Bob Bell Tea has an annual employment income in excess of $300,000. This means that any additional income that he receives will be taxed at a combined federal/provincial tax rate of 51%. Because of some very bad real estate investments, he finds that, in addition to his employment income, he needs an additional $50,000 in cash during the coming year.

Bob is the sole shareholder of Tea Enterprises, a CCPC. It is expected that, for the taxation year ending December 31, 2021, Tea Enterprises will have taxable income, before consideration of dividends or salary paid to its sole shareholder, of $225,000 which is subject to income tax at a combined federal/provincial rate of 12%. While Mr. Tea does not normally remove funds from the Company, it has sufficient cash reserves to pay any amount of required salary or dividends. Mr. Tea has asked your advice as to whether it would be more tax-efficient to receive the additional $50,000 as non-eligible dividends or as a salary. In his province of residence, the provincial dividend tax credit is equal to 4/13 of the gross-up on non-eligible dividends. Provide the requested advice. Please show all work.

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