Question 1

With respect to GRIP and LRIP balances, which of the following statements is correct?

Accepted Answer

The GRIP (General Rate Income Pool) account is used by Canadian-Controlled Private Corporations (CCPCs) to track the balance of income that has been taxed at the general corporate tax rate, which can then be used to pay out eligible dividends.

Question 2

Marion Fox has investments that generate interest income of $172,000 each year. She also has employment income in excess of $250,000 per year. This places her firmly in the top tax bracket, with a combined federal provincial rate of 53 percent.
She is considering transferring her interest bearing investments to a newly incorporated CCPC on January 1, 2020. In her province, the combined federal/provincial rate on the investment income of CCPCs is 50 percent. All of the corporation's income would be paid out as non-eligible dividends. The provincial dividend tax credit rate on non-eligible dividends is 35 percent of the gross up.
Advise Marion as to whether there would be any tax benefits associated with this transfer.

Accepted Answer

The answer of Marion Fox has investments that generate interest...

Question 3

At the end of 2019, Gomez Inc., a CCPC, has a GRIP of $53,400. For 2020, the Company has Taxable Income of $143,000. This includes aggregate investment income of $19,000. In addition, the Company receives eligible dividends of $12,300. In calculating 2020 Tax Payable, the Company has a small business deduction of $16,150. During 2019, the company paid dividends of $42,000 with $13,700 of the dividends designated as eligible.
Dividends paid during 2020 total $51,000, with $18,400 of this amount being designated as eligible. What is the amount of the Company's GRIP at the end of the 2020 taxation year?

Accepted Answer

The correct answer is A.The GRIP at the end of 2020 is $80,080. This is calculated as follows:GRIP at the end of 2019: $53,400Add: Taxable income for 2020: $143,000Less: Eligible dividends received in 2020: $12,300Less: Small business deduction for 2020: $16,150Less: Dividends paid in 2020: $51,000Add: Eligible dividends paid in 2020: $18,400GRIP at the end of 2020: $80,080

Question 4

Starfare Ltd. is a Canadian controlled private corporation. During the taxation year ending December 31, 2020, the Company has the following amounts of property income:  The Company's 2020 Net Income For Tax Purposes is $232,350. The Company has available a net capital loss carry forward of $24,000 [(1/2)($48,000)], which is deducted from Taxable Income. A $14,250 small business deduction and a foreign non-business tax credit of $1,600 served to reduce Tax Payable. Assume that the Company's Part I Tax Payable has been correctly determined to be $37,133. Determine the refundable amount of Part I tax for the year ending December 31, 2020.

Accepted Answer

The answer of Starfare Ltd. is a Canadian controlled private...

Question 5

Elm Inc. is a Canadian controlled private corporation. During the taxation year ending December 31, 2020, the Company has the following amounts of property income:  The Company's 2020 Net Income For Tax Purposes is $458,000. In calculating Taxable Income, the Company deducted a $45,000 net capital loss carry forward.
In calculating Tax Payable, the Company deducted a small business deduction of $23,750 and a foreign non-business tax credit of $4,000. The Tax Payable has been correctly determined to be $71,607.
Determine the refundable amount of Part I tax for the year ending December 31, 2020.

Accepted Answer

The answer of Elm Inc. is a Canadian controlled private...

Question 6

Barnum Ltd. is a CCPC with a December 31 year end. For the 2020 taxation year, the Company has a Net Income For Tax Purposes of $436,000. This is made up of active business income of $256,000, dividends from taxable Canadian corporations of $61,000, taxable capital gains of $85,000, and interest income on long-term investments of $34,000. In filing its 2020 tax return, the company will deduct a non-capital loss carry forward of $163,000, and a net capital loss carry forward of $47,000. Barnum is associated with one other company and they have agreed to split the annual business limit on a 50/50 basis.
In 2019, Barnum's Taxable Capital Employed in Canada was less than $10 million, and its ADJUSTED Aggregate Investment Income was less than $50,000.
Determine Barnum's Taxable Income and its additional refundable tax on investment income for the 2020 taxation year.

Accepted Answer

The answer of Barnum Ltd. is a CCPC with a...

