Assignment #2: Corporate Income Tax Winter 2018 ACCT 328
I need to solve Part a. which is to convert net income for accounting purposes, into net income for tax purposes. using the information below.
PART A: Calculate the corporation’s minimum net income for the year ended December 31,
2017 under the provisions of Division B of the Income Tax Act. Support your
with calculations and the appropriate references to the Income Tax Act. Be sure
to use the Section 3 format for the calculation of net income for tax purposes.
Storm Inc. has a policy of always taking maximum CCA deduction. Please
show all of your work for the CCA calculations.
Assume all expenses are reasonable in the circumstances.
For the year ending December 31, 2017 , the Income Statement of Storm Inc.,
prepared in accordance with generally accepted accounting principles, is as follows:
Revenues $ 2,307,938
Cost of Goods Sold 232,526
Selling & Administrative Costs 271,385
Depreciation Expense 133,361
Other Income & Expenses 277,233 $ (914,505)
Income Before Tax Expense $ 1,393,434
Income Tax Expense
Future 34,195 $ (137,134)
Net Income $ 1,256,300
Detailed Information Regarding Above Income Statement:
1 Storm spent 14,037 during the year on landscaping for its new building.
For accounting purposes, this was treated as an asset. The Company will not
amortize this balance as it believes the work as an unlimited life.
2 Selling and Administrative costs include 21,372 in business meals and
3 Other Expenses include contributions to registered charities of 20,261 .
4 Other Expenses includes the following:
‐ Insurance premiums on a life insurance policy for the president $ 6,744
Note: the life insurance policy is required as collateral for a loan
‐ legal fees paid in relation to obtaining capital financing of $ 4,094
5 Selling and Administrative costs include compensation expense for the executive
management team at Storm Inc. Included in compensation expense (in addition to
salary expense) are the following amounts:
‐ Membership fee for a local golf and country club $ 8,036
‐ Bonuses declared on Dec.31, 2017 $ 17,546
* Note: The bonuses were paid on Aug.15 2018
‐ Automobile Allowances for business travel incurred $ 3,395
* Note: The allowance was paid at the rate of $ 2.24 per business kilometer
‐ Storm Inc’s contribution to registered pension plans $ 29,787
6 On January 1, 2017 , the Company had the following UCC Balances:
Class 1 ‐ Assets acquired in 2012 $ 363,524
Class 8 196,520
Class 10 470,182
Class 13 29,533
There are no additions or dispositions of Class 1 assets during the year.
There are dispositions of Class 8 assets during the year of 226,000 (Proceeds)
and acquisitions in the total amount of 193,202 . The Class 8 assets that
were sold in the year had an original cost of 187,634 .
The Company has decided to lease of all its trucks and trailers in the future, therefore
all of the assets in Class 10 are sold during the year. The capital cost of these assets was
915,923 and the proceeds of disposition amounted to 360,757 .
The net book value of these assets was 343,781 and the resulting accounting
gain of 16,976 was included in Other Income and Expenses.
The Class 13 balance relates to a single lease that commenced on January 1,
2015 . The lease has an initial term of 8 years, with
two successive options to renew for 2 years each. Expenditures on
this leasehold were 25,646 in 2015 and 8,188
in 2016 . There were no further expenditures in the current year. The
write‐ff of these expenditures for accounting purposes is included in Depreciation
Prior to 2017 , all laptops were leased. During the current year, laptops and
computers were purchased for $ 43,281 .
In addition, on July 1, 2017 Storm purchased an Audi R8 V10 for the president of
the corporation costing $ 187,747 .
7 On June 6, 2017 , Storm Inc. acquired an unincorporated business. The purchase
price included 64,116 for goodwill. At the end of the year, the goodwill was
tested for impairment and an impairment loss (for accounting purposes) was recorded
in the amount of $ 16,029 (this is included in Other Income & Expenses on the
Income Statement above).
8 Other Expenses includes interest and late filing penalties for GST returns of $ 351
and on late municipal tax payments of $ 748 .
9 Revenues includes an accounting gain on the sale of vacant land owned by the
corporation. The sale took place on October 30. The vacant land was purchased in January
of the current year and since its purchase has incurred property taxes and interest
expenses of 10,235 (for accounting purposes, these amounts were included in Other
Income & Expenses on the Income Statement above). There was no rental income earned
on the land while it was owned. The land was sold for 170,975 . The land
was purchased originally for 140,371 . The resulting accounting gain of
30,604 was included in Other Income & Expenses on the Income Statement above.
10 Also included in the Revenues balance recorded on the Income Statement are the
Foreign Business Income (before foreign taxes withheld) $ 84,223
Foreign Non‐Business Income (before foreign taxes withheld) 20,517
Eligible Dividends from Taxable Canadian Corp. 38,345
Non‐Eligible Dividends from a wholly‐owned subsidiary 23,082
Canadian Active Business Income 235,800
Canadian Source Interest Income 91,417
11 The corporation has permanent establishments in British Columbia, Ontario and
the United States. Its gross revenues, salaries and wages, and operating profit
values are as follows:
Location Gross Revenue Payroll Gross Profit
Alberta 1,140,517 96,271 1,052,785
Ontario 845,737 126,861 818,833
U.S. 321,684 48,253 203,795
Totals 2,307,938 271,385 2,075,412
12 Storm Inc. has net capital loss carryover balance from 2012 of
$ 78,649 and a non‐capital loss carryover balance from 2013 of
$ 23,629 . Management has indicated that they would like to deduct as much of
these amounts as possible in the current year.
13 Storm Inc. is associated with two other Canadian controlled private corporations.
They have agreed to allow Storm to claim 273,560 of the total annual business
14 The foreign jurisdiction withheld tax of 4,445 from the foreign business
income and 1,989 from the foreign non‐business income. Assume that
the foreign tax credits for business and non‐business income are equal to the amounts