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Provincial Income Tax Comparison for Small Businesses

Part 3: Income Tax Lessons for the Small Business Owner

In this lower tax bracket, there's much less of a discrepancy in tax rates between provinces and territories, with an average tax rate ranging between 20 and 22 percent. As the table above compares the same five regions as the table comparing income tax payable on taxable income of $49,168.70, the province with the highest provincial tax, Manitoba, isn't even listed, but its total tax bill of $4,295.92 still falls within the 22 percent tax rate. Comparing this table with the previous table shows just what a difference tax brackets make; in every case, the average tax rate has fallen at least 10 percent.

What do these tax tables teach us? Nothing new, I suspect. It seems odd that small business people such as Ben are essentially penalized for making more money, but middle income earners have been carrying the brunt of the tax burden for a long time now. 

The key to lowering the tax bill for a sole proprietor such as Ben is clearly to increase his tax deductions. Unfortunately, this can be a Catch 22 for small business people, as methods for gaining tax deductions such as having a personal RRSP and increasing business expenses cost money a small business person may not have. And increasing your tax deductions can't be done retroactively, so Ben can do little to alleviate his tax bill for 2000 at this point.

Still, it's galling to hit your year end and discover you haven't spent enough money to avoid giving a large chunk of it away. While it may not be a new lesson, it's certainly one worth reviewing; tax planning is just as important as any other kind of business planning if you want to hang onto the money you've made.

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