Joan Farnun has employment income of about $100,000. This employment income is sufficient 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 the consulting business, Joan will be able to take advantage of the small business deduction, which allows her to pay a lower rate of tax on the business income. This tax deferral will allow her to defer taxes until she withdraws the income from the corporation. However, there will be no overall tax savings because of the integration provisions in the Income Tax Act. The dividend tax credit may be available to shareholders who receive dividends from the corporation, but this does not result in an overall tax savings.

Joan Farnun Has Employment Income of About $100,000