Anthony Is the Sole Shareholder of Glass Co

question 5

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 (an interest free loan and a loan with 10% interest). (Assume that CRA's prescribed rate of interest is 2%, Anthony's personal tax rate is 50%, his marginal tax rate on dividends is 43%, and Glass Co. has income of $200,000, subject to a 13% tax rate.)
B) Has double taxation occurred in either scenario?

• A) Calculate the total combined tax liability for Anthony and Glass Co. under both alternatives (an interest free loan and a loan with 10% interest). (Assume that CRA's prescribed rate of interest is 2%, Anthony's personal tax rate is 50%, his marginal tax rate on dividends is 43%, and Glass Co. has income of $200,000, subject to a 13% tax rate.)
• B) Has double taxation occurred in either scenario?