Payton Hewitt is the sole shareholder and employee of Conduit Corporation Ltd. which operates a
processing business in a province with a 4% corporate rate (i.e., a total corporate rate of 14.5%) on its
income. The corporation has income of $20,000 before salaries and corporate taxes which is eligible for
the small business deduction. Mr. Hewitt has no other income and has federal tax credits of $2,000 and
provincial tax credits of $1,290. He requires all of the income generated by the business.
Consider the following three remuneration alternatives:
(A) all salary,
(B) all dividends, and
(C) $10,000 in salary and the remainder in dividends.
Compare the net cash to Mr. Hewitt for these alternatives ignoring employment income deductions
available to an employee.
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