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?

---

Definitions:

Approach-Avoidance Conflict

A psychological conflict occurring when a goal or event has both attractive and undesirable aspects that make the goal simultaneously appealing and deterring.

Incompatible Demands

Situations where two or more expectations or requirements conflict, making it difficult or impossible to satisfy all at the same time.

Approach-Approach Conflict

A psychological conflict that arises when a person must choose between two desirable outcomes or actions.

Movies and Concerts

Forms of entertainment that involve watching films in theaters and live music performances, respectively.