Problem
Nancy Ball presently operates a retailing proprietorship with a December year end and makes $ of net income for tax purposes annually.
She is thinking of incorporating her business and has asked for your advice. She lives in a province where the provincial corporate tax rate is of this
type of federal taxable income. She has $ of federal personal tax credits, $ of provincial personal tax credits, and no other income
You have agreed that you will do the following:
A Estimate the personal taxes that Nancy would pay currently on $ of business income compared with the amount of corporate and personal
taxes that would be paid if she incorporated her business and only took out a salary of $ Ignore all payroll taxes
eg Canada Pension Plan premiums when making your estimates.
B Based on your calculations in A estimate the amount of personal tax that Nancy defers by keeping the remaining aftertax retained earnings in
her company this year. Hint: compute the additional personal tax that she would pay on a dividend equal to the corporation's aftertax retained earnings.
