Anthony Is the Sole Shareholder of Glass Co

question 8

Essay

Anthony is the sole shareholder of Glass Co. He would like to lend $500,000 to his company by way of a shareholder loan. He is not sure whether to issue an
interest free loan or a loan with an interest rate of 10%. Anthony does not pay himself a salary, but rather issues all after-tax profits to himself in the form of a dividend.
Required:
A) Calculate the total combined tax liability for Anthony and Glass Co. under both alternatives. (Assume that the CRA's prescribed rate of interest is 2%;
Anthony's personal tax rate is 50%; his marginal tax rate on dividends is 41%; and Glass Co. has income of $200,000, subject to a 15% tax rate.)
B) Briefly explain the reason for any tax differential in your results.

• A) Calculate the total combined tax liability for Anthony and Glass Co. under both alternatives. (Assume that the CRA's prescribed rate of interest is 2%;
• Anthony's personal tax rate is 50%; his marginal tax rate on dividends is 41%; and Glass Co. has income of $200,000, subject to a 15% tax rate.)
• B) Briefly explain the reason for any tax differential in your results.

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Definitions:

Median

The value separating the higher half from the lower half of a data sample, a population, or a probability distribution, often used as a measure of central tendency.

Variability

A measure of the dispersion or spread of data points in a dataset, indicating how much the numbers differ from each other and from the mean.

Measures Of Variability

Statistics that describe the extent to which scores in a distribution differ from one another, including the range, variance, and standard deviation.

Spread

A statistical term describing the range, distance, or variance between data points in a dataset, indicating the variability within the data.