Question 2 :

HYLO Inc. is a CCPC and operates an active business.

Required

a. Under Part I of the Income Tax Act, calculate HYLO's 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 minimum Part I and Part IV federal

income tax, refundable dividend tax on hand (RDTOH), and dividend refund (if any)

for the 2022 taxation year (ignore M & P deduction).

HYLO INC.

2022 Financial Information

1. HYLOs net income for accounting purposes for 2022 is summarized as follows:

Income from operation $199,000

Income from subsidiary 100,000

Interest income 1,000

Dividend income 10,000

Gain on sale of assets 40,000

$ 350,000

2. Dividend income of $4,000 (eligible) comes from the investment in the share of a public company.

$6,000 dividend income (non-eligible) is coming from PP Ltd. HYLO also owns 15% of the shares of PP

Ltd., a CCPC operating an active business. In 2022, PP paid a dividend of $40,000. For its year ended

December 31, 2022, PP earned $150,000 of active business income and claimed a dividend refund of

$10,000.

3. HYLO owns 100% of the shares of Little Co. Little was incorporated on January 1, 2022, and in

its first year of operation, it had a business income of $100,000. It claimed SBD on the full amount.

4. A review of HYLO's 2021 corporate tax return provides the following information:

Capital dividend account $ 5,000

RDTOH (eligible) NIL

RDTOH (non-eligible) 2,500

Capital loss carry forward 1,000

Undepreciated capital cost:

Class 1 143,000

Class 10 60,000

5. On January 1, 2022, HYLO sold its existing facility for $215,000 (land $80,000; building $135,000). The

original cost of the property was $200,000 (land $40,000, building $160,000). HYLO moved into leased

premises under a 10-year lease. This lease can be renewed for two 5-year terms at the expiry of original

lease term. The company spent $45,000 on lease hold improvement.

6. On March 1, 2022, company purchased two new delivery trucks for $50,000 and traded its two old

delivery trucks for $35,000 which originally cost $70,000.

7. The income statement for the year ended December 31, 2022 included the following:

Amortization $ 32,600

Advertising expenses 57,850

Reserves for bad debt 19,000

Reserve for potential theft 11,000

Promotion expenses 12,500

Legal and audit Fee 15,000

Other expenses 21,000

Land Scaping 5,000

Advertising expenses included $20,000 paid in advance on Dec 31, 2022, to an advertising agency to

develop a TV commercial for next year. $7,000 was paid to the foreign broadcasting company for

advertising targeting the Canadian market.

Promotion expenses include $5,000 for meals and entertainment to entertain suppliers and $4,000 for

media advertising.

Other expenses included a $6,000 donation is given to a charitable organization, $3,000 for the annual

membership dues of a golf club used for business purposes, and $2,000 paid for acquiring a permanent

customer mailing list for the business.

Legal and audit included $2,000 for the collection of bad debts, $5,000 for negotiating and drafting an

agreement for a long-term loan from a private investor group and $5,500 for audit fees for 2022.

8. On December 31, 2022, HYLO paid its shareholders a non-eligible dividend of $35,000. Use all the

available options to save the taxes on the dividend payment.