F2021 Case IV: Calculating Taxes Payable on Investment Income

Kitchen World Inc. is a Canadian controlled private corporation (CCPC) that operates a retail business selling cooking utensils, knives and small appliances for both professional chefs and home cooks. Kitchen World Inc. is operated out of Vancouver, British Columbia and all of the corporations revenue and expenses are incurred in British Columbia. The following information is available for the current year ending December 31:

Kitchen World Inc.
December 31
3(a)	Positive Sources of Income
		Canadian Source Interest Income				$ 25,350.00
		Net Business Income				$ 627,500.00
		Canadian Source Dividend Income				$ 92,750.00
3(b)	Net Taxable Capital Gains
		Taxable Capital Gains				$ 53,400.00
Net Income for Tax Purposes							$ 799,000.00
Less Division "c" deductions:
	Dividends from Taxable Canadian Corporations						$ (92,750.00)
	Net Capital Loss Carryover from Previous Year						$ (22,500.00)
Taxable Income							$ 683,750.00

Other Information:

1. Kitchen World Inc.s business income is a result of retail sales operations, and therefore does not partake in any manufacturing or processing activities and does not qualify for the Manufacturing and Processing Profits Deduction.
2. Kitchen World Inc. owns 100% of the outstanding shares of Stanton Holdings Ltd., therefore these two corporations are associated for tax purposes in current taxation year. Stanton Holdings Ltd. does not earn active business income and does not require any of the small business deduction limit. Therefore, Kitchen World Inc. is able to utilize the full amount of the annual limit for purposes of calculating the small business deduction.
3. The taxable capital gains were incurred on the disposition of office equipment and vehicles used in the active business of Kitchen World Inc.
4. For simplicity purposes, assume that the corporations net business income (provided above) is considered active business income for purposes of the small business deduction.
5. Kitchen World Inc. had a closing Non-Eligible RDTOH balance from the previous year of $55,000 and a closing Eligible RDTOH balance from the previous year of $40,000. The corporation received a dividend refund from the Eligible RDTOH account for the previous year of $20,000.

6. The Canadian source dividend income included in the corporations net income is comprised of the following:

• Ineligible dividends received from Stanton Holdings Ltd. of $60,000 (as a result of paying this dividend, the wholly owned subsidiary received a dividend refund of $20,000)
• Eligible dividends received from unconnected corporations, whose shares are owned by Kitchen World Inc. in its portfolio of investments of $32,750

7. Kitchen World Inc. had a GRIP balance at the end of the previous taxation year of $24,375. In the previous year, the corporation designated a portion of the dividends declared as eligible, in the amount of $62,000.
8. Kitchen World Inc. has paid the following taxable dividends during the current year:

• Eligible dividends of $50,000
• Ineligible dividends of $28,350

9. For 2019, Kitchen World Inc. had ADJUSTED Aggregate Income of $58,100. Its Taxable Capital Employed in Canada was $3,600,000.

Required:

1. Calculate (using Excel template on D2L) the amount of Federal Taxes Payable under Part I of the Income Tax Act for Kitchen World Inc. for 2020.
2. Determine the amount of Part IV Tax Payable by Kitchen World Inc.
3. Compute the closing Eligible and Non-Eligible RDTOH balance for Kitchen World Inc. for the year ended December 31 as well as the companys dividend refund for the year. Has the corporation maximized its dividend refund in the current year? Why or why not?
4. Calculate the GRIP balance at the end of the current year for Kitchen World Inc.
5. Define GRIP and LRIP. Why is this distinction important?