Provide two examples of management compensation that can either reduce or defer the taxation applicable to a corporation and its shareholders. For each example, explain how the reduction or deferral occurs.

Question

Quizplus · Accepted Answer

The Answer is The required two examples can be selected from the following items listed in the text:
• Registered Pension Plans - Within prescribed limits, a corporation can deduct contributions to Registered Pension Plans in the year of contribution. These contributions will not become taxable to the employee until they are received as a pension benefit, resulting in an effective tax deferral arrangement.
• Deferred Profit Sharing Plans - In a fashion similar to Registered Pension Plans, amounts that are currently deductible to the corporation are deferred with respect to inclusion in the employee's Taxable Income.
• Provision Of Private Health Care Plans - The premiums paid by the corporation for such benefits as dental plans can be deducted in full by the corporation and will not be considered a taxable benefit to the employee. This can generate a significant tax savings.
• Stock Options - Stock options provide employees with an incentive to improve the performance of the enterprise. In addition, taxation of any benefits resulting from the options is deferred until they are exercised or sold. (For a full discussion of the deferral of stock option benefits, see Chapter 3.)Further, the value of the employment benefit received is enhanced by the fact that, in general, one-half of the amount can be deducted in the calculation of Taxable Income.
Other examples may be acceptable.

Provide Two Examples of Management Compensation That Can Either Reduce