Steven earned $150,000 this year in profits from his proprietorship. Personal tax rates (federal plus provincial) in Steven's province are:
The combined federal and provincial rate of tax for Canadian-controlled private corporations in Steven's province is 13% on the first $500,000 of income.
(All rates are assumed for this question.)
Steven has been considering incorporating his business.
Required:
A. How would Steven's after-tax profits have differed if the company had been incorporated? Show all calculations.
B. Name the type of tax planning that Steve would be engaging in if he incorporated his company.

Question

Steven earned $150,000 this year in profits from his proprietorship. Personal tax rates (federal plus provincial) in Steven's province are:
  The combined federal and provincial rate of tax for Canadian-controlled private corporations in Steven's province is 13% on the first $500,000 of income.
(All rates are assumed for this question.)
Steven has been considering incorporating his business.
Required: 
A. How would Steven's after-tax profits have differed if the company had been incorporated? Show all calculations.
B. Name the type of tax planning that Steve would be engaging in if he incorporated his company.

Quizplus · Accepted Answer

The Answer is A) After-tax profits as a proprietorship:

A) After-tax profits as a proprietorship: After-tax profits as a corporation: B) Transferring income from one entity to another (individual to corporation)

After-tax profits as a corporation:
A) After-tax profits as a proprietorship: After-tax profits as a corporation: B) Transferring income from one entity to another (individual to corporation)

B) Transferring income from one entity to another (individual to corporation)

Steven Earned $150,000 This Year in Profits from His Proprietorship