Chapter 15 Homework Solution

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School

Okanagan College *

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Course

369

Subject

Accounting

Date

Apr 3, 2024

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docx

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2

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BuAd 369 Chapter 15 Homework Name: ______________________________________ Enrique Ruiz wants your advice on whether to transfer some investments into a new CCPC established to hold them. He anticipates the following incomes in 2023: Eligible dividends on portfolio dividends $93,000 Capital gains 64,000 Despite having employment income in excess of $500,000, Enrique anticipates needing all the income produced by these investments. On additional income Enrique is subject to a provincial tax rate of 16%. The provincial dividend tax credit is equal to 30% on both eligible and non eligible dividends. The provincial corporate tax rate is 2% on income eligible for the small business deduction and 12% on other income. The corporation will make the maximum eligible dividend designation. Calculate the after tax cash to Enrique if he keeps the investments personally and the after tax cash if he transfers them to the newly created corporation. Held by Corporation Held Directly Dividend 93,000 Eligible dividends 93,000 Capital gain 64,000 Gross up (38%) 35,340 Part IV tax (38.33%) -35,650 Taxable capital gain (64,000 X 1/2) 32,000 Part I tax (32,000 X 50.67%) -16,213 Taxable income 160,340 After tax cash 105,137 Tax rate X 49% Capital dividend -32,000 78,567 Cash for taxable dividends 73,137 Dividend tax credit (6/11 + .30) -29,878 Dividend refund (RDTOH) 45,463 Net Tax 48,688 Part IV + (32,000 X 30.67%) Total taxable dividend 118,600 Dividend 93,000 Eligible dividend -93,000 Capital gain 64,000 Non eligible dividend 25,600 Net Tax -48,688 After tax cash 108,312 Eligible dividend 93,000 Gross up 38% 35,340 Non eligible dividend 25,600 Gross up 15% 3,840 Taxable income 157,780 Tax rate X 49% 77,312 Eligible dividend tax credit (6/11 + .30) -29,878 Non eligible DTC (9/13 + .30) -3,810 Net Tax 43,624 Total taxable dividend 118,600 Capital dividend 32,000 Net tax -43,624 After tax cash 106,976
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