Florence has a business that she estimates will produce income of $100,000. She is planning to incorporate this business in 2020, and if she does, none of the income will be eligible for the small business deduction because she controls a corporation that fully utilizes the $500,000 small business deduction. As a result, all dividends paid will be designated eligible. In her province, such corporate income is taxed at a combined federal/provincial rate of 29 percent. Florence has income from other sources that will result in any additional income being taxed at a combined federal/provincial rate of 43 percent. The provincial dividend tax credit rate on eligible dividends is equal to 29 percent of the gross up.
Would Florence save taxes if she was to channel this source of income through a corporation? Explain your result.

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The Answer of Florence has a business that she estimates will produce income of $100,000. She is planning to incorporate this business in 2020, and if she does, none of the income will be eligible for the small business deduction because she controls a corporation that fully utilizes the $500,000 small business deduction. As a result, all dividends paid will be designated eligible. In her province, such corporate income is taxed at a combined federal/provincial rate of 29 percent. Florence has income from other sources that will result in any additional income being taxed at a combined federal/provincial rate of 43 percent. The provincial dividend tax credit rate on eligible dividends is equal to 29 percent of the gross up.
Would Florence save taxes if she was to channel this source of income through a corporation? Explain your result.

Florence Has a Business That She Estimates Will Produce Income