YBM Metals Ltd. is a Canadian-controlled private corporation with head offices in Langley, British Columbia. YBM Metals is a wholesale company that sells manufactured aluminum eaves troughs directly to builders. It also has a construction business that installs its products (and related products) on consumers’ homes. For its fiscal year ended December 31, 2017, the corporation had correctly calculated its income for tax purposes under Division B as follows:
Canadian operating profits (Note 1) $503,000
Foreign: income before tax from U.S. branch in C$ (Note 2) 60,000
Royalty income (Note 3) 55,000
Interest income on outstanding A/R in construction business 6,500
Recapture of CCA (Note 4) 12,500
Rental income (Note 5) 49,000
Dividend received from a Wholly Owned subsidiary (subsidiary received
$5,000 dividend refund) 22,000
Taxable capital gains net of allowable capital losses 5,000
Dividends from taxable Canadian corporations — non-connected 19,000
Division B income for tax purposes $732,000
(1) Operating profits are from its two businesses; geographic and business line details described below.
(2) Foreign income tax was paid in the amount of C$13,000 on this income.
(3) The royalty income had been determined to be property income.
(4) The recapture resulted from the sale of some equipment used in the construction business.
(5) The rental income was derived from a five-year lease of the entire space of an unused warehouse owned by the corporation.
(A) The balance in the tax accounts at the end of 2016 and other information from the 2016 taxation year were:
Unused business foreign tax credit $ 4,000
Refundable dividend tax on hand 40,000
Dividend refund for 2016 9,000
(B) A net capital loss of $6,000 was realized in June 2016; no capital gains were realized by the corporation in 2016 or in the prior three years.
(C) DCL made charitable donations of $12,500 during the year.
(D) Four quarterly dividends of $35,000 were declared at the end of each calendar quarter of 2017 and, as always, were paid two weeks after their declaration. Similarly, the dividend for the last quarter of 2016 of $22,500 was paid on January 14, 2017.
(E) The corporation has permanent establishments in British Columbia, Ontario, and the United States. Its gross revenues, salary and wages, operating profit, and gross asset values are as follows:
Location Gross Revenue (000’s) Payroll (000’s) Operating profit (000’s) Gross asset value (000’s)
BC 1,850 2,450 123 4,500
Ontario 2,600 950 140 800
U.S 950 350 40 700
Total 5,400 3,750 303 6,000
(F) The corporation has taxable capital of $11,000,000.
Calculate the federal taxes and provincial taxes at an assumed net tax rate of 12% on federal taxable income payable by YBM Metals Ltd. Remember to calculate the general tax reduction. Also compute the refundable dividend tax on hand balance as at December 31, 2017 and compute the dividend refund for 2017. Show all calculations.