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By Lori Bamber
The Globe and Mail
Report on Business
Thursday, June 15, 2006
Small business owners prepare yourselves: Finance ministers at the provincial and federal levels have spoken. Recent tax changes have implications for businesses and, in some cases, the news is actually positive.
Adrian Mastracci, investment counsel at Vancouver’s ‘fee-only’ KCM Wealth Management, says, “I often serve as the facilitator of a professional small business advisory team that includes a chartered or certified accountant, lawyer, banker and insurance agent, helping business owners plan for great tax advantage.”
Average Calgary home prices are up 25 per cent over last year as the province’s population continues to grow more than 500 per cent faster than the national average. But there is a note of good news for new homebuyers as of July 1, 2006 – they’ll save enough on the GST on that new home to buy a couch for the family room, and enough GST on the couch to buy burgers at the mall.
Small business owners are skeptical about whether that boost in spending power will trigger a significant increase in sales, however, and on both sides of the Rockies, they are more than a bit chagrined about the administrative costs of implementing the change.
Eric Pateman, owner of Edible British Columbia, says, “I don’t think a one per cent tax cut is going to have any impact on people’s finances. Every little bit helps, of course, but from a business perspective, we’re still competing with Alberta, where there is no provincial sales tax.
“(U.S. visitors) to Granville Island either don’t know about it or don’t understand it – and in many cases have it refunded when they go home. Whether it is six or seven per cent won’t make a bit of difference.
While the GST cut may not make much of a ripple in business income, other changes introduced in the 2006 federal budget have the potential to keep more money in the till.
John Teleske, a chartered accountant in public practice with BDO Dunwoody LLP, has worked with small- and medium-sized businesses for more than 30 years. He says that it is important for businesses to be aware of these changes, and plan for the end of the year now. In fact, beginning in 2007, some businesses may even be able to cut back on tax instalments.
“Tax rates in both British Columbia and Alberta will decrease over the next two to three years. The amount that qualifies as the annual small business income limit will increase from $300,000 to $400,000 (as of January 1 2007). In B.C., the rate for 2006-2007 on that amount is 17.62 per cent, declining to 16 per cent in 2008, and 15.5 per cent in 2009. In Alberta, the current rate is 16.12 per cent for qualifying small business income. On a go-forward basis, that will decline to 14.5 per cent in 2008 and 14 per cent in 2009.”
Rates in Alberta are generally about 1.5 per cent lower than in B.C., says Mr. Teleske, reflecting the prosperity of the province’s oil industry. “But these are the lowest rates we’ve seen in this part of the country for many years, and given the current economy, there is great opportunity for growth.”
Also important to small business, he says, is the new apprenticeship tax credit. Effective May 2, 2006, it provides a non-refundable tax credit equal to 10 per cent of remuneration paid to qualifying apprentices, to a maximum credit of $2,000 per apprentice.
John Winter, president and CEO of the BC Chamber of Commerce, says anything to do with tax is always important to small business. While a one per cent GST cut may not be significant to business income, Mr. Winter says he sees it as an indication that both provincial and federal governments are beginning to recognize that a small business is not just a smaller version of a big business, that small businesses are unique and have their own peculiar set of problems.
“One of the things that intrigued me about the budget,” he says, “was a bit of plea for provinces that aren’t already doing so to harmonize PST and GST.
“(Our members) tell us it is the cumbersome nature of tax (that is) costly to them. It is really the amount of administrative time that a business person has to spend, away from the real reason they’re in business, that is the cost. It is not always reflected in the profit and loss statement, but it is reflected in terms of lost productivity in the organization.”
DO IT YOURSELF?
While small business software such as SimplyAccounting and QuickBooks can help entrepreneurs manage the day-to-day, sometimes it’s important to get professional help.
Fee-only investment counsel Adrian Mastracci of KCM Wealth Management in Vancouver often serves as the facilitator of a professional small business advisory team that includes a chartered or certified accountant, lawyer, banker and insurance agent, helping business owners plan for great tax advantage.
Small business owners can profit by partnering with trusted professional advisors, Mr. Mastracci says, particularly in regard to the following important areas of business planning:
- designing the most advantageous mix of salary, benefits and dividends for business owners;
- purifying the business to make it a “qualifying small business” so that owners can use the $500,000 capital gains exemption;
- taking advantage of the small business tax rate on the first $300,000 to $400,000 of taxable income;
- structuring shares and/or options plans to entice or retain valued managers; and
- succession planning.
FOOD FOR THOUGHT
A one per cent change in the GST isn’t likely to dramatically affect the spending habits of Edible British Columbia clients – but the tax change will affect the business's accounting system. And that’s something owner Eric Pateman says he needs to address.
A former chef and hotel consultant who has rated restaurants for the Mobil Travel Guide, Mr. Pateman created Edible British Columbia, which shows locals and visitors the very best of B.C.’s culinary scene.
Services range from extraordinary gourmet gift baskets and exclusive reservations at toprated restaurants to elaborate multi-day culinary focused holidays. One of Edible B.C.’s most popular tours provides an insider’s view of Vancouver’s Granville Island, including its famous market, tips on selecting and preparing regional foods, and an introduction to local restaurants.
“The only impact the GST cut will have on my business,” says Mr. Pateman, “is that I have to pay a consultant to update my computer systems.”
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