Question 7

Saxon Company is a CCPC that began operations on January 1, 2019. It has adopted a December 31 year end.
During 2019, the Company received eligible dividends of $45,000 and designated $40,000 of the dividends it paid as eligible. On December 31, 2019, the balance in the Company's GRIP account was $45,000.
For 2020, Saxon has Taxable Income of $726,000. Included in this amount is $18,000 of interest income, taxable capital gains of $22,000, and the deduction of a net capital loss of $18,000. Also during that year, the Company received eligible dividends of $36,000. In determining the 2020 Tax Payable, the Company has a small business deduction of $66,500. During 2020, Saxon pays dividends of $48,000, with $21,000 of this amount being designated as eligible.
Determine the Company's GRIP balance at the end of 2020.

Accepted Answer

The answer of Saxon Company is a CCPC that began...

Question 8

Axco Inc. is a CCPC with a December 31 year end. Axco is not associated with any other company. For the 2020 taxation year, its Net Income For Tax Purposes is equal to $342,000. This is made up of active business income of $226,000, dividends from taxable Canadian corporations of $31,000, taxable capital gains of $51,000 and interest income on long-term investments of $34,000. The Company has available a net capital loss carry forward of $32,000 [(1/2)($64,000)] and a non-capital loss carry forward of $29,000. The Company intends to deduct both of these carry forwards in the 2020 taxation year.
In 2019, Axco's Taxable Capital Employed in Canada was less than $10 million, and its ADJUSTED Aggregate Investment Income was less than $50,000.
Determine Axco's Taxable Income and its additional refundable tax on investment income for the 2020 taxation year.

Accepted Answer

The answer of Axco Inc. is a CCPC with a...

Question 9

Patrick Innes has a business that he estimates will produce income of $130,000 per year. If he incorporates this business in 2020, all of the income would be eligible for the small business deduction and all dividends paid would be non-eligible. In the province where he lives, such corporate income is taxed at a combined federal/provincial rate of 14 percent. Mr. Innes has other income sources that place him in a combined federal/provincial tax bracket of 42 percent. In his province, the provincial dividend tax credit for non-eligible dividends is equal to 20 percent of the gross up.
Would Mr. Innes save taxes if he was to channel this source of income through a corporation? Explain your result.

Accepted Answer

The answer of Patrick Innes has a business that he...

Question 10

Blackwood Inc. is a Canadian controlled private company. It has two subsidiaries. Information related to these subsidiaries is as follows:
Whitewood Ltd. - Blackwood owns 65 percent of Whitewood Ltd. During 2020, Whitewood paid total dividends of $100,000. Whitewood received a dividend refund of $20,000 as a result of paying these dividends.
Redwood Inc. - Blackwood owns 100 percent of Redwood Inc. During 2020, Redwood paid total dividends of $72,000. No dividend refund was received as a result of paying these dividends
In addition to the dividends received from subsidiaries, Blackwood received $35,000 in dividends from various portfolio investments. Determine the amount of Part IV Tax Payable by Blackwood Inc. as a result of receiving these dividends.

Accepted Answer

The answer of Blackwood Inc. is a Canadian controlled private...

Question 11

Match between columns
                        Premises: Excessive Eligible Dividend Designation
Portfolio Dividend
Non-Eligible RDTOH
Aggregate Investment Income
General Rate Income Pool
Additional Refundable Tax On Investment Income
Integration
Part IV Tax

Accepted Answer

The Answer of A notional account that tracks amounts of is...

Question 12

Simard Ltd., a CCPC, had no GRIP balance at its year end on December 31, 2018. During 2019, the Company received eligible dividends of $37,000 and designated $23,000 of its dividends paid as eligible. At the end of 2019, Simard has a GRIP of $37,000.
For 2020, Simard has Taxable Income of $476,000. This amount includes taxable capital gains of $14,000, interest income on long-term bonds of $7,000, and a net capital loss deduction of $14,000. In addition, the Company receives eligible dividends during the year of $17,000. In determining 2020 Tax Payable, the Company has a small business deduction of $76,000. During 2020, Simard Ltd. pays dividends of $25,000, with $18,000 of this amount being designated as eligible.
Determine the Company's GRIP balance at the end of 2020.

Accepted Answer

The answer of Simard Ltd., a CCPC, had no GRIP...

Question 13

A non-CCPC has an LRIP balance of $78,000 at the end of the 2019 fiscal year. In 2020, the company wishes to pay a dividend of $250,000. During 2020, prior to the payment of the dividend, the company receives eligible dividends of $35,000 and non-eligible dividends of $85,000. How much of the $250,000 dividend must be paid as a non-eligible dividend before an eligible dividend can be designated?

