1) Sardo Ltd
Subject:LawPrice: Bought3
1) Sardo Ltd. is a CCPC and is not associated with any other companies. Its 2021 net income is $422,000 and is made up of the following components:
Active Business Income $375,000
Dividends from Taxable Canadian Corporations 15,000
Foreign Non-Business Income (100%) 32,000
The foreign jurisdiction withheld $3,200 in profits tax from the foreign non-business income. The Company is entitled to a foreign tax credit equal to the amount withheld.
The Company has a 2018 non-capital loss balance of $96,000 that it intends to claim in 2021.
Determine Sardo's small business deduction for the 2021 taxation year.
2) Epic Inc. is a CCPC with a December 31 taxation year end. The following information relates to the 2021 taxation year.
1. The Company had Canadian source active business income of $237,000. Of this total, it was determined that $126,000 qualified as M&P profits under ITR 5200.
2. The Company received $25,500 in foreign investment income. This was net of $4,500 foreign income tax withheld.
3. Net income for 2021 is $277,000. This is made up of the $237,000 in active business income, the $30,000 in foreign investment income, and $10,000 in taxable capital gains.
4. Because of a $50,000 2019 non-capital loss balance that was claimed taxable income is $227,000.
5. The Company shares the annual business limit for the small business deduction with two other companies. Epic's allocated share of the business limit is $200,000.
6. Assume that the foreign tax credit for foreign investment income is equal to the amount withheld. 7. For the 2020 taxation year, the combined ADJUSTED Aggregate Investment Income (AAII) of Epic and its associated companies is $44,250 and the combined Taxable Capital Employed in Canada TCEC is $2,440,000.
Required: Calculate the Part I income tax payable for the 2021 taxation year. As the corporation operates in a province that has a reduced tax rate for M&P activity, a separate calculation of the federal M&P deduction is required. Show all of the calculations used to provide the required information, including those for which the result is nil.
3) Each of the following is an independent Case involving the ownership of voting shares of CCPCs. All of the corporations have taxation years that end on December 31 and have only of shares of one class.
1. Ms. Sarah Brandt owns 100% of the voting shares of SB Inc. Her common-law partner, Ms. Melissa Frank, owns 100% percent of the shares of MF Inc.
2. John Brody owns 65% of the shares of Heresy Inc. His spouse, Jessica Brody, owns 85% of the shares of Porter Inc. John and Jessica each own 35% of Lason Ltd.
3. Surcal Inc. owns 75% of the shares of Basik Inc. Basik Inc. owns 70% of the shares of Freon Ltd. 4. Martin Friedman owns 75% percent of the shares of Bloc Ltd. and 20% of the shares of Lorne Inc. Bloc Ltd. owns 25$ of the shares of Lorne Inc. Martin's 12 year old son owns 25% of the share of Lorne Inc. There are no other shareholders who hold shares in both companies.
5. Ms. Bright owns 75% percent of the shares of Aurora Ltd. and 20% of the shares of Bock Inc. Ms. Favreau owns 80 % of the shares of Bock Inc. and 20% of the shares of Aurora Ltd. Ms. Bright and Ms. Favreau are not related.
Required: For each of the preceding Cases, determine whether the corporations are associated. Support your conclusions with explanation.
