax that is refundable, but it is not a separate line in the corporate tax calculation – it is calculated to be 20% of AII
* Therefore, in total 10 2/3% + 20% = 30 2/3% of a CCPC’s Aggregate Investment Income (AII) earned (or taxable income minus SBD amount if less than AII) is considered to be Refundable Part 1 Tax
186(1)
Part IV Tax
- 186(1) Part IV Tax is the total of two amounts
a) 38 1/3% of portfolio dividends plus
b) The company’s % ownership of a connected corporation multiplied by the dividend refund received by the connected corporation that paid out the dividend - Divide Part IV tax by 38 1/3% to calculate the dividends that must paid for a full refund
- In order to track ERDTOH and NERDTOH, it is important to know what type of dividends have been received (eligible or non-eligible)
89(1) “Business Definitions”
Definitions (related to General Rate and Low Rate Income Pool)
89(1) “General Rate Income Pool” is calculated as C + D + E – G, where
o C is the corporation’s general rate income pool at the end of its preceding taxation year
o D is 72% multiplied by its adjusted taxable income for the year [72% per 89(1) “general rate factor” (d)]
o E is the total eligible dividends received by the corporation in the year
o G is eligible dividends paid by the corporation in its preceding taxation year
89(1) “adjusted taxable income” for the GRIP calculation is
o taxable income
o minus the small business deduction amount
o minus (if the corporation is a CCPC) the lesser of the corporation’s aggregate investment income and taxable income
89(1) “low rate income pool” is calculated as (for this course) A + B – G, where
o A is the non-CCPC’s low rate income pool opening balance
o Plus B is non-eligible dividends received
o Minus G is non-eligible dividends that became payable in current year by the corporation
* For a non-CCPC, there is an account in place which tracks components of income that have been taxed at low corporate rates known as the Low Rate Income Pool
* The balance of this account must be reduced to nil by the payment of non-eligible dividends prior to the payment of eligible dividends
129(1)
Dividend Refund to Private Corporation
THE LESSER OF
(A) 38 1/3% * eligible dividends paid
(B) Ending balance in the ERDTOH account
PLUS THE TOTAL OF
(A) the lesser of
(I) 38 1/3% * non-eligible dividends paid
(II) Ending balance in NERDTOH account
(B) Plus
(I) if 38 1/3% of non-eligible dividends paid in the year exceeds the ending balance in the NERDTOH account, the lesser of:
1. The amount of the excess, or
2. Any amount that remains in ERDTOH after subtracting the dividend refund on eligible dividends designated
