2 Question 1 Taxation Winter 2023 James Bond Limited, a Canadian Controlled private corporation (CCPC) current business operations are over 90% manufacturing and processing. This is the third year of operations, but the first year to show an accounting profit. Previous years business losses for tax purposes were $50,000 in 2020 and $25,000 in 2021. A $30,000 capital loss on the sale of excess raw land was realized in 2021. None of these losses have been used to date. The accountant for James Bond Limited has provided you with the following income statement and miscellaneous financial information for the year ended June 30, 2022. Sales .......................................................................................................... $8,300,000 Cost of goods sold (Note 2) ....................................................................... 6,300,000 Operating profit ........................................................................................ $2,000,000 General and administrative expenses ........................... $ 500,000 Amortization ............................................................... 800,000 Interest .......................................................................... 190,000 (1,490,000) $ 510,000 Gain on disposal of fixed assets ................................................................. 116,000 Operating profits before income taxes ....................................................... $ 626,000 Income taxes ............................................................................................ (123,900) Operating profits ........................................................................................ $ 502,100 Other Income....................................................................,... $200,000 Net Income.................................................................. $702,100 Notes: 1. The company operates 90% in Toronto, Ontario, and 10% in the USA for the purpose of calculating the Federal Abatement. 2. Other income includes: Dividends from CCPC corporation ......5% interest . .In-eligible . . . . . $ 11,000 Dividends from 100% own subsidiary.........Ineligible ...Note 8. . . . . $ 15,000 Patent Income.....................................................................$23,000 Rental Income .................................................................... $24,000 Foreign interest income, before withholding taxes of $5,000 .......... . . $27,000 Foreign business income before withholding tax of $30,000 was...... $100,000 Note that all foreign currencies have been stated in Canadian dollars. 3. James Bond allocated $60,000 of its Small Business deduction limit to its 100% subsidiary 4. The 100% owned subsidiary received a dividend refund of $5,000 5. The balance in the Refundable Dividend Tax on Hand (non eligible), on June 30, 2021 was $26,000, before the Dividend Refund (non-eligible) of $8,000 for the fiscal year ended 2021. 6. General and administrative expenses include: 0975 Taxation for Canadian a) Political donations $ 500 b) Advertising in a European magazine distributed only in Europe 1,200 c) Accrued bonuses fully paid September 28, 2022 44,000 7. The gain on disposal of fixed assets consists of the accounting gain on the sale of one of the corporations warehouses and its related land. For many years, the warehouse was the corporations only asset. The sale took place on October 30, 2021. The building was the last Class 1 asset held by the corporation. The total proceeds of disposition on the land and building was $200,000, of which 80% was allocated to the land. The land and building were purchased at a total cost of $120,000, of which 60% was allocated to the land at the time. 8. Purchases made during fiscal year ended June 30, 2022 were as follows: a) A new warehouse was purchased in February 2022 for $240,000. The cost of the land was $70,000 and the balance was allocated to the building; b) The company replaced its only photocopier with two new models, one that included a facsimile machine. The new photocopier machines were purchased in August 2021 and the cost $24,000 and $18,000 respectively. The old photocopier was sold for proceeds of $3,500. c) Improvements on its leased administrative offices were made at a cost of $224,000 in February 2022. The premises were rented in February 2020 for 4 years with two successive options to renew for 5 years each. In February 2020, improvements were made in the amount of $360,000; d) New manufacturing machinery was purchased in February 2022 for $250,000 to replace old machinery that was sold on e-Bay for $20,000, purchased in January 2016 for $100,000; e) A 20-year license to use a manufacturing process was purchased on May 1, 2022 for $160,000; f) The only company truck the company had was sold in January 2022, which was purchased in fiscal 2020 for $44,000. The truck was sold for $22,000. 9 The undepreciated capital cost balances at July 1, 2021 were as follows: Class 1 .................................................................................................................... 26,600 Class 8 (photocopier) ............................................................................................. 11,750 Class 10 ................................................................................................................... 26,180 Class 13 .................................................................................................................. 300,000 Class 53 .................................................................................................................. 313,750 Assume that the Ontario tax rate is 12%. From March 31, 2021 to July 15, 2022 James Bond Ltd. declared and paid the following taxable cash dividends which were non-eligible: Date Declared Date Paid Amount March 31, 2021 April 15, 2021 $36,000 0975 Taxation for Canadian June 30, 2021 July 15, 2021 $25,500 September 30, 2021 October 15, 2021 $31,500 December 31, 2021 January 15, 2022 $35,000 March 31, 2022 April 15, 2022 $20,000 June 30, 2022 July 15, 2022 $15,000 Required: Part 1 Calculate the corporations minimum income from business or property for the year ended June 30, 2022 under the provisions of Division B of the Act. Support your answer with calculations and provide a brief explanation if not self-explanatory. For your explanation, you do no Assignment 2 Question 1 Taxation Winter 2023 James Bond Limited, a Canadian Controlled private corporation (CCPC) current business operations are over 90% manufacturing and processing. This is the third year of operations, but the first year to show an accounting profit. Previous years business losses for tax purposes were $50,000 in 2020 and $25,000 in 2021. A $30,000 capital loss on the sale of excess raw land was realized in 2021. None of these losses have been used to date. The accountant for James Bond Limited has provided you with the following income statement and miscellaneous financial information for the year ended June 30, 2022. Sales .......................................................................................................... $8,300,000 Cost of goods sold (Note 2) ....................................................................... 