Regina Co. is a CCPC with a December 31 year end. Regina is not associated with any other corporations. Taxable capital employed in Canada for the current and preceding years was less than $10,000,000. AAII for the current year and preceding year was $72,000 and $62,000, respectively. What is the reduced business limit for Regina for the current year?

A. $50,000
B. $440,000
C. $60,000
D. $390,000

Note: The correct answer is B. I don't know how to solve this.

Regina Co. is a CCPC with a December 31 year end. Regina is not associated with any other corporations. Taxable capital employed in Canada for the current and preceding years was less than $10,000,000. AAII for the current year and preceding year was $72,000 and $62,000, respectively. B. $440,000 is the reduced business limit for Regina for the current year.

Explanation:

Regina Co. is a small business in Canada, and the reduced business limit helps determine how much of its income qualifies for a lower tax rate. The calculation involves two main factors: taxable capital and adjusted investment income.

For Regina, with taxable capital below $10,000,000, the basic business limit is $500,000. Now, considering the adjusted investment income for the current and preceding years (AAII), we use a formula that subtracts a portion of the income above a certain threshold.

In Regina's case:

[tex]\[ \text{Reduced Business Limit} = $500,000 \times \left(1 - \frac{\$72,000 - \$500,000}{5\%}\right) \][/tex]

This gives us the reduced business limit of B.$440,000. Essentially, it ensures that businesses with higher investment income get a slightly lower benefit from the tax reduction. So, Regina's reduced business limit for the current year is $440,000.