FMGT 4410Chapter 13: Taxation of Corporate Investment IncomeFor a non-CCPC (i.e. public company or private company that is not Canadian controlled), there is an account in place which tracks components of income that have been taxed at low corporate rates. Thesemay be amounts retained by a CCPC that benefitted from the small business deduction before it becamepublic, or non-eligible dividends received from a CCPC which should flow to the individual shareholder as such. This account is known as the Low Rate Income Pool (LRIP). The balance in this account must be reduced to nil by the payment of non-eligible dividends prior to the payment of eligible dividends.A Opening LRIPBNon-eligible dividends received from a Canadian corporationNon-eligible dividends paid during the current yearGLRIP Balance 89(1) "low rate income pool"The LRIP account is used to track balances that have not been subject to full corporate tax rates. The presence of LRIP requires that dividends paid must be designated as non-eligible until the LRIP balance isexhausted (it is not at the discretion of the corporation).ExampleAt the end of 2017, Ovamp Ltd. has an LRIP balance of $450,000. During 2018, the Company receives non-eligible dividends from a CCPC in the amount of $225,000. During 2018, the Company pays dividends of $360,000. What amount of the dividends paid out can be designated as eligible?

Solution:Ending 2018 LRIP balance is $450,000 + 225,000 = $675,000. Given that Ovamp paid out $360,000 in dividends, none of these dividends can be designated as eligible because the LRIP balance exceeds the total dividends paid.