6,300,000 Operating profit ........................................................................................ $2,000,000 General and administrative expenses ........................... $ 500,000 Amortization ............................................................... 800,000 Interest .......................................................................... 190,000 (1,490,000) $ 510,000 Gain on disposal of fixed assets ................................................................. 116,000 Operating profits before income taxes ....................................................... $ 626,000 Income taxes ............................................................................................ (123,900) Operating profits ........................................................................................ $ 502,100 Other Income....................................................................,... $200,000 Net Income.................................................................. $702,100 Notes: 1. The company operates 90% in Toronto, Ontario, and 10% in the USA for the purpose of calculating the Federal Abatement. 2. Other income includes: Dividends from CCPC corporation ......5% interest . .In-eligible . . . . . $ 11,000 Dividends from 100% own subsidiary.........Ineligible ...Note 8. . . . . $ 15,000 Patent Income.....................................................................$23,000 Rental Income .................................................................... $24,000 Foreign interest income, before withholding taxes of $5,000 .......... . . $27,000 Foreign business income before withholding tax of $30,000 was...... $100,000 Note that all foreign currencies have been stated in Canadian dollars. 3. James Bond allocated $60,000 of its Small Business deduction limit to its 100% subsidiary 4. The 100% owned subsidiary received a dividend refund of $5,000 5. The balance in the Refundable Dividend Tax on Hand (non eligible), on June 30, 2021 was $26,000, before the Dividend Refund (non-eligible) of $8,000 for the fiscal year ended 2021. 6. General and administrative expenses include: 0975 Taxation for Canadian a) Political donations $ 500 b) Advertising in a European magazine distributed only in Europe 1,200 c) Accrued bonuses fully paid September 28, 2022 44,000 7. The gain on disposal of fixed assets consists of the accounting gain on the sale of one of the corporations warehouses and its related land. For many years, the warehouse was the corporations only asset. The sale took place on October 30, 2021. The building was the last Class 1 asset held by the corporation. The total proceeds of disposition on the land and building was $200,000, of which 80% was allocated to the land. The land and building were purchased at a total cost of $120,000, of which 60% was allocated to the land at the time. 8. Purchases made during fiscal year ended June 30, 2022 were as follows: a) A new warehouse was purchased in February 2022 for $240,000. The cost of the land was $70,000 and the balance was allocated to the building; b) The company replaced its only photocopier with two new models, one that included a facsimile machine. The new photocopier machines were purchased in August 2021 and the cost $24,000 and $18,000 respectively. The old photocopier was sold for proceeds of $3,500. c) Improvements on its leased administrative offices were made at a cost of $224,000 in February 2022. The premises were rented in February 2020 for 4 years with two successive options to renew for 5 years each. In February 2020, improvements were made in the amount of $360,000; d) New manufacturing machinery was purchased in February 2022 for $250,000 to replace old machinery that was sold on e-Bay for $20,000, purchased in January 2016 for $100,000; e) A 20-year license to use a manufacturing process was purchased on May 1, 2022 for $160,000; f) The only company truck the company had was sold in January 2022, which was purchased in fiscal 2020 for $44,000. The truck was sold for $22,000. 9 The undepreciated capital cost balances at July 1, 2021 were as follows: Class 1 .................................................................................................................... 26,600 Class 8 (photocopier) ............................................................................................. 11,750 Class 10 ................................................................................................................... 26,180 Class 13 .................................................................................................................. 300,000 Class 53 .................................................................................................................. 313,750 Assume that the Ontario tax rate is 12%. From March 31, 2021 to July 15, 2022 James Bond Ltd. declared and paid the following taxable cash dividends which were non-eligible: Date Declared Date Paid Amount March 31, 2021 April 15, 2021 $36,000 0975 Taxation for Canadian June 30, 2021 July 15, 2021 $25,500 September 30, 2021 October 15, 2021 $31,500 December 31, 2021 January 15, 2022 $35,000 March 31, 2022 April 15, 2022 $20,000 June 30, 2022 July 15, 2022 $15,000 Required: Part 1 Calculate the corporations minimum income from business or property for the year ended June 30, 2022 under the provisions of Division B of the Act. Support your answer with calculations and provide a brief explanation if not self-explanatory. For your explanation, you do not need to cite provisions of the Act, but this may be the easiest way to explain. Assume that the corporation DOES NOT wish to elect under subsections 13(4) and 44(1) or under subsection 44(6) in respect of the disposition of its warehouse. Assume all expenses are reasonable in the circumstances. Remember to provide a brief explanation for any items omitted from the calculation Part 2 Assume that the current fiscal years passive income is equal to the prior years fiscal passive income. Determine, by clearly presenting all component parts and their calculations, (a) total federal Part I tax payable for the year ended June 30, 2022 plus the provincial taxes plus the Part IV tax and (b) the amount of the dividend refund for the year ended June 30, 2022. t need to cite provisions of the Act, but this may be the easiest way to explain. Assume that the corporation DOES NOT wish to elect under subsections 13(4) and 44(1) or under subsection 44(6) in respect of the disposition of its warehouse. Assume all expenses are reasonable in the circumstances. Remember to provide a brief explanation for any items omitted from the calculation Part 2 Assume that the current fiscal years passive income is equal to the prior years fiscal passive income. Determine, by clearly presenting all component parts and their calculations, (a) total federal Part I tax payable for the year ended June 30, 2022 plus the provincial taxes plus the Part IV tax and (b) the amount of the dividend refund for the year ended June 30, 2022