for the year ending December 31, 2021. Show all came and Part I federal tax payable for Lorne Inc. to the final solution. As the corporation carries on bulations, whether or not they are necessary establishment and that province provides additional miness in a province through a permanent of the federal M\&P deduction is required. AP 12-10 (Comprehensive Corporate Tax Payable) Kalex Inc, a CCPC, was incorporated in 2019 and selected a December 31 taxation year end. Kalex is a family-owned company with four equal shareholders, all of whom are siblings. The company employs in excess of 50 employees at its head office in Toronto, a further 80 employees at its manufacturing facility in Oshawa, Ontario, and a further 12 employees at its office in Syracuse, New York. The company is primarily involved in the manufacture and sale of storage shelving and pallets. You have been asked to prepare the corporate tax returns for 2021. The company provides you with its financial statements for the year ending December 31, 2021. The financial statements have been prepared using accounting standards for private enterprises (ASPE), which represents the application of generally accepted accounting principles. No attempt has been made to reconcile the net accounting income with net income for ITA purposes. Through your own observations and by asking several questions you have uncovered the following information concerning the 2021 income and expenses of Kalex: 1. Net income for accounting purposes is $2,481,986 after deducting $325,000 of current income tax expenses. 3. Kalex estimates it's doubtful account receivables by applying an historical percentage of 7.5% to accounts that have been outstanding for more than 30 days. At December 31, 2021 those accounts totalled $450,000, resulting in a doubtful debt expense of $33,750[7.5% of $450,000 ). After a detailed evaluation of the accounts you determine that a reasonable reserve that would be acceptable to CRA would be $28,800. The 2020 reasonable reserve claimed was $30,900-no adjustment has been made for this in 2021. 4. On January 1, 2021, Kalex had the following UCC balances: Elections wer a result, the two buildings are in separass 1 buildings to be eligible for additional CCA. As non-residential purposes that is manate classes. The Oshawa building is used 100% for is used exclusively (100%) for non-residenturing while the Toronto headquarters building capital expenditures were made for the tial purposes that is not manufacturing. No the amount of $112,000 were made to Oshawa building, but capital renovations in deducted in the preparation of the inco the Toronto building. This amount has been class represents the capital cost of the bue statement. The amount included in each Class 8 depreciable property represents office furniture and fixtures for the two class 1 bulldings. The original cost when acquired in Juranuary 2019 was $800,000. Kalex was The business leases refurbished office furniture and fixtius out of Niagara Falls. Ontario a round of negotiations and running the numbers, Kalures on long-term leases. After their class 8 property with leased property. Kalex signed has decided to replace all of monthly. In exchange, Kalex will receive $700,000 for all of five-year contract at $4,000 correctly expensed the lease payments in 2021 . The class 10 property is composed of three two-seater delivery vans with extra storage capacity. Each of the three vans cost $75,000. After hearing of the tax incentives for zero-emission vehicles and the expanding network of charging stations, the company each. The vans were purchased on July 2, 2021. zero-emission vans that cost $95,000 trade-in allowance for the three existing vans. The company acquired a 2021 Tesla Model S in early January 2021 for $130,000. The car is used exclusively by the company president. It is estimated that the car is used by the president 40% of the time for company business. Midway through 2019 the company realized that the Oshawa facility lacked the necessary storage space to accommodate its expanding inventory. They reached out to a local developer who agreed to lease the company a warehouse that had sat empty for a few years. A five-year lease was signed with a renewal option for an additional five years. The lease provides that Kalex can make any improvements or renovations it considers necessary but that no payment will be made by the lessor at the end of the lease as compensation for those improvements. The company spent $140,000 on modifications in 2019 and another $150,000 in July 2021. Assume that the expenditures are categorized as class 13. In March 2021 Kalex acquired a client list from a local competitor who was on the verge of closing its doors. The company paid $80,000 for the client list. In May 2021 the company acquired new manufacturing machinery that would double its output at the Oshawa facility. The equipment cost $900,000. Company policy is to claim the maximum CCA it is entitled to in each year. 5. When the company began operations in early 2019 it acquired a vacant lot not far from the Oshawa facility for $150,000. The plan was to eventually build a warehouse, but the company opted to lease a warehouse instead. The company, as part of the leasing arrangement, agreed to sell the land to the lessor for $460,000. The arrangements required the purchaser to pay $175,000 on the closing date, February 1, 2021, with the remainder paid in three equal instalments of $100,000 each plus interest at 6% on January 31,2022,2023, and 2024. Kalex did not carry a mortgage on the vacant land but did incur municipal property taxes from the day it acquired the land to the day of sale in the amount of $11,700. No income was earned from the vacant land throughout its ownership, and as a result the municipal property taxes have not been deducted for tax purposes. Selling costs of the land were $8,300. The only adjustment made by the company for this transaction was the addition of an accounting gain of $290,000. The capital gain and accounting gain are determined in the exact same manner and are identical. 