TORONTO, Oct. 27 /CNW/ - The month of October is dedicated to celebrating
the successes of Canada's hard working entrepreneurs and offering suggestions
for the challenges they face. Today Mackenzie Investments released the results
of the Mackenzie Small Business Tax Test; a new customized survey that asked
small business owners ten True or False questions testing their tax knowledge.
Scoring an average 3 out of 10 correct, the results show how tough it is for
this segment to keep up with complex and changing tax and estate planning
"Knowledge is power for small business owners; and in the complex and
changing world of taxes, more power is needed," said Sandy Cardy, Senior Vice
President, Tax and Estate Planning, Mackenzie Investments. "Entrepreneurs have
multiple details to attend to each day, but a general understanding of tax
rules can help them save tax dollars today in order to preserve equity in
The questions, listed below along with the correct answers and percentage
of correct answers, focus on a mix of tax, retirement, estate and contingency
"A small business owner might have a team of accountants and financial
advisors working for them. But tax knowledge helps them play with that team,
not just sit on the sidelines," says Cardy. "Both the company's and the
entrepreneur's future depends on his or her ability to help develop workable
tax, estate, and succession plans for the business."
How small businesses scored on The Mackenzie Small Business Tax Test:
Mackenzie asked a survey of 337 small businesses across Canada the
following ten True or False questions. The correct answers and the percentage
of people who answered correctly are shown in brackets. The correct answers to
the "False" questions also appear below:
1. Your small business is a private corporation so it pays a reduced rate
of corporate tax on the first $300,000 of active business income.
False. (25 per cent correct)
Answer: it pays a reduced rate of corporate tax on the first $400,000.
2. Your spouse is a shareholder of your small business corporation. A
dividend can be paid from the business to your spouse and be included
in your spouse's taxable income. True. (34 per cent correct)
3. Your private company's annual contribution to an Individual Pension
Plan is taxable to the pension plan participant in the year the
contribution is made. False. (30 per cent correct)
Answer: The company can deduct the contribution in the year it was made,
but the participant only pays tax when they withdraw funds in retirement.
4. In some provinces a secondary will can be used to address the transfer
of private corporation shares upon death of the shareholder in order
to reduce probate taxes. True. (11 per cent correct)
5. Life insurance cannot be owned by a private corporation on the life of
a shareholder. False. (52 per cent correct)
Answer: Corporate-owned life insurance can insure a shareholder's life,
and the corporation pays the premium with less expensive after-tax
6. I can use a family trust to hold 100% of the common shares of my
private company. True. (28 per cent correct)
7. Retained earnings in both my operating company and my holding company
are creditor protected. False. (42 per cent correct)
Answer: Assets in an operating company are not creditor protected (from
creditors of that company) but assets in the holding company are
protected from creditors of the operating company.
8. Investment income is taxed at a lower rate in a private corporation
as compared to being taxed at the individual level. False. (20 per
Answer: In all provinces except Quebec, investment income in a
corporation is generally taxed higher than it would be at an individual
level under current tax rules.
9. A $750,000 lifetime capital gains exemption is available in respect
of the sale of qualified small business corporation shares. True.
(27 per cent correct)
10. At age 18, your child, who is a shareholder of your company, can be
paid a dividend, taxed at your child's own marginal tax rate. True.
(34 per cent correct)
While the test covers a mix of topics, some stand out for Cardy;
"Question number 2 refers to the fact that you can split business income with
a spouse, and number 10 shows that you can split dividend income with an adult
child. These are important for incorporated business owners to know, for
example, because income splitting can significantly reduce the family's
overall tax bill."
Says Cardy: "Whether you're starting to grow your business or are
approaching retirement, a better understanding of these topics means a better
chance of future success for you, your family and your business."
Other survey results:
- Only 8 per cent of small business decision makers were able to answer
seven or more out of ten questions correctly.
- Only one question was answered correctly by the majority; number 5:
just over half of business owners know that life insurance can be
owned by a private corporation on the life of a shareholder
- Those with an annual revenue of over $500K are more likely to know
that they can use a family trust to hold 100% of common shares (37 per
cent), compared to businesses with annual revenues of less than $500K
(10 per cent)
- However, 34 per cent of businesses with revenue under $500,000 are
more likely to know investment income is not taxed at a lower rate in
a private corporation than at the individual level, compared to just
17 per cent of businesses with annual revenue over $500,000
The survey results are based on a Leger Marketing national online survey
with a representative sample of 337 small business owners between October 6
and 16, 2008. The businesses have between 5 and 50 employees, and are either
incorporated, in a partnership or sole proprietorship. A sample of this size
will provide results that can be considered accurate for the population
overall to within plus or minus 5.3 per cent, 19 times out of 20.
Mackenzie Investments: Mackenzie Investments was founded in 1967, and is
a leading investment management firm providing investment advisory and related
services. With $64.7 billion in assets under management, Mackenzie Investments
distributes its services through a diversified network of third-party
financial advisors. Mackenzie Investments is a member of the IGM Financial
Inc. (TSX: IGM) group of companies. IGM Financial is one of Canada's premier
financial services companies with over $118 billion in total assets under
management, as of September 30, 2008.
For further information:
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