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Taxation

Shirley wants to decide whether it makes sense for her to invest her money personally or via a corporation. She has the following income Interest income $5,000 Required: Using the Rates below, indicate to Shirley

a) How much taxes she would pay personally

b) How much taxes she would pay if the income flowed through the corporation

c) Determine if there is a tax cost or tax savings if she invested personally versus in the corporation, and how much

d) Determine if there is a prepayment or a deferral of taxes when the corporation is used, and how much

Show all your working.

Rates

Interest Capital Gain Non-eligible dividends Eligible dividends

Dividend Gross up 15% 38%

Personal tax rate 50% 50% 50% 50%

Part 1 Tax 40% 40% 40% 40%

ART 10.67% 10.67% 10.67% 10.67%

Dividend Refund on investment income 30.67% 30.67% 30.67% 30.67%

Part IV tax 38.33% 38.33% 38.33% 38.33%


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