Question
FINA27198 Tax Strategies for Financial Planning 2 Assignment 1 - 20% Case Study - Graham Consulting Inc. Due Week 5 (October 16 th ) Graham,
FINA27198
Tax Strategies for Financial Planning 2
Assignment 1 - 20%
Case Study - Graham Consulting Inc.
Due Week 5 (October 16
th
)
Graham, his wife Mary and their 2 children, Bob (age 15) and Rick (age 19) live in
Smalltown, Ontario. Graham operates a profitable computer consulting business as a sole
proprietorship. The business currently generates $150,000 of active business income before
income tax and after Graham being paid $90,000 and Mary's salary of $25,000 per year.
Assume Graham's marginal tax rate is currently at 39% and he has no RRSP
carryforward room available from 2018. Graham would like to be able to structure the
ownership of the business to pass the business on to his children when he retires next year.
Graham wants the future growth of the value of the business to go to his sons but he
requires regular income of $90,000 from the business each year for the next 5 years.
Although Rick is interested in taking over the business from his dad, Bob currently has no
interest in the being involved with the day-to-day business activities.
Graham has come to see you about how he could minimize the taxes that he pays on his
business income and how to best structure the ownership of the business in anticipation of
giving the business to the children to operate in the future. Assume the CCPC tax rate is
14%. Graham's marginal tax rate on CCPC dividend income is 24%.
Required:
a.
Discuss the advantages and disadvantages of continuing to structure the business
ownership as a sole proprietor compared to incorporating the business as Graham
Consulting Inc. a CCPC with Graham owing 100% of the company's common
shares.
b.
If Graham incorporates the business as a CCPC, discuss the following tax issues:
Calculate the current amount of
personal
income taxes Graham pays operating
the company as a:
(i)
sole proprietor
(
1
)
(ii)
and the amount of income taxes he and company would pay if the
business was incorporated, receiving income in the form of:
salary
(
2
)
or
dividend
.
(
3
)
Give a brief concluding explanation relating to the income tax liability resulting
from the three
(3)
potential forms of taxation.
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