Question

In 2023, Kate Corp., had gross profit of $160M and business interest income of $2M. Kate Corp. also had deductible business expenses (other than interest and depreciation) of$60M, depreciation of $50M, and business interest expense of $40M. Kate Corp. is not a small corporation.What is Kate Corp.'s 2019 taxable income (after application of the business interest expense limitation)? Make sure to enter all of the zeros (e.g. 10M should be entered as 10,000,000).

Answer 1

Calculation of Taxable Income
Particulars	Amount (Million $)
Gross Profit	160
Business Interest Income	2
Total Income	162
Deductible business expenses	60
Income before Interest, taxes & Depreciation	102
Less :
Depreciation	50
Business Interest Expense (Refer Note 1 below)	30.6
Taxable Income	21.4
Note 1 : Calculation of allowable business interest expense
As per business interest expense limitation, interest expense can only be recognised upto 30% of the adjusted taxable income (Before interest expense & Depreciation)
Adjusted taxable income as calculated above = 102 Million $
30% of adjusted taxable income = 30.6 Million $
Hence the remainder of business interest expense, i.e., 40-30.6 = 9.4 Million $ shall be carried forward to future years for set-off.