Dick & Jean Ltd. (S&P), a CCPC is owned 100% by Mr. Dick. It has been in operation for several years. Its net income for tax purposes for taxation year ended December 31st, 2016 is made up of following components.

1) Rental Income

3) Dividend Income 4) Interest Income

(Note 1) (Note 2) (Note 3)

500,000 150,000 165,000

Note 1: Rental Income

• -$250,000 of the rental income is from a rental property in Montreal. This building employs one part time employee for book keeping. The rest of the services are provided by A&B Limited, a wholly owned subsidiary of S&P, which has 6 full time employees on the payroll.
• -$150,000 of the rental income is from renting a part of warehouse for 6 months since due to severe weather the business was slow and the rented space was not needed for 6 months.
• -$100,000 of the rental income is from a rental property in Toronto, which takes care of all the services by itself and has 15 part time employees on the payroll.
• Note 2: Dividend Income
• -$45,000 dividend income is received from a Public Corporations;
• -$30,000 dividend income is received from 15% owned CCPC, Smartee & Smartee
• Limited (SSL) which has received 20,000 Dividend Refund. Mr. Smart owns 25% shares
• of SSL and 60% of the shares of SSL are owned by Mrs. Smart.
• -$40,000 dividend income is received from 5% owned CCPC Wy & Zee Limited, which
• has received 4,000 Dividend Refund;
• -$35,000 dividend income is received from US Public Corporation.
• Note 3: Interest Income
• -$25,000 of the interest income is on accounts receivable balance from the customers.
• -$60,000 of interest income is from Bloodline Inc, a CCPC. It is owned 33.33% each by Mr. Dick, and his two adult children, Ms. Rachel and Mr. Andrew. Bloodline is in business of manufacturing baseball bats. S&P has loaned money to Bloodline to buy the manufacturing equipment to produce baseball bats. After the deduction of this interest,
• Bloodline has taxable income of $230,000 for the year December 31st, 2016. .
• -$10,000 interest income is from Brothers Limited. Brothers Limited is 100% owned by
• Mr. Nice. Mr. Nice is brother of Mrs. Dick.
• -S&P is planning to invest in new equipment in early 2017. The cash set aside for this
• project has generated an interest income of $20,000 in the last three months of fiscal year ending December 31, 2016 and will generated another $20,000 till March 31, 2017. On April 1, 2017, S&P will withdraw this money from the money market fund to make the payments to supplier for new equipment.
• -$50,000 interest is on the bonds S&P holding for the last 5 years.

Required:

1. Calculate active business income, aggregate investment income, for the year ending
2. December 31st, 2016. For each item included in active business income, describe briefly why it is considered active business income. (Note: There is a deduction of 2 marks if same item is included in both, active business income and aggregate investment income).
3. Calculate part IV taxes for the year ended December 31, 2016.
4. If S&P is associated with any company? Discuss in detail, why and why not. Please
5. provide the support in detail for your conclusion for each association.