Question 1: (4 parts @ 0.5 marks = 2 marks) Alan earns net income before taxes of $10,000 from his small business corporation (SBC) in the year ending December 31, 2017. He is considering reinvesting the business earnings (net of corporate income taxes) into zero-dividend common shares that are expected to appreciate in value by 8% per annum commencing January 1, 2018. Alan's personal marginal tax rate is 40% (federal provincial combined) on regular income and 27% on non-eligible dividends (net of dividend tax credit ). Assume that the investment income earned by the SBC will be considered merely ancillary to its active business and therefore the 16% SBC rate will continue to apply to all income earned within the corporation Required : (A) (B) . If Alan earns the $10,000 directly as self-employment or professional income in 2017 and invests it, what will be his (after-tax) consumable wealth on 31, 2018? December pay If Alan earns the $10,000 through his SBC in 2017, has the corporation him a dividend on December 31, 2017, and he invests the after-tax dividend personally in the shares expected to appreciate 8% per year and with zero dividends starting January 1, 2018, what will be his (after-tax) consumable wealth on December 31, 2018 ? to (C) If Alan earns the $10,000 through his SBC in 2017, gets the company invest the after-corporate -tax funds, and has the corporation pay him a lump-sum dividend of the accumulated amount on December 31, 2018, what will be his (after-tax) consumable wealth on December 31, 2018 ? pay bonnie (D) Alan's wife, Bonnie, has a personal marginal tax rate of 25% on regular income and 10% on ineligible dividends (after netting the dividend tax credit). As the controlling shareholder Alan is deciding whether the SBC should wages or dividends (as she is also a shareholder in the SBC). Which alternative is superior, and how much more consumable dollars does the superior alternative generate compared to the inferior alternative ?

Question 1: (4 parts @ 0.5 marks = 2 marks) Alan earns net income before taxes of $10,000 from his small business corporation (SBC) in the year ending December 31, 2017. He is considering reinvesting the business earnings (net of corporate income taxes) into zero-dividend common shares that are expected to appreciate in value by 8% per annum commencing January 1, 2018. Alan's personal marginal tax rate is 40% (federal provincial combined) on regular income and 27% on non-eligible dividends (net of dividend tax credit ). Assume that the investment income earned by the SBC will be considered merely ancillary to its active business and therefore the 16% SBC rate will continue to apply to all income earned within the corporation Required : (A) (B) . If Alan earns the $10,000 directly as self-employment or professional income in 2017 and invests it, what will be his (after-tax) consumable wealth on 31, 2018? December pay If Alan earns the $10,000 through his SBC in 2017, has the corporation him a dividend on December 31, 2017, and he invests the after-tax dividend personally in the shares expected to appreciate 8% per year and with zero dividends starting January 1, 2018, what will be his (after-tax) consumable wealth on December 31, 2018 ? to (C) If Alan earns the $10,000 through his SBC in 2017, gets the company invest the after-corporate -tax funds, and has the corporation pay him a lump-sum dividend of the accumulated amount on December 31, 2018, what will be his (after-tax) consumable wealth on December 31, 2018 ? pay bonnie (D) Alan's wife, Bonnie, has a personal marginal tax rate of 25% on regular income and 10% on ineligible dividends (after netting the dividend tax credit). As the controlling shareholder Alan is deciding whether the SBC should wages or dividends (as she is also a shareholder in the SBC). Which alternative is superior, and how much more consumable dollars does the superior alternative generate compared to the inferior alternative ?

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter26: Tax Practice And Ethics

Section: Chapter Questions

Problem 31P

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