SMALL BUSINESS MANAGEMENT Chapter 13 Tax Management Race #1

Budget was generous to small business Bruce JohnstoneLeader-Post Monday, 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 the write-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 % increase needs $100,00 sales  Income Taxes complexity of principles and frequency of legislative changes Race #1

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 Race #2

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 1 st $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) Race # 3

Appendices  A. Federal and Provincial Tax Rates for Individuals  B. Tax Reference Tables