Anthony is the sole shareholder of Glass Co. He would like to lend $500,000 to his company by way of a shareholder loan. He is not sure whether to issue an
interest free loan or a loan with an interest rate of 10%. Anthony does not pay himself a salary, but rather issues all after-tax profits to himself in the form of a dividend.
Required:

Question

Quizplus · Accepted Answer

The Answer is A) Glass Co:
A) Glass Co: Anthony: Combined tax: B) The tax liability is slightly higher in the alternative with the 10% loan because the income is shifted, by way of an interest payment, from the low corporate tax rate to the highest individual tax rate.

Anthony:

Combined tax:
A) Glass Co: Anthony: Combined tax: B) The tax liability is slightly higher in the alternative with the 10% loan because the income is shifted, by way of an interest payment, from the low corporate tax rate to the highest individual tax rate.

B) The tax liability is slightly higher in the alternative with the 10% loan
because the income is shifted, by way of an interest payment, from the low corporate tax rate to the highest individual tax rate.

Anthony Is the Sole Shareholder of Glass Co