Salary vs. Dividends (as part of HW 5) Incredible Inc. is a Canadian controlled private corporation with a December 31 year end. For the 2023 taxation year, Incredible Inc. has Taxable Income, before consideration of dividends or salary paid to its sole shareholder, of $197,000. All of its income has always been from active business activities. The cash balance of the Company, prior to any payments on the current year's taxes, is also equal to this amount. Its only shareholder, Ms. Violet Incredible, has no income other than the dividends or salary paid by the corporation and has combined personal tax credits of $3,375. In her province of residence, assume: •The corporate tax rate is 3 percent on income eligible for the small business deduction. • The corporate tax rate is 14 percent on other income. • Personal provincial Tax Payable on the first $165, 430 is $16,000. The rate on additional amounts is 12 percent. • The dividend tax credit is 4/13 of the dividend gross up for non-eligible dividends. Note: Federal income tax payable on Taxable income up to $165, 430 is $34,208. The rate on additional amounts is 29%. (a) Determine the amount of after tax cash that Ms. Incredible will retain if the maximum salary is paid by the corporation out of the available cash of $197,000. Ignore CPP contributions and the Canada employment tax credit. (b) Determine the amount of after tax cash that Ms. Incredible will retain if the maximum dividend is paid by the corporation out of the available cash of $197,000
Salary vs. Dividends (as part of HW 5) Incredible Inc. is a Canadian controlled private corporation with a December 31 year end. For the 2023 taxation year, Incredible Inc. has Taxable Income, before consideration of dividends or salary paid to its sole shareholder, of $197,000. All of its income has always been from active business activities. The cash balance of the Company, prior to any payments on the current year's taxes, is also equal to this amount. Its only shareholder, Ms. Violet Incredible, has no income other than the dividends or salary paid by the corporation and has combined personal tax credits of $3,375. In her province of residence, assume: •The corporate tax rate is 3 percent on income eligible for the small business deduction. • The corporate tax rate is 14 percent on other income. • Personal provincial Tax Payable on the first $165, 430 is $16,000. The rate on additional amounts is 12 percent. • The dividend tax credit is 4/13 of the dividend gross up for non-eligible dividends. Note: Federal income tax payable on Taxable income up to $165, 430 is $34,208. The rate on additional amounts is 29%. (a) Determine the amount of after tax cash that Ms. Incredible will retain if the maximum salary is paid by the corporation out of the available cash of $197,000. Ignore CPP contributions and the Canada employment tax credit. (b) Determine the amount of after tax cash that Ms. Incredible will retain if the maximum dividend is paid by the corporation out of the available cash of $197,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
am. 119.
Transcribed Image Text:Salary vs. Dividends (as part of HW 5)
Incredible Inc. is a Canadian controlled private corporation with a December 31 year end.
For the 2023 taxation year, Incredible Inc. has Taxable Income, before consideration of dividends or
salary paid to its sole shareholder, of $197,000. All of its income has always been from active business
activities. The cash balance of the Company, prior to any payments on the current year's taxes, is also
equal to this amount.
Its only shareholder, Ms. Violet Incredible, has no income other than the dividends or salary paid by the
corporation and has combined personal tax credits of $3,375.
In her province of residence, assume:
•The corporate tax rate is 3 percent on income eligible for the small business deduction.
• The corporate tax rate is 14 percent on other income.
• Personal provincial Tax Payable on the first $165, 430 is $16,000. The rate on additional amounts is 12
percent.
• The dividend tax credit is 4/13 of the dividend gross up for non-eligible dividends.
Note: Federal income tax payable on Taxable income up to $165, 430 is $34,208. The rate on additional
amounts is 29%.
(a) Determine the amount of after tax cash that Ms. Incredible will retain if the maximum salary is
paid by the corporation out of the available cash of $197,000. Ignore CPP contributions and the
Canada employment tax credit.
(b) Determine the amount of after tax cash that Ms. Incredible will retain if the maximum dividend
is paid by the corporation out of the available cash of $197,000
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