Client Information Fast Forward to December 31, 2023 In 2022, Nora Nyall was employed as Associate Vice President of Marketing and Branding for Royal Food Distributors Ltd. (RFDL), a Canadian controlled private corporation (CCPC). RFDL creates relationships with local farmers, ranchers, fishermen/women, bakers, and artisans, to make it easy for customers to have the freshest ingredients and products delivered directly to homes and/or offices. RFDL has shaped its business model around valuing sustainable farming practices, the humane treatment of animals, and the protection of the environment by caring about how and where food is grown and produced. During her employment tenure, she began a digital media marketing consulting business as a sole proprietor. Her clientele consisted of micro-farms, local farmer markets, and retail grocery chains. Noras consulting activity gained momentum and is rapidly scaling up. On January 1, 2023 Nora quit her job at RFDL and invested 100% of her time growing her consulting business. One of Noras bigger contracts included a project for the City of Calgarys1 Environmental Sustainability and Governance (ESG) Department. She was advised through colleagues that incorporating her operations would be a better way to organize her future business activities and reduce taxes. Nora did not have time to investigate the advantages and disadvantages of incorporating for tax purposes but trusted her colleagues advice. On January 1, 2023, Nora incorporated her Canadian Controlled Private Corporation business in British Columbia as Nyall Digital Design Ltd (NDDL) of which Nora is the sole shareholder. After her first year of business in 2023, she expressed concern about the amount of increased corporate income taxes she paid despite her understanding that, upon her colleagues advice, a CCPC would pay less tax because of the tax credits available. She is considering winding up the corporation and reverting operations to a sole proprietorship if higher taxes continue in the future. Based on NDDLs 2023 net income for tax purposes and the information you have available, Nora would like you to i. prepare a brief quantitative summary comparing the tax effects of reinstating her business structure from a corporation to a proprietorship and, ii. briefly outline how she could reinstate NDDLs operations into a proprietorship. Nora engaged you to assist her in determining NDDLs 2023 corporate tax payable/(refundable) and provide advice on certain other tax matters. Her business activity can be found in Exhibit 1 (attached). NDDL recently received several similar contract opportunities in Mexico and will begin work on those in early 2024. Nora is excited about growing her business over the next five years and may need to live in Mexico to complete the longer-term contracts; however, she plans to retire in Canada after the five years and wonders what options are available to her as a shareholder and NDDL. Using the legislation in place as at April 21, 2023, perform the required: a. Under Part I of the Income Tax Act, calculate Nyall Digital Design Ltds (NDDL) minimum net income for tax purposes and minimum taxable income for the 2023 taxation year. b. Based on your answer to part (a), calculate the projected minimum Part I and Part IV federal income tax, refundable dividend tax on hand (RDTOH), and dividend refund for the 2023 taxation year. c. Prepare any specifically requested summaries from your client.

2023 Financial Information 1. NDDLs income for accounting purposes for 2023 is summarized as follows: Income from consulting operations $ 221,000 Loss on sale of assets (15,000) Dividend income BIS Ltd. 3,000 $ 209,000 2. Dividend income of $3,000 is from BIS Ltd., a CCPC. NDDL owns an 8% share of BIS. For its year ended December 31, 2023, BIS earned $100,000 of active business income and applied the small business deduction to all this income. Of the $3,000 dividend, $2,000 was designated as a capital dividend from BISs capital dividend account. BISs NERDTOH balance was $5,000 at the time of the dividend. 3. A review of NDDLs December 31, 2022, corporate tax return provides the following information: Capital dividend account $ 20,000 Non-capital loss 5,000 NERDTOH 5,000 Undepreciated capital cost (UCC)2: Class 1 $250,000 Class 8 - includes display fixtures only 20,000 Class 10.1 18,000 Class 14 85,000 Class 50 8,700 4. In December 2023, NDDL sold its only building for $590,000 (land $240,000; building $350,000) and leased a new facility. NDDL acquired this building in January 2023 at a cost of $400,000 (land $100,000; building $300,000). NDDL immediately spent $20,000 for leasehold improvements in the new facility. The lease is for three years with two 5-year renewable options. 5. In December 2023, NDDL sold all its display fixtures for $15,000 (original cost $30,000). New fixtures were temporarily lent by a supplier. 6. On June 1, 2023, NDDL sold an automobile for $20,000. The vehicle was purchased in January 2023 for $45,000. On the same day, the company leased a new automobile for Nora, to be used for company business. Total lease payments in 2023 were $8,400.

7. On August 1, 2023, NDDL purchased a new computer system costing $35,000. This cost included $5,000 for computer software. The old computers, which originally cost $15,000, were sold for $6,000. 8. NDDL paid a life insurance premium of $1,000 on Noras life. This life insurance policy is held as collateral for a bank loan. 9. During the year, NDDL expensed $5,500 by creating an estimated warranty reserve of $3,500 and a reasonable bad debt reserve of $2,000. 10. NDDL spent $10,000 for website development. It is estimated that this website will need to be redesigned after two years. The company charged amortization costs of $3,000 to the income statement and the remaining amount was capitalized and added to the balance sheet for future amortization. 11. Travel expenses included $3,000 for Noras assistants airline tickets. This amount included $500 for a ticket for his spouse, who accompanied him during one of the business trips. He was also given a car allowance of $0.65 per kilometre to cover the cost of using his own car. During the year, the assistant travelled 12,000 kilometres for business purposes. 12. Legal and audit expenses included $5,000 for drafting the sale agreement for the assets sold, $2,000 for the accounting fee, and $500 for preparing minutes for directors and shareholders meetings. 13. Depreciation expenses was $17,000. 14. On December 31, 2023, NDDL paid a dividend of $50,000 to Nora. She heard that there are many transactions that alter the balance in the capital dividend account (CDA) of a CCPC and wondered if this dividend was impacted by them. Explain any two types of transactions for Nora to better understand the nature of this account.