1) Ms. Griet Naidu has $175,000 in cash that she does not currently require for personal expenses. Her personal tax rate are as follows: 32% on eligible dividends (this rate is net of all tax credits) 37% on non-eligible dividends (this rate is net of all tax credits) 45% on all other income (this rate is net of all tax credits)

The combined federal/provincial rate on investment income earned by a CCPC is 50-2/3 percent. This includes the ITA 123.3 refundable tax on investment income.

Ms. Naidu would like to invest her $175,000 for the year ending December 31, 2020 in a debt security that pays interest of 3 percent per annum. Her only investment income for the year will be the $5,250 of interest that she will receive on this security.

Required:

Prepare calculations that will compare the after tax retention of income that will accrue to Ms. Naidu for 2020 if: A. The investment is owned directly by her as an individual. B. The investment is owned by a corporation in which she is the sole shareholder, and which pays out all available income in dividends. (Ignore cash flow timing issues regarding dividend tax refunds)

Canadian Taxation Rules