Accepted Answer

The company must pay out the LRIP balance of $78,000 as a non-eligible dividend before designating any dividends as eligible. Therefore, the remaining amount to be paid as non-eligible dividend is $250,000 - $78,000 = $172,000.

The non-eligible dividends received during the year ($85,000) can be used to offset the non-eligible dividend paid out, leaving a balance of $87,000 to be paid as non-eligible dividend.

Therefore, the company must pay $87,000 as non-eligible dividend, and the remaining $163,000 can be designated as eligible.

Thus, the best choice is C.

Question 14

Janice Huber has a business that she estimates will produce income of $75,000 per year. Because she controls another corporation that fully utilizes $500,000 of its small business deduction, if she incorporates this business, none of this income will be eligible for the small business deduction and any dividends paid would be designated eligible. In the province where she lives, such corporate income is taxed at a combined federal/provincial rate of 28 percent. Ms. Huber has other income sources that place her in a combined federal/provincial tax bracket of 46 percent. In her province, the provincial dividend tax credit for eligible dividends is equal to 32 percent of the gross up.
Would Ms. Huber save taxes if she was to channel this source of income through a corporation? Explain your result.

Accepted Answer

The answer of Janice Huber has a business that she...

Question 15

Florence has a business that she estimates will produce income of $100,000. She is planning to incorporate this business in 2020, and if she does, none of the income will be eligible for the small business deduction because she controls a corporation that fully utilizes the $500,000 small business deduction. As a result, all dividends paid will be designated eligible. In her province, such corporate income is taxed at a combined federal/provincial rate of 29 percent. Florence has income from other sources that will result in any additional income being taxed at a combined federal/provincial rate of 43 percent. The provincial dividend tax credit rate on eligible dividends is equal to 29 percent of the gross up.
Would Florence save taxes if she was to channel this source of income through a corporation? Explain your result.

Accepted Answer

The answer of Florence has a business that she estimates...

Question 16

Match between columns
                        Premises: Part IV Tax
Integration
General Rate Income Pool
Excessive Eligible Dividend Designation
Additional Refundable Tax On Investment Income
Portfolio Dividend
Aggregate Investment Income
Non-Eligible RDTOH

Accepted Answer

The Answer of A dividend received from a corporation to is...

Question 17

Overton Ltd. is a Canadian controlled private corporation. During 2020, the Company received the following amounts of dividends:  Overton Ltd. owns 100 percent of the voting shares of Saston Inc. and 40 percent of the voting shares of Raston Inc. The fair market value of the Raston Inc. shares equals 40 percent of the fair market value of all Raston Inc. shares. As a result of paying the $90,000 dividend, Raston Inc. received a dividend refund of $25,000. Saston Inc. received no dividend refund for its dividend payment.
Determine the amount of Part IV Tax Payable by Overton Ltd. as a result of receiving these dividends.

Accepted Answer

The answer of Overton Ltd. is a Canadian controlled private...

Question 18

Mr. Marcus Fisher has investments that generate interest income of $94,000 per year. Because of his employment income, he is in the top tax bracket, with a combined federal/provincial rate of 52 percent. He is considering the transfer of these investments on January 1, 2020, to his CCPC which would be subject to a tax rate on investment income of 51 percent. The dividend tax credit in his province is equal to 30 percent of the gross up. Any dividends paid by the CCPC out of investment income will be non-eligible. Advise him as to whether there would be any tax benefits associated with this transfer.

Accepted Answer

The answer of Mr. Marcus Fisher has investments that generate...

Question 19

Nashwa has a business that she estimates will produce annual income of $100,000. She is planning to incorporate this business in 2020, and if she does, all of the income will be eligible for the small business deduction and all dividends paid will be non-eligible. In her province, such corporate income is taxed at a combined federal/provincial rate of 15 percent. Nashwa is taxed at a combined federal/provincial rate of 43 percent. The provincial dividend tax credit rate for non-eligible dividends is equal to 29 percent of the gross up.
Would Nashwa save taxes if she was to channel this source of income through a corporation? Explain your result.

Accepted Answer

The answer of Nashwa has a business that she estimates...

Quiz 13: Taxation of Corporate Investment Income

With respect to GRIP and LRIP balances, which of the following statements is correct?

For each of the key terms listed, indicate the BEST definition of that term, or that none of the definitions apply.

For each of the key terms listed, indicate the BEST definition of that term, or that none of the definitions apply.