SMALL BUSINESS MANAGEMENT Chapter 12 Tax Management Race #1Race #3Race #2

Advisers and Small Business  As entrepreneurs are engaged in planning and starting their business, they will often seek out assistance from more experienced entrepreneurs or mentors Copyright © 2014 McGraw-Hill Ryerson. All rights reserved.

Advisers and Small Business  Use of Advisers Entrepreneur will usually use outside advisers such as accountants, bankers, lawyers, advertising agencies, and market researchers on an as-needed basis These advisers, who are separate from the more formal board of advisers, can also become an important part of the organization and thus will need to be managed just like any other permanent part of the new venture Copyright © 2014 McGraw-Hill Ryerson. All rights reserved.

Advisers and Small Business  Use of Advisers (cont.) Mentors  Often the first stage in formal advice is the use of a mentor  Mentors can be used on an ad hoc basis or formally assist the entrepreneur in running the company on an ongoing basis Board of Advisers  Some entrepreneurs will form a board of board of advisers occasionally referred to as a board of directors Copyright © 2014 McGraw-Hill Ryerson. All rights reserved.

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

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