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Compare the after tax retention of income

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Question - As an employee of a public company, Maxine Ashley has an annual salary of $155,000. After years of purchasing losing tickets, Maxine wins $500,000 in the provincial lottery.

As her employment income is more than adequate for her current needs, she plans to invest all of these winnings in a debt security for the year ending December 31, 2020.

The security pays annual interest at a rate of 5 percent.

The following information is applicable to the province in which Maxine is a resident:

The provincial marginal tax rate for Maxine is 13 percent.

The provincial dividend tax credit on non-eligible dividends is 28 percent of the gross up.

The provincial tax rate on the investment income of CCPCs is 12 percent. Other than the interest earned on her investment in the debt security, Maxine has no other source of investment income.

Required - Prepare calculations that will compare the after tax retention of income that will accrue to Maxine for 2020 if:

A. The investment is owned by her as an individual.

B. The investment is owned by a CCPC in which she is the sole shareholder and which pays out all available income in dividends.

Reference no: EM133113049

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