Patrick Innes has a business that he estimates will produce income of $130,000 per year. If he incorporates this business in 2020, all of the income would be eligible for the small business deduction and all dividends paid would be non-eligible. In the province where he lives, such corporate income is taxed at a combined federal/provincial rate of 14 percent. Mr. Innes has other income sources that place him in a combined federal/provincial tax bracket of 42 percent. In his province, the provincial dividend tax credit for non-eligible dividends is equal to 20 percent of the gross up.
Would Mr. Innes save taxes if he was to channel this source of income through a corporation? Explain your result.

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The Answer of Patrick Innes has a business that he estimates will produce income of $130,000 per year. If he incorporates this business in 2020, all of the income would be eligible for the small business deduction and all dividends paid would be non-eligible. In the province where he lives, such corporate income is taxed at a combined federal/provincial rate of 14 percent. Mr. Innes has other income sources that place him in a combined federal/provincial tax bracket of 42 percent. In his province, the provincial dividend tax credit for non-eligible dividends is equal to 20 percent of the gross up.
Would Mr. Innes save taxes if he was to channel this source of income through a corporation? Explain your result.

Patrick Innes Has a Business That He Estimates Will Produce