Income Taxation Solutions Manual 1 
COMPREHENSIVE CASE SOLUTIONS – CHAPTERS 12 - 21
NOTE: The cases related to these solutions are posted on our website www.mcgrawhill.ca/olc/buckwold. They are not printed in the text.
Solution to COMPREHENSIVE CASE ONE
Seacourt Restaurants
All of the issues in this case have been examined in depth in problems and cases of previous chapters and therefore the following solution briefly refers to the main issues of each segment.
Where applicable, tax rates are assumed to be:
Individual
Corporation
- dividends (eligible)
- dividends (ineligible)
- other income
- SBD income
- ABI over $500,000
- investment income
28%
33%
45%
15%
25%
44 2/3% (38 + 6 2/3)
Incorporation of Proprietorship
The primary benefit of incorporation is the ability to use the small business deduction on
$500,000 of annual business income. Based on the existing profit the annual tax saving will be:
Current taxes:
.45 x $120,000
After incorporation:
Corporate income
Less salary to Court
Corporate tax (15%)
Total tax:
Corporation
Personal tax on salary
($50,000 x .45)
Annual tax saving
$54,000
$120,000
(50,000)
70,000
(10,500)
$59,500
$10,500
22,500
$33,000
$21,000
Additional benefits are as follows:
As an employee of the corporation, Court can receive certain employee benefits such as group medical insurance, income protection insurance, and others that are not taxable to him but deductible by the corporation.
As long as the corporation's assets are used for business purposes, the corporation qualifies as a small business corporation and a subsequent sale of shares would be entitled to the
Buckwold and Kitunen, Canadian Income Taxation, 2012-2013 Ed.
Solutions Manual
Page C-1
Copyright © 2013 McGraw-Hill Ryerson Ltd.
capital gain deduction of $750,000.
Although Court will be subject to further taxation when dividends are paid to him from the corporation, double taxation will not occur to the extent that income consists of business income below $500,000 annually or investment income. This
NOTE: The cases related to these solutions are posted on our website www.mcgrawhill.ca/olc/buckwold. They are not printed in the text.
Solution to COMPREHENSIVE CASE ONE
Seacourt Restaurants
All of the issues in this case have been examined in depth in problems and cases of previous chapters and therefore the following solution briefly refers to the main issues of each segment.
Where applicable, tax rates are assumed to be:
Individual
Corporation
- dividends (eligible)
- dividends (ineligible)
- other income
- SBD income
- ABI over $500,000
- investment income
28%
33%
45%
15%
25%
44 2/3% (38 + 6 2/3)
Incorporation of Proprietorship
The primary benefit of incorporation is the ability to use the small business deduction on
$500,000 of annual business income. Based on the existing profit the annual tax saving will be:
Current taxes:
.45 x $120,000
After incorporation:
Corporate income
Less salary to Court
Corporate tax (15%)
Total tax:
Corporation
Personal tax on salary
($50,000 x .45)
Annual tax saving
$54,000
$120,000
(50,000)
70,000
(10,500)
$59,500
$10,500
22,500
$33,000
$21,000
Additional benefits are as follows:
As an employee of the corporation, Court can receive certain employee benefits such as group medical insurance, income protection insurance, and others that are not taxable to him but deductible by the corporation.
As long as the corporation's assets are used for business purposes, the corporation qualifies as a small business corporation and a subsequent sale of shares would be entitled to the
Buckwold and Kitunen, Canadian Income Taxation, 2012-2013 Ed.
Solutions Manual
Page C-1
Copyright © 2013 McGraw-Hill Ryerson Ltd.
capital gain deduction of $750,000.
Although Court will be subject to further taxation when dividends are paid to him from the corporation, double taxation will not occur to the extent that income consists of business income below $500,000 annually or investment income. This