Payton Hewitt is the sole shareholder and employee of Conduit Corporation Ltd. which operates a processing business in a province with a 4% corporate rate (i.e., a total corporate rate of 15%) on its income. The corporation has income of $20,000 before salaries and corporate taxes which is eligible for the small business deduction. Mr. Hewitt has no other income and has federal tax credits of $2,000 and provincial tax credits of $1,290. He requires all of the income generated by the business. Use the 18% gross-up for dividends paid after 2013.
REQUIRED
Consider the following three remuneration alternatives:
(C) $10,000 in salary and the remainder in dividends.
Compare the net cash to Mr. Hewitt for these alternatives ignoring employment income deductions available to an employee. Can the best of these alternatives be improved upon?
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