Monthly Archive: October 2016

Ottawa Tightens Mortgage Rules to Cool Housing Markets

100716_thinkstock_464679012_lores_kkOttawa is acting to curb risks in the housing market, unveiling new measures to crack down on speculation and make it harder for homeowners to take on unaffordable debt. And while the moves are aimed primarily at the overheated Vancouver and Toronto markets, the new rules are likely to affect all home buyers.

It used to be that anyone who sold their principal residence in Canada didn’t have to report the sale — or the profit from it — to Canada Revenue Agency (CRA) as long as they were living in the home.

But that’s changing. Under new rules, taxpayers who claim an exemption from capital gains tax when selling their home will have to report the sale on their tax returns. The CRA will examine tax forms to verify that the beneficial owner of a property lived in Canada and was living in the home.

Families will be allowed to claim an exemption on only one home a year and the home’s owner must live in the property. Capital gains must be paid on the sale of secondary properties, such as cottages and homes that are used as a rental property to generate income.

The change was spawned by concerns that speculative investors, particularly from abroad, are buying and flipping homes in Canada for a quick profit. Moreover, to avoid paying taxes, they’re falsely claiming the primary residence exemption without actually living here.

As a result, many families have taken on high levels of debt to buy a home before it’s too late. Two more changes targeting the mortgage insurance market are aimed at stopping that.

“Stress Test”

First, starting October 17, a mortgage stress test is being expanded to cover all insured mortgages — including those where the buyer has a down payment of more than 20%. The test is aimed at ensuring that home buyers will still be able to afford the mortgage if interest rates rise, or if their income drops. Currently, stress tests aren’t required for fixed-rate mortgages longer than five years.

While many buyers are currently qualifying for five-year mortgages at around 2%, they’ll now have to prove that they can make mortgage payments at the Bank of Canada posted rate of 4.64% — which, in heated markets such as Toronto or Vancouver, can add tens of thousands of dollars a year in interest charges.

Existing rules require home buyers who take out short-term or variable-rate mortgages with down payments of 20% or less to prove they can afford payments at a much higher interest rate than they’ll actually pay. Meanwhile, borrowers who take out fixed-rate insured mortgages of five years or longer have their income tested against the interest rate that they will actually be paying. The end result is that borrowers can now typically qualify for much larger mortgages if they opt for a longer-term, fixed rate mortgage.

The stress test also requires that home buyers won’t be spending more than 39% of income on such housing-related expenses as mortgage payments, heat and taxes. In addition, total debt service (TDS) mustn’t be more than 44%. TDS is the percentage of the borrower’s income that is needed to cover housing costs plus any other monthly obligations, such as credit card and car payments.

Low-Ratio Mortgages

In addition, new restrictions are being imposed on when Ottawa will insure low-ratio mortgages. These measures are aimed at portfolio insurance, a type of bulk insurance that banks use for mortgages with down payments of 20% or more. Starting November 30, the federal government will require portfolio-insured mortgages to qualify under the same criteria used for the insurance taken out on homeowners with small down payments.

The new rules will be based on the following criteria:

  • Amortization is 25 years or less,
  • The purchase price is less than $1 million,
  • The buyer’s credit score is at least 600, and
  • The property will be owner-occupied.

So, under the new stress test, if you were to buy an $800,000 home, you’d need to make a down payment of 5% on the first $500,000 ($25,000) and 10% on the remaining $300,000 ($30,000) for a total of $55,000 or 6.9% of the total purchase price, according to mortgage website Ratehub.ca. Previously, you would’ve only had to put down $40,000.

The new stress tests apply only to new mortgages, not renewals. However, the effect is likely to be significant as a majority of homeowners are thought to take out the types of fixed-rate mortgages that will be affected by the stricter qualification requirements.

While Finance Minister Bill Morneau said the stricter “stress test” will likely have the greatest impact on expensive housing markets such as Toronto and Vancouver, he acknowledged it will also affect home buyers in softer markets. “We’re trying to manage the risk for all Canadians,” he said, adding: “We worry about someone in Halifax or Ottawa or Saskatoon as much as we worry about someone in Toronto or Vancouver.”

Mr. Morneau said he expected the changes would have a “modest” and gradual effect on the Canadian housing market. “It’s hard to state with certainty what the outcome will be,” he said. “For some buyers they might defer their purchase for a little while; for other buyers they might decide to buy a slightly less expensive home.”

How Much Can Lenders Handle?