6. In late 2019 Kalex acquired a 25% shareholding of Jennco Ltd., an arm's-length "small business corporation"" ness corporation" for $125,000. Kalex had plans to eventually acquire a controling moved in, taking over and combine the two companies, but larger competitive companies manad to sell the shares to the market and the share value began to decline rapidly. Kalex managed to sell the shares tod bankruptcy. an arm's-length investor for $10,000 three months before the company declared bankruptcy. Selling costs were $1,600. Kalex deducted an accounting loss on Jennco never paid any dividends while Kalex owned the shares. 7. The portion of Kalex's taxable income that is considered to be earned in Canada using the formula in section 400 of the ITR is 83.6%. 8. The U.S. business operations resulted in net profits of C$410,000. Kalex paid U.S. taxes on those profits of C\$77,900. The income statement, $332,100 I\$410,000 - $77,900 ). 9. Kalex has no non-capital losses but experienced a net capital loss of $52,000 in 2020 on the sale of share investments. 10. Kalex's active business income in 2021 is $1,815,000,$1,288,000 of which represents its Canadian manufacturing and processing profits eligible for the M\&P credit. 11. Kalex has been associated with one other CCPC since its incorporation in 2019. Both companies have a December 31 taxation year end and have shared the small business limit equally and will continue to do so for 2021. The taxable capital employed in Canada of the associated group in 2020 was $11.0 million and is $12.2 million in 2021. In addition, the adjusted aggregate investment income of the associated group in 2020 was $77,500 and is $92,300 in 2021 . Required: A. Calculate the minimum net income for ITA purposes for Kalex for 2021 with a reconciliation that begins with net accounting income before taxes of $2,481,986. Make all necessary adjustments, including CCA for each class of property together with the UCC balance as of January 1, 2022. Show all supporting calculations. B. Calculate the minimum taxable income for Kalex for 2021. 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 Kalex for 2021. The province of Ontario is one of three provinces and one territory in Canada (Quebec, Saskatchewan, and Yukon are the others) that provides a reduced tax rate for M\&P activity. The determination of the M\&P tion of the federal M\&P deduction is required. calculations, and as a result a separate calcula- D. Assume (1) that the foreign tax credit for foreign business income is equal to the foreign taxes withheld of $77,900 and (2) that the additional refundable tax (ART) is equal to 102/3% for the year ending December 31, 2021. Show all came and Part I federal tax payable for Lorne Inc. to the final solution. As the corporation carries on bulations, whether or not they are necessary establishment and that province provides additional miness in a province through a permanent of the federal M\&P deduction is required. AP 12-10 (Comprehensive Corporate Tax Payable) Kalex Inc, a CCPC, was incorporated in 2019 and selected a December 31 taxation year end. Kalex is a family-owned company with four equal shareholders, all of whom are siblings. The company employs in excess of 50 employees at its head office in Toronto, a further 80 employees at its manufacturing facility in Oshawa, Ontario, and a further 12 employees at its office in Syracuse, New York. The company is primarily involved in the manufacture and sale of storage shelving and pallets. You have been asked to prepare the corporate tax returns for 2021. The company provides you with its financial statements for the year ending December 31, 2021. The financial statements have been prepared using accounting standards for private enterprises (ASPE), which represents the application of generally accepted accounting principles. No attempt has been made to reconcile the net accounting income with net income for ITA purposes. Through your own observations and by asking several questions you have uncovered the following information concerning the 2021 income and expenses of Kalex: 1. Net income for accounting purposes is $2,481,986 after deducting $325,000 of current income tax expenses. 3. Kalex estimates it's doubtful account receivables by applying an historical percentage of 7.5% to accounts that have been outstanding for more than 30 days. At December 31, 2021 those accounts totalled $450,000, resulting in a doubtful debt expense of $33,750[7.5% of $450,000 ). After a detailed evaluation of the accounts you determine that a reasonable reserve that would be acceptable to CRA would be $28,800. The 2020 reasonable reserve claimed was $30,900-no adjustment has been made for this in 2021. 