Problem 5 A consumer electronics company was formed in Saskatoon, Saskatchewan,

Question

Problem 5 A consumer electronics company was formed in Saskatoon, Saskatchewan, to manufacture and sell GPS units for cars. The company purchased a warehouse for $500,000 and converted it into a manufacturing plant. It completed instalation of assembly equipment worth $1,500,000 on January 31. The plant began operation on February 1. The company had a gross income of $3,500,000 for the calendar year. Manufacturing costs and al operating expenses, excluding the capital expenditures, were $1,280,000. The CCA for capital expenditures amounted to $128,000. Assume that the company qualifies for small business deduction. Use Table 9.1 and 9.2 posted at eClass for tax rates for Saskatchewan, (a) Compute the taxable income of this company. b) How much will the company pay in income taxes for the year? TABLE 9.1 Federal Corpate Tax Structure for 2008 Type of Co Basic federal tax Less: federal abatement Less: SBD Less: MPPD 38.0% 10.0% 17.0% Manufacturing 38.0% 10.0% 38.0% 10.0% Less: rate reduction Total federal tax rate 8.5% 11 .0% 19.5% 19.5% Adapted from KPMG (www.kpmg Only Canadian-Controlled Private Corporations (CCPC) are cligible for SBD, SBD business limit for federal taxation is $400,000. reprinted with permission. Copyright © 2012 Pranoncnadala.. Tenen.

Explanation / Answer

Taxable Income and Tax Calculation Amount in $ Gross Income 3500000 Less: Manufacturing and all operating expense -1280000 CCA for Capital Expense -128000 -1408000 Taxable Income 2092000 *Since the company qualifies for small business deduction eligible tax rate would be the one applicable for Small Business viz 11% for federal tax. FEDERAL TAX Federal Tax @ 38% 794960 Less: Federal abatement @ 10% -209200 SBD @ 17% (maximum 400000) -355640 Total Federal Tax @ 11% 230120 PROVINCIAL/TERRITORIAL TAX Province/Territory tax for Saskatchewan is 4.5% Province/Territory Tax @ 4.5% 94140

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