Mr. Wiser is contemplating investing in two different mutual funds. His investment options are set out below.

Mr. Wiser contemplates holding both mutual funds for the same period of time - from purchase to December 31, 2016. Mr. Wiser is in the top federal income tax bracket (29%). Mr. Wiser's provincial tax on income rate is 17%. Assume that the combined federal and provincial dividend tax credit is equal to the dividend gross-up. Assume that the Canadian Dividend Fund receives and distributes dividends from Canadian-resident public corporations.
REQUIRED
(A) Based on the above information, which mutual fund should Mr. Wiser prefer?
(B) Can Mr. Wiser achieve any advantage by purchasing the above mutual fund in the name of his 8-year-old daughter who has no other source of income?
(C) Mr. Wiser's spouse has no source of income. Can Mr. Wiser achieve any advantage by lending $200,000 to his spouse and having her purchase a rental property earning $16,000 per year? The $200,000 loan would be evidenced by a promissory note repayable in four equal annual instalments on each of December 31, 2012 to 2015 and bearing interest at the prescribed rate of 3%.

Transcribed Image Text:

Amount Mutual Fund $2,000 International Income Fund Annual interest of 8.0% $2,000 Canadian Dividend Fund Annual dividend of 6.0% Distribution