Billie Fruit lives in the Yukon and her income fluctuates from year to year ranging from over $100,000 to about $35,000. She has two investments of $20,000 each in shares both achieving a return of 7 percent; one by dividend, the other by capital gain.
a. Calculate the higher return on an after tax basis if this is a high income year (assume 17.3% tax on dividends and 21.20% on capital gains). What is the after tax yield?
b. Calculate the higher return on an after tax basis if this is a low income year (assume 4.4% taxon dividends and 14.4 on capital gains). What is the after tax yield?