Sun Ltd. (Sun), a Canadian-controlled private corporation, owns 12% of the voting

shares of Moon Ltd. (Moon), and this ownership equates to 12% of the fair market value

of all issued shares of Moon. Both Sun and Moon earn active business income and

investment income, and their year ends are December 31. Moon paid a non-eligible

dividend of $30,000 in March 2020, and at December 31, 2020 the balance in it's

non-eligible refundable dividend tax on hand account was $10,000. Moon does NOT

have a balance in its eligible refundable dividend tax on hand account.

Required:

a) Explain whether Sun Ltd. and Moon Ltd. are connected corporations. (2 marks)

b) Determine the tax consequences for Moon Ltd. for the year ended

December 31, 2020, and provide support for your responses. (2 marks)

c) Determine the tax consequences for Sun Ltd. for the year ended

December 31, 2020, and discuss the tax consequences of Part IV tax. (1 mark)