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Having worked as an individual management consultant, Nicola Nonchev has enjoyed a great deal$$of success. Her effectiveness has generated a fairly long list of potential clients. Recognizing the$$opportunities involved in this situation, Nicola has decided to join a general partnership, Consulting$$Unlimited $($CU$).$

She will be admitted to the partnership January $1,2023,$ with a $25\%$ partnership interest. She is$$giving consideration to either becoming a partner herself or incorporating a wholly owned CCPC$$that will become the partner. If the CCPC becomes the partner its business limit is specified by ITA $125$ and cannot exceed $25\%$ with respect to partnership allocations of active business$$income$.$ Therefore, the business limit will be $$125,000[(25\%)($$$500,000)].$ Distributions of partnership income to her will be made based on the three following alternatives:

Alternative $1$ Her CCPC $($the corporate partner$)$ will pay corporate income tax on$$allocations of partnership income, with after$-$tax funds being paid to Nicola as taxable$$dividends$.$

Alternative $2$ Nicola will use a bonus down strategy to reduce the corporate income to the $$125,000$ amount eligible for the SBD$,$ with aft$-$tax funds being paid to Nicola as taxable dividends.

Alternative $3$ Nicola will personally become a member of the partnership and will be subject to income tax on any allocations of income.$$

Nicola$$s total personal tax credits for $2023$ allow her to reduce income tax by $$4,241.$ Assume the Dividend Tax Credit is equal to the Gross Up$.$

If a CCPC is incorporated to become the partner, it would be subject to a combined federal$/$provincial income tax rate on income eligible for the SBD of $12\mathrm{.}5\%.$ The rate on any other active business income $($ABI$)$ would be $27\%.$ During the partnership$$s fiscal period ending December $31,2023,$ it is expected to earn $$960,000$ of ABI.$$Because she has no other income, she requires all of the share of income earned by the$$Partnership $(25\%).$

Required:$$

$($a$)$ Calculate the after$-$tax retention of Nicola$$s share of the partnership income for each of the three alternatives. Ignore CPP considerations and the Canada employment tax credit in your calculations. Which approach would you recommend? Briefly explain why this alternative is the best and any other factors she should consider.$$

$($b$)$ State $4$ qualitative points for Nicola to consider when making her decision on the three alternatives above.$$

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