Taxation for Canadian Business
YBM Traders Ltd. is a Canadian-controlled private corporation located in Toronto, Ontario. For
its fiscal year ended December 31, 2019, the corporation had calculated its income for tax
purposes under Division B as follows:
Operating income (Note 1) $ 247,000
Profit on the sale of excess land (Note 2) 205,000
Royalty income (Note 3) 15,000
Retailing income 210,000
Interest on o/s accounts receivable in retailing business 14,500
Recapture of CCA (Note 4) 10,500
Advertising agency loss (53,500)
Foreign Business income in Canada (Note 8) 45,000
Rental income (Note 5) 21,500
Taxable capital gains net of losses (Note 6) (from active assets) 63,000
Interest income from five-year bonds 18,000
Dividend from Wholly owned sudsidiary (Note 9) (non-eligible) 12,000
Dividend from from taxable Canadian corporations (< 5% ownership)(eligible) 33,000
Foreign non-business income in Cdn. $ (Note 7) 15,000
Division B net income for tax purposes $ 856,000
Notes:
(1) This amount of operating income was computed correctly under Division B. The corporation
has permanent establishments in YBM and North Dakota in the United States. Its gross
revenue and salary and wages information is as follows:
Ontario North Dakota
Gross revenue $10,325,000 $3,675,000
Salaries and wages 5,375,000 993,000
(2) The land had been held for approximately three years. It had been held vacant in order to
realize a profit on its sale at the right time.
(3) The royalty income had been determined to be property income.
(4) The recapture resulted from the sale of some fixtures used in the retailing business.
(5) The rental income was derived from leasing the entire space on a five-year lease in an
unused warehouse.
(6) The net taxable capital gains resulted from the sale, on January 15, 2019, of marketable
securities purchased with short-term surplus funds in the manufacturing operation.
(7) Withholding tax on the pre-tax non business income of $15,000 was Can $4,000
(8) Foreign income tax on the pre-tax foreign busniess of $45,000 earned through an
unincorporated branch in the United States was paid in Can dollars $9,700
0975 – Taxation for Canadian Business
(9) The wholly owned subsidiary received a Dividend refund of $2,000 as a result of paying out
the dividend.
Additional information:
(a) YBM Traders Ltd. made the following selected payment during the year:
Charitable donations $12,500
(b) Four quarterly dividends (non-eligible) of $45,000 were declared at the end of each
calendar quarter of 2019 and paid within two weeks of their declaration. The last quarter
of 2019 was paid in January 2020 and a dividend of $30,000 declared in the last quarter
of 2018 was paid in January 2019.
(c) YBM Traders Ltd. had allocated $5,000 of its $500,000 business limit to other
associated corporations. Taxable capital of the associated group for large corporations
tax purposes was $10,100,000.
(d) The balance in the tax accounts on January 1, 2019 were:
Charitable donation carryforward $ 17,500
Unused business foreign tax credit 14,000
Non-capital losses from 2012 51,500
Net capital losses from 2013 14,500
Refundable dividend tax on hand 20,000
Dividend refund for 2018 18,000
Required:
(A) Compute the federal Part I tax and provincial tax at a 17% rate for YBM on federal taxable
income payable by the corporation for 2019. Show in detail the calculation of all tax
deductions in the computation, using a separate schedule for each special tax deduction.
(B) Compute the refundable tax on hand balance as at December 31, 2019, showing in detail
your calculation and compute the dividend refund for 2019.
