Mr. Dawson is considering incorporating a company and transferring some of his assets into this company in order to take advantage of the possibility of some tax savings and deferral possibilities. Which of the following situations would provide the largest tax savings for Mr. Dawson?

Question

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Incorporating a CCPC earning only Active Business Income eligible for the small business deduction would provide the largest tax savings for Mr. Dawson. This is because such income is eligible for a reduced corporate tax rate, allowing for more after-tax income to be retained within the corporation. Additionally, the small business deduction allows for a tax deferral opportunity, as the tax on some of the income can be deferred until it is paid out as salary or dividend to the individual shareholder(s). Earning investment income or dividend income through a CCPC would not provide these same tax savings and deferral opportunities. A combination of Active Business Income and investment income would still result in a higher corporate tax rate than if the CCPC only earned Active Business Income eligible for the small business deduction.

Mr Dawson Is Considering Incorporating a Company and Transferring Some