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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 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.
Workplace
The physical or virtual location where an individual performs work or professional duties.
Lewin's Change Model
A framework for managing change in organizations, consisting of three stages: unfreezing, changing, and refreezing.
Status Quo
The current situation or the existing state of affairs, often used in the context of maintaining the same conditions without change.
Rationale
The underlying reason or explanation for something, often presented as a logical argument.
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