Business Corp

Question 1

Eligible Dividend

Answer 1

Can only be declared on a corp that pays tax at higher marginal corporate rate. Small business corps that claim the small business deduction are not eligible to declare these dividends.

Question 2

Michael’s private company is eligible for a small business deduction. He has recently sold some of its assets for a substa gain. If he decides to withdraw the entire gain as a dividend, what will he be forced to declare on his tax return?
1. Capital dividend
2. Non-eligible dividend
3. Eligible dividend
4. Capital gain

A. 1 & 4
B. 2 & 3
C. 1 & 2
D. 1 & 3

Answer 2

C. 50% of the gain on fixed asset sale can be allocated to a company’s CDA (this amount would represent the no -taxable portion of the vapital gai.) and declared as a capital dividend. The balance of the gai. Must be declared as a non-eligible dividend because Michael’s private company qualifies as a small business corp and claims the small business deduction.