SMALL BUSINESS
MANAGEMENT
Chapter 13
Tax Management
Taxation and Small Business
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History of Taxation
1917 temporary tax
 Average Canadain pays 52% of income to
tax
 Table 13-3 10% increase needs $100,00
sales
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Income Taxes
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complexity of principles and frequency
of legislative changes
1. What books and records must be
kept for a business?
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Any person carrying on a business must
keep books of accounts and records which
provide the ability to calculate taxes
payable.
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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
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1. Continual tax planning
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2. Tax Deferral
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Use the tax money during deferral period
Tax laws may change which may reduce tax
liability
3. Income Splitting
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through the year requirements
Progressive tax system
4. Marginal Tax Rates

Income and expenses ie 30% = 30 cents on
each dollar
General Tax Management Principles (cont.)
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5. Deductibles
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accounting and legal expenses
 Not tax prep or incorporation
Advertising
 Canadian Media
business entertaining
automobile expenses
interest expense
 Shareholder loan strategy
Repairs - deducted
Iprovements- depreciated
office expenses
General Tax Management Principles (cont)

6. Government Tax-Related Programs

Special Tax Rate Deductions
 Small Business Deduction (SBD)
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Manufacturing and Processing Deduction
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12% on 1st $300,000, 22% after
On income not included in sbd
Investment Tax Credit
Deferral Programs
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deferred profit sharing – deduct now pay tax later
when paid out
registered retirement savings plan
bonus deferral
General Tax Management Principles
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6. Government Tax-Related
Programs (cont.)
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Accelerated Capital Cost Allowance
Small Business Financing Programs
7. The Incorporation Question

corporation vs. proprietorship vs.
partnership
General Tax Management Principles (cont)
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8. The Remuneration Question
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9. Transferring the Business: Capital
Gains
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compensation salary or dividend
capital gains and family members
10. Goods and Service Tax (GST)
and Provincial Sales Tax (PST)
Concept Checks
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1. Why is it imperative that the
small business owner have some
tax knowledge?
2. What is continual tax planning?
3. What are two good reasons to
defer taxes?
4. What is income splitting?
Concept Checks
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5. What are the nine fundamental
areas of tax management of which an
owner should be aware ?
6. What is the definition of a
deductible ?
7. List the six government related
programs available to small
businesses.
Concept Checks
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8. Why would a company wish to
incorporate ?
9. From a tax perspective, would it
be better to take a salary or
dividends from an incorporated
company ?
Appendices
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A. Federal and Provincial Tax Rates
for Individuals
B. Tax Reference Tables