(Solved): Tax Accounting Homework Problem

John is a resident of Canada. John owns 100% of the shares of Packers Inc ("P"). P owns 40% of the shares of Seahawks Ltd ("S"). Both P and S are CCPCs. In the current year, P earned the following income: $100,000 - capital gain from the sale of public company shares 50,000 - interest from Canadian government bonds 12,000 - dividends received from a Canadian public company 8,000 - dividends received from S -------------- $170,000 For the current year, the following information applies to S: $1,000 - ERDTOH balance (before any dividend refund) $6,665 - NERDTOH balance (before any dividend refund) $20,000 - non-eligible dividends paid by S to its shareholders $0 opening GRIP balance for S REQUIRED: 1) Calculate P's combined (i.e. federal and provincial) taxes payable for the year. Assume a 12% provincial tax rate. 2) Calculate P's ERDTOH and NERDTOH balances at the end of the year (assume opening balances of NIL). 3) P wants to get a full refund of its ERDTOH. What kind and amount of dividends does P need to pay to John in order to make this happen? If there are multiple possibilities, discuss them all. 4) P wants to get a full refund of its NERDTOH. What kind and amount of dividends does P need to pay to John in order to make this happen? If there are multiple possibilities, discuss them all. 5) P wants to get a full refund of both ERDTOH and NERDTOH, while John wants to pay the least amount of personal tax. What kind and amount of dividends does P need to pay to John in order to make this happen? ROUND ALL ANSWERS & CALCULATIONS TO THE NEAREST DOLLAR.

Tax Accounting Homework Problem

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