HOME Ltd. is a Canadian-controlled private corporation operating a small land-development business. In the start of 2020, the company acquired a license to manufacture pre-fab homes and began operations immediately. Financial information for the 2020 taxation year is outlined below: 1. HOME 's profit before income taxes for the year ended November 30, 2020, was $245,000, as follows: Income from land development and pre-fab home manufacturing $248,000 Loss of sale of properties (3,000) $245,000 The loss on sale of property resulted from two transactions. On October 1, 2020, HOME sold all of its shares of Q Ltd., a 100% subsidiary, for $100,000. (The shares were acquired seven years ago for $80,000). Also, during the year, HOME sold some of its vehicles (class 10) for $25,000. The vehicles originally cost $50,000 and had a book value of $48,000 at the time of sale. New vehicles were obtained under a lease arrangement. (NOTE: capital gains are only 50% taxable). 2. The 2019 corporate tax return shows the following ending UCC balances: Undepreciated capital cost: Class 8 $30,000 Class 10 120,000 Class 13 45,000 Class 14.1 2,100 3. HOME occupies leased premises under a seven-year lease agreement that began three years ago. At the time, HOME spent $60,000 to improve the premises. The lease agreement gives HOME the option to renew the lease for two three-year periods. 4 4. HOME began manufacturing pre-fab homes on June 1, 2020. At that time, it acquired the following: License: right to manufacture for 10 years $90,000 Manufacturing equipment (Class 53) 105,000 Trucks (Class 10) 60,000 5. HOME normally acquires raw land, which it then develops into building lots for resale to individuals or housing contractors. In 2020, it sold part of its undeveloped land inventory to another developer for $400,000. The sale realized a profit of $80,000, which is included in the land-development income above (point 1). 6. Accounting amortization in 2020 amounted to $60,000. 7. Travel and entertainment expense include the following: Professional hockey tickets for suppliers and staff $7,000 Hotel and airfare to the staff 9,000 Charitable donations 4,000 8. Legal and accounting expense includes the following: Revising the corporation's articles of association to conduct business in all provinces $2,000 Collection of bad debts 1,500 Reviewing the terms of a collateral agreement on a long-term bank loan 3,000 Annual audit 8,000 Golf dues 2,000 9. The company hired a contractor to landscape the land. The $5,000 bill for the landscaping was paid in full during the year and capitalized on HOME ’s Balance Sheet. 10. On November 29th, HOME ‘s president announced a bonus to be paid to the company's key employee in the amount of $5,000, which was expensed on the books that day. The employee will receive the bonus in 2021 in equal payments of $2,500, to be issued on January 30th and July 30th. Required: Calculate HOME's net income for tax purposes for the 2020 taxation year.
HOME Ltd. is a Canadian-controlled private corporation operating a small land-development business. In the start of 2020, the company acquired a license to manufacture pre-fab homes and began operations immediately. Financial information for the 2020
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