Client Profile Dr Mike Jones (age 45); Dr Emily Jones (age 43) and two children ages 8 and 10

Client circumstances:

Mike and Emily met while attending medical school at the University of BC. Upon their graduation in 1996, they moved to Hamilton, Ontario. Mike has been a full time pediatric specialist in Hamilton since 1999. While Mike was building his professional practice in Hamilton, Emily stayed home to raise their brand new babies. Fast forward, the children have gotten older and Emily is back at school to re-qualify as a physician and is now in residency (for another 2 years)

Both Mike and Emily are sharehodlers of the same Medicine Professional Corporation. While the family has earned one income, the corporation paid a dividend to both Mike and Emily for the past several years (this has been the normal practice for them)

Mike and Emily's tax advisor advised them that Emily will be taxed at the highest marginal tax on her dividends, in the current year.

Required: You have been asked if the tax advisor's advice is correct and why? What could Emily do to reduce this tax in the current year and in the future.