Problem $8$

Nancy Ball presently operates a retailing proprietorship with a December $31,$ year end and makes $$150,000$ of net income for tax purposes annually.

She is thinking of incorporating her business and has asked for your advice. She lives in a province where the provincial corporate tax rate is $3\%$ of this

type of federal taxable income. She has $$2,500$ of federal personal tax credits, $$1,700$ of provincial personal tax credits, and no other income

You have agreed that you will do the following:

$($A$)$ Estimate the personal taxes that Nancy would pay currently on $$150,000$ of business income compared with the amount of corporate and personal

taxes that would be paid if she incorporated her business and only took out a salary of $$50,000.$ Ignore all payroll taxes

$($e$.$g$.,$ Canada Pension Plan premiums$)$ when making your estimates.

$($B$)$ Based on your calculations in $($A$),$ estimate the amount of personal tax that Nancy defers by keeping the remaining after$-$tax retained earnings in

her company this year. $[$Hint: compute the additional personal tax that she would pay on a dividend equal to the corporation's after$-$tax retained earnings.$]$