Up until the end of 2015, Fred Murphy held stock and mutual fund investments in an investment account with a Canadian bank. In 2015, he earned $32,000 in interest and dividends on the investments. Fred is a resident of Canada and earns income exceeding the highest tax bracket. Fred’s brother Joe lives in Florida. Joe incorporated a U.S. entity on January 1, 2016. Fred and Joe each contributed $400,000 and each received 50% of the common shares of the corporation. Fred sold his investments in Canada to make the contribution. The $800,000 of cash was invested by the U.S. entity in a rental condo in Florida. Joe manages the property and will collect a $100,000 salary from the corpora¬ tion in 2016. The condo is marketed in Canada and the United States and rented to vacationers throughout the year. Profit from the rental is expected to be $80,000 for 2016. U.S. tax at a rate of 20% will apply to the profit.

REQUIRED

(1) What are the Canadian tax implications of the investment to Fred in 2016?

(2) What are the Canadian tax implications of the investment to Fred in 2017 when the company pays a $64,000 dividend to the shareholders? Withholding tax of 15% will apply to the dividend paid to Fred.