Opus Limited is a Canadian controlled private corporation. During 2020, the company received the following dividends: Opus owns 100% of the shares of Magnum Inc. and 40% of the shares of Masterpiece Ltd. Masterpiece received a dividend refund of $10,000 on its dividend payment, while Magnum received a dividend refund of $15,000. Determine the amount of Part IV Tax payable by Opus Limited for the current year.

Question

Opus Limited is a Canadian controlled private corporation. During 2020, the company received the following dividends:  Opus owns 100% of the shares of Magnum Inc. and 40% of the shares of Masterpiece Ltd. Masterpiece received a dividend refund of $10,000 on its dividend payment, while Magnum received a dividend refund of $15,000. Determine the amount of Part IV Tax payable by Opus Limited for the current year.

Quizplus · Accepted Answer

First, we need to calculate the taxable amount for each dividend received by Opus Limited:

1. Dividend from Canadian public corporation: 
Taxable amount = $50,000 x 1.38 = $69,000

2. Dividend from Canadian private corporation (Magnum Inc.): 
Taxable amount = $20,000 x 1.38 = $27,600
Less: Dividend refund = $15,000
Net taxable amount = $12,600

3. Dividend from Canadian private corporation (Masterpiece Ltd.): 
Opus owns 40% of the shares, so the actual dividend received is: 
$30,000 x 40% = $12,000
Since Masterpiece received a dividend refund, the grossed-up dividend is: 
$12,000 / (1-0.38) = $19,354
Less: Dividend refund = $10,000
Net taxable amount = $9,354

Total taxable amount = $69,000 + $12,600 + $9,354 = $90,954

Now we can calculate the Part IV Tax using the formula:
Part IV Tax = (Taxable amount - $500,000) x 0.33

In this case, Opus Limited did not have any other taxable income, so the taxable amount is equal to the amount calculated above.

Part IV Tax = ($90,954 - $500,000) x 0.33 = -$136,328.98

Since we cannot have negative tax, the amount of Part IV Tax payable is zero. However, we need to add the refundable dividend tax on hand (RDTOH) balance from the previous year to determine the total RDTOH balance for the current year:

RDTOH balance = RDTOH balance from previous year + Part IV Tax - Refund of Part IV Tax

In this case, let's assume that Opus Limited had a RDTOH balance of $32,000 from the previous year.

RDTOH balance = $32,000 + $0 - $25,000 = $7,000

Therefore, the amount of Part IV Tax payable by Opus Limited for the current year is zero, and the RDTOH balance for the current year is $7,000.

The answer is B) $32,417.

Opus Limited Is a Canadian Controlled Private Corporation