The following information has been provided to you by your client, Mr. Elf. The information, unless otherwise stated, relates to Elf Inc.'s December 31, 2011 year-end. Elf Inc. is a profitable manufacturer of smart phones and it operates in Toronto. Elf Inc. is a private company and its shares are 100% owned by Mr. Elf.
Mr. Elf is the CEO and sole director of Elf Inc. Elf Inc.'s CFO has recently passed away and Mr. Elf is struggling to find a replacement. Mr. Elf is an expert on manufacturing smart phones and operational matters but does not know much about income tax. Accordingly, Mr. Elf has asked you, Elf Inc.'s tax accountant, to answer the following questions. Where possible, Mr. Elf wants to minimize income tax payable.
Required:
Answer your clients' tax questions found below. Show detailed calculations and fully explain your answers. You must give Income Tax Act (ITA) and/or Income Tax Regulation (ITR) section, subsection and paragraph (where applicable) references in order to support your answers. When giving references you must be specific. Don't just list multiple references!