Your friends Adam, Betty, Carole, Diane, and Eric have heard that you are a tax expert. Each of them have a tax-related question for you. Please answer the questions conceptually, but do not perform any calculations. You should be able to answer each question in one or two paragraphs:
a) Adam is the owner-manager of a small CCPC earning business income, and he also holds some shares of a public corporation. He received $1,000 of dividends from both companies, but he's wondering why he pays more personal taxes on his own company's dividends relative to the public corporation's dividends. Explain to him why this makes sense, referring to the concept of integration.
b) Betty is the owner of a CCPC. While her business is doing extremely well, she consistently has bad luck with her investments, accumulating large property losses. She plans to eventually sell her CCPC at a substantial gain, but was surprised when her accountant told her that her capital gains deduction would be fairly minimal. She is surprised since she has never used her capital gains deduction limit before. Her accountant also recommended Betty to begin paying dividends to herself (rather than salaries) if she plans to sell her CCPC in the next two years to increase her capital gains deduction. Explain to Betty why her capital gains deduction might be low, and why her accountant recommended this to her.
c) Carole's CCPC has offices in two provinces - BC and Nova Scotia. Nova Scotia's corporate tax rates are generally higher than BC. Carole is planning on hiring a large number of administrative staff who can either be based in BC or Nova Scotia, and will perform similar tasks for the company as a whole regardless of location. Assuming all else equal, (e.g. identical salaries), where would you recommend the employees be hired to reduce provincial taxes? Please explain.
d) Diane, who is 22 years old, took out a blank loan of $150,000 and used it to invest in her father's wholly owned corporation, Crossbell Inc. She has never worked for Crossbell Inc. before. The company paid her a non-eligible dividend of $15,000 on December 30th 2022. This is Diane's only source of income, and she is not planning on filing a tax return since she is in the lowest marginal tax rate bracket and her basic tax credit should be enough to offset any taxes payable. Is her interpretation correct? Please explain.
e) Eric is an employee, working for Magna Intl. As an engineer. He is very jealous of his friends for being business owners and being able to defer taxes through their CCPC's. He is wondering whether he himself can set up Eric Inc., a CCPC, that performs engineering services for Magna. Eric Inc. can then charge Magna a service fee equal to the salaries he would otherwise receive. Explain to Eric whether his strategy would be effective, and how Eric Inc. would likely be taxed.