SMALL BUSINESS MANAGEMENT

Chapter 13Tax Management

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Budget was generous to small business Bruce JohnstoneLeader-PostMonday, March 19, 2007

The federal budget was generous to small business, manufacturers and processors and industry in general, delivered the goods for small business following a vigorous lobby effort by CFIB

increase the exemption from capital gains from $500,000 to $750,000,'‘

She said manufacturing and processing firms also appreciated seeing thewrite-off of capital investments in machinery and equipment increased to 50 per cent over two years.

"There's just so much in here that will put Saskatchewan on the map,'‘ especially for small business owners, biofuels producers and farmers.

Taxation and Small Business

History of Taxation 1917 temporary tax Average Canadian pays 52% of income to

tax Table 13-3 10% increase needs $100,00

sales

Income Taxes complexity of principles and frequency

of legislative changes

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1.  What books and records must be kept for a business?

Any person carrying on a business must keep books of accounts and records which provide the ability to calculate taxes payable. Source documents include

invoices for purchases and sales, deposit slips, cheques, and contracts

For purposes of income tax, many books of accounts, records, and source documents have to be retained for a minimum of six years

General Tax Management Principles Ten fundamental areas

1. Continual tax planning through the year requirements

2. Tax Deferral Use the tax money during deferral period Tax laws may change which may reduce tax

liability 3. Income Splitting

Progressive tax system 4. Marginal Tax Rates

Income and expenses ie 30% = 30 cents on each dollar

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General Tax Management Principles (cont.)

5. Deductibles accounting and legal expenses

Not tax prep or incorporation Advertising

Canadian Media business entertaining automobile expenses interest expense

Shareholder loan strategy Repairs - deducted Improvements - depreciated office expenses

General Tax Management Principles (cont)

6. Government Tax-Related Programs Special Tax Rate Deductions

Small Business Deduction (SBD) 12% on 1st $300,000, 22% after

Manufacturing and Processing Deduction On income not included in sbd

Investment Tax Credit Deferral Programs

deferred profit sharing – deduct now pay tax later when paid out

registered retirement savings plan bonus deferral

General Tax Management Principles

6. Government Tax-Related Programs (cont.) Accelerated Capital Cost Allowance Small Business Financing Programs

7. The Incorporation Question corporation vs. proprietorship vs.

partnership

General Tax Management Principles (cont)

8. The Remuneration Question compensation salary or dividend

9. Transferring the Business: Capital Gains capital gains and family members

(Chapter 15)

10. Goods and Service Tax (GST) and Provincial Sales Tax (PST)

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Appendices

A. Federal and Provincial Tax Rates for Individuals

B. Tax Reference Tables