Taxes Payable - Corporate (WEEK 5)

Question 1

Calculated taxes payable

Answer 1

1) detailed approach (calculate each component)
2) simplified approach (use tax rate for each income type)
- both will equal the same tax payable

Question 2

Part 1 Tax: CCPC

Answer 2

Basic federal tax (38%)
- Federal tax abatement (10%)
- SBD (19%)
- Mfg. & production deduction (13%)
- GRR (13%)
+ Additional refundable tax (10 2/3 %)
- Foreign tax credit
- Investment tax credit
= Federal Part 1 tax

Question 3

Part 1 tax: Non-CCPC

Answer 3

Basic federal tax
- Federal tax abatement
- Mfg. & production deduction
- GRR
- Foreign tax credit
- Investment tax credit
= Federal tax part 1

Question 4

Sources of income

Answer 4

1) aggregate investment income (income earned by a CCPC that is income from property (not dividend income) + net taxable CG - net CL applied in current year)
2) ABI (income from any business carried on by the corporation other than a specified investment business or a personal services business)
3) Foreign business income

Question 5

Sources of income

Answer 5

1) aggregate investment income (income earned by a CCPC that is income from property (not dividend income) + net taxable CG - net CL applied in current year)
2) ABI (income from any business carried on by the corporation other than a specified investment business or a personal services business)
3) Foreign business income

Question 6

Federal tax abatement

Answer 6

10% deduction on federal tax for income earned in Canada

Question 7

Small Business Deduction

Answer 7

• available on first $500k of ABI earned annually by CCPC
• $500k limit includes ass ABI earned by any associated corporations
• business limit reduced when TCEC > $10mil in current year and eliminated at $15mil (business limit ($500k) + (0.225% of TCEC of PY in excess of $10mil / 11,250))
• deduction based on 19% of the least of: 1) ABI 2) taxable income - foreign income 3) business limit ($500k)

Question 8

Manufacturing and Processing Credit

Answer 8

• same rate as GRR and therefore no direct benefits and federal level
• M&P credit is 13% of the lesser of: 1) M&P profits - amounts eligible SBD and 2) taxable income - (amount eligible for SBD + (4 x FTC) + AII)

Question 9

General Rate Reduction (GRR)

Answer 9

• 13% of full rate taxable income

Question 10

Additional Refundable Tax (ART)

Answer 10

• 10 2/3% of the lesser of: AII and Taxable income - SBD
• this is to integrate with personal tax rates when dividends are paid

Question 11

Business Foreign Tax Credit

Answer 11

• the least of:
  1) business income tax paid for the year + the taxpayers unused FTC for that country for the 10 preceding tax years
  2) (foreign non-business income / NI) x Part 1 otherwise payable
  3) the tax otherwise payable for the year - foreign non-business income tax credit deducted

Question 12

Non-business foreign tax credit

Answer 12

• lesser of:
  1) non-business income tax paid during the year
  2) (foreign non-business income / NI) x Part 1 otherwise payable

Question 13

Part IV tax

Answer 13

• 38 1/3% x dividends received from CAD corporations not connected + investors share of dividend refund received by connected corporation

Question 14

NERDTOH

Answer 14

• refundable portion of Part 1 tax for the year + Part IV tax for the year on non-eligible dividends + opening NERDTOH - prior year dividend refund on non-eligible dividends received in current year

Question 15

ERDTOH

Answer 15

• Part IV tax for the year on eligible dividends + opening ERDTOH - prior year dividend refund on eligible dividends received in the current year and non-eligible dividends if no balance in NERDTOH