4. On January 1, 2021, Kalex had the following UCC balances: Elections wer a result, the two buildings are in separass 1 buildings to be eligible for additional CCA. As non-residential purposes that is manate classes. The Oshawa building is used 100% for is used exclusively (100%) for non-residenturing while the Toronto headquarters building capital expenditures were made for the tial purposes that is not manufacturing. No the amount of $112,000 were made to Oshawa building, but capital renovations in deducted in the preparation of the inco the Toronto building. This amount has been class represents the capital cost of the bue statement. The amount included in each Class 8 depreciable property represents office furniture and fixtures for the two class 1 bulldings. The original cost when acquired in Juranuary 2019 was $800,000. Kalex was The business leases refurbished office furniture and fixtius out of Niagara Falls. Ontario a round of negotiations and running the numbers, Kalures on long-term leases. After their class 8 property with leased property. Kalex signed has decided to replace all of monthly. In exchange, Kalex will receive $700,000 for all of five-year contract at $4,000 correctly expensed the lease payments in 2021 . The class 10 property is composed of three two-seater delivery vans with extra storage capacity. Each of the three vans cost $75,000. After hearing of the tax incentives for zero-emission vehicles and the expanding network of charging stations, the company each. The vans were purchased on July 2, 2021. zero-emission vans that cost $95,000 trade-in allowance for the three existing vans. The company acquired a 2021 Tesla Model S in early January 2021 for $130,000. The car is used exclusively by the company president. It is estimated that the car is used by the president 40% of the time for company business. Midway through 2019 the company realized that the Oshawa facility lacked the necessary storage space to accommodate its expanding inventory. They reached out to a local developer who agreed to lease the company a warehouse that had sat empty for a few years. A five-year lease was signed with a renewal option for an additional five years. The lease provides that Kalex can make any improvements or renovations it considers necessary but that no payment will be made by the lessor at the end of the lease as compensation for those improvements. The company spent $140,000 on modifications in 2019 and another $150,000 in July 2021. Assume that the expenditures are categorized as class 13. In March 2021 Kalex acquired a client list from a local competitor who was on the verge of closing its doors. The company paid $80,000 for the client list. In May 2021 the company acquired new manufacturing machinery that would double its output at the Oshawa facility. The equipment cost $900,000. Company policy is to claim the maximum CCA it is entitled to in each year. 5. When the company began operations in early 2019 it acquired a vacant lot not far from the Oshawa facility for $150,000. The plan was to eventually build a warehouse, but the company opted to lease a warehouse instead. The company, as part of the leasing arrangement, agreed to sell the land to the lessor for $460,000. The arrangements required the purchaser to pay $175,000 on the closing date, February 1, 2021, with the remainder paid in three equal instalments of $100,000 each plus interest at 6% on January 31,2022,2023, and 2024. Kalex did not carry a mortgage on the vacant land but did incur municipal property taxes from the day it acquired the land to the day of sale in the amount of $11,700. No income was earned from the vacant land throughout its ownership, and as a result the municipal property taxes have not been deducted for tax purposes. Selling costs of the land were $8,300. The only adjustment made by the company for this transaction was the addition of an accounting gain of $290,000. The capital gain and accounting gain are determined in the exact same manner and are identical. 6. In late 2019 Kalex acquired a 25% shareholding of Jennco Ltd., an arm's-length "small business corporation"" ness corporation" for $125,000. Kalex had plans to eventually acquire a controling moved in, taking over and combine the two companies, but larger competitive companies manad to sell the shares to the market and the share value began to decline rapidly. Kalex managed to sell the shares tod bankruptcy. an arm's-length investor for $10,000 three months before the company declared bankruptcy. Selling costs were $1,600. Kalex deducted an accounting loss on Jennco never paid any dividends while Kalex owned the shares. 7. The portion of Kalex's taxable income that is considered to be earned in Canada using the formula in section 400 of the ITR is 83.6%. 8. The U.S. business operations resulted in net profits of C$410,000. Kalex paid U.S. taxes on those profits of C\$77,900. The income statement, $332,100 I\$410,000 - $77,900 ). 9. Kalex has no non-capital losses but experienced a net capital loss of $52,000 in 2020 on the sale of share investments. 10. Kalex's active business income in 2021 is $1,815,000,$1,288,000 of which represents its Canadian manufacturing and processing profits eligible for the M\&P credit. 11. Kalex has been associated with one other CCPC since its incorporation in 2019. Both companies have a December 31 taxation year end and have shared the small business limit equally and will continue to do so for 2021. The taxable capital employed in Canada of the associated group in 2020 was $11.0 million and is $12.2 million in 2021. In addition, the adjusted aggregate investment income of the associated group in 2020 was $77,500 and is $92,300 in 2021 . Required: A. Calculate the minimum net income for ITA purposes for Kalex for 2021 with a reconciliation that begins with net accounting income before taxes of $2,481,986. Make all necessary adjustments, including CCA for each class of property together with the UCC balance as of January 1, 2022. Show all supporting calculations. B. Calculate the minimum taxable income for Kalex for 2021. 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 Kalex for 2021. The province of Ontario is one of three provinces and one territory in Canada (Quebec, Saskatchewan, and Yukon are the others) that provides a reduced tax rate for M\&P activity. The determination of the M\&P tion of the federal M\&P deduction is required. calculations, and as a result a separate calcula- D. Assume (1) that the foreign tax credit for foreign business income is equal to the foreign taxes withheld of $77,900 and (2) that the additional refundable tax (ART) is equal to 102/3%