Andy Griffin would like to invest $150,000 in his friend Ernie's company,which was founded and operates in a foreign country.This investment would give Andy 25% ownership of the company.An annual dividend of $15,000 is anticipated.
Andy's personal marginal tax rate is 45% on regular income,28% on eligible dividends,and 35% on non-eligible dividends.Ernie's company is subject to a tax rate of 38% on all business income.Any dividends received by Andy,personally,will be subject to a 15% withholding tax.
Required:
1)Determine a)the total tax liability (foreign and Canadian)that Andy will be subject to upon receiving dividends from Ernie's company,and b)the after-tax proceeds.
2)How would your answer in part 1 change if Andy established a Canadian holding company to purchase the shares,(subject to a 5% withholding tax on dividends received)?
3)What would Andy's proceeds be if he received the dividend income from the holding company?

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The Answer of Andy Griffin would like to invest $150,000 in his friend Ernie's company,which was founded and operates in a foreign country.This investment would give Andy 25% ownership of the company.An annual dividend of $15,000 is anticipated.
Andy's personal marginal tax rate is 45% on regular income,28% on eligible dividends,and 35% on non-eligible dividends.Ernie's company is subject to a tax rate of 38% on all business income.Any dividends received by Andy,personally,will be subject to a 15% withholding tax.
Required:
1)Determine a)the total tax liability (foreign and Canadian)that Andy will be subject to upon receiving dividends from Ernie's company,and b)the after-tax proceeds.
2)How would your answer in part 1 change if Andy established a Canadian holding company to purchase the shares,(subject to a 5% withholding tax on dividends received)?
3)What would Andy's proceeds be if he received the dividend income from the holding company?

Andy Griffin Would Like to Invest $150,000 in His Friend