Joan Barts owns all of the outstanding shares of Barts Ltd., a CCPC that is carrying on an ac- tive business.For the year ending December 31, 2011, she may prefer to pay herself salary instead of dividends if:

Question

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If the corporation has taxable income in excess of $500,000, the combined federal and provincial tax rate on dividends received by Joan as an individual shareholder would be higher than the combined tax rate on her salary income. This is because there is a limit to the dividend tax credit that can be claimed by an individual, whereas there is no such limit on the amount of salary that can be deducted by the corporation. Additionally, if the corporation has a large RDTOH balance, it may make more sense for Joan to receive dividends in order to reduce this balance and avoid excessive taxes in the future. However, the location of the corporation and the dividend tax credit available in the province are not relevant in this case.

Joan Barts Owns All of the Outstanding Shares of Barts