Reference no: EM132651550

Question 1: FHI Corporation Ltd. (FHI) ia s Canadian-controlled private corporation throughout its taxation year ending December 31,2018. Its Net Income for Tax purpose for the year is $563,000. The components of this total are as follows:

Foreign Business Income( Before Foreign Taxes Withheld)                             $83,000

Foreign Non-Business Income(Before Foreign Taxes Withheld)                      $18,000

Eligible Dividends From Non-Connected Corporations                                     $22,670

Non- Eligible Dividends from wholly-owned subsidiary

(The subsidiary Received A Refundable Of $6,000 On Payment)                     $21,600

Net taxable Capital Gains                                                                                    $38,250

Manufacturing and Processing Profits(From ITR 5200 Formula)                     $184,230

Other Canadian Active Business Income                                                           $117,100

Canadian Source Interest Income                                                                        $78,150

Net Income tax for Tax purposes                                                                        $563,000

Other Information:
1. FHI makes donations to registered charities during 2018 in the amount of $49,500.
2. Using the formula described in ITR 402, it has been determined that 87 percent of FHI's Taxable Income was earned in Canadian province.
3. FHI has a net capital loss balance from 2017 of $45,000 [(1/2)($90,000)] and a non capital loss balance from 2016 of $10,200. Management has indicated that they would like to deduct as much of these amounts as possible in the 2018 tax return.
4. FHI is associated with two other Canadian-Controlled private corporations. They have agreed to allow FHI to claim $120,000 of the total annual business limit. The foreign jurisdiction withheld $4,150 for the foreign business income and $4,500 for the foreign non-business income. Assume the foreign tax credits for business and non-business income are equal to the amounts withheld.

Required:
Calculate the minimum Taxable income and the Part 1 taxable payable by FHI.

Question 2:
Barry Kincade has a property that he purchased several years ago for $25,000. It has a current fair market value of $40,000

The following six scenarios are proposed for the transfer of this property by Barry to a trust.
scenario 1 Transfer to a joint spousal trust

scenario 2 Transfer to an inter vivos trust for a business partner

scenario 3 Transfer to testamentary trust for a 22-year-old son

scenario 4 Transfer to a testamentary qualifying spousal trust

scenario 5 Transfer to an alter ego trust
scenario 6 Transfer to an inter vivos trust for a minor child

Required:
For each scenario, Indicate the tax consequences to Barry at the time of transfer, as well as the adjusted cost base of the property within the trust.

Question 3
For the year ending December 31,2018 the PU Partnership has correctly computed its Net Business income to be $213,000. The Partnership agreement calls for all allocations to Partner P Partner U to be on a 40:60 basis. Partner P and U are both individuals.

In determining the Net Business income amount, the partnership accountant added back $4,200 in charitable donation and $900 in contributions to a registered political party. In addition,$ 2,700 in eligible dividends received were deducted. The partners have made no charitable donations or political contributions as individuals.

Required:
Determine the amount of ant tax credits that will be available to Partner P Partner U for the year ending December 31,2018.

Question 4:
As the result of some very bad investment decisions, Ms Penelope Smallbone is in need of additional cash resources in order to raise these funds, she has sold a number of assets during the current year. The description of these dispositions is as follows:
1. Penelope has a jewellery collection that is sold for $25,000. The total Cost of the items in this collection is $72,000.
2. At this death, her father lest her with his large collection of miniature vehicles. While he had acquired these vehicles at a total cost of 6,200 at the time of his death, they were valued at $15,000. Ms. Smallbone sells the collection to a collector for $35,000.
3. She sold an Oil painting by French impressionist Henri Le Sidaner at auction for $1,125,000, with the auction house charging a commission of 10 per cent of the sale price. It was acquired for $1,026,000.
4. Penelope has always loved sailing and, a number of years ago, she acquired a damaged boat for $18,000. she spent $30,000 restoring it to working order and has enjoyed its use for a number of years. it is sold for $52,000. No selling costs were involved.

Required:
Indicated the tax consequences of each of these dispositions and calculate the total amount that will be included in Penelope's Net Income for tax purpose, as well as any carry over amounts that can be used in previous or subsequent years.

Question 5:
You are preparing Corporate Income tax return for WRX Inc. You are determining what, if any, entries are needed on the Schedule 1, relating to the following 2018 items:

1. During December of the Current year, the company sold its only Class 53 asset for $140,000. The original cost of the asset was $225,000 and its net book value at the time of sale was $176,000. At the beginning of the year, the Class 53 UCC was $131,500. No additional Class 53 assets were acquired during the current year.

2. At the beginning of the current year, the company acquired all of the assets of STI Corporation and, in the process paid $124,000 for the goodwill of the business. For accounting purposes, a $21,700 write-down for a goodwill impairment loss was taken for the Current year. The goodwill qualifies as an eligible capital expenditure for tax purposes.

3. During the current year, the company has recorded amortization expenses of $ 154,000. The maximum CCA that the company could deduct for the year is $126,000. The company has instructed you to deduct the maximum CCA.

4. The Company has variety of bond issues outstanding, some of which were issued at a discount and others at a premium. The interest expense deducted in the accounting records on these bonds was $174,600. This amount reflected $4,600 in premium amortization and $2,700 in discount amortization.

5. The company paid $30,000 for five memberships in a local golf club for its employees. These employees were all commission salespersons, and, during the current year, they spent $47,000 entertaining clients at the club. The company did not reimburse the salespersons for these expenses.

Required:
For each of the items listed, indicate the additional to and/or deduction from accounting net income that would be required in the calculation of the minimum Net Income for Tax Purposes.

Question 6:

Andrea Ander's unincorporated business has grown to the point that she wishes to transfer the asset into a corporation. She provides you with the following information about the asset and the decisions she has made with respect to the cash she will receive for the properties.

	UCC	Tax Cost	FMV	Cash to be received	Minimum	Maximum
Inventories		55,000	43,000	47,000
Land		83,000	275,000	122,000
Class 1 Building	134,000	191,000	390,000	246,000
Class 8 Equipment	10,000	27,000	15,000	11,000

Required:

Fill in the blanks in the schedule above to indicate the minimum and maximum amounts available to Ms. Anders if she uses Section 85(1) for the transfer.

Question 7:

Harold Bates is an interior decorator. He lives in a province where the provincial tax rate on individuals is a flat 10 percent on all levels of income. He has combined federal/provincial tax credits of $4,280. In his province, the provincial dividend tax credit is equal to 30 oer cent of the gross up on both eligible and non-eligible dividends

After many years of successfully operating as an individual proprietor, Harold has decided to join Mega Designs as the firm fourth partner. He will become a partner on January 1, 2018. During the partnership's taxation year ending December 31, 2018, it will have taxable Income of $620,000. All of this Income will be active business income and Harold or his corporation will be entitled to 25 per cent of the total.

Harold is considering three different approaches to structuring his participation in the Mega Designs Partnership.

Approach 1: Harold will join the partnership as an individual. His share of the partnership income will be taxed as business income.