Question

Raptor Inc. (RI) is a Canadian-controlled private corporation and has provided you with the following selected information related to its 2019 taxation year ended December 31, 2019. RI Inc. did not have taxable capital in excess of $10,000,000 in 2018.

Canadian manufacturing profits - 451,500 $

Canadian retail business income - 50,000

Taxable capital gains(non-active) - 4,500

Interest income:

Canadian long-term bonds - 40,000

Interest on overdue accounts receivable - 5,000

Dividend income:

From taxable Canadian corporations(eligible dividend)
(RI owns less than 5% of the shares of these corporations) - 9,000

From U.S. corporations (before U.S. tax of $1,800) (these corporations are not foreign affiliates) - 12,000

Non capital losses from prior years applied in the calculation of taxable income - 55,000

Net capital losses from prior years applied in the calculation of taxable income - 4,500

Calculations correctly prepared under the Income Tax Act

Taxable income - 503,500$
Part I tax payable (including additional refundable tax) - 66,682

Foreign non-business tax credit - 1,800

Miscellaneous Items

Refundable dividend tax on hand as of December 31, 2018 (non-eligible) - 22,000

Dividend refund received in respect of the 2018 taxation year (non-eligible) - 9,000

Taxable dividends paid during 2019 (non-eligible) - 99,000

Required:

Determine, for RI Inc., by clearly presenting all component parts and their calculations,

(a) the amount of the small business deduction, and

(b) the amount of the dividend refund for 2019.

Do not re-compute the Part I tax and the other related tax credits. Assume that they have been computed correctly.

Answer 1

Raptor Inc. (RI) is a Canadian-controlled private corporation that were Canadian-controlled private corporations (CCPCs) throughout the tax year may be able to claim the small business deduction (SBD). The SBD reduces Part I tax that the corporation would otherwise have to pay.

The SBD is equal to a certain percentage (the SBD rate) of whichever of the following amounts is less:

the income from active business carried on in Canada
the taxable income
the business limit

either one of the following:
for tax years starting before 2019, the amount , which is the reduced business limit less the amount of the business limit you assigned under subsection 125(3.2)
for tax years starting after 2018, the amount , which is the reduced business limit less the amount of the business limit you assigned under subsection 125(3.2)

The SBD rates are:

19% effective January 1, 2019
18% effective January 1, 2018
17.5% before 2018

So, we have to calculated the SBD on 19% as the year 2019 is the taxation year

To determine SBD firstly we have to consider in the following-

1.Active Canadian business income

Generally, to calculate active business income from carrying on a business in Canada, you have to deduct from net income for income tax purposes any of the following amounts that apply:

taxable capital gains minus allowable capital losses
dividends that are deductible from income under sections 112 and 113, and subsection 138(6)
property income minus property losses
property income from an interest in a trust
foreign business income
income from a specified investment business
income from a personal services business
income described in subparagraph (a)(i) of the definition of specified corporate income in subsection 125(7) for the year where certain conditions are not met.

2.Taxable income 503,500$

3.The maximum allowable business limit for a corporation that is not associated with any other corporation is $500,000.

The SBD is least amount of the above points (1,2&3)

The least amount from the above we got that is 500,000$ so, the SBD is 19%of $500,000 = $95000.

B) The amount of dividend refundable during 2019

For tax years starting before 2019, the dividend refund is equal to whichever of the following amounts is less:

1/3% of taxable dividends that you paid in the year as a private or subject corporation
the RDTOH at the end of the tax year

So, by substituting in the above formula for private corporation i.e. 1/3% of $99000 = 3300$