Chapter 15 Homework Solution
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BuAd 369 Chapter 15 Homework
Name: ______________________________________
Enrique Ruiz wants your advice on whether to transfer some investments into a new CCPC established to hold them. He anticipates the following incomes in 2023:
Eligible dividends on portfolio dividends
$93,000
Capital gains
64,000
Despite having employment income in excess of $500,000, Enrique anticipates needing all the income produced by these investments. On additional income Enrique is subject to a provincial tax rate of 16%. The provincial dividend tax credit is equal to 30% on both eligible and non eligible dividends. The provincial corporate tax rate is 2% on income eligible for the small business deduction and 12% on other
income. The corporation will make the maximum eligible dividend designation. Calculate the after tax cash to Enrique if he keeps the investments personally and the after tax cash if he transfers them to the newly created corporation.
Held by Corporation
Held Directly
Dividend 93,000
Eligible dividends
93,000
Capital gain
64,000
Gross up (38%)
35,340
Part IV tax (38.33%)
-35,650
Taxable capital gain (64,000 X 1/2)
32,000
Part I tax (32,000 X 50.67%)
-16,213
Taxable income
160,340
After tax cash
105,137
Tax rate
X 49% Capital dividend
-32,000
78,567
Cash for taxable dividends
73,137
Dividend tax credit (6/11 + .30)
-29,878
Dividend refund (RDTOH)
45,463
Net Tax
48,688
Part IV + (32,000 X 30.67%)
Total taxable dividend
118,600
Dividend
93,000
Eligible dividend
-93,000
Capital gain
64,000
Non eligible dividend
25,600
Net Tax -48,688
After tax cash
108,312
Eligible dividend
93,000
Gross up 38%
35,340
Non eligible dividend
25,600
Gross up 15%
3,840
Taxable income
157,780
Tax rate
X 49% 77,312
Eligible dividend tax credit (6/11 + .30)
-29,878
Non eligible DTC (9/13 + .30)
-3,810
Net Tax
43,624
Total taxable dividend
118,600
Capital dividend
32,000
Net tax
-43,624
After tax cash
106,976
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