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For the year ending December 31, 2019, Hughes Ltd. has Taxable Income, before consideration of dividends or salary paid to its sole shareholder, of $175,000.

For the year ending December 31, 2019, Hughes Ltd. has Taxable Income, before consideration of dividends or salary paid to its sole shareholder, of $175,000. The Company’s cash balance is over $300,000. It is subject to a combined federal/provincial tax rate of 11.5 percent. Mr. Hughes, the Company’s only shareholder, has employment income of over $250,000 and, under normal circumstances, does not make withdrawals from the corporation. However, because of a newfound appreciation of casino gambling, he needs an additional $17,000 in cash. Mr. Hughes lives in a province where the provincial tax rate in his bracket is equal to 18 percent and the provincial dividend tax credit is equal to 23 percent of the dividend gross up for non-eligible dividends. He has asked your advice as to whether the payment of salary or, alternatively, the payment of non-eligible dividends, would have the lower tax cost. Provide the requested advice. Your answer

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