Income Tax

Income Tax

Fracto Inc. is a Canadian controlled private corporation with a December 31 year end. For the taxation year ending December 31, 2019, its Net Income For Tax Purposes was made up of the following components:

Active Business Income (Note 1)                                          $ 514,400

Dividends From Canadian Corporations:

        Wholly-Owned Subsidiary (Note 2)                                  297,400

        Portfolio Investments (All Eligible Dividends)                   89,600

Canadian Source Interest                                                              44,300

Taxable Capital Gains                                                                     93,100

Net Income For Tax Purposes                                              $1,038,800

Note 1 As determined under ITR 5200, $326,000 of this total qualified as M&P profits. As these amounts are allocated to a province which has a special rate for M&P profits, the company calculates the federal M&P deduction.

Note 2 As a result of paying these dividends, the subsidiary received a dividend refund of $52,800. None of these dividends were designated as eligible.

Other Information:

1.    Fracto Inc. is part of a group of several associated companies. It has been agreed that Fracto Inc. will be allocated $100,000 of the group’s annual business limit for purposes of determining the small business deduction.

2.    At December 31, 2018, Fracto Inc. had a Refundable Dividend Tax On Hand balance of $12,000. During 2018, Fracto Inc. paid no dividends.

3.    At December 31, 2018, Fracto Inc. had a GRIP balance of $126,700.

4.    For 2018, Fracto and its associated corporations had ADJUSTED Aggregate Investment Income of $47,650. Their Taxable Capital Employed In Canada was $4,652,000 for 2018.

5.    On July 1, 2019, Fracto Inc. paid taxable dividends to its shareholders in the amount of $132,400. It is the policy of the Fracto Inc. to maximize the amount of dividends designated as eligible, regardless of whether or not they qualify for a dividend refund.

6.    The Company has available a net capital loss carry forward of $12,000 [(1/2)($24,000)] and a non-capital loss carry forward of $163,400. It plans to deduct both of these items to the extent possible during 2019.

Required: Show all of the calculations used to provide the following required information, including those for which the result is nil.

For Fracto Inc.’s 2019 taxation year, calculate the following items:

A.    Part I Tax Payable.

B.    The refundable portion of Part I Tax Payable. 

C.    Part IV Tax Payable. 

D.    The balance in the GRIP account on December 31, 2019. 

E.    The balance in the Eligible RDTOH and the balance in the Non-Eligible RDTOH on December 31, 2019. In order to answer this question, you first have to determine the Transitional balances for Eligible RDTOH and Non-Eligible RDTOH on January 1, 2019. 

F.    The dividend refund, if any, showing separately the amount related to eligible dividends and the amount related to non-eligible dividends. 

G.    Total federal Tax Payable (net of any dividend refund). 

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