Brian Forthright has $20,000 in pre-tax income that he does not need currently. He is trying to decide whether it would be better to contribute the $20,000 to his RRSP and deduct the full amount, or invest the after tax amount of these funds either in a TFSA or outside either plan. He will invest the available funds in preferred shares that pay an annual eligible dividend of 5 percent. At the end of five years, he will use all of the available funds for an extended vacation. Brian’s combined marginal tax rate on ordinary income is 40 percent and his combined tax rate on eligible dividends is 22 percent. Ignoring the effect of any reinvestment of the dividend income, determine which of the three alternatives will provide more funds for Brian’s trip.

Answer rating: 100% (QA)

Invested Inside RRSP Deductible Contribution 20000 Dividends Received 5520000 5000 B... View the full answer