Canadian Tax Laws and Regulation Assignment Problem

Reference no: EM132385241

Canadian Tax Laws and Regulation Assignment - Retirement Income Planning Challenge

Case Analysis: Canadian Controlled Private Corporation (CCPC) - J.W. Dental Inc.

Introduction: Attached is a case study of a fictional dental practitioner named Jane. She represents a typical business owner in the professional services field who is in the wealth building stage of her financial life: A high income earner building a practice and saving for the future. This case study will allow you the opportunity to use financial calculations for the purpose of helping Jane formulate a retirement income plan with respect to drawing a retirement income from a corporate savings account. Begin by reading her background and start making note of Jane's goals and concerns.

The Challenge:

Build a complete calculation model of CCPC taxation showing two scenarios:

1. Build the corporate savings account according to the assumptions provided. Jane will begin her retirement and start taking withdrawals from her corporate savings on her 66th birthday. Solve for the annual level withdrawal amount that will deplete the corporate savings account at the end of Jane's age 85.

2. Build the corporate savings account according to the assumptions provided. Jane will begin her retirement and start taking withdrawals from her corporate savings on her 66th birthday. Solve for the annual level withdrawal amount that will leave $5,000,000 in the corporate savings account at the end of Jane's age 85.

The focus of these calculations will be on passive income that is earned by corporate-owned investments.

The model should be built in Excel or another computation platform. An additional write-up in Word (or other word processor) should be included to address the solutions to the two scenarios above and what assumptions were made in obtaining those solutions.

The model should show year-by-year corporate tax calculations and should last until Jane's age 100.

The CCPC taxation model must include the following:

Tracking of net operating revenue into the corporate account.
Account for corporate investment returns in the proportions provided including interest, eligible Canadian dividends, foreign dividends, realized capital gains, and unrealized capital gains.
Track the adjusted cost base of the corporate investment account and account for capital gains tax realized in relation to withdrawals from the corporate investment account.
Tracking of notional accounts such as LRIP vs GRIP, Refundable Dividend Tax on Hand (RDTOH), and Capital Dividend Account (CDA).
Account for withdrawals from the corporation with customizable priorities between RDTOH, CDA, eligible & non-eligible dividends.

When investments are sold and capital gains are realized, you should assume the capital gain realized is proportional to the total amount of the investments sold.

As an example, suppose in one year the corporate investments had a market value of $100,000 with ACB of $80,000 and $10,000 of those investments are to be sold to issue a dividend. Since 10% of the total investments are being sold, we would assume 10% of the previously unrealized capital gain is being realized with that sale so the sale would trigger a capital gain of $2,000 [= ($100,000 - $80,000) * 10%]. Immediately after the sale, the market value of the investment would then be $90,000 [= $100,000 - $10,000] and the ACB would be $72,000 [= $80,000 + $2,000 - $10,000], Jane would receive a $10,000 dividend, and the corporation would include an additional $2,000 of capital gain in determining their taxes that year.

Additional functionality that is desired but not required includes:

Corporate-owned life insurance - Illustrating the expense of a life insurance premium being deducted from corporate savings and tracking the cash surrender values and sum insured.

Add functionality to account for a capital loss and allow it to be carried forward to offset future capital gains.

Allowing for a shareholder loan to be included and subsequently withdrawn.

Attachment:- Corporate Taxation Case Study.rar

Reference no: EM132385241

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