PITA Co. Ltd. is a nutritional consulting firm that advises manufacturers and distributors on I70(i)(o), 174, 231, 236 consumers' dietary needs and preferences. For its year ended December 31, 2012, it reported net income before taxes of $900,000 for financial statement purposes. This amount included a gain on the disposition of land held as capital property of $50,000 and of a building (not the only one in the class) of $95,000. The corporation also realized an accounting loss of $20,000 on securities and of $10,000 on a trademark. These assets were acquired for the following amounts:
Land.................................................................... $120,000 in 2001
Building ...........................100,000 in 2001 (UCC of the class is $125,000)
Securities ................................................................ 50,000 in 2010
Trademark ................................................................ 80,000 in 2009
The proceeds of disposition of these assets were as follows:
Land .............................. $150,000
Building ............................ 120,000
Securities ............................. 30,000
Trademark ........................... 70,000
The corporation has reported accounting amortization of $80,000 and wishes to claim the maximum available capital cost allowance of $100,000. During 2012, the corporation also made payments in respect of interest on unpaid income taxes ($1,500), charitable donations ($10,000), and an annual employee dinner-dance in December 2012 ($14,000). During 2012, the corporation established that an unsecured $5,000 note receivable in respect of the sale (as capital property) of a parcel of land in the prior year had become a bad debt. This was not reflected in the financial statements.
REQUIRED
(A) Prepare reconciliation between net income for financial statement purposes and net income for income tax purposes for the year ended December 31, 2012. Support your reconciliation with references to the Income Tax Act.
(B) Discuss in general terms the treatment of these items by the corporation for purposes of the HST.