Peter is an executive at a large financial firm, earning a salary of more than $600,000 a
Question:
Peter is an executive at a large financial firm, earning a salary of more than $600,000 a year. Peter is also a sole proprietor of a business that will have active business income earned in Canada of $98,000 this year. The province where Peter lives charges a provincial tax rate of 16% on taxable amounts above $500,00.00 The province does offer a dividend tax credit is equal to 4/13 (31%) of the gross up portion of non-eligible dividends. The province’s corporate tax rate is 3% on income eligible for the small business deduction and 15% on other income.
Peter wonders what, if any tax deferrals or savings that will be available, he incorporated the business left the $98,000 of income in the corporation. He also wonders if there would be any tax savings if the $98,000 was paid out to him in dividends.
Required:
Calculate:
- Total Taxes Payable (Federal and Provincial) by Peter on the unincorporated business income.
- Total Taxes Payable (Federal and Provincial) by Peter if he incorporates the business.
- Total Taxes Payable (Federal and Provincial) by Peter if he pays himself the dividend.
- Is there a tax deferral by incorporating the business and leaving the income in the corporation? If yes, how much?
- Is there a tax savings by incorporating and paying himself $98,000 in dividends? If yes, how much?