Solution%20to%20Assignment%20Problem%20Ch13-3%20%26%207

Solution%20to%20Assignment%20Problem%20Ch13-3%20%26%207 -...

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Solution to Assignment Problem Thirteen - 3 Part A - Part I Tax Payable The required calculations to determine Part I federal Tax Payable are as follows: Net Income For Tax Purposes $908,450 Dividends ($223,600 + $101,400) ( 325,000) Taxable Income $583,450 Base Amount Of Part I Tax [(38%)($583,450)] $221,711 Federal Tax Abatement [(10%)($583,450)] ( 58,345) Small Business Deduction (Note One) ( 42,500) Additional Refundable Tax On Investment Income (Note Two) 10,670 General Rate Reduction (Note Three) ( 17,340) Part I Federal Tax Payable $114,196 Note One The small business deduction is 17 percent of the least of the following three amounts: 1. Active Business Income $423,400 2. Taxable Income (no adjustments) $583,450 3. Allocated Annual Business Limit [(1/2)($500,000)] $250,000 The lowest of these figures is the Company’s $250,000 share of the annual business limit. This gives a small business deduction of $42,500 [(17%)($250,000)]. Note Two The aggregate investment income of $160,050 is calculated as follows: Canadian Source Interest $ 48,300
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Taxable Capital Gains 111,750 Aggregate Investment Income $160,050 The ITA 123.3 refundable tax (ART) is 6-2/3 percent of the lesser of: 1. Aggregate Investment Income $160,050 2. Taxable Income $583,450 Deduct: Amount Eligible For The SBD( 250,000 ) $333,450 The ITA 123.3 tax on aggregate investment income is $10,670 [(6-2/3%)($160,050)]. Note Three The general rate reduction would be calculated as follows: Taxable Income $583,450 Amount Eligible For The Small Business Deduction ( 250,000) Aggregate Investment Income (Note Two) ( 160,050) Full Rate Taxable Income $173,400 Rate 10% General Rate Reduction $ 17,340
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Part B - Part IV Tax Payable The required calculation of the Part IV Tax Payable on the portfolio investment dividends is as follows: Part IV Tax [($101,400)(1/3)] $33,800 Part C - RDTOH Balance The calculation of the ending balance in the Refundable Dividend Tax On Hand account is as follows: RDTOH, End Of The Preceding Year $ 39,400 Dividend Refund For The Preceding Year Nil Opening Balance $ 39,400 Refundable Portion Of Part I Tax (Note Four) 42,683 Part IV Tax (See Part B) 33,800 RDTOH Balance - December 31, 2010 $115,883 Note Four Using amounts calculated in Part A, the amount of refundable Part I tax is $42,683, the least of three amounts, calculated as follows: Amount Under ITA 129(3)(a)(i) [(26-2/3%)($160,060)] $ 42,683 Amount Under ITA 129(3)(a)(ii) [(26-2/3%)($583,450 - $250,000)] $ 88,920 Amount Under ITA 129(3)(a)(iii) Part I Tax Payable $114,196 Part D - GRIP Balance The December 31, 2010 GRIP balance would be calculated as follows: GRIP Balance At End Of 2009 $ 93,400 Taxable Income $583,450 Income Eligible For SBD ( 250,000) Aggregate Investment Income ( 160,060 )
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Adjusted Taxable Income $173,390 Rate 69 % 119,639 Eligible Dividends Received 101,400 Eligible Dividends Designated in 2009 Nil GRIP At End Of 2010 $314,439 Part E - Dividend Refund The dividend refund for the year would be $21,867, the lesser of:
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This note was uploaded on 01/31/2011 for the course MOS 4462 taught by Professor Ann during the Fall '10 term at UWO.

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Solution%20to%20Assignment%20Problem%20Ch13-3%20%26%207 -...

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