Question

Bob is the only shareholder of UplnSmoke Inc., a Canadian controlled private company. For the taxation year ending December 31, 2018, the Company has Taxatie consideration of salary to Bob and/or the payment of dividends, of $135,000. All of this income qualities for the small business deduction Bob's only source of income is either dividends or salary from Whatsup Inc. For 2018, he has available tax credits of SA 200 (combined federal and provincial). Relevant information with respect to his current province of residence is as follows: . The tax rate for individuals on the first 546,605 of taxable income is 8 percent . The provincial dividend tax credit is equal to 32 percent of the gross up on non-oligible dividends • All of the company's activities are confined to a province in which the combine Federal Provincial tax rate is 12%. Hint: Corporate dividends are paid from after salaries are paid with pre-fax monies Any corporate taxes for 2018 will need to paid out of cash on hand. As Bob's Tax Advisor what would you suggest he do at the end of 2018? In your response, indicate any assumptions made and other potential information which mig ENG 825 PM 9/13/20 of >

Answer 1

1. The dividend tax in Canada is 29% at the highest tax bracket. Corporation in Canada usually refers to the dividend as a non-eligible and eligible dividend. Bob's dividend tax credit is equal to 32% which has to be paid on the grossed-up amount of non-eligible dividend.
2. Bob's available tax credit of $4,200 can be used to lower the number of tax payables. If in case, Bob fall in the tax bracket and have a taxable income of $46,605 then he is liable to pay tax at 8% deducting all tax credit.
3. Bob should try to eliminate personal tax credits in order to neutralize the revenue.
4. RRSP are the government plans that provide advantages and it is usually a pretty good approach.
5. Always consider a smaller percentage of fixed income in a taxable portfolio in order to reduce tax breaks.
6. Claim medical expenses if any to get the tax credit.
7. Deduct all related employment expenses on taxes (personal).
8. Splitting income with spouse and contribute any amount for her/his retirement benefit will reduce the overall tax expense.