The Finance Minister also said that the government will release a consultation paper in the coming weeks, to solicit views from mortgage lenders about how they can take on more risk in the market. Because many mortgages are guaranteed by Canada Mortgage and Housing Corporation (CMHC), Mr. Morneau said that too much of the responsibility is currently placed on the government and taxpayers.

Bottom Line: If you’re considering buying a home, consult with your advisors, who can help ensure that your monthly mortgage payments fit neatly within your finances and your financial plans.

Canada Lags Badly as We Head toward the Digital Future

101416_thinkstock_178976393_lores_kwDigital disruption is described as the changes that occur when new technologies and businesses models have a negative effect on existing goods and services. Despite some activity, Canada is lagging the rest of the world in companies transforming to take on the challenge.

Technologies Taking Hold

A recent example of digital disruption is Uber, the smartphone ride-hailing app. If you’re not familiar with the service, you push an icon on your smartphone to order a driver, and the app tells you when a car has accepted the job, when it will arrive and about how much it’s going to cost (generally less that a regulated taxi). The drivers are regular folks driving their own cars.

It’s no surprise the taxi drivers in cities where Uber has made inroads are unhappy and protesting the service. In Quebec, for example, there has been turmoil, protests and arrests all related to the provincial government’s plan for a pilot project where Uber can operate freely until legislators decide what to do.

What Uber is doing to the car industry, Airbnb has done to the hotel industry (people rent out their homes or apartments on a short-term basis at prices lower than hotels charge). Facebook, Amazon and Netflix have also disrupted their respective industries (the most popular media owner creates no content, the world’s most valuable retailer owns no outlets and the world’s largest movie house operates no cinemas).

Digital Definitions

Technically, digital disruption is when new digital technologies and business models affect the value proposition of existing goods and services. Digital transformation is what happens before the disruption or in response, when businesses alter their activities, processes, competencies and models to take advantage of the changes and opportunities of digital technologies.

And because of digital disruption, 78% of business around the globe believes that digital start-ups pose a threat to their organizations and 45% worry that the competition from these up starts may make them obsolete in the next three to five years. These are among the results from Embracing a Digital Future — Transforming to Leap Ahead, a survey performed for Dell Technologies by independent technology market research company Vanson Bourne.

Vanson Bourne surveyed 4,000 business leaders — from mid-size to large enterprises — across 16 countries (including Canada) and 12 industries.

The bad news for Canada? It ranks among the least digitally mature countries, ahead only of China and Japan.

Why? This country faces less digital disruption compared to others — so far (see the box below for a list of some of the many companies disrupting digitally in Canada). A “perfect storm of slow digital adoption and less disruption finds Canada among the bottom three countries in digital maturity,” according to Dell.

Looking at the Past and Toward the Future

Only 35% of Canadian companies have experienced significant industry disruption over the past three years, compared to 52% of companies globally. Additionally, only 48% of Canadian companies have seen new competitors emerge as a result of digital technologies, compared to 62% globally.

According to the survey, 72% of Canadian businesses admit they haven’t acted on digital intelligence, compared to 64% globally.

Other, global results from the survey are:

  • 48% of businesses don’t know what their industry will look like in three years,
  • 60% can’t meet customers’ top demands,
  • 73% confess digital transformation could be more widespread in their organizations,
  • 66% are planning to invest in IT infrastructure and digital skills leadership,
  • 72% are planning to expand their software development capabilities, and
  • 52% have experienced significant disruption in their industries over the past three years as a result of digital technologies and the “Internet of Things” (IoT).

The top IT investments planned over the next three years are:

1. Converged infrastructure that attempts to minimise compatibility issues between servers, storage systems and network devices,

2. Ultra-high performance technologies such as Flash,

3. Analytics, big data and data processing such as “data lakes,” which hold vast amounts of raw data, and

4. IoT technologies, which encompass networks of connected objects that can collect and exchange data using embedded sensors (think of thermostats, lights and cars that can all be connected to the Internet).

Additionally, 35% of respondents have created full digital profit-and-loss statements, 35% are partnering with start-ups to adopt an open innovation model, and 28% have spun-off a separate part of the organization or intend to acquire the skills and innovation they need through mergers or acquisitions. Just 17% measure success according to the number of patents they file, but nearly half (46%) are integrating digital goals into all department and staff objectives.

What Can Your Business Do?

