In 2020, Tandiwe Okara was employed as an Associate Engineer at Rocky Coast Environmental Ltd (RCEL). During her employment tenure, she also began doing some environmental engineering consulting work for her condominium strata. At first, her work focused on ways the strata could reduce waste and upcycle materials from condo residents; however, the more research she came across, a gap in services to condominium owners and the availability of climate friendly solutions for waste and upcycling of materials became evident. Given this, Tandiwe pursued her consulting work after hours in 2020. Tandiwes consulting activity gained momentum and is rapidly scaling up. On January 1, 2021 Tandiwe quit her job at RCEL and invested 100% of her time growing her consulting business. One of Tandiwes bigger contracts included creating climate friendly building designs for the City of Vancouvers Engineering Department. Since then, she was advised through colleagues that incorporating her operations would be a better way to organize her future business activities and a reduce taxes. Tandiwe did not have time to investigate the advantages and disadvantages of incorporating for tax purposes but trusted her colleagues advice. On January 1, 2021, Tandiwe incorporated her Canadian Controlled Private Corporation business in British Columbia as Upcycled Solutions Ltd (USL) of which Tandiwe is the sole shareholder. After her first year of business in 2021, Tandiwe 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. Based on USLs 2022 net income for tax purposes and the information you have available, Tandiwe 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 USLs operations into a proprietorship. Tandiwe engaged you to assist her in determining USLs 2022 corporate tax payable/(refundable) and provide advice on certain other tax matters. Her business activity can be found in Exhibit 1 (attached). USL recently received several similar contract opportunities in Finland and will begin work on those when the COVID-19 pandemic eases and the international border opens for less restricted physical travel. Tandiwe is excited about growing her business over the next five years and may need to live in Finland 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 USL. Using the legislation in place as at June 23, 2021, perform the required: a. Under Part I of the Income Tax Act, calculate Upcycled Solutions Ltds (USL) minimum net income for tax purposes and minimum taxable income for the 2022 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 2022 taxation year. c. Prepare any specifically requested summaries for Tandiwe. ______________________________________________________________________________ Exhibit 3-1 2022 Financial Information 1. USLs income for accounting purposes for 2022 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. USL owns an 8% share of BIS. For its year ended December 31, 2022, 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 USLs December 31, 2021, corporate tax return provides the following information: Capital dividend account $ 20,000 Non-capital loss 5,000 NERDTOH 5,000 Undepreciated capital cost (UCC): 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 April 2022, USL sold its only building for $490,000 (land $140,000; building $350,000) and leased a new facility. USL acquired this building in 2021 at a cost of $400,000 (land $100,000; building $300,000). USL 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 2022, USL sold all its display fixtures for $15,000 (original cost $30,000). New fixtures were temporarily lent by a supplier. 6. On June 1, 2022, USL sold an automobile for $20,000. The vehicle was purchased in 2021 for $45,000. On the same day, the company leased a new automobile for Tandiwe, to be used for company business. Total lease payments in 2022 were $8,400. 7. On August 1, 2022, USL 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. USL paid a life insurance premium of $1,000 on Tandiwes life. This life insurance policy is held as collateral for a bank loan. 9. During the year, USL expensed $5,500 by creating an estimated warranty reserve of $3,500 and a reasonable bad debt reserve of $2,000. 10.USL 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 Tandiwes assistants airline tickets. This amount included $500 for a ticket for his spouse, who accompanied him during one of the 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 audit fee, and $500 for preparing minutes for directors and shareholders meetings. 13.Depreciation expenses was $17,000. 14.On December 31, 2022, USL paid a dividend of $9,000 to Tandiwe