Question

Question a

The Ludco court case is an example of:

	Direct use establishes deductibility.
	Indirect use establishes deductibility.
	A quantitative determination of income is not required.
	The disappearing source rule.

Question g

Non-eligible dividends

	Have a gross up of 38%.
	Are paid by Canadian controlled private corporations.
	Have a federal dividend tax credit of 21/29 of the taxable dividend.
	Are paid by both public and private corporations.

Answer 1

Correct Answers:

Question a: Indirect use establishes deductibility.

- Explanation: In the given case, the assessee i.e. Ludco Enterprises borrowed money to acquire shares of foreign companies. The issue arose on the deductibility of interest w.r.t. the said loan because the proceeds of the given loan were not being used in the business directly but were employed indirectly to be invested into buying shares of another company. It was held that although the loans were being used for indirect use, they were being used for the purpose of business only and are thus admissible as a deduction.

Question g: Are paid by Canadian controlled private corporations

- Explanation:

- The gross-up rate for non-eligible dividends is 15% in 2019.

- They are paid by Canadian controlled private corporations.

- The federal dividend tax credit is available only on eligible dividends.

- Non-eligible dividends can't be paid by Public Corporations