Income Tax Consulting Case Assignment
Required:
Prepare a report to Doug James on the tax planning issues that need to be addressed.
Include any supporting calculations and analyses you feel are necessary to assist in
presenting your report. Your report should not exceed 5 pages excluding exhibits and cover
sheet. Include a bibliography for all referenced material.
We need to evaluate carefully and consider all the benefits and disadvantages that would
be of significance if we were to recommend incorporation over the current sole-proprietorship
model for your business. Let’s go over the list of advantages that incorporation would offer:
Limited liability, tax savings if combined corporate tax rate is under 14.5%, tax savings if
provincial corporate tax rate is less than 4%, tax deferrals at higher personal income levels on
business income not eligible for the small business deduction and at all personal income levels
on business income eligible for the small business deduction, estate planning advantages,
availability of registered pension plans to the owner as an employee of the corp , stabilization of
individual income through salary payments or greater flexibility in the timing of the receipt of
income subject to personal tax, and availability of capitals gains exemptions for qualified small
business corporation shares or business investment loss treatment for securities of a small
business corporation.
Now some of these advantages such as tax deferrals, aren’t something you necessarily
need, but they’re always nice perks to have at your disposal. On the other hand advantages like
having retired pension plan becoming available to the owner is something very relevant to your
current situation. Considering you and your wife have no savings for retirement, incorporating
would offer you a way to be better setup for post-retirement. With age, the estate planning
advantages offered to you are more relevant now than they were ever before. Even though it’s
not a monetary value advantage, it is something to keep in mind.
Incorporation isn’t without its flaws, there are disadvantages that need to be considered.
The disadvantages with significance are as listed: Tax cost if the combined corp rate is over
14.5% for small business deduction eligible income and 27.5% for other business income
(combined rate is over 14.5% in Ontario so there is a tax cost for the small business deduction
income), prepayment of tax at lower levels of personal income on business income not eligible
for the small business deduction, additional legal and accounting costs, loss of the availability of
