You are a newly minted CPA and one of the manager's at your firm introduces you to your newest client, Ms. Navarro.  Ms. Navarro holds investments that she expects will earn interest income of $189,000 for the year. In addition to her investment income, she also is an employee of Air Canada and earns a yearly salary of $150,000.

Ms. Navarro would like for you to help her determine if she should transfer her investments to a corporation in which she would be the sole shareholder. You do some research and note the following information regarding Ms. Navarro’s province of residence:

• The corporate tax rate on income eligible for the small business deduction is 4%.
• The corporate tax rate on income not eligible for the SBD is 13%.
• Provincial personal taxes are $22,000 on the first $214,368 and 12% on the excess.
• The provincial dividend tax credit is 25% of the gross up for non-eligible dividends and 40% of the gross up for eligible dividends.

Required:

Advise Ms. Navarro as to whether she should transfer her investments to a corporation. Are there any tax savings? Tax deferrals?