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Term Test #3 (1 hour)

ADM 4344A – Tax II

March 15, 2011
Prof. Kathryn Pedwell

Student Name:: _______________________________________________________________

Student I.D.: _________________________________________________________________

|Question #1 |/10 |
|Question # 2 |/10 |
|Question # 3 |/20 |
|Total: …show more content…

He would be the sole shareholder and he plans to transfer both his business and his investment portfolio to the company. He estimates that his business will earn $80,000 this year and his investment portfolio will receive eligible dividends in the amount of $96,000.

Your client is already earning over $200,000 per year, paying tax at the maximum federal tax bracket of 29% and provincial tax of 13% and his existing taxes absorb all of his current tax credits. Nonetheless, he wants all of the after-tax income of his corporation paid out to him in the form of dividends.

After some investigation, you determine that his active business income is eligible for the small business deduction of 17% and will incur provincial taxes at a rate of 5%. Provincial dividend tax credits are 7/17 of the dividend gross up for eligible dividends and 1/3 of the dividend gross up for non-eligible dividends.

To understand the impact of incorporating, your client has asked you to calculate two scenarios for him:

Required:

1. If