Question 3 Business income 25 marks

You have been provided the following information from your client; a corporation called XYZ Limited.

Required: Calculate the total business income for tax purposes for XYZ Limited for 2020. I would suggest preparing this in excel (do not copy and paste in word). Use supporting notes (1,2, 3, or a, b, c, etc.) for the following:

• Support each item included in your business income calculation.
• Support each item omitted from your business income calculation.
• When supporting your items ensure you are specific as to whether the item is from the ITA or from a CRA Administrative document (i.e. Folio or Guide).

XYZ Limited
Income Statement
For the year ended December 31, 2020
Sales	$98,700,000
Cost of Goods Sold	$32,500,000
Gross Profit	$66,200,000
General and administrative expenses (Notes a-e)	$11,200,000
Selling expenses (Note f)	$15,644,000
Income from operations	$39,356,000
Other income (Notes g-j)	$25,000
Provision for income taxes (accounting)	$10,320,000
Net income	$29,011,000

The following detailed information has also been provided:

1. The professional and legal fees account included the following items:

Cost incurred to renegotiate the company bank loans	$15,000
Appraisal costs to determine the value of a machine (used as collateral) for a bank loan	$2,500
Cost incurred to defend the company against a wrongful dismissal	$75,000
Legal and accounting fees to issue shares	$12,000

2. The following is a breakdown of the amounts paid by XYZ Ltd. towards insurance for its employees:

$1,000,000 insurance policy on the life of the president included in insurance: expense ($200 per month)	$2,400
Group term life insurance for employees included in salaries and benefits ($6,250 x 12 months)	$2,500

XYZ Ltd. is the beneficiary of the policy on the president. That policy is used as collateral on the bank loan. This is because the president plays a significant role in the success of the XYZ Ltd. business. The premiums on the policy are equal to the net cost of the insurance for the policy.

3. XYZ Ltd. made significant repairs to the outside of the building for a total cost of $50,000. Of that amount, $10,000 relates to landscaping costs.
4. Also included in general and administrative expenses were the following costs:

Interest on late payment of municipal taxes	$2,500
Loss from theft by the payroll clerk	$10,000
Donations to various registered charities	$10,000
Political contributions	$10,000
Amortization	$134,000

5. A total of $9,700 was included in the financial statements as amortization of a bond discount for bonds issued three years ago.

6. The selling expenses account included the following items:

Sponsorship costs local events	$1,000
Meals/entertainment costs of salespeople	$210,000
Membership for salespeople at local golf courses	$15,000
Staff holiday party and summer barbecue	$2,500
Basketball tickets given to clients	$9,500

7. During the year XYZ Ltd. sold some of its capital assets for a loss of $75,000.

8. A total of $11,500 was incurred to organize financing for the bank loan.

Other relevant information:

1. Capital cost allowance for the year was $74,000.

10. A total of $144,000 in management bonuses have been accrued for in the financial statements. They were paid on June 15, 2021.