Self Study Problem Thirteen - 5 (Part I And Part IV Refundable Taxes) ‘Insal Ltd. is a Canadian controlled private corporation. Ithas a December 31 year end, The following information relates to its 2018 and 2019 taxation year. 1. During 2019, Insal Ltd. has Taxable Income of $123,400. Assume that Part | Tax Payable for the year was correctly calculated to be $23,960. This amount has been reduced bya small business deduction of $8,550. The Taxable Income figure does not include any foreign source income and no net capital losses were deducted during 2019. 2. Atthe end of 2078, Insal’s Refundable Dividend Tax On Hand balance was $6,450. The 2018 dividend refund was $2,300. No dividends were designated aseligible during 2018 and the corporation has no GRIP balance at December 31, 2018. 3. Insal Ltd. owns 45 percent of the voting shares of Dorne Inc., another CCPC with a December 31 year end. During 2019, Dorne Inc, paid taxable dividends of $25,200, none of which were designated as eligible. However, as a consequence of paying these dividends, Dore Inc. received a dividend refund of $8,400. 4. Other income that was reported by Insal Ltd. consisted of the following amounts: Capital Gain On Sale Of Land $24,600 Eligible Dividends From Enbridge Proferred Shares 6,200 Net Rental Income From Residential Properties 4,200 5. Insal Lid. paid taxabledividends of $18,250 duringtheyear. tis the corporation's policy to only designate dividends as eligible to the extent that a refund is available on their payment, A einine Insal's transitional amounts for its Eligible RDTOH and its Non-Eligible RDTOH. B. Determine the amount of Part lV taxes paid by Insal for 2019. C. Determine the amount of Part I refundable taxes paid by Insal for 2019. D. Determine Insal's December 31, 2019 Eligible ROTOH and Non-tligible ROTOH. f Determine the amount of any dividend refund available to Insal as a result of paying the $18, 250 in taxable dividends during 2019. Indicate the separate amounts related to the designation of eligible dividends and to the payment of non-eligible dividends.Self Study Solution Thirteen - 5 eee Note To Students The assumed Tax Payable of $23,960 cannot be verified based on the information in the problem. Itis, however, a reasonable figure given the informa- tion that is available Part A - Transitional RDTOH Balances For purposes of determining the transitional RDTOH balances, the corporation's sing RDTOH balance was $4,150 ($6,450 - $2,300). As the corporation had no GRIP balance, tl transitional Eligible RDTOH will be nil, with all of the $4,150 balance allocated to the tran tional Non-Eligible RDTOH. Part B - Part IV Tax Payable The Part IV Tax Payable for Insal Ltd. would be calculated as follows: Dividend Refund Received By Dorne Inc. $8,400 Insal’s Percentage Of Ownership 45% Part IV Tax Payable On Dorne’s Non-Eligible Dividends $3,780 Part IV Tax Payable On Enbridge’s Eligible Dividends ((38-1/3%)($6,200)] 2,377 Part IV Tax Payable $6,157 Part C - Part | Refundable Tax Paid The refundable portion of the Part | tax would be the least of the following amounts: Taxable Capital Gain [(1/2)($24,600)] $12,300 Net Rental Income 4,200 Aggregate Investment Income $16,500 Rate 30-2/3% ITA 129(4)(a)(i) $ 5,060 Taxable Income $123,400 Amount Eligible For Small Business Deduction (See Note) (_ 45,000) $ 78,400 30-2/3% $24,043 i $ 23,960 Note _ As the problem indicates that Insal's Tax Payable was reduced by a small busi- ness deduction of $8,550, the amount eligible for this deduction must have been $45,000 ($8,550 + 19%).The refundable portion of Part | tax is equal to $5,060, which isthe least of the precedingthree amounts, Part D - Eligible RDTOH As noted in Part A, Insal's transitional Eligible ROTOH is nil. Given this, the December 31, 2019 Eligible RDTOH would be: Transitional Fligible ROTOH $s Nil Part IV Taxes Paid On Enbridge’s Eligible Dividends 2,377 December 31, 2019 Eligible ROTOH As none of the dividends paid by Dorne were designated as eligible, the Part IV tax paid on these dividends cannot be added to Insal's Eligible RDTOH. While the $6,200 of eligible d dends received from Enbridge can be added to Insal's GRIP, the non-eligible dividends received from Dorne cannot be. Part D - Non-Eligible RDTOH Insal's December 31, 2019 Non-ligible ROTOH would be calculated as follows: Transitional Non-Eligible ROTOH $ 4,150 Part IV Tax Payable On Dorne's Non-Eligible Dividends 3,780 Refundable Part | Tax 5,060 December 31, 2019 Non-Eligible ROTOH $12,990 Part E - Dividend Refund The maximum amount of dividends that can be designated as eligible is limited by Insal’s GRIP. We know that the initial 2019 balance here was nil and that the $6,200 of eligible dividends received from Enbridge would be added. There is also the possibility that there would a further amount added as a result of some of the corporation's income not being eligible for the small business deduction. (This amount cannot be determined based on the information in the problem.) However, given Insal's policy of designating dividends as eligible only when a dividend refund is available, a further addition to the GRIP would not be relevant in this problem. This is because a dividend refund will only be available for the balance in the Eligible RDTOH, an amount of $2,377. Based on this, the eligible dividend designation will be for $6,200, the amount of the eligible dividends received. The refund on these dividends will be $2,377 {($6,200)(38-1/3%)] The remaining dividends of $12,050 ($18,250 - $6,200) will be non-eligible. The refund on these non-eligible dividends would be $4,619, the lesser of: * $4,619 [(38-1/3%)($12,050)]; and + $12,990, the balance in the Non-Eligible ROTOH. The total dividend refund would be as follows: Dividend Refund On Eligible Dividends $2,377 Dividend Refund On Non-Fligible Dividen 4,619 Total Dividend Refund