canadian taxation-2

Janet Frost has employment income in excess of $300,000. This means that any additional income that she receives will be taxed at a combined federal/provincial tax rate of 51 percent. Because of some very bad real estate investments, she finds that, in addition to her employment income, she needs an additional $50,000 in cash during the coming year.

She is the sole shareholder of Frost Enterprises, a Canadian controlled private corporation. It is expected that, for the year ending December 31, 2021, Frost Enterprises will have Taxable Income, before consideration of dividends or salary paid to its sole shareholder, of $225,000. All of this Taxable Income is subject to tax at a combined federal/provincial rate of 12 percent. While Ms. Frost does not normally remove funds from the Company, it has sufficient cash reserves to pay any amount of required salary or dividends.

Ms. Frost has asked for your advice as to whether it would be more tax efficient to acquire the required after tax amount of $50,000 by having the corporation pay her non-eligible dividends or, alternatively, pay her salary. In her province of residence, the provincial dividend tax credit is equal to 4/13 of the gross up on non-eligible dividends.

Required: Provide the requested advice. Is it more tax efficient for her to receive the required after tax amount of $50,000 from the corporation as salary or dividends? You need to show all the calculations to support your answer and properly label them for full marks.