Reference no: EM132902443

Corporate Taxation

Corporations also pay income taxes.

It is often necessary to reconcile Accounting Income per (GAAP) Financial statements to compute Net Income for Tax purposes.
[Similar to what we did with Business income]

The conversion from Accounting Income to Net Income for Tax purposes is done on Schedule 1 of the Corporate tax return.

It very similar to the business income reconciliation that we performed in Unit 3 as Schedule 1 starts out with Net Income for accounting purposes.

There is a list of additions and deductions to convert accounting net income to Net Income for Tax Purposes (NITP). _SEE HANDOUT

Question #1
The following transactions occurred at the Almost There Co during the year. Net income for accounting purposes was $230,000

1. The company sold a truck for $48,300 (original cost - $120,700). The company realized a $5,600 loss on the sale. The class was emptied and the UCC balance was $34,600 at the beginning of the year.
2. The company realized a capital gain of $20,000 on stocks (sold for $60,000, bought for $40,000)
3. Amortization on the building was 4,500 for the year
4. Goodwill of $180,000 was purchased - Class 14.1 - 5%
5. Charitable donation of 15,000 was expensed
6. Political Donation of $1,000 was expensed
7. Meals and entertainment totaled $1,400

Use the electronic template for Schedule 1 I uploaded in Canvas or the Sch 1 on the next page to calculate Net income for tax purposes of the Almost There Co.
Once we obtain ‘Net Income for Tax Purposes' we calculate ‘Taxable Income'.

Net income (Loss) for Tax Purposes
Less:
• Charitable Donations (limited to 75% of Net Income For Tax Purposes with a five year carryforward of unused amounts)
• Dividends received from taxable Canadian Corporations
(to prevent repeated taxation)
• Capital loss carryovers and Non-capital loss carryovers from subsequent or prior taxation years (same rules as before)
Equals Taxable Income

Question #1

After reconciling accounting income, Almost There Co. has NITP of $247,000. Included in this amount are $50,000 worth of dividends from a taxable Canadian Corporation and taxable capital gains of $10,000.

At the beginning of the year, Almost There Co has a net capital loss carry forward of $35,000 and a non-capital loss carry forward of $105,000.

Required:

Calculate Taxable income for the year.