Masel Patton won a lottery of $500,000. This is the first time he has had a substantial amount of money and he is excited about investing it. He has heard all about the small business deduction and the general rate reduction and wants to take advantage of these rates. As a result, he plans to incorporate a company Patton Investments Inc. to hold the investments that he will purchase. He will be the sole shareholder and employee. He knows all about diversification so is structuring the investment so that he earns interest from bonds, dividends from a public company and also wants to become a 50% shareholder in his brothers manufacturing company. His brother's company Patton Paving Limited (PPL) has been paying substantial dividends in the past and will continue to do so in the future. His brother's company is a CCPC that earns only active business income and has earned than $500,000 a year in active business. O Mr. Patton has made the following assumptions regarding the income that will be earned: Bond interest $25,000 Dividend from public corporation $68,000 Dividend from PPL $50,000 Mr. Patton knows that you are taking a tax course and has come to you to ask your advice regarding his plans. He wants to know if he would be better off if he incorporated his investments. Assume that Mr. Patton is in the top tax bracket and in his province that rate is 50%. Also assume that the provincial corporate tax for income eligible for the small business deduction is 5% while for income exceeding the small business deduction it is 13%. Based on your knowledge of integration, with calculations, explain to Mr. Patton the tax results for his investment income if incorporated. Recommend, with reasons, whether he should incorporate all or any of his investments. Masel Patton won a lottery of $500,000. This is the first time he has had a substantial amount of money and he is excited about investing it. He has heard all about the small business deduction and the general rate reduction and wants to take advantage of these rates. As a result, he plans to incorporate a company Patton Investments Inc. to hold the investments that he will purchase. He will be the sole shareholder and employee. He knows all about diversification so is structuring the investment so that he earns interest from bonds, dividends from a public company and also wants to become a 50% shareholder in his brothers manufacturing company. His brother's company Patton Paving Limited (PPL) has been paying substantial dividends in the past and will continue to do so in the future. His brother's company is a CCPC that earns only active business income and has earned than $500,000 a year in active business. O Mr. Patton has made the following assumptions regarding the income that will be earned: Bond interest $25,000 Dividend from public corporation $68,000 Dividend from PPL $50,000 Mr. Patton knows that you are taking a tax course and has come to you to ask your advice regarding his plans. He wants to know if he would be better off if he incorporated his investments. Assume that Mr. Patton is in the top tax bracket and in his province that rate is 50%. Also assume that the provincial corporate tax for income eligible for the small business deduction is 5% while for income exceeding the small business deduction it is 13%. Based on your knowledge of integration, with calculations, explain to Mr. Patton the tax results for his investment income if incorporated. Recommend, with reasons, whether he should incorporate all or any of his investments
