Reference no: EM132575399 , Length: 2 pages
0975 Taxation for Canadian Business - University of Toronto
YBM Traders Ltd. is a Canadian-controlled private corporation located in Toronto, Ontario. For its fiscal year ended December 31, 2019, the corporation had calculated its income for tax purposes under Division B as follows:
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Operating income (Note 1)
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$ 247,000
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Profit on the sale of excess land (Note 2)
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205,000
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Royalty income (Note 3)
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15,000
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Retailing income
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210,000
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Interest on o/s accounts receivable in retailing business
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14,500
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Recapture of CCA (Note 4)
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10,500
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Advertising agency loss
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(53,500)
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Foreign Business income in Canada (Note 8)
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45,000
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Rental income (Note 5)
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21,500
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Taxable capital gains net of losses (Note 6) (from active assets)
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63,000
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Interest income from five-year bonds
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18,000
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Dividend from Wholly owned sudsidiary (Note 9) (non-eligible)
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12,000
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Dividend from from taxable Canadian corporations (< 5% ownership)(eligible)
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33,000
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Foreign non-business income in Cdn. $ (Note 7)
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15,000
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Division B net income for tax purposes
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$ 856,000
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Notes:
(1) This amount of operating income was computed correctly under Division B. The corporation has permanent establishments in YBM and North Dakota in the United States. Its gross revenue and salary and wages information is as follows:
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Ontario
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North Dakota
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Gross revenue
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$10,325,000
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$3,675,000
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Salaries and wages
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5,375,000
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993,000
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(2) The land had been held for approximately three years. It had been held vacant in order to realize a profit on its sale at the right time.
(3) The royalty income had been determined to be property income.
(4) The recapture resulted from the sale of some fixtures used in the retailing business.
(5) The rental income was derived from leasing the entire space on a five-year lease in an unused warehouse.
(6) The net taxable capital gains resulted from the sale, on January 15, 2019, of marketable securities purchased with short-term surplus funds in the manufacturing operation.
(7) Withholding tax on the pre-tax non business income of $15,000 was Can $4,000
(8) Foreign income tax on the pre-tax foreign busniess of $45,000 earned through an unincorporated branch in the United States was paid in Can dollars $9,700
(9) The wholly owned subsidiary received a Dividend refund of $2,000 as a result of paying out the dividend.
Additional information:
(a) YBM Traders Ltd. made the following selected payment during the year:
Charitable donations $12,500
(b) Four quarterly dividends (non-eligible) of $45,000 were declared at the end of each calendar quarter of 2019 and paid within two weeks of their declaration. The last quarter of 2019 was paid in January 2020 and a dividend of $30,000 declared in the last quarter of 2018 was paid in January 2019.
(c) YBM Traders Ltd. had allocated $5,000 of its $500,000 business limit to other associated corporations. Taxable capital of the associated group for large corporations tax purposes was $10,100,000.
(d) The balance in the tax accounts on January 1, 2019 were:
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Charitable donation carryforward
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$ 17,500
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Unused business foreign tax credit
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14,000
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Non-capital losses from 2012
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51,500
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Net capital losses from 2013
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14,500
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Refundable dividend tax on hand
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20,000
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Dividend refund for 2018
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18,000
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Required:
(A) Compute the federal Part I tax and provincial tax at a 17% rate for YBM on federal taxable income payable by the corporation for 2019. Show in detail the calculation of all tax deductions in the computation, using a separate schedule for each special tax deduction.
(B) Compute the refundable tax on hand balance as at December 31, 2019, showing in detail your calculation and compute the dividend refund for 2019.