Joan Farnun has employment income of about $100,000.This employment income is suf- ficient to cover her personal living expenses.In addition, she operates a consulting business which earns about $50,000 per year.She is considering the incorporation of the consulting business.With respect to the incorporation, which of the following statements is correct?

Question

Quizplus · Accepted Answer

By incorporating her consulting business, Joan Farnun can qualify for the small business deduction, which provides a reduced tax rate on the first $500,000 of active business income. This would result in tax deferral, as the corporation can retain earnings at a lower tax rate than if they were paid out as dividends. However, when dividends are eventually paid out to the shareholder (Joan), they will be subject to personal income tax and the integration provisions of the Income Tax Act will ensure that the total tax paid is similar to if the income had been earned personally without incorporation. There is no mention of shareholder loans in the given information, so this option cannot be chosen.

Joan Farnun Has Employment Income of About $100,000