Question 1

For integration to work properly for a CCPC whose income qualifies for the small business deduction, the combined federal/provincial tax rate on corporations must be equal to 20 percent, while the combined federal/provincial dividend tax credit must be equal to two-thirds of the gross up.

Accepted Answer

The integration principle aims to ensure that income earned through a corporation and then distributed as dividends is taxed at the same rate as if it were earned directly by an individual. The specific rates for corporate tax and dividend tax credits can vary by jurisdiction and do not have to be exactly 20 percent and two-thirds, respectively, for integration to work properly.

Question 2

A major goal of integration is to ensure that, if an individual has a given income source, he will retain the same after tax amount of cash from that source, without regard to whether he receives the income directly or, alternatively, the income is routed through a corpora- tion prior to his ultimate receipt of the after tax amount.

Accepted Answer

This statement accurately reflects one of the goals of integration, which is to ensure that taxpayers are not disadvantaged by receiving income through a corporation instead of directly. By using integration, the tax system attempts to provide equal treatment for all taxpayers regardless of the form in which they receive their income.

Question 3

During the current year, Loner Ltd.has a business loss of $250,000, net taxable capital gains of $45,000, an Allowable Business Investment Loss of $15,000, and receives divi- dends from taxable Canadian corporations in the amount of $35,000.What is the amount of the non-capital loss for the year?

Accepted Answer

The non-capital loss is calculated by subtracting net taxable capital gains and adding allowable business investment loss to the business loss: $250,000 - $45,000 + $15,000 = $220,000. Dividends do not affect the non-capital loss calculation.

Question 4

Which of the following items cannot be deducted in the determination of Taxable Income for a corporation?

Accepted Answer

The lifetime capital gains deduction is a deduction available only to individuals and cannot be claimed by corporations. The other items listed can be deducted in the determination of taxable income for a corporation.

Question 5

With respect to the determination of Tax Payable for a corporation, which of the following statements is not correct?

Accepted Answer

The answer of With respect to the determination of Tax...

Question 6

With respect to foreign business tax credits for corporations, which of the following state- ments is not correct?

Accepted Answer

The answer of With respect to foreign business tax credits...

Question 7

Giganto Inc.is a CCPC that is not associated with any other company.As determined by ITR 5200, Giganto Inc.has M&P profits of $575,000, with all of this amount being Cana- dian source active business income.Its total Net Income For Tax Purposes is $625,000, with the additional $50,000 being foreign source business income.The foreign govern- ment withheld 10 percent of this amount which is equal to the foreign business income tax credit.In determining Taxable Income, Giganto deducted a non-capital loss carry for- ward of $75,000.What is Giganto's M&P deduction for the year?

Accepted Answer

The answer of Giganto Inc.is a CCPC that is not...

Question 8

The federal tax abatement is always equal to 10 percent of a corporation's Taxable In- come.

Accepted Answer

The federal tax abatement is not always equal to 10 percent of a corporation's taxable income. It depends on various factors such as the type of business, deductions, and credits.

Question 9

The 17 percent small business deduction is only available on:

Accepted Answer

The answer of The 17 percent small business deduction is...

Question 10

For purposes of calculating the small business deduction, interest revenue can never be included in active business income.

Accepted Answer

Interest revenue can be considered as active business income in certain circumstances, such as when it is earned from financing sales to customers or providing loans to clients in the regular course of business.

Question 11

With respect to the determination of Tax Payable for a corporation, which of the following statements is correct?

Accepted Answer

The general rate reduction is a percentage that reduces the federal corporate income tax rate. It is applied to the full rate taxable income before provincial or territorial taxes are calculated. Therefore, statement B is correct.

Statement A is incorrect as provincial tax rates vary by province and are not necessarily based on a percentage of federal Tax payable.

Statement C is incorrect as the federal tax rate varies depending on the type of income earned by the corporation.

Statement D is incorrect as the federal tax abatement is a fixed amount of $500,000, not a percentage of taxable income.

Question 12

With respect to charitable donations made by a corporation, which of the following state- ments is correct?

Accepted Answer

Charitable donations made by a corporation are deductible in the determination of corporate taxable income, but not in the determination of corporate net income. Once corporate taxable income has been determined, it is multiplied by the relevant tax rate to arrive at tax payable. The deduction for charitable donations creates a lower taxable income, which results in a lower tax payable. The amount of contributions that can be deducted is limited to a percentage of the corporation's net income for tax purposes, which varies depending on the type of charity and the province the corporation is located in. These contributions cannot be carried back, but they can be carried forward for up to five years.

Question 13

The base used for calculating the M&P deduction is reduced by the amount of the small business deduction.

Accepted Answer

The answer of The base used for calculating the M&P...

Question 14

For integration to work properly, the combined federal/provincial dividend tax credit must be equal to the gross up.For eligible dividends, this will occur in 2011 when the pro- vincial dividend tax credit rate is equal to 10/23 of the gross up.

Accepted Answer

This statement is true. For integration to be effective, the combined federal and provincial dividend tax credit must offset the gross up. In the case of eligible dividends, this will happen when the provincial dividend tax credit rate is equal to 10/23 of the gross up, which is expected to occur in 2011.

Question 15

The Part I refundable tax procedures are designed to prevent deferral of taxes on income from investments that have been transferred to a corporation by an individual.

Accepted Answer

The Part I refundable tax procedures were introduced to prevent taxpayers from avoiding or deferring tax on income from investments transferred to a corporation by an individual. The refundable tax rules require that a private corporation pay a higher rate of tax on passive income earned from investments and receive a refund of the excess tax paid when the corporation pays dividends to its shareholders. This ensures that shareholders are subject to tax on the passive income earned through the corporation.

Question 16

With respect to foreign non-business tax credits for corporations, which of the following statements is correct?

Accepted Answer

The answer of With respect to foreign non-business tax credits...

Question 17

When dividends are paid by one taxable Canadian corporation to another taxable Cana- dian corporation, the recipient corporation will include the dividends in:

Accepted Answer

Dividends received by a taxable Canadian corporation from another taxable Canadian corporation are included in Net Income For Tax Purposes but are generally deductible in computing Taxable Income, thus not included in Taxable Income.

Question 18

A corporation's non-business foreign income tax credit is limited to 15 percent of foreign non-business income earned.

Accepted Answer

A corporation's non-business foreign income tax credit is generally limited to the amount of foreign taxes paid or accrued on that income, not a percentage of the income earned. However, there are limitations and restrictions to the foreign tax credit calculation.

Question 19

Which of the following statements with respect to the general rate reduction for corpora- tions is not correct?

Accepted Answer

The statement that the general rate reduction is not available to Canadian Controlled Private Corporations (CCPCs) is not correct. CCPCs are eligible for a lower tax rate on their active business income, called the small business deduction, which is not affected by the general rate reduction. The other statements are correct. The general rate reduction is calculated by applying a specified percentage (currently 13%) to full rate taxable income, and full rate taxable income for a public company is reduced by the income eligible for the manufacturing and processing deduction. The general rate reduction serves to reduce the effective tax rate for corporations that have full rate taxable income, while the basic tax rate for corporations remains at 38 percent.

Question 20

With respect to the manufacturing and processing deduction, which of the following statements is not correct?

Accepted Answer

The answer of With respect to the manufacturing and processing...

Quiz 2: Byrd Chens Canadian Tax Principles 2