Question 1

The following diagram depicts the ownership structure of two CCPCs. Bob Ligh is Lisa Light's son. Sarah Paint and Alan Canvas are not related to Bob and Lisa in any manner, what-so-ever. All of the shares held are common.
  Required: 
A) Determine if the two companies are associated, referring to the applicable section of the Income Tax Act.
B) Briefly explain what the most significant tax implication is when two or more corporations are associated.

Accepted Answer

A) The two corporations are associated as defined by paragraph 256(1)(c) of the ITA.
Each corporation is controlled by one person, and the two people are
related, and one of the people, Lisa Light, owns not less than 25% of the shares of either corporation.
B) The associated companies will have to share the small business deduction.

Question 2

There are several benefits to incorporating a business. Some of those benefits are:

Accepted Answer

Incorporating a business offers benefits like timing dividend income, potential capital gains deductions, and lower tax rates on active business income under $500,000.

Question 3

Corporation X had an RDTOH balance of $15,000 at the end of 20X0, and the dividend refund to the company that year was $7,000. The company's Part IV tax for 20X1 is $8,000. The company's active business income is $475,000 and its taxable income is
$410,000. Corporation Y, which is associated with Corporation X, was allocated
$125,000 of the small business deduction in 20X1. Corporation X's aggregate
Investment income was $50,000 in 20X1. Part I tax for 20X1 was $60,000. What is the RDTOH balance at the end of 20X1? (Round all numbers)

Accepted Answer

The RDTOH balance at the end of 20X1 is $26,735. This is calculated as follows:Beginning RDTOH balance: $15,000Add: Dividend refund: $7,000Less: Part IV tax: $8,000Less: Part I tax: $60,000Add: Small business deduction allocated from Corporation Y: $125,000Less: Aggregate investment income: $50,000Ending RDTOH balance: $26,735

Question 4

Which of the following types of corporate income are subject to the special refundable tax of 10 2/3%, and a tax reduction of 30 2/3% upon distribution of the income to shareholders?

Accepted Answer

Specified investment income and taxable capital gains are subject to the special refundable tax and the tax reduction upon distribution to shareholders.

Question 5

Which of the following scenarios does not describe two associated corporations (in a de jure context)?

Accepted Answer

Mr. and Mrs. Field do not have any ownership interest in Brown Co.

Question 6

Beans Co. is a Canadian-controlled private corporation with a December 31
year-end. The company had profits of $200,000 during the year. Of this amount,
$15,000 was from dividend income received from a taxable Canadian corporation. The remaining income was from active business.
Additional information:
The dividends were received from Grow Ltd., a connected Canadian-controlled private corporation. Grow has only one class of shares, and the total amount of dividends paid was $50,000. Grow received a refund of $9,000 as a result of
paying the dividend.
Beans Co. had a balance in its Refundable Dividend Tax on Hand Account of
$3,000 at the end of the previous year.
Beans Co. is associated with Peas Co. which used $220,000 of the small business deduction limit this year.
The profits include a donation expense of $1,000.
Amortization of $30,000 was expensed during the year. CCA has been correctly calculated at $28,500 and has not been transferred from the tax accounts to the
financial statements. Beans utilizes the maximum CCA deduction each year. Required:
A) Calculate the small-business deduction for Beans Co. for the current fiscal year.
B) Calculate the Part IV Tax for Beans Co. for the current fiscal year.

Accepted Answer

The answer of Beans Co. is a Canadian-controlled private corporation...

Question 7

Private Co. received a $5,000 dividend from Public Co., which is a non-connected corporation. Which of the following applies?

Accepted Answer

The answer of Private Co. received a $5,000 dividend from...

Question 8

Chartered Tours Inc. (CTI) started operations this year and had a net income for tax purposes of $800,000. (Chartered Tours Inc. operates in a province which ha a provincial tax reduction on income earned from manufacturing and
processing.)
During the year, CTI:
a) made a contribution of $25,000 to eligible charities;
b) received $30,000 in dividends from taxable Canadian corporations;
c) recognized manufacturing and processing profits of $250,000; and
d) had active business income of $770,000.
For tax purposes, CTI is associated with Rocky Mountain Hikers Inc. (RMHI).
RMHI used $310,000 of the small business deduction for its active business income.
Required:
Calculate the following, ignoring provincial taxes:
a) CTI's taxable income
b) CTI's small business deduction
c) The M & P deduction available to CTI
d) CTI's general rate reduction
e) The balance in CTI's GRIP account at the end of the year

Accepted Answer

The answer of Chartered Tours Inc. (CTI) started operations this...

Quiz 13: The Canadian-Controlled Private Corporation

There are several benefits to incorporating a business. Some of those benefits are:

Which of the following types of corporate income are subject to the special refundable tax of 10 2/3%, and a tax reduction of 30 2/3% upon distribution of the income to shareholders?

Which of the following scenarios does not describe two associated corporations (in a de jure context) ?

Private Co. received a $5,000 dividend from Public Co., which is a non-connected corporation. Which of the following applies?