Question 2- 50 Marks

BC Enterprises Ltd. is a Canadian-controlled private corporation located in Vancouver, British Columbia. For its fiscal year ended December 31, 2020, the corporation had correctly calculated its income for tax purposes under Division B and some of the federal Part I tax as follows:

Domestic sources

Retail income $ 160,000

Advertising agency loss (80,000)

Rental income from unused warehouse fully rented on a five-year lease 25,000

Retailing income 330,000

Interest on outstanding accounts receivable in retailing business 15,000

Recapture of CCA from sale of fixtures used in retailing business 10,000

Interest income from five-year bonds 20,000

Taxable capital gains net of losses (from active assets) 70,000

Dividends from non-connected taxable Canadian corporations (eligible dividend) 12,000

Foreign sources

Foreign business income in C$ earned through unincorporated branch in

United States before C$11,500 in income tax paid in United States 45,000

Foreign non-business income in C$ before C$6,000 withheld 40,000

Division B net income for tax purposes $647,000

Division C deductions: charitable donations ($12,500 + $3,000) (15,500)

dividends (Canadian-source) (12,000)

non-capital losses (50,000)

net capital losses (14,000)

Taxable income $555,500

Federal tax @ 38% $211,040

Federal abatement (Note 1) (48,000)

Partial Part I tax correctly computed $163,090

Notes with additional information

(1) The corporation has permanent establishments in British Columbia and the state of Washington in the United States. The federal abatement has been correctly computed based on its gross revenue and salary and wages information.

(2) BC Enterprises Ltd. made the following selected payment during the year:

Charitable donations 12,500

(3) Four quarterly dividends of $30,000 (non-eligible dividend) were declared at the end of each quarter of the 2020 fiscal year and were paid within two weeks of their declaration. The dividend for the last quarter of 2020 was paid in January 2021. A dividend of $25,000 (non-eligible dividend)declared in the last quarter of 2019 was paid in January 2020.

(4) BC Enterprises Ltd. had allocated all but $40,000 of its business limit to other associated corporations. Taxable capital does not exceed $10,000,000 within the associated group. The only scientific research and experimental development expenditures of the associated group were made by BC Enterprises Ltd.

(5) The balances in the tax accounts on December 31, 2019 were:

Charitable donation carryforward $ 3,000

Unused business foreign tax credit 3,500

Non-capital losses from 2015 50,000

Net capital losses from 2016 14,000

Refundable dividend tax on hand (Non-eligible Dividend) 20,000

Dividend refund for 2019 (Non eligible Dividend) 9,000

Required:

Determine, by clearly presenting all component parts and their calculations,

1. total federal Part I tax payable for 2020, assuming that the foreign tax credits are equal to the foreign taxes paid, without recalculating the parts of the Part I tax already computed or assumed correctly above, and

1. the amount of the dividend refund for 2020.