Rainbow Co.is a Canadian controlled private corporation with active business income of $350,000 in 2020.The company engages in retail and wholesale activities.Capital gains recognized by the company in 2020 totaled $84,000.Rainbow Co.will utilize a net capital loss carry-over of $28,000 on its 2020 tax return.
Required:
Calculate the following for Rainbow Co.for 2020:
A.Net Income for Tax Purposes
B.Taxable Income
C.Part I Federal Tax - Identify amounts for 1) basic federal tax, 2) federal abatement, 3) refundable tax on investment income, 4) small business deduction, 5) general rate reduction), and 6) the total federal tax.
A.

\begin{array}{|l|r|r}\hline \text { Business income } & \$ 350,000 \\\hline \text { Taxable capital gain }(\$ 84,000 X .5) & 42,000 \\\hline \text { Net Income for Tax Purposes } & \$ 392,000\\\hline \end{array}

\begin{array}{|l|r|r|}\hline \text { Less: } & & \\\hline \text { Net-capital loss } & & -28,000 \\\hline \text { Taxable Income } && \$ 364,000 \\\hline\end{array}

\begin{array}{|l|r|r|}\hline \text { Primary federal tax } \$ 364,000 \times 38 \%= & 1) & \$ 138,320 \\\hline \text { Less federal abatement } \$ 364,000 \times 10 \%= & 2) & -36,400 \\\hline \text { Refundable tax on investment income: } & &\\\hline102 / 3 \times \text { lessor of: }\\\hline\end{array}

\$ 14,000 \text { aggregate investment income (taxable capital gain less net-capital loss) }

\begin{array}{|l|l|l|}\hline \$ 14,000 \text { (TI } \$ 364,000-\text { SBD amount } \$ 350,000) & 3) & 1,493 \\\hline \text { Less small business deduction: } & & \\\hline 19 \% \times \text { the lessor of: } & & \\\hline \text { Taxable income } \$ 364,000 & & \\\hline \text { Active business income } \$ 350,000 & 4) & -66,500 \\\hline \text { Small business annual limit } \$ 500,000 & & \\\hline \text { General tax reduction } 13 \%-(\$ 364,000-\$ 350,000-\$ 14,000) & 5)&0 \\\hline \text { Part I Federal Tax } & 6) & \$ 36,913 \\\hline\end{array}

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