Walnut Ltd. is a Canadian-controlled private corporation whose fiscal period coincides
with the calendar year. For the year 2021, the company’s taxable income was calculated as follows:
Income from distributing net of CCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $325,900
Wholesale income..............................................................................................$112,000
Consulting Income................................................................................................$58,000
Dividends from taxable corporations:
Eliigible Dividend from a corporation where Walnut Ltd owns 75% of the shares of
the company resulting in a refund for the company of $3,256........... . . . ... . 18,000
Non-eligble from a corporation where Walnut Ltd owns 9% of the shares. . 16,000
Taxable capital gain . . . . . . . . . . . . . . .Note 1. . . . ....................... . . . . . . . . . ..$47,000
Allowable capital losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... . (25,000)
Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26,000
Recapture of CCA on disposal of sales equipment . . . . . . . . . . . . . . . . . . . . 6,000
Income from rental of Warehouse to an associated company which
Earns only active business income.............................. . . . . . . . . . . . . . . . . . 27,000
Interest on Term deposits from Germany net amount after withhold taxes
Deducted of $3,300).Canadian $................ . . . . . . . . . . . . . . . . . . . . . .9,475
Interest on Investments in Bonds from Norway gross amount subject to
Withholding taxes of $2,125......Canadian $..........................................................7,300
Net Foreign business income (foreign tax withheld of $4,000) ... . ... . . . . . . . 9,000
Patent Income........................Note 2......................................................................20,000
Interest charged on accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000

Net income for tax purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... $664,675

1) Taxable capital gains was a result of using excess funds to speculate in the stock market
2) Walnut had no shares own in any of the companies that paid patent income

Walnut had net capital losses carried over from 1999 of $36,000 and non-capital losses carried over
from 2019 of $17,500. The company believed in supporting the community and provided donations to
the united way $51,000 for 2021.

At December 31, 2020, there was a balance of $30,000 and $5,000 for the non-eligible and eligible
refundable dividend tax on hand account respectively. The company subsequently thereafter received a
dividend refunds of $11,000 and $1,500 on the non-eligible and eligible dividends respectively paid out
on their 2020 T2 return. The company paid $125,000 in non-eligible dividends and $40,000 in eligible
dividends during 2021 to individual shareholders.

0975 – Taxation for Canadian
WALNUT had Taxable capital employed in Canada in 2021 $10,500,000.
The company has a permanent establishment in New Brunswick and in the United States. Its gross
revenue, net of dividends and net of rentals, and its salaries and wages are attributed to its permanent
establishments as follows:
Gross Salaries
Revenue & wages
New Brunswick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 989,000 $313,000
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231,000 75,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,220,000 $344,000
In the United States a salesman worked out of his home in which he kept a small stock of merchandise
from which he filled orders.


— REQUIRED
(A) Compute the federal Part I tax and assumed provincial tax at a 12% rate on federal taxable
income payable by the company for 2021. Show in detail the calculation of all deductions in the
computation, using a separate schedule for each special deduction. In calculating the small business
deduction list all ineligible items of income, if any, and indicate the amount of the business limit
available for the subsidiary.

(B) Compute the refundable dividend tax on hand balance as at December 31, 2021, showing, in
detail, your calculations and compute the dividend refund for 2021