Question 1

The Refundable Dividend Tax On Hand (RDTOH) balance at the end of the year includes the refundable Part I tax for the current year, the refundable Part IV tax for the current year, the corporation's RDTOH balance at the end of the preceding year, with this total reduced by the corporation's dividend refund for the preceding year.

Accepted Answer

This statement correctly describes how the RDTOH balance is calculated at the end of the year. The RDTOH balance reflects the amount of refundable taxes a corporation has paid that can be refunded when the corporation pays eligible dividends to its shareholders. The balance includes both Part I and Part IV taxes for the current year, as well as any RDTOH balance carried forward from the previous year, but it is reduced by the amount of dividend refund claimed in the previous year.

Question 2

Aggregate investment income as defined in ITA 129(4) includes interest, rents, dividends, and taxable capital gains.

Accepted Answer

The answer of Aggregate investment income as defined in ITA...

Question 3

During the current year, Norton Tools Ltd.has net taxable capital gains of $45,000, re- ceives dividends from taxable Canadian corporations of $34,000, and earns interest income of $21,000.Taxable Income for the year equals $280,000, of which $210,000 is eligible for the small business deduction.The Company's additional refundable tax for the year is equal to:

Accepted Answer

The answer of During the current year, Norton Tools Ltd.has...

Question 4

At the end of 2010, Gomez Inc., a CCPC, has a GRIP of $53,400.For 2011, 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 2011 Tax Payable, the Company has a small business deduction of $14,450.During 2010, the com- pany paid dividends of $42,000 with $13,700 of the dividends designated as eligible.Dividends paid during 2011 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 2011 taxation year?

Accepted Answer

The GRIP at the end of 2011 is calculated by adding the eligible portion of the 2011 taxable income to the opening GRIP balance, then subtracting the eligible dividends paid. The eligible portion of taxable income is the taxable income minus the small business deduction and aggregate investment income. So, $143,000 - $14,450 - $19,000 = $109,550. The eligible portion is $109,550 * 0.72 = $78,876. Adding this to the opening GRIP of $53,400 gives $132,276. Subtracting the eligible dividends paid in 2011 ($18,400) results in a GRIP of $113,876. However, the eligible dividends paid in 2010 ($13,700) should also be subtracted from the opening GRIP, resulting in $113,876 - $13,700 = $100,176. The correct calculation should have been $53,400 + $78,876 - $18,400 = $113,876, and then subtracting the eligible dividends paid in 2010 ($13,700) gives $100,176. The correct answer should be $79,300, but there seems to be a miscalculation in the explanation.

Question 5

When there has been an acquisition of control, the acquired corporation can choose to have a deemed disposition of any of its capital assets at any value that is elected for this purpose.

Accepted Answer

In the case of an acquisition of control, the acquired corporation must have a deemed disposition of its capital assets at fair market value, not at any elected value.

Question 6

With respect to integration, which of the following statements is correct for 2011?

Accepted Answer

The answer of With respect to integration, which of the...

Question 7

The Part IV refundable tax is assessed on portfolio dividends and on all dividends received from connected companies.

Accepted Answer

The Part IV refundable tax is assessed on portfolio dividends but not on all dividends received from connected companies. Dividends from connected companies may be subject to different tax treatments.

Question 8

When there is an acquisition of control, depreciable assets must be written down to their fair market value if this amount is less than their capital cost.

Accepted Answer

In an acquisition of control, depreciable assets are typically written up or down to their fair market value, regardless of whether this value is less or more than their capital cost.

Question 9

With respect to the RDTOH account, which of the following statements is not correct?

Accepted Answer

The balance of the RDTOH account is reduced by 38 1/3% of any dividends paid during the taxation year, not one-third.

Question 10

Which of the following statements with respect to Part IV tax is correct?

Accepted Answer

Part IV tax is assessed on portfolio dividends received by a corporation from non-connected corporations, and it is refundable when dividends are paid out to shareholders.

Question 11

Aggregate investment income, as defined in ITA 129(4), includes the following:

Accepted Answer

The answer of Aggregate investment income, as defined in ITA...

Question 12

A corporation's dividend refund for the year will be the lesser of the balance in the RDTOH account at the beginning of the year and one-third of the taxable dividends paid for the year.

Accepted Answer

The answer of A corporation's dividend refund for the year...

Question 13

Morgan Ltd., a CCPC, had a $25,000 balance in its Refundable Dividend Tax On Hand (RDTOH) account on December 31, 2010, the end of its taxation year.Its refundable por- tion of Part I tax, before any refunds, for the 2011 year is $10,000.It did not receive any dividends in 2011.Morgan Ltd.paid dividends of $15,000 in each of 2010 and 2011.What is the balance in Morgan Ltd.'s RDTOH account at December 31, 2011?

Accepted Answer

The refundable portion of Part I tax for the 2011 year is $10,000, which will be added to the RDTOH account. Since there were no dividends received in 2011, the RDTOH balance at the end of 2011 will be equal to the total refundable portion of Part I tax ($10,000) plus the balance at the end of 2010 ($25,000) for a total of $35,000. However, since Morgan Ltd. paid dividends in 2011, it will have to pay non-eligible dividends tax of $3,750 ($15,000 x 25%), which will reduce the RDTOH balance to $31,250. Therefore, the correct answer is B) $30,000.

Question 14

Premier Investments Inc.(Premier) is a private corporation.Premier received $20,000 of dividends from its investments in publicly traded Canadian shares during its taxation year ended June 30, 2011.Premier has loss carry forwards as follows: non-capital losses of $3,000, net capital losses of $5,000, and farm losses of $7,000.All of these losses are available for application in Premier's 2011 taxation year.The non-capital and farm losses will expire if not used during 2011.Assuming Premier has no other income, what is Pre- mier's minimum 2011 Part IV Tax Payable?

Accepted Answer

The answer of Premier Investments Inc.(Premier) is a private corporation.Premier...

Question 15

With respect GRIP and LRIP balances, which of the following statements is not correct?

Accepted Answer

A CCPC's GRIP balance is reduced by 72 percent of the amount eligible for the small business deduction, not 100 percent.

Question 16

Mr.Darby owns 75 percent of the shares of Darby Inc.and his spouse owns 80 percent of the shares of MS Darby Ltd.Darby Inc.and MS Darby Ltd.are associated.

Accepted Answer

The answer of Mr.Darby owns 75 percent of the shares...

Question 17

Which of the following statements with respect to eligible dividends paid in 2011 is not correct?

Accepted Answer

Eligible dividends can be designated by both public companies and private Canadian-controlled private corporations (CCPCs) with a positive general rate income pool (GRIP) balance.

Question 18

Any net capital losses that remain unused after an acquisition of control, cannot be used in years subsequent to the acquisition of control.

Accepted Answer

This is true according to the Internal Revenue Service's rules regarding net capital losses and acquisitions of control. Unused net capital losses cannot be carried forward beyond the year of the acquisition of control.

Question 19

Which of the following statements with respect to non-eligible dividends paid in 2011 is correct?

Accepted Answer

Non-eligible dividends are typically paid from a corporation's low rate income pool (LRIP). If a public company has an LRIP balance, dividends paid will be considered non-eligible.

Question 20

With respect to Part I refundable taxes, which of the following statements is correct?

Accepted Answer

Part I refundable tax is designed to prevent the deferral of taxes on investment income that is retained by a Canadian-controlled private corporation (CCPC).

Quiz 2: Byrd Chens Canadian Tax Principles 2