So, digital disruption and transformation is fast becoming the new normal and nothing seems to be able to stop it. If you don’t want to be left behind, here are five ways that may help your business create a digital transformation strategy and meet the challenge head on:

1. Focus on customers. Businesses often view the world through the filters of marketing, sales and maximized revenues. Instead of thinking about business success, target the customer experience. One large hotel chain, for example, uses customer data to discover patterns that help their hotels boost customer service. For instance, the company can combine data it has on flight connections with the buying patterns of it top customers. If one of those customers misses a flight connection, the company will know that. They will also know facts such as he or she has bought martinis, shaken not stirred, and the last three times he or she was at a company property. Consequently, when the customer arrives, regardless of the hour, martinis could be delivered to the room.

2. Make analytics your friend. Stop thinking of marketing and sales data as simply marketing and sales data. Develop a strategy to access, analyse and use that data. Tap the brains of analysts who can think outside the box of departmental silos in order to combine all types of data, including point of sale, sensors and machines, logs and social streams. Then use that big data to innovate.

One large North American fashion retailer operating in Calgary, Ottawa, Vancouver and Toronto, invests heavily in big data analytics to figure out what products to promote to which customers, when, and by what channel. Apart from the data from its website or point-of-sale data, the company generates data from its likes on Facebook and its followers on Pinterest and Twitter.

The retailer has implemented a cross-channel inventory project that lets customers see in real-time where a product is available and when they can expect to receive it. This company (as well as other large retailers) have integrated online inventory as well as in-store inventory.

3. Unify your operations. Best-practice organizations assess digital requirements from across the business and then set objectives. Most organizations have multiple teams and departments involved in digital transformation. It’s crucial to ensure that all of your business is aligned and operating toward the digital goals you’ve defined.

Prepare your team in advance by making it clear that the project will require the business to operate without silos. Every department must be treated as relevant and important to the overall goal. It will help if you can name a Chief Digital Officer who can oversee and direct team members across the business.

4. Think visuals. Digital specialists have defined key performance indicators that extend far beyond revenue. This can include diverse factors such as customer lifetime value and employee satisfaction, as well as a funding model. Decide what visualization format is best for your needs. Data visualization is the ability to see various data in a variety of formats such as charts, graphs or other representations. Infographics often play a role in visualization. If your company has a hard time understanding how data can be used to drive digital transformation, consult an advisor who can help you leverage this critical information.

5. Be nimble and quick. By the time a project is completed, market and customer requirements have often changed. To avoid this problem, develop digital agility that will let your business embrace operational changes as a matter of routine by using digital technologies. Digital agility is rooted in the concept of learn, launch, re-learn and relaunch.

This lets you consistently experiment and adjust, refining your approach in manageable iterations. Successful firms in the digital age must be agile, including in the way they manage innovation and change.

In your digital transformation, the main goal is to continuously evolve digital strategy based on prior outcomes and feedback. The transformation should give your business the ability to sustain its competitive advantage in the face of challenges now and in the future.

Figure a Company’s Fundamentals into Its Long-Term Value

Most companies experience one or more blips along the way that can affect their stock prices, but most times the problems aren’t disastrous.

Develop a Baseline

lores_chart_graph_markers_pen_ruler_estimate_mbHow a company has handled challenges in the past is often a good indication of its potential for long-term growth and investment returns.

If you know the fundamentals of an enterprise you invest in, take a long-term view and stay apprised of changes within the company and how current events could affect the stock’s value, you are in a better position to maintain solid returns in your portfolio.

A share’s price generally depends on several factors including the:

  • Size, profitability and financial stability of the company;
  • Capability of its management;
  • State of the economy; and
  • Strength of its competition.

Developing a baseline will help you to identify if the original reasons why you and your financial adviser decided this company was a good fit for your long-term goals and risk tolerance still stand – and whether this could be an opportunity to add to your holdings.

When they are, however, do go running for the hills and join in a sell-off? Or have you invested for the long term and researched the company well enough to recognize whether the decline represents a fundamental change or is simply a temporary reaction to some external or internal force and that the price is likely to recover?

Two key places to start gauging a company’s fundamentals are the annual report and current events.

The Annual Report: You should receive a copy of the annual report of each stock you hold through the mail. The reports are also typically available in the Investor Relations section of an enterprise’s website. In addition, The Canadian Securities Administrators’ System for Electronic Document Analysis and Retrieval (SEDAR) allows investors to research most documents and information filed by public companies.

