1 SMALL BUSINESS MANAGEMENT Chapter Thirteen Tax Management

2 Taxation and Small Business u History of Taxation u Income Taxes – complexity of principles and frequency of legislative changes

3 General Tax Management Principles u Nine fundamental areas u 1. Continual tax planning – through the year requirements u 2. Tax Deferral u 3. Income Splitting u 4. Marginal Tax Rates

4 General Tax Management Principles u 5. Deductibles – accounting and legal expenses – advertising – business entertaining – automobile expenses – interest expense – repairs and improvements – office expenses

5 General Tax Management Principles u 6. Government Tax-Related Programs – Special tax rate deductions F Small Business Deduction (SBD) F Manufacturing and Processing Deduction F Investment Tax Credit F Deferral Programs – deferred profit sharing – registered retirement savings plan – bonus deferral

6 General Tax Management Principles u 6. Government Tax-Related Programs (cont) – Accelerated Capital Cost Allowance – Small Business Financing Programs u 7. The Incorporation Question – corporation vs proprietorship vs partnership

7 General Tax Management Principles u 8. The Remuneration Question – compensation salary or dividend u 9. Transferring the Business: Capital Gains – capital gains and family members u Goods and Service Tax (GST) and Provincial Sales Tax (PST)

8 Appendices u A. Federal and Provincial Tax Rates for Individuals u B. Federal and Provincial Corporate Income Tax Rates

9 Concept Checks u 1. Why is it imperative that the small business owner have some tax knowledge ? u 2. What is continual tax planning ? u 3. What are two good reasons to defer taxes u 4. What is income splitting ?

10 Concept Checks u 5. What are the nine fundamental areas of tax management of which an owner should be aware ? u 6. What is the definition of a deductible ? u 7. List the six government related programs available to small businesses.

11 Concept Checks u 8. Why would a company wish to incorporate ? u 9. From a tax perspective, would it be better to take a salary or dividends from an incorporated company ?