Donna works in BC as a security analyst Her salary for 2017

: Donna works in BC as a security analyst. Her salary for 2017 was $130,000. In 2014, she bought 1500 shares of a large public company at $10/share on which she received dividends of $0.44 per share. At the end of 2017, she sold the 1500 shares at $11.50. A) How much tax will Donna pay in 2017? B) what is Donna\'s after-tax proceeds on the sale of the shares? C) What is the after-tax rate of return on the company investment? (annualized) Combined Federal&British; Col 2017 Taxable Income 2017 Marginal Tax Rates Other Capital Canadian Income GainsDividends Non- Eligible Eligible first $38,898|20.06%)10.03% -6.84%) over $38,898 up to $45,916 over $45,916 up to $77707 128.2090|14.10% over $77,797 up to $89,320 over $89,320 up to $91,831 over $91,831 up to $108,460 over $108,460 up to $142,353 over $142,353 up to $202,800 over $202.800|47.70%|23.85%) 31.30% 8.27% 22.70% 11.35% -3.20%) 11.36% 31.00% 15.50%) 8.25% 32.79% 16.40%) 10.72% 38.29%)19.15%) 18.31% 0.70%20.35% 21.64% 3.70%)21.85%) 25.78% 21.07% 23.16% 29.60% 32.42% 35.93% 40.61%

Solution

TAX ON SALARY OF $130,000

First 38,898 38,898*20.06% = 7802.94

upto 45,916 (45916-38898)*22.70% = 1593.09

upto 77,797 (77797-45916)*28.20% = 8990.44

upto 89,320 (89320-77797)*31.00% = 3572.13

upto 91,831 (91831-89320)*32.79% = 823.36

upto 108,460 (108460-91831)*38.29% = 6367.24

upto 130,000 (130000-108460)*40.70% = 8766.78

TOTAL TAX ON SALARY = $37,915.98

TAX ON DIVIDEND

Dividend received = $0.44*1500 = $660

if it is eligible dividend, 660*(6.84%) = (45.14)

if it is non-eligible dividend, 660*8.27% = 54.58

TAX ON CAPITAL GAINS

Capital Gain = 1500*(11.50-10.00) = $2250

tax = 2250*10.03% = $225.68

a) total tax payable = $38,916.24 (if dividends are non-eligible)

= $38,096.52 (if dividends are eligible)

b) after-tax proceeds on sale of shares = 11.50*1500 - 225.68

= 17,250 - 225.68 = $17,024.32

c) after tax rate of return-

return = $0.44/share of $10 plus taxes

when dividend is eligible, net dividend = 0.44 + 0.44*6.84% = $0.47/share

thus rate of return = 0.47/10 = 4.7%

when dividends are non eligible, net dividend = 0.44 - 0.44*8.27% = $0.40/share

thus rate of return = 0.40/10 = 4%