x Software Assignment Problem $-$ Chapter $14$

Tax Software AP $14-1$

RadionFaux Industries Ltd$.($RIL$)$ is a Canadian controlled private corporation $($CCPC$)$ situated at $123$

ABC Street in Ottawa, Ontario, K$4$E $1$A$1.$ Its Ontario corporation tax account number is $1234567.$ Its phone

number is $(613)111-1111.$ It was incorporated on February $24,1991,$ in Ontario.

$($The government$$s Crown copyright does not permit us to use fabricated business numbers in software

problems. To reduce the number of ProFile error messages because of this, enter NR $($for not registered$)$

in the Business Number field on the$$Info$$ form.$)$

The company has $1,000$ shares of common stock issued and outstanding, all of which are owned by the

only company shareholder Ms$.$ Margaret Ottawa $($SIN $527-000-301).$

Ms$.$ Ottawa, the president and director of the company, is the person who should be contacted with

respect to matters concerning the company$$s books and records. She is the authorized person as well as

the signing officer.

RIL is a retailer of pet supplies. All of its sales occur within Canada. It has net assets of $$235,000$ on

December $31,2022.$ This includes a few investments that Ms$.$ Ottawa inherited from her father two years

earlier.

RIL owns all of the $500$ common shares of OttawaFaux Inc., which owns most of the investments Ms$.$

Ottawa inherited from her father. The common shares have a book value of $$1,200,000.$ OttawaFaux

Inc. has the same location and phone number as RIL OttawaFaux Inc. also has a calendar based

taxation year $($January $1$ to December $31).$ Enter NR $($for not registered$)$ in the appropriate Business

Number field for OttawaFaux Inc.

OttawaFaux Inc. is also involved in earning active business income through the breeding and sale of

championship dogs. It has total assets of $$2,000,000$ and total revenues for $2022$ of $$200,000.$ Its

taxable capital employed in Canada was $$350,000$ as at December $31,2021,$ and $$365,000$ as at

December $31,2022.$

The following information applied to RIL:

Other Issues in Corporate Taxation

Tax Software Assignment Problem

Note $2$ As a result of paying this $$42,000$ in dividends to RIL, OttawaFaux Inc. received

a dividend refund of $$14,000$ from its non$-$eligible RDTOH.

Note $3$ On March $23,2022,$ RIL sold $2,700$ shares of Canadian Imperial Bank

of Commerce. The common shares had cost $$118,800$ on June $6,2019,$ and were

sold for $$145,800.$

Other Information:

$1.$ Expenses include a deduction for charitable donations to the Ottawa Civic Hospital in the

amount of $$5,000.$

$2.$ RIL$$s expenses include penalties of $$3,500$ under the Income Tax Act resulting from a

judgment in the Tax Court of Canada.

$3.$ RIL reimbursed Ms$.$ Ottawa $$34,000$ for business meals and entertainment for clients and

suppliers during the year.

$4.$ During the year, RIL incurred $$20,000$ in landscaping costs. For accounting purposes these are

being treated as a capital expenditure, to be amortized using the straight$-$line method over $10$

years. The related amortization is included in the amortization expense of $$122,000$ shown on

the income statement.

$5.$ The opening UCC balances as of January $1,2022$ were $$246,000$ for class $1,$ $$135,000$ for class

$8,$ and $$90,000$ for class $10.$ The only disposition during the year was the sale of one of its delivery

trucks. The

truck had cost $$35,000$ and was sold for its carrying value of $$12,000.$ The only acquisition was an

arm$$s$-$length purchase of $$52,000$ in office furniture on April $1,2022.$

$6.$ In $2022,$ RIL paid taxable dividends of $$92,000.$ Of these dividends, $$25,000$ were desig$-$nated

as eligible. On September $1,2022,$ RIL also elects to pay the maximum capital divi$-$dend

allowable.

$7.$ RIL allocates $$60,000$ of the annual business limit to OttawaFaux Inc. This is $$5,000$ more than

OttawaFaux Inc. can use in $2022,$ but RIL cannot use the excess.

$8.$ RIL paid quarterly income tax instalments of $$8,000$ each on the $20$th of March, June, Septem$-$ber,

and December in $2022.$

$9.$ RIL has a website describing the products it carries, but no income is generated from the

website.

$10.$ Assume that the adjusted aggregate investment income $($AAII$)$ of both companies is nil at the end

of the $2021$ taxation year.

$11.$ Assume that RIL and OttawaFaux Inc will split the immediate expense limit $50-50$ for $2022.$

Required: Prepare the federal corporate income tax return for RIL for the $2022$ taxation

year using the ProFile T$2$ corporate software program. Determine the eligible and non$-$eligible

RDTOH and comment on whether the designation of $$25,000$ of eligible dividends was a good

idea. If not, indicate the designation that you would have made. On the ProFile schedule titled

$$Info$,$ the Filing question $$Complete return from GIFI?$$ is answered Yes by default; click

No$.$ Ignore the GIFI requirements except as follows:

On GIFI Schedule $125$:

$$ Input the total revenues less the gain on sale of shares $($$$580,000)$ on the line $$Total Sales

of Goods and Services$($Code $8000).$ Code $8091$ is selected for the foreign interest of

$$20,000,$ Code $8094$ is selected for the Canadian source interest of $$2$