FMT14 Problem: RDTOH - Peleluc Inc.

FMT14 Problem: RDTOH - Peleluc Inc.

Peleluc Inc (“Peleluc”). is a Canadian controlled private corporation that produces and sells

gourmet cat food. Due to its overwhelming success, Peleluc was fortunate to invest its excess

cash flow in several profitable ventures.

It generated investment in earnings during 2007 consisting of $2,500 in interest, $12,000 in

dividends and $26,000 in capital gains. $8,000 of the dividends were received from a 25%

equity position in another profitable Canadian corporation that received a dividend refund of

$10,000 in respect of all dividends paid. The remaining $4,000 was received from various

portfolio investments.

Peleluc had $10,000 in net capital losses carried forward from 2006 and an RDTOH balance of

$6,000 at the end of 2006. During 2006, $27,000 of dividends were paid.

Peleluc’s taxable income for 2007 is $1.4 million.

Required:

Calculate the balance in the RDTOH account at the end of 2007 and the dividend refund for

2007.