Problem 17 ITA: 123-127; 129, 186

Multi Enterprises Ltd. is a Canadian-controlled private corporation whose fiscal period coincides

with the calendar year.It owns 100% Single Enterprise Ltd. For the year 2019, the MEL's

taxable income was calculated as follows:

Income from distributing net of CCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $220,000

Dividends from taxable corporations:

a) connected corporation, dividend payment triggering a dividend refund

from its non-eligible RDTOH of $2,750 to the wholly owned subsidiary

11,000

b) non-connected corporation (portfolio dividends) (eligible) . . . . . . . . . 20,000

Taxable capital gain (non-active) . . . . . . . . . . . . . . . . . . . . . . . . . $29,000

Allowable capital losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 17,000

Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000

Recapture of CCA on disposal of sales equipment . . . . . . . . . . . . . . . . . . . . 4,000

Income from rental of an apartment building (no full-time employees and

tenants provide virtually all of their own services) . . . . . . . . . . . . . . . . . . 20,000

Interest charged on accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000

Net income for tax purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $347,000

The following additional information are follows:

1. At December 31, 2018, there was a nil balance in both the eligible and non-eligible

refundable dividend tax on hand accounts. The company paid $72,000 in non-eligible

dividends during 2019 to individual shareholders.

2. SEL was allocated $150,000 business limit for the current year.

3. For the previous year, MEL 's Adjusted Aggregate Investment Income was $48,000.

4. Taxable Capital employed in Canada by MEL and its associated company was $11,000,000

for current year and $14,500,000 for previous year.

5. The tax attributes have been extracted from the books and records

net capital losses carried over . . . . . . . . . . . . . . . . . . . . . $ 7,000

non-capital losses carried over . . . . . . . . . . . . . . . . . . . . . 10,000

donations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

dividends from taxable Canadian corporations . . . . . . . . . 31,000

6. The company accountant analyzed the accounting records and provided the following tax

related information:

Manufacturing Capital (MC) 180,000

Manufacturing labour (ML) 150,000

Total Capital (TC) 450,000

Total Labour (TL) 300,000

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