15_Corporate_Taxation_and_Management_Decisions

15_Corporate_Taxation_and_Management_Decisions - Chapter 15...

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Unformatted text preview: Chapter 15 Corporate Taxation and Management Decisions What to expect in this Chapter How does an owner of a business decide to incorporate? What are the advantages and disadvantages of incorporation? How do provincial taxes affect the decision to corporate? incorporate? Uses of a corporation Payment of dividends to owner/manager tax free Income splitting possibilities Shareholder benefits Management compensation Salary vs. dividend issues The Decision to Incorporate Tax considerations: Incorporation creates a new legal entity Business and its owners are separated In order for income to get to the owners, it must go through two levels of taxation (corporate, then personal) Sometimes this dual system of taxes is dvantageous, sometimes not. Two potential advantageous, sometimes not. Two potential advantages are: Reduction of taxes: when total tax paid by the corporation and the individuals is less than if the individual had earned business income as a proprietor Tax deferral: The shareholder may choose to leave income in the corporation, resulting in postponement of the second level of taxation. When the corporate tax rate is lower than the personal rate, the corporation provides a deferral mechanism. Considerations in deciding to incorporate The potential for tax deferral or reduction will depend on: The type of corporation The type of income that is being earned The province in which the corporation pays income tax Other tax related reasons to incorporate are: Imperfections in the integration system Income splitting possibilities Lifetime Capital Gains Deduction availability Ability to avoid foreign estate taxes Estate planning opportunities involving a corporation Disadvantages associated with incorporation include: Only the corporation can use losses Corporations dont get personal tax credits Charitable donations may be less valuable to a corporation than to an individual Non-tax considerations on incorporation Advantages of incorporation Limited liability Access to capital Disadvantages Cost of maintaining the corporation may outweigh the benefits markets Complexity associated with winding up the business Complete Self Study Problem 15-1, page 726 Tax Reduction and Deferral Amount of savings depends on: type of income, type of corporation Five cases are reviewed in the text: Public corporation (pg. 692 694) CCPC with ABI eligible for small business deduction (pg. 694 697) CCPC with ABI, but not eligible for the small business deduction (pg. 694 697) CCPC with Investment income other than dividends (pg. 697-698) CCPC earning various types of dividend income (pg....
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This note was uploaded on 01/31/2011 for the course MOS 4462 taught by Professor Ann during the Fall '10 term at UWO.

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15_Corporate_Taxation_and_Management_Decisions - Chapter 15...

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