Iris Kroneman approaches you with the following information
(a) She resides in a province with a 5% corporate tax rate (i.e., a total tax rate of 16%) where she owns and operates an incorporated business which generates income in the amount of $125,000 before taxes.
(b) She has federal personal tax credits of $2,100 and provincial personal tax credits of $1,400 including, among others, the marital status tax credit.
(c) She requires $40,000 after taxes for living expenses each year. This is after she makes her CPP and RRSP contributions.
(d) She wants to maximize her Canada Pension Plan contributions each year. The CPP calculations are as follows:
Pensionable earnings (salary) ......................................................... $50,100
Basic exemption .......................................................................... (3,500)
Maximum contributory earnings ...................................................... $46,600
Employee rate ............................................................................. 4.95%
Maximum contribution .................................................................. $ 2,307
(e) She wants to make the maximum RRSP contribution based on the earned income you determine she should have. Assume that her earned income for 2011 is the same as for 2012.
REQUIRED
Determine the optimum salary/dividend combination for Ms. Kroneman to achieve her goals and maximize the amount remaining in the company for future dividends.