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ch12so - Chapter 12 Computation of Corporate Income Tax...

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Chapter 12 Computation of Corporate Income Tax Questions 12-1 As corporations are subject to a flat tax, corporations equally enjoy the  benefits of donations as a deduction. On the other hand, individuals who are  subject to a progressive rate tax can only receive equal benefits of making  donations if they exist as a tax credit. 12-2 To use Bishop Video's non-capital losses, Salem Entertainment must satisfy  three requirements which apply on a change of control: the business in which the loss was sustained continues to be  carried on, there is a reasonable expectation of profit, and the losses are applied against income of the same or a similar  business. Although Salem has diversified the product line, it appears, based on the  information in the question, that the business is the same and so the losses  would carryforward. 139
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140 TAXATION   IN   CANADA 12-3 Yes, paying out income over $400,000 as salaries and bonuses to owner  managers can be seen as an impediment to growth. If this limit did not exist  and if the tax consequences were not so severe over the $400,000 level,  owners would most likely retain the income in the corporation. This income  could be used to finance new growth opportunities within the business, as  opposed to being withdrawn prematurely by the owner managers at the  small business deduction level.
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COMPUTATION   OF   CORPORATE   INCOME   TAX 141 12-4 (a) Other private — controlled by a public corporation (b) Canadian-controlled private company (c) Other private — controlled by a public corporation 1 2-5 1. (a) If Asha retains a majority of the shares, then she will retain  control of the company, but the company will no longer be able to  claim the small business deduction as it would be a public company. (b) If Asha sells a 50% share of her corporation to U.S. investors then  she may lose control, depending on the accompanying terms of  the investment. As the foreign ownership is only 50%, Asha's  company   will   continue   to   be   eligible   for   the   small   business  deduction. 2. There is probably no advantage to Manbir and Jarminder forming a  corporation to receive their rental income. The income would be taxed  at the high corporate rate (subject to refundable taxes) as it is property  income, and this is likely higher than the personal tax rates. None of  the three corporations would be associated.
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