CB Ltd. is a Canadian-controlled private corporation owning a portfolio of investments including stocks, bonds, and rental properties. The financial statements for the year ended June 30, 20X1, show a profit of $104,300, summarized as follows:

Bond interest………………………………………….                          $ 50,000

Taxable dividends from Canadian corporations ………         20,000

Gain on sale of assets ……………………………………                    40,000

Rental loss ………………………………………………                            (5,700)

Income before income taxes…………………………….             $104,300

Additional financial information is outlined below.

1. The previous year’s corporation tax return includes the following tax account balances:

Undepreciated capital cost:    

2. Taxable Canadian dividends totalling $20,000 include $8,000 from public corporations and $12,000 from X Ltd., a Canadian-controlled private corporation. CB Ltd. Owns 30% of X Ltd.’s common shares.

3. The rental properties were purchased prior to March 18, 2007. The details are as follows:

On February 28, 20Xl, property A was sold for $170,000 (land 30,000, building 40,000) and property B was sold for $77,000 (land 40,000, building 37,000). The combined rentals resulted in a loss of $5,700 after deducting amortization/depreciation of $3,000 for the year ended June 30, 20X1.The rental revenue includes a $1,000 rental deposit applying to the last two months’ rent on a lease expiring December 31, 20X2.

For the year ended June 30, 20X0, CB Ltd. deducted a reserve for unpaid rents of $2,000. In January 20X1, $1,000 of the unpaid rents was received and credited to the reserve account. No reserve has been claimed at June 30, 20X1; however, $1,200 of the current year’s rent remains unpaid.

Required:

Determine CB’s minimum net income for tax purposes for the 20X1 taxation year.

Transcribed Image Text:

Class 1-building A Class 1-building B Class 1-building (C $125,000 35,000 46,000 $ 20,000 $35,000 $21,000 Land cost Building cost 130000 40.000 49000 40.000 49.000 $150000 S75,000 $70000