You recently left your firm for a promotion to senior tax manager with a competitor. A partner introduces you to a new client of the firm - Ms. Damree. Ms. Damree is the sole shareholder of Baskets Unlimited Inc., a corporation that creates unique gift baskets for special life moments. Baskets Unlimited Inc. is a CCPC with a December 31, 2020 year end. For the 2020 tax year, Baskets Unlimited has taxable income of $674,000.

Ms. Damree tells you that since she has no other source of income, she needs all of the income out of the corporation to support her lifestyle. Ms. Damree’s combined personal tax credits are $5,000.

You do some research and note the following information regarding Ms. Damree’s province of residence:

• Corporations are subject to a provincial corporate tax rate of 4% on income eligible for the SBD.
• The provincial corporate tax rate on income not eligible for the SBD is 13%.
• Ms. Damree's personal marginal tax rate is 42% (combined federal and provincial).
• The provincial dividend tax credit is 4/13 of the gross up for non-eligible dividends and 5/11 of the gross up for eligible dividends.

At year end, December 31, 2019, Baskets Unlimited Inc. did not have a GRIP balance.

Required:

1. Determine Ms. Damree’s after-tax retention if she only receives dividend income from the corporation.
2. Is there any action that could be taken to improve Ms. Damree's after-tax retention? 
3. If so, explain in detail, using calculations if or where appropriate.

Answer rating: 100% (QA)

After tax retention is an amount of money that is subtracted from a t... View the full answer