(0) Assignment #1: Corporate Income Tax You, CPA, work in the tax department of a small public accounting firm in Edmonton, Alberta. The busy tax season has just finished and on a brisk Monday morning in May the partner introduces you to new clients, Jeff and Anya Perez, who are the shareholders of Avaya Inc. Jeff and Anya have approached your accounting firm to prepare the applicable tax filings for Avaya Inc. for the current year. Jeff and Anya have provided you with a copy of the Income Statement (and notes) for their corporation. For the year ending December 31, 2022 , the Income Statement of Avaya Inc., prepared in accordance with generally accepted accounting principles, is as follows: Revenues $ 2,557,167 Expenses: Cost of Goods Sold 1,534,300 Selling & Administrative Costs 511,433 Depreciation Expense 204,573 $ (2,250,307) Income from Operations $ 306,860 Other Income, Gains & Losses $ 290,804 Income Before Tax Expense $ 597,664 Income Tax Expense Current 93,638 Future 17,087 $ (110,725) Net Income $ 486,939 Detailed Information Regarding Above Income Statement: 1 Avaya Inc. spent 14,046 during the year on landscaping for its new building. For accounting purposes, this was treated as an asset. The Company will not amortize this balance as it believes the work as an unlimited life. 2 Selling and Administrative costs include 11,732 in bad debt expense calculated based on a review of the aged receivables listing. 3 Selling & Administrative costs include contributions to registered charities of 20,248 . 4 Selling & Administrative costs includes the following: - Insurance premiums on a life insurance policy for the president $ 6,762 Note: the life insurance policy is required as collateral for a loan -legal fees paid to the corporation's lawyer to review a loan contract $ 4,097 5 Selling and Administrative costs include compensation expense for the executive management team at Avaya Inc. Included in compensation expense (in addition to salary expense) are the following amounts: - Business meals and entertainment costs of $ 21,359 - Membership fee for a local golf and country club $ 8,031 - Bonuses declared on Dec.31, 2022 $ 17,557 * Note: The bonuses were paid on Mar.15 2023 - Automobile Allowances for business travel incurred $ 5,637 * Note: The allowance was paid at the rate of $ 2.25 per business kilometer 6 On January 1, 2022 , the Company had the following UCC Balances: Class 1 - Commerical building acquired in 2017 $ 363,301 Class 8 196,640 Class 10 46,989 Class 14 24,382 There are no additions or dispositions of Class 1 assets during the year. There are dispositions of Class 8 assets during the year of 264,528 (Proceeds) and acquisitions in the total amount of 170,870 . The Class 8 assets that were sold in the year had an original cost of 219,432 and net book value of $ 210,908 resulting in an accounting gain of 53,620 (included in Other Income, Gains and Losses above). The Company has decided to lease of all its trucks and trailers in the future, therefore all of the assets in Class 10 are sold during the year. The capital cost of these assets was 133,484 and the proceeds of disposition amounted to 71,942 . The net book value of these assets was 54,894 and the resulting accounting gain of 17,048 was included in Other Income and Expenses. The Class 14 balance relates to a franchise agreement which was signed on September 1, 2020 . The franchise agreement has a term of 8 years. The franchise fee, which was paid on the date the agreement was signed, was $ 29,262 There were no further expenditures related to this franchise in the current year and the initial franchise fee was expensed in 2020 . Prior to 2022 , all laptops were leased. During the current year, laptops and computers were purchased for $ 43,308 . In addition, on July 1, 2022 Avaya purchased an Nissan GT-R Nismo for Jeff Perez (director & shareholder) costing $ 187,862 . 7 On June 6, 2022 , Avaya Inc. acquired an unincorporated business. The purchase price included 64,076 for goodwill. At the end of the year, the goodwill was tested for impairment and an impairment loss (for accounting purposes) was recorded in the amount of $ 16,019 (this is included in Other Income, Gains & Losses on the Income Statement above). 8 Selling and administrative costs includes interest and late filing penalties for GST returns of $ 351 . 