John Robinson is the sole owner of Robinson Inc in 2021. Robinson Inc. operates in a province with a provincial corporate tax rate of 6% for income eligible for the small business deduction, and 11% for all other income.

Robinson Inc. earned taxable income of $200,000 during 2020, all of which is active business income. John Robinsons marginal tax rate (federal and provincial combined) is 45%. He withdraws all of his corporations after-tax income as a dividend each year.

John Robinson is considering whether it would be more beneficial if he were to operate his business as a sole proprietorship as opposed to a corporation.

Assume that the dividend tax credit is always equal to the dividend gross-up amount. Other than the dividend tax credit, you may ignore all other personal tax credits for this question.

REQUIRED

1. Assuming that Robinson Incs taxable income is NOT eligible for the Small Business Deduction, calculate the total tax cost or total tax savings from incorporating.
2. Repeat question a) but assume that Robinson Incs taxable income is eligible for the Small Business Deduction.
3. Assuming that Robinson Inc. is eligible for the Small Business Deduction, what would the dividend Gross-up Rate % need to be in order to achieve full integration in that province (i.e. no tax cost or tax savings)? Assume the dividend tax credit would be equal to the gross-up.