Corporation Taxation

For the year ending December 31, 2020, the Income Statement of Morland Industries Ltd. (MIL), a Canadian controlled private corporation, prepared in accordance with generally accepted accounting principles, is as follows:

Revenues $1,870,100

Expenses:

Cost Of Goods Sold ($456,000)

Selling And Administrative Costs ( 270,000)

Amortization Expense ( 285,000)

Other Expenses ( 246,000) ( 1,257,000)

Operating Income $ 613,100

Other Income And Losses

Foreign Business Income

(Net Of $2,400 Withholding) $ 9,400

Dividends From Taxable Canadian Corporations 37,000

Gain On Sale Of Building 75,000

Gain On Sale Of Vacant Land 51,000

Loss On Sale Of Vehicles ( 40,000) 132,400

Accounting Income Before Taxes $ 745,500

Other Information:

1. On January 1, 2020, MIL had the following UCC balances:

Class 1 $819,354

Class 8 985,261

Class 10 96,417

Class 13 187,000

The Class 1 balance relates to a single building acquired at a cost of $1,145,000. It is estimated that the land that is included in this amount is $200,000. On February 1, 2020, this building is sold for $1,185,000, including an estimated value for the land of $225,000. In the accounting records, this real property was carried at $1,110,000, a net book value of $910,000 for the building and $200,000 for the land.

The old building is replaced on February 15, 2020 with a new building acquired at a cost of $1,425,000, of which $260,000 is allocated to land. The building is used 95 percent for manufacturing and processing activity and it is allocated to a separate Class 1.

There are no dispositions of Class 8 assets during the year. However, there are acquisitions in the total amount of $98,000.

As the Company has decided to lease all of its vehicles in the future, all of the assets in Class 10 are sold during the year. The capital cost of these assets was $193,000 and the proceeds of disposition amounted to $77,000. The net book value of these assets was $117,000.

The Class 13 balance relates to a single lease that commenced on January 1, 2018. The lease has an initial term of 7 years, with two successive options to renew, each for 3 years. Expenditures on this leasehold were $180,000 in 2018 and $36,000 in 2019. There were no further expenditures in 2020. The write-off of these expenditures for accounting purposes is included in Amortization Expense.

It is the policy of MIL to deduct maximum CCA in each year.

2. Some years ago, MIL acquired a tract of land for $572,000. Until recently, they had intended to construct a new building for their operations on this site. However, with the 2020 purchase of a new building, their plans changed and they sold the tract for $623,000. The buyer provided a $50,000 cash payment, with MIL taking back a mortgage for the balance. The balance will be paid in 10 equal instalments in the years 2021 through 2030.

3. Selling And Administrative Costs include $32,000 in business meals and entertainment. This balance also includes membership fees of $14,600 that were paid for several employees in a local golf and country club. This club is used for entertaining business clients.

4. Other Expenses also includes the following:

Bond discount amortization $3,500

Donations to registered charities 16,900

Interest on late income tax instalments 900

Interest on late municipal tax payments 475

5. The Company spent $15,000 during the year on landscaping for its new building. For accounting purposes this was treated as an asset. MIL will not amortize this balance as it believes the work has an unlimited life.

6. At the beginning of 2020, MIL had a net capital loss carry forward of $128,000, as well as a non-capital loss carry forward of $46,800.

7. For 2020, MIL has active business income in Canada of $613,168, none of which results from M&P activity.

8. Using the formula found in the Income Tax Regulations, 93 percent of MIL's income has been allocated to provinces. Assume that the tax credit for the foreign taxes on the foreign business income is equal to the amount withheld.

9. MIL is associated with several other CCPCs. MIL's share of the group's annual business limit for 2020 is $150,000. The combined Taxable Capital Employed In Canada of the group of associated companies is less than $10 million in both 2019 and 2020.

10. The combined Adjusted Aggregate Investment Income of the group of associated companies is equal to $48,500 for 2019.

REQUIRED:

A. Calculate the minimum Net Income For Tax Purposes for Morland Industries Ltd. for 2020. In addition, calculate the UCC for each class of assets on January 1, 2021.

B. Calculate the minimum Taxable Income for Morland Industries Ltd. for 2020. Indicate the amount, and type, of any carry overs that are available at the end of the year.

C. Calculate the minimum Federal Part I Tax Payable for Morland Industries Ltd. for 2020. Assume that the foreign tax credit for foreign business income is equal to the foreign taxes withheld.