accounting
PART A
| CH 13 AP 9 Mrs. Edwards… | ||||
| *(Federal 2020 Personal Tax Rates on TB Page 537) | ||||
| *(Provincial 2019 Personal Tax Rates TB Page 541) | ||||
| input cells | ||||
| *Fed & Prov combined Corporate Tax Rate is 13% | ||||
| PART A - Calculate the tax she would pay personally, then calculate tax the corp would pay plus her tax on a $50K salary | ||||
| Tax on income earned as a proprietorship | ||||
| Business Income | A | 210000 | T2125 | |
| Tax | 77185 | |||
| Tax credit(given) | -4600 | |||
| Net Tax Payable | B | 72585 | ||
| After-Tax Cash (A-B) | 137415 | |||
| Tax on Income earned through a Corporation when the company pays her a $50K salary | ||||
| Business Income | 210000 | |||
| Salary paid (50k) | -50000 | |||
| Taxable Income | C | 160000 | ||
| Corprate tax Payable (38%-10%-19%+4%) | 13% | |||
| Net Tax Payable | D | 20800 | ||
| After Tax Retained Earnings (C-D) | 139200 | |||
| Tax on the $50k salary paid to her | ||||
| salary | E | 50000 | ||
| Tax on the $50k salary paid to her | 12610 | |||
| tax credit | -4600 | |||
| Net Tax Payable | F | 8010 | ||
| After-Tax Cash (E-F) | 41990 | |||
| Comparison of Alternatives | Tax | Cash | ||
| Personal Tax paid now on$ 210000 | G | 72585 | 137415 | |
| Tax if Incorporated: | ||||
| corporate tax | 20800 | 139200 | ||
| Personal tax on salary | 8010 | 41990 | ||
| H | 28810 | 181190 | ||
| Annual cash-flow advantage from tax deferral (G-H) (H-G) | 43775 | 43775 | ||
PART B
| PART B - Determine how much Personal Tax will be deferred each year by keeping the after-tax retained earnings in the corporation | ||
| Salary | 50000 | |
| Dividend (balance of RE) | 139200 | |
| Gross up (15%) | 20880 | |
| Taxable Income | 210080 | |
| Tax | 77222 | |
| Tax Credits (given) | -4600 | |
| Dividend Tax Credit | -20880 | |
| Total Tax Payable | 51742 | |
| Less: Tax Paid on Salary (in Part A) | -8010 | |
| Total Tax Deferred on Dividend | 43732 | |
PART C
| PART C - Calculate the income tax cost or savings for her if she incorporates | ||||
| Comparison: | ||||
| Personal Tax on $210000 | 72585 | |||
| Tax if incorporated: | ||||
| Corporate Tax | 20800 | |||
| Personal Tax on $50000 | 8010 | |||
| Personal Tax on deferred dividend | 43732 | 72542 | ||
| Tax cost (savings) of Incorporating | -43 | |||
PART D
| PART D - Discuss ways can we implement a plan to effectively Income Split | ||
| Issue shares to family members ( exercise caution) | ||
| watch for the implication of tax on split income ( TOSI) RE: age of famaily memebers,must work> 20 hrs per week (18-24 yrs old) | ||
| family memebers can invest in the company and purchasing shares | ||
| pay dividends on shares issued to trigger RDTOH refunds | ||
| advantage if family owns the shares: Qualifyed samll business corporation shares (QSBC), multiply access to the lifetime captial gain exemption (LCGE) | $ 883 K |