Mr. Samuel, age 54 and a Canadian resident, owns all of the 600 Class A voting common shares of a holding company. The Samuel Family trust owns all of the 400 Class B non-voting common shares of the holding company. The beneficiaries of the trust are Mrs. Samuel, age 52, and the Samuel’s children, Jonathan, Jonas and Jane. The trust is discretionary, and income is paid out to the beneficiaries at the discretion of the trustees. Jonathan is 15 and lives at home. Jonas is 19 and lives in Kingston while he is
a full-time student at university. Jane is 25 and lives part of the year in Waterloo and the other part of
the year in Whistler.
The holding company owns 100% of the common shares of Samuel Appliances Ltd (SAL). Both companies have a December year end. SAL is a retailer of large appliances and is located in Kitchener- Waterloo. Mr. Samuel works full time for SAL as the President and CEO of the company. Jonathan has never worked for SAL. Jonas works for the company seven weeks during the summer months four days a week and has done so since he was in his last year of
high school. Jane works for SAL six months of the year. The rest of the year she lives in Whistler working for a heli-skiing company.
SAL pays year-end dividends to the holding company of $100,000 each year. SAL has only earned income eligible for the small business deduction in prior years and does not have a GRIP balance. Generally, $60,000 is paid out to Mr. Samuel as a dividend on the Class A common shares and $40,000 is paid out to the family trust as a dividend on the Class B shares. In prior years, the trustees of the family trust have made distributions at their discretion to Mrs. Samuel and Jane of $10,000 each and $20,000 to Jonas for his tuition costs each year. Jonathan has not received any income from the trust. Mr. Samuel would again like the trustees to distribute $10,000 to Mrs. Samuel, $10,000 to Jane and $20,000 to Jonas for his 2019/2020 tuition costs at the end of December. Mr. Samuel earns a $200,000 salary from SAL. Mrs. Samuel does not earn any income other than the dividends from the family trust.
Required:
Advise how each of the following would be treated:
Tax treatment of $100K dividend from SAL to Holdco.
Tax treatment of $60K dividend from Holdco to Mr. Samuel.
Tax treatment of $10K distribution of dividend income from the trust to Mrs. Samuel.
Tax treatment of $20K distribution of dividend income from the trust to Jonas.
Tax treatment of $10K distribution of dividend income from the trust to Jane.
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