9 Other income, Gains & Losses includes an accounting gain on the sale of land owned by the corporation. The land was purchased several years ago and has been used as a storage lot for Avaya Inc. The land was originally purchased for $ 81,933 and was sold for proceeds of 153,646 . The purchaser will pay for the land using instalment payments of 27,656 in 2022 , then 76,823 in 2023 and the remainder will be paid in 2024 . Traverse Ltd. would like the maximum deferral on the taxable capital gain on the sale of this land. 10 Also included in the Other Income, Gains & Losses balance recorded on the Income Statement are the following amounts: Eligible Dividends from the Company's portfolios of investments 38,368 (note: the above dividends were received from Taxable Canadian Corporations) Non-Eligible Dividends from a wholly-owned subsidiary 23,068 (note: the wholly owned subsidiary is a Taxable Canadian corporation) Foreign dividends (not from a foreign affiliate) 11,534 Canadian Source Interest Income 91,473 11 Avaya Inc. has net capital loss carryover balance from 2017 of $ 78,600 and a non-capital loss carryover balance from 2018 of $ 23,644 . Management has indicated that they would like to deduct as much of these amounts as possible in the current year. 12 The corporation has permanent establishments in Alberta, Ontario and the United States. Its gross revenues, salaries and wages, and operating profit values are as follows: Location Gross Revenue Payroll Gross Profit Alberta 907,120 145,546 234,096 Ontario 1,328,165 199,225 46,819 U.S. 321,881 64,376 741,952 Totals 2,557,167 409,147 1,022,867 13 Avaya Inc. is associated with its wholly owned subsidiary. The two corporations have agreed to allocate 273,393 of the annual business limit to Avaya in the current taxation year. 14 The foreign jurisdiction withheld tax of 37,098 from the US-source business income and 1,730 from the foreign non-business (dividend) income. the foreign tax credits for business and non-business income are equal to the amounts withheld. 15 The opening balance for Avaya's General Rate Income Pool (GRIP) on January 1 of the current year is $ 58,524 . In the prior year, the corporation declared dividends of $ 29,262 . Of this total, $ 9,656 of the dividends declared were designated as eligible dividends and the remainder were other than eligible dividends. Required: Please prepare a response to each of the questions indicated below (Part A through C below) using a word document and or excel spreadsheet. Be sure to show all of your work and to include Income Tax Act references for each adjustment made in your calculations in PART A & PART B of the assignment only. Your submission, with all of your group member's names, must be submitted via the Blackboard Learn assignment #2 link. PART A: Calculate the corporation's minimum net income for the year ended December 31, 2022 under the provisions of Division B of the Income Tax Act. Support your with calculations and the appropriate references to the Income Tax Act. Be sure to use the Section 3 format for the calculation of net income for tax purposes. Marks will only be receieved for income properly categorized by source. Avaya Inc. has a policy of always taking maximum CCA deduction. Please show all of your work for the CCA calculations. Assume all expenses are reasonable in the circumstances. PART B: Calculate the minimum taxable income for the company for the year ended, December 31, 2022 . Support your answer with calculations and provide the appropriate references to the Income Tax Act. Indicate the type and amount of any balances available for carry forward to subsequent years. PART C: Determine Avaya Inc.'s Part I Tax Payable for the year ending December 31, 2022 and provide all explanations and assumptions you made, if any. NOTE: Part I Tax Payable includes the following amounts: base amount of federal tax, general rate reduction, federal tax abatement, additional refundable tax (ART) on investment income, the small business deduction and foreign tax credits. PART D: Determine Avaya Inc.'s General Rate Income Pool (GRIP) balance as at December 31, 2022 and indicate the importance of this balance for Avaya Inc. Recommended Approach for this Assignment: In your groups, assign Part A (net income) and B (taxable income) to two group members and Parts C & D (Part I & GRIP) to two group members. The group members calculating taxes payable can start their calculations using a "placeholder" number in excel. Then combine the group's responses into one document (or excel spreadsheet), replace any "placeholder" numbers with the actual calculated figures and review all calculations together. For each note to the Income Statement: compute the amount to be included in the computation of net income, if any, then determine the appropriate ITA or income tax bulletin reference and list any assumptions/provide an explanation, as required. If the figure is not used in the calculation of net income explain why it is excluded. Show all of your work and clearly indicate the formulas used for all calculations.