A company’s annual report contains several key nuggets of information, including:

  • Letter to Shareholders. Scrutinize the letter from the President/CEO. Look for a discussion of why management believes the company’s future is bright and signs that the company is being forthright about the challenges it faces.
  • Management Team. You also want to examine how a company’s management responds when the going gets tough. A share’s price is often the judge of how effective leadership is.
  • Products and/or Services. The annual report will also often address how the company is keeping up with changing times as well as meeting its competition. If a competitor is responding to such customer demands as adding healthier options to a fast-food chain menu, can the same be said for the fast-food company in your portfolio?

Current Events: The news is a great source of information about corporations. It can provide insight into the steps a company takes to position itself for the future as well as alert investors to potential problems. Each nugget of information may affect whether the company’s stock price will go up or down.

When it comes to actually buying a stock, some investors opt to buy shares in a company whose stock prices have been beaten down in the short term. These investors believe that the price will eventually rebound and base that consideration on their knowledge of such fundamentals as the company’s potential for long-term growth and recovery, its products and its position in an industry.

These strategies, along with diversifying your portfolio, can help mitigate risk. They’re also an opportunity to talk to your adviser about whether it’s a good time to add to your holdings, or an indication of an ongoing problem suggesting it could be time to cut your losses and move on. (Be careful not to trigger an unexpected tax liability when selling. Consult with your tax adviser.)

Although there are no guarantees, history illustrates that over the long term, the stock market outperforms other investments. As risk tolerance and timeline vary with each individual investor, it’s important to consult your professional adviser to help determine the strategy that best suits your situation.

Screen Job Applicants for Security Purposes

Nuggets of Insight

lores_hr_handbook_magnify_search_inspect_amOver the years, screening practices have changed for several reasons, according to the Statscan study, including:

  • Changes in the industry and occupation job mix.
  • Improvements in detecting health conditions and drug or alcohol abuse.
  • Increased access to personal, financial, criminal, and other records.

Among the other results of the study:

  • Security screening increased with workplace size, used 18 per cent of the time at companies with at least 500 employees but just eight per cent in workplaces with fewer than 20 employees.
  • Medical examinations also increase with workplace size, being used for 30 per cent of new hires in large companies and only two percent in small companies.
  • Drug tests are now required for roughly one in 50 job applicants and rise to nearly one in 10 in primary product manufacturing industries.
  • Security checks were highest in: communications and other utilities (30%); education/ health (24%) and finance/insurance (19%). They were used least in retail trade and consumer services (7%).

Canadian employers are increasingly running security checks on new hires. In fact, more job applicants are being subjected to that type of screening than medical exams.

Statistics Canada compared hiring practices over a 20-year period and found that before 1980, about 25 percent of people underwent a medical examination, while only five per cent underwent a security check. By 2000 and 2001, the proportion that had undergone a security check had doubled to 12 per cent, most notably among individuals applying for positions in teaching, health care, law enforcement and information technology.

Meantime, the proportion undergoing medical exams dropped to 11 per cent. (See right-hand box for more results of the recent study based on the Workplace and Employee Survey.)

Of course, hiring decisions aren’t always based on intense screening. In some instances, finding the right person for the job is a simple matter of an interview and a test of knowledge or skills.

But more rigorous screening may be required for other positions. For example, drug tests for pilots or truck drivers, health exams for fire fighters and security checks for bank tellers and information technology staff.

As an employer, you have a duty to check backgrounds for the sake of your customers, other employees and investors. In addition, solid background checking practices can help decrease employee turnover and the costs of hiring, training and internal fraud.

In Canada, background checks are generally legal as long as they comply with:

  • The Personal Information Protection and Electronic Documents Act (PIPEDA).
  •  Rulings of the Privacy Commissioner of Canada.
  • Canadian federal and provincial human rights codes or acts.

Background assessments are also legal provided they are not influenced by race, religion or ethnicity and all applicants to a similar position are treated equally.

With that in mind, it is essential that everyone in your company follow a consistent hiring process. Discrepancies in the process can lead to damaging risks such as negligent hiring suits and dishonest workers’ compensation claims.

Consider a hiring reference guide for managers that includes interviewing techniques, employment screening policies and lists of questions that can and cannot be asked.

Your company’s reference guide can also include red flags that may be uncovered during a background check. Here are some guidelines for handling the following eight red flags when considering applicants:

1. Previous Employment

  • The applicant quit his or her most recent job without notice.
  • The former employer hesitates to answer the question: “Would your rehire this person?”
  • Title and wages of previous job differ from what the applicant reported.
  • The previous employer is looking for the return of merchandise or repayment of a loan.
  • The applicant is in litigation with a previous employer.

