Amos Burton, a Canadian resident, is your client. He has a new business that operates in the area of spaceship maintenance consulting. He estimates that his new business will produce income of $130,000 per year. If he incorporates this business in 2019, the income would be eligible for the small business deduction and all dividends paid would be non-eligible. In the province where he lives, such corporate income is taxed at a combined federal / provincial rate of 14%. Amos has other income sources that place him in a combined federal / provincial tax bracket of 42%. In his province, the provincial dividend tax credit for non-eligible dividends is equal to 20% of the gross up.

1. Would your client save taxes if he was to channel this source of income through a corporation? Please provide an answer based on numbers alone (3 points). Please show all the necessary calculations.

2. Mr. Burton’s fiancée, Clarissa Mao, also a Canadian resident, has a similar situation. She has a new consulting business that she estimates will produce an annual income of $100,000. She is planning to incorporate this business in 2019, and if she does, the income will be eligible for the small business deduction and all dividends paid will be non-eligible. In her province (she resides in a different province than Mr. Burton), such corporate income is taxed at a combined federal / provincial rate of 15%. Clarissa is taxed at a combined federal / provincial rate of 43%. The provincial dividend tax credit rate for non-eligible dividends is equal to 29% of the gross up. Would Clarissa save taxes if she was to channel this source of income through a corporation? Please provide an answer based on numbers alone (3 points). Please show all the necessary calculations.

3. (1 point) Amos wants to know whether there are other advantages to incorporate a business (in addition to potential tax savings). Please provide two (if any).

4. (1 point) Amos wants to know whether there are any disadvantages to incorporate a business. Please provide two (if any).

5. (1.5 points) Amos wants to know whether he can get paid capital dividends from his business as he heard that these can be received free of tax. Please provide a brief explanation (i.e. yes, no, and why).

6. (1.5 point) Amos informs you that he and Clarissa plan to get married in 2019 shortly after they incorporate their businesses. He wants to know whether that event would trigger any tax consequences for their corporations.

7. (Optional) Amos also wants to show him how to prepare a 2018 T2 corporate return. He wants you to demonstrate how to prepare a corporate tax return for a business using a T2 tax software of your choice, for a corporation with a taxable income of $130,000, no assets or liabilities. He would be the sole shareholder of the business.

Note: All advice answers to your client should be clear and concise, professional and free of grammar errors.

Please submit your answer in a Word or Excel document (plus a PDF document of the tax return if you choose to prepare one) in the designated folder that you will find in Evaluations / Submissions area of the course.

Please let me know if you have any questions.