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BCA1 7002
Nov 6, 2023
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Question 50 (50 minutes) [Chapters 11, 12] BC Enterprises Ltd. is a Canadian-controlled private corporation located in Vancouver, British Columbia. For its fiscal year ended December 31, 2022, the corporation had correctly calculated its income for tax purposes under Division B and some of the federal Part I tax as follows: Domestic sources — Retail income $ 160,000 Advertising agency loss (80,000) Rental income from unused warehouse fully rented on a five-year lease 25,000 Retailing income 330,000 Interest on outstanding accounts receivable in retailing business 15,000 Recapture of CCA from sale of fixtures used in retailing business 10,000 Interest income from five-year bonds 20,000 Taxable capital gains net of losses (from active assets) 70,000 Dividends from non-connected taxable Canadian corporations (eligible dividend) 12,000 Foreign sources Foreign business income in C$ earned through unincorporated branch in United States before C$11,500 in income tax paid in United States 45,000 Foreign non-business income in C$ before C$6,000 withheld 40,000 Division B net income for tax purposes $647,000 Division C deductions: charitable donations ($12,500 + $3,000) (15,500) dividends (Canadian-source) (12,000) non-capital losses (50,000) net capital losses (14,000 ) Taxable income $555,500 Federal tax @ 38% $211,090 Federal abatement (Note 1) (48,000) Partial Part I tax correctly computed $163,090 Notes with additional information — (1) The corporation has permanent establishments in British Columbia and the state of Washington in the United States. The federal abatement has been correctly computed based on its gross revenue and salary and wages information. (2) BC Enterprises Ltd. made the following selected payment during the year: Charitable donations 12,500 (3) Four quarterly dividends of $30,000 (non-eligible dividend) were declared at the end of each quarter of the 2022 fiscal year and were paid within two weeks of their declaration. The dividend for the last quarter of 2022 was paid in January 2023. A dividend of $25,000 (non- eligible dividend)declared in the last quarter of 2021 was paid in January 2022. (4) BC Enterprises Ltd. had allocated all but $40,000 of its business limit to other associated corporations. Taxable capital does not exceed $10,000,000 within the associated group. The only scientific research and experimental development expenditures of the associated group were made by BC Enterprises Ltd.
(5) The balances in the tax accounts on December 31, 2021 were: Charitable donation carryforward $ 3,000 Unused business foreign tax credit 3,500 Non-capital losses from 2017 50,000 Net capital losses from 2018 14,000 Refundable dividend tax on hand (Non-eligible Dividend) 20,000 Dividend refund for 2021 (Non eligible Dividend) 9,000 Required: Assume that the current year's passive income is equal to the prior year's passive income. Determine, by clearly presenting all component parts and their calculations, (a) total federal Part I tax payable for 2022, assuming that the foreign tax credits are equal to the foreign taxes paid, without recalculating the parts of the Part I tax already computed or assumed correctly above, and (32 minutes) (b) the amount of the dividend refund for 2022. (18 minutes) Show all calculations whether or not necessary to the final answer.
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