It is October 2019 and you have just come out of a meeting with your tax partner, Ashley, and her clients, Mark and Hilary Miller. Ashley has asked you to assess the situation to identify the issues and develop a research plan. She would then like to meet with you to review your work. After that meeting she wants you to analyze the major issues, reach a conclusion and propose the advice she should give to Mark and Hilary. Facts: Mark and Hilary have been married for 35 years. They have lived in Wellesley, Ontario for many years and work in the technology sector in Waterloo. They have two children who are both married and living in Waterloo. Both Mark and Hilary plan to retire in about five years and expect to have retirement income of $130,000 each at that time. They set up Hilmar Investments Inc. (HII) 15 years ago to manage their investment capital. The company earns Canadian interest income, realizes capital gains and losses and earns dividend income from publicly-traded companies. Based on their salaries, they are both in the top marginal tax bracket and expect to remain there until they retire. Since they have enough personal cash from their salaries they have left any income earned by HII in the corporation. Since the company earns dividends from publicly-traded companies it has a GRIP balance of $60,000 as at August 31, 2019. At this point in their lives they would like your advice on how much money they can take out of the corporation without paying any corporate or personal tax. Then they would like to know if it makes sense for them to take more money out of the corporation as salary or dividend. Hilary would also like advice on the $40,000 she borrowed from HII given that she will repay it in October. They both agree that they want to minimize their risk of reassessment by the CRA. The following is the balance sheet of HII. Hilmar Investments Inc. BALANCE SHEET Year ended August 31, 2019 Current Assets Notes: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,000 Term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,000 (1) Due from shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 (2) 215,000 Long-term Investments Investments (at cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 (3) $615,000 Current Liabilities Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,000 8,000 Shareholders Equity Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 (4) Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507,000 (5) $615,000 Notes: (1) The term deposits are due on October 6, 2019. (2) The loan to the shareholder represents $40,000 borrowed by Hilary on July 1, 2018 to buy a car. She signed a note payable at the time she borrowed the money. The note does not specify any repayment terms or interest rate. Hilary plans to repay the loan in October when she receives her bonus at work. (3) The long-term investments have a fair market value of $760,000. (4) Hilary and Mark each paid $50,000 for 50 common shares of the company on incorporation 15 years ago. (5) The company has a non-eligible RDTOH balance of $25,000 and an eligible RDTOH balance of $23,000. It also has a capital dividend account balance of $30,000, which all relates to prior year net capital gains and a net capital loss carry forward balance of $10,000. (6) The provincial corporate tax rates for income eligible for the small business deduction and income above the small business limit are 4% and 12% respectively.