Lecture 5.docx - Lecture 5 Chapter 13 Homework P13-8 P13-13...

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Lecture 5 – Chapter 13 Homework: P13-8, P13-13, P13-14, P13-15, P13-16, KCQ 13-3, KCQ13-5, KCQ 13-6, KCQ 13-7, KCQ 13-14 CCPC: 5 categories - AII excludes dividends 1. ABI 2. SIB – PI but excludes dividends 3. CG – other half to capital dividends account 4. PSB 5. Dividends – no part I tax but part IV tax applies - Portion of AII and Part IV tax go into RDTOH Format - Part I tax - Part IV tax - Less: dividend refund - Federal tax owing - Public corporations don’t get dividend refund Ordering of CCPC dividend distributions - A CCPC can distribute 3 categories of dividends (capital dividends > eligible dividends > non-eligible dividends): 1. Capital dividends a. Are tax-free b. Are limited to balance in the capital dividend account (CDA) c. Shareholders want capital dividends because it’s free of tax 2. Eligible dividends a. Have a larger dividend tax credit than non-eligible dividends a lower rate of tax for the individual shareholder b. Can only be paid out to the extent that a CCPC has a positive balance in its general rate income pool (GRIP) at the end of the taxation year i. If a private corporation was taxed at a higher tax, it can declare an eligible dividends 3. Non-eligible dividends Capital dividend account - Opening balance o Add: non-taxable portion of capital gains o Less: non-allowable portion of capital losses o Add: capital dividends received o Add: life insurance proceeds less ACB of policy o Less: capital dividends paid o = capital dividend account balance (max amount of tax-free dividends that can be paid)
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- Opening balance o Add: non-taxable portion of CG: 6000 o Less: non-allowable portion of capital losses: (2000) o Add: capital dividends received: 15,000 o Add: life insurance proceeds less ACB of policy: 40,000 o Less: capital dividends paid: (1000) o = capital dividend account balance: 58,000 - Company can pay a maximum amount of $58,000 tax-free to the shareholders General rate income pool (GRIP) - The GRIP balance of a CCPC accumulates the high-rate income tax can be distributed as an eligible dividend - GRIP at end of current year is computed as follows: o GRIP at end of previous year o Add: 72% of Taxable income for the year (before any loss carrybacks are deducted) LESS: income on which the SBD is claimed LESS: AII o Add: eligible dividends received o Less: eligible dividends paid in the preceding year - GRIP at end of previous year: 50,000 - Add: 72% of o Taxable income for the year (before any loss carrybacks are deducted): 610,000 o LESS: income on which the SBD (least of 3 amounts) is claimed: (500,000) o LESS: AII: 10,000 o X 72% o 72,000 - Add: eligible dividends received: 40,000 -
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