Question

ABC Lid is a Canadian controlled private corporation. The company began operations in 2017 and uses December 31 as a year end. The income (loss) before taxes, calculated using GAAP and the amounts included in the GAAP income figures, for the years 2017 through 2018 are as follows 2017 2018 Income (Loss) before taxes (GAAP) Charitable Donations(included in GAAP) Accounting gains (losses) on Land in GAAP Dividends from Taxable canadian Corps (included in gaap) $ 20,000 $ (30,000) 5,000 4,000 12,000 (16,000) 5,000 9,000 Accounting gains/losses are equal to the capital gains / losses Policy is to deduct charitable donations before using any loss carry overs They also have a policy of minimizing any capital loss carry overs before non capital loss carry overs (use capital losses first) Calculate the minimum net Income For Tax purposes and Taxable income that would be reported for ABC Ltd. for each of the years under consideration Provide an analysis of the amount and type of carry overs that would be available at the end of each of the years

Answer 1

Calculation of minimum net income for tax purpose and taxbale income are as follows:

years $ 2017 $ 2018

Income before Tax 20000    (30000)

Add/less: Accounting gain/loss on land 12000 (16000)

less: charitable deductons 5000 -

Net taxable Income   $17000 (46000)

Working Note:

1) Dividend is not to be deducted from taxable income as it is not an expense for the company.

2) As per the guidelines, charitable deduction can be take 60% of Average Gross income. Therefore, we will take complete charitable deduction for the year 2017. However, for 2018, $4000 should be carry forward in the next year as per above company has suffered loss .

3) As per the question and company policy, we are considering accounting loss first and it is also stated accountiong loss is equal to capital loss.