Assignment Task:
Bob's only source of income is either dividends or salary from UpInSmoke Inc. For 2018, he has available tax credits of $4,200 (combined federal and provincial).
Relevant information with respect to his current province of residence is as follows:
- The tax rate for individuals on the first $46,605 of taxable income is 8 percent.
- The provincial dividend tax credit is equal to 32 percent of the gross up on non-eligible dividends.
- All of the company's activities are confined to a province in which the combine Federal/Provincial tax rate is 12%. Hint: Corporate dividends are paid from after-tax monies where as salaries are paid with pre-tax monies.
- Any corporate taxes for 2018 will need to paid out of cash on hand.
Required:
As Bob's Tax Advisor what would you suggest he does at the end of 2018? In your response, indicate any assumptions made and other potential information which might impact your advise.