Ms. Cheryl Jones is the only employee and shareholder of Jones Inc., a Canadian controlled private corporation. The Companys activities are confined to a province in which the appli- cable corporate rate of taxation is 1.5 percent on income that is eligible for the small business deduction. The province does not levy a payroll tax for health care or post-secondary educa- tion. All of the Companys income qualifies as active business income. Any dividends paid by the corporation will be non-eligible.

The Company has a December 31 year end and, at December 31, 2019, Ms. Jones determines that the Taxable Income of the Company will be $30,400. The Company has this amount available in cash, prior to the payment of taxes, dividends, or salary.

Ms. Jones has no other source of income. In her tax bracket, the combined federal/provincial rate for individuals is 27 percent. For non-eligible dividends, the provincial dividend tax credit is equal to 35 percent of the dividend gross up. Ms. Jones has combined personal tax credits for the 2019 taxation year in the amount of $3,150 which can be claimed.

Required:

1. Determine the after tax amount of cash that Ms. Jones will retain if all of the Companys income is paid to her in the form of salary. Ignore CPP contributions and the Canada employment tax credit.

2. Determine the after tax amount of cash that Ms. Jones will retain if the Company pays her the maximum possible dividend.

3. Recommend what Ms. Jones should do and how much better off she will be than following the other option.

Please show ur work