Try to get references from three to five previous employers. But keep in mind that if you ask for references and don’t check them, you risk liability. In cases when it was reasonably necessary to check references and an employer failed to do so, courts have held the employer liable for the improper acts of the employee.

2.  A Criminal Record

You can check past criminal activity by contacting local police or law enforcement agencies, but you must have the candidate sign a release to obtain the information. You cannot, however, deny a position because of:

  • A conviction under a federal law, such as the Criminal Code or the Narcotics Control Act, for which a pardon has been granted, or
  • A conviction for a provincial offence, unless the conviction will affect the applicant’s ability to do the job. You can refuse to hire someone based on criminal convictions when there is no pardon.

3. Driving Record

  • A revoked or suspended license.
  • An applicant lies about his or her class of license – for example claiming to have a license to drive a bus with more than 24 passengers while in fact having only a license to drive passenger cars and light trucks.
  • An applicant held a license in another province but failed to mention that province on the job application or resume.

4. Education

  • A verified grade point average is discovered to be 0.5 or more points lower than the applicant’s claim.
  • There is no evidence of a degree the applicant claims to have.
  • Dates of attendance claimed by the applicant differ by more than two months.

5. References

  • References are contacted and say they don’t know the applicant.
  • No references can be reached.

6. Professional Licences and Credentials

  • A licence was never granted or is no longer valid.
  • The applicant’s licence is restricted.
  • Records indicate that legal/civil action was taken against applicant.

7. Social Insurance Number (SIN)/ Address

  • A SIN that does not match the one provided by the applicant.
  • An indication that the SIN was used fraudulently.
  • Addresses don’t match data on the application.

8. Credit Report

A problematic credit history may be inappropriate for employees in certain positions. You can conduct credit checks but you are required by law to notify applicants or current employees in writing and provide the name of the consumer reporting agency.

Doing Business in China: Protect Intellectual Property

Companies are rushing to trade with China, the world’s second largest economy.

Use All Available Resources lores_globe_glass_bz

Your business should consider using Canada’s trade resources.

For example, register your trademarks and copyrights with the Canadian Border Services Agency. Customs will screen select shipments to verify that they comply with the Customs Act. Intellectual property can also be registered with Chinese Customs. Registration is not foolproof, however. In both countries, the screening process keeps only a small portion of infringing goods out of the marketplace.

Other Canadian agencies can also help sort out intellectual property difficulties. The Canadian Intellectual Property Office has a wealth of IP information. The Canadian Embassy can help locate IP attorneys in China as well as monitor the status of an infringement case within the Chinese legal system.

The Canadian Trade Commission also has extensive knowledge of Chinese intellectual property laws as well as industry-specific information regarding music, software, the automotive industry and pharmaceuticals.

You might also want to consider subscribing to blogs. There are a number of highly informative websites and blogs that cover Chinese intellectually property laws in detail. These sites also routinely cover enforcement actions.

In addition, consider creating Google alerts focused on Chinese intellectual property laws and enforcement.

Some organizations are expanding so rapidly into China that they dangerously postpone registering their intellectual property (IP). The importance of protecting IP cannot be overemphasized — it is often at the heart of a business’s success.

If your company plans to do business in China, or if it already is, it needs to be familiar with Chinese IP law. Beijing has strengthened those laws over the past decade, but work still needs to be done.

The Canadian Embassy recommends that every company’s plan for doing business with China include IP-protection strategies. Businesses that already operate there should review their IP policies and protections to ensure they have kept pace with corporate innovations and expansion.

Some companies mistakenly believe that Canadian intellectual property registration protects them in China. Others underestimate the risk of IP abuse. Patents and trademarks registered in Canada are not typically protected in China. To help prevent infringement, your business must register its intellectual property rights with the Chinese government.

The trademark and patent protection system in China operates on the basis of first-to-file rather than first-to-use or first-to-invent. This means that the first party to register is granted the rights. China’s intellectual property protections include:

Trademarks: Using trademarks is generally the most effective tool against infringement in China. It is easier to identify an infringing mark than a patent or copyright, which require a time-consuming administrative review.

Applications must be filed with the Trademark Office of the State Administration for Industry and Commerce (SAIC). Before beginning the process, conduct a search to confirm that no one else has registered your company’s trademarks. To ensure the maximum protection under the law, register your trademark in English and in Chinese characters. Despite different spoken Chinese dialects, a Chinese character trademark is understood by all Chinese consumers. Removing the language barrier with a character improves brand recognition and enables the products to reach a wider market. While you are at it, register your company’s Internet domains.

If your business has a physical presence in China it can file a