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SMALL BUSINESS MANAGEMENT

Chapter ThirteenChapter Thirteen

Tax ManagementTax Management

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Taxation and Small Business

History of TaxationHistory of Taxation

Income TaxesIncome Taxes– complexity of principles and frequency of complexity of principles and frequency of

legislative changeslegislative changes

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General Tax Management Principles

Nine fundamental areasNine fundamental areas 1. Continual tax planning1. Continual tax planning

– through the year requirementsthrough the year requirements 2. Tax Deferral2. Tax Deferral 3. Income Splitting3. Income Splitting 4. Marginal Tax Rates4. Marginal Tax Rates

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General Tax Management Principles

5. Deductibles5. Deductibles– accounting and legal expensesaccounting and legal expenses– advertisingadvertising– business entertainingbusiness entertaining– automobile expensesautomobile expenses– interest expenseinterest expense– repairs and improvementsrepairs and improvements– office expensesoffice expenses

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General Tax Management Principles

6. Government Tax-Related Programs6. Government Tax-Related Programs– Special tax rate deductionsSpecial tax rate deductions

Small Business Deduction (SBD)Small Business Deduction (SBD) Manufacturing and Processing DeductionManufacturing and Processing Deduction Investment Tax CreditInvestment Tax Credit Deferral ProgramsDeferral Programs

– deferred profit sharingdeferred profit sharing

– registered retirement savings planregistered retirement savings plan

– bonus deferralbonus deferral

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General Tax Management Principles

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

7. The Incorporation Question7. The Incorporation Question– corporation vs proprietorship vs partnershipcorporation vs proprietorship vs partnership

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General Tax Management Principles

8. The Remuneration Question8. The Remuneration Question– compensation salary or dividendcompensation salary or dividend

9. Transferring the Business: Capital Gains9. Transferring the Business: Capital Gains– capital gains and family memberscapital gains and family members

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

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Appendices

A. Federal and Provincial Tax Rates for A. Federal and Provincial Tax Rates for IndividualsIndividuals

B. Federal and Provincial Corporate Income B. Federal and Provincial Corporate Income Tax RatesTax Rates

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Concept Checks

1. Why is it imperative that the small 1. Why is it imperative that the small

business owner have some tax knowledge ?business owner have some tax knowledge ?

2. What is continual tax planning ?2. What is continual tax planning ?

3. What are two good reasons to defer taxes 3. What are two good reasons to defer taxes

4. What is income splitting ?4. What is income splitting ?

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Concept Checks 5. What are the nine fundamental areas of 5. What are the nine fundamental areas of

tax management of which an owner should tax management of which an owner should be aware ?be aware ?

6. What is the definition of a deductible ?6. What is the definition of a deductible ? 7. List the six government related programs 7. List the six government related programs

available to small businesses.available to small businesses.

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Concept Checks

8. Why would a company wish to 8. Why would a company wish to incorporate ?incorporate ?

9. From a tax perspective, would it be better 9. From a tax perspective, would it be better to take a salary or dividends from an to take a salary or dividends from an incorporated company ?incorporated company ?