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BCA1 7002
Nov 6, 2023
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Question 52 (90 minutes) [Chapter 12] OTOH Ltd. is a Canadian-controlled private corporation located in Moncton, New Brunswick. For its fiscal year ended December 31, 2022, the corporation had correctly calculated its income for tax purposes under Division B as follows: Domestic sources: Advertising agency loss $(73,000) Dividends from non-connected taxable Canadian corporations (eligible) 16,000 Interest income from five-year bonds 22,000 Interest income on outstanding accounts receivable in retailing business 14,000 Wholesale income 187,000 Profit on the sale of excess land (Note 1) 105,000 Recapture of CCA (Note 2) 10,000 Rental income (Note 3) 36,000 Retailing income 410,000 Royalty income from the sale of a trade name 6,000 Taxable capital gains net of losses (from active assets) 63,000 Division B net income for tax purposes $796,000 Notes: (1) The land had been held for approximately two years. It had been held vacant in order to realize a profit on its sale at the right time. (2) The recapture resulted from the sale of some fixtures used in the retailing business. (3) The rental income was derived from leasing the entire space on a five-year lease in an unused warehouse. Additional information: (A) OTOH Ltd. made the following selected payment during the year: Charitable donations 12,000 (B) Four quarterly dividends of $45,000 (non-eligible) were declared on the last day of each calendar quarter of 2022 and paid two weeks later. A dividend of $30,000, (non- eligible) declared in the last quarter of 2021, was paid in January 2022. Additionally, a separate eligible dividend was declared and paid in 2022 of $10,000. (C) OTOH Ltd. had allocated $50,000 of its business limit to other associated corporations. The taxable capital of the associated group was less than $10,000,000. (D) The balances in the tax accounts on January 1, 2022 were: Charitable donation carryforward $ 2,500 Non-capital losses from 2016 46,500 Net capital losses from 2017 12,000 Refundable dividend tax on hand (non-eligible) 20,500 Dividend refund for 2021 (non-eligible) 8,500
Required: (a) Assume that the current year's passive income is equal to the prior year's passive income. Compute the federal Part I tax and provincial tax at a 12% rate on federal taxable income payable by the corporation for the 2022 taxation year. Show in detail the calculation of all tax deductions, using a separate schedule for each, as needed. (60 minutes) (b) Compute the refundable tax on hand balance as at December 31, 2022, showing in detail your calculation. Compute the dividend refund for the 2022 taxation year. (30 minutes)
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