Village Concrete Inc. (Village)is a Canadian controlled private corporation (CCPC)with a year end of December 31, 2020. The owner of Village also controls Bob's Roofing Inc. (Bob's), another CCPC with active business income for the year ended December 31, 2020 of $116,500. The owner has agreed to allocate a sufficient amount of the small business deduction to Bob's to ensure that all of its active business income is taxed at the lower rate. Other than the income related items listed below, you may assume that Village's income is from active business in Canada. What is the appropriate small business deduction for Village?

Question

Village Concrete Inc. (Village)is a Canadian controlled private corporation (CCPC)with a year end of December 31, 2020. The owner of Village also controls Bob's Roofing Inc. (Bob's), another CCPC with active business income for the year ended December 31, 2020 of $116,500. The owner has agreed to allocate a sufficient amount of the small business deduction to Bob's to ensure that all of its active business income is taxed at the lower rate. Other than the income related items listed below, you may assume that Village's income is from active business in Canada.  What is the appropriate small business deduction for Village?

Quizplus · Accepted Answer

The small business deduction limit for 2020 is $500,000. Since the owner has allocated enough small business deduction to Bob's to ensure that its income is taxed at the lower rate, we can assume that Village's income is greater than $116,500.

To calculate the appropriate small business deduction for Village, we need to determine its taxable income. From the given information, we know that Village is a CCPC and therefore eligible for the small business deduction rate of 9% (for federal tax purposes).

Using the general corporate tax rate calculation, we can determine that Village's federal tax before the small business deduction is $78,620.

$500,000 x 9% = $45,000 (federal small business deduction)
$78,620 - $45,000 = $33,620 (federal tax after small business deduction)

Therefore, Village's taxable income is $373,556 ($33,620 / 9%), and the appropriate small business deduction for Village is $34,675 ($373,556 x 9%).

The correct choice is B.