ACCT 385 | Assignment 3: Non-Textbook Problems | Complete Solution

Assignment 3: Non-Textbook Problems

Do not forget to do the textbook problem as well: AP6-13

A3P1

The Catnip Co. is a Canadian controlled private corporation.  The company reports the following information for its December 31, 2014 fiscal year-end:

Active Business Income earned in Canada                                        $410,000

Capital Gains                                                                                                  76,000

Interest Income                                                                                                5,000

Dividend from Cougar Co., a connected corporation                             31,200

Dividends from non-connected corporations                                          18,000

Additional Information:

1. Catnip Co. paid the following dividends:

Year 2013:   $72,000       Year 2014:  $90,000

2. Catnip Co. has net capital losses carried forward of $12,000.
3. Catnip Co. is associated with Feline Ltd. Catnip’s share of the Annual Business Limit is $240,000. Feline reports Taxable Capital of $5,000,000, while Catnip’s Taxable Capital is $7,000,000
4. 90% of Catnip’s income is earned in Canada.

5.  Cougar Co. paid $78,000 in dividends in 2014 and received a dividend refund of $21,000

6.  Catnip Co. had a balance of $16,000 in its RDTOH account at 31/12/13.

Required:

Compute Catnip Co.’s 2014:

1. Minimum Part I Tax
2. Part I Refundable Tax
3. Part IV Tax
4. RDTOH account balance at December 31, 2014
5. 2014 Dividend Refund

A3P2

Mr. Puma has disposed of several properties in the year and is seeking your advice. The details are as follows:

1. Mr. Puma has come to you for advice on the tax consequences of the disposition of the following two residences in 2014:

Required:

Compute the capital gain of the above dispositions, taking into account that he would like to minimize the amount of capital gains on the dispositions. 

2. . Mr. Puma has also sold the following assets in the year.

Required:

He would like you to advise him on the tax consequences of the above dispositions.

A3P2 – Cont’d

3. Mr. Leopard sold his rental property in August of 2014 for $250,000, including $140,000 for the land, before a commission of $9,000. The cost of the land was $100,000 and that of the building was $80,000. Mr. Leopard took back a $100,000 mortgage from the buyer of the property with a term of 5 years. Mr. Leopard will receive a capital repayment each year of $20,000 beginning 2015.

Required:

Mr. Leopard would like spread the amount of tax that he would have to pay over the longest period of time. Advise him on the course of action as well as the amount of gain that he would have to report for the current year. 

4. Mr. Undecided owns shares of Gold Barn Ltd. that have a FMV of $40,000 which he purchased for $100,000. As his tax advisor, he questions you whether it would be more beneficial for him to sell the stock to his spouse or his 20 year old daughter. His primary intention is to realize a loss on the disposition to offset it against his other taxable capital gains.

Required:

Provide Mr. Undecided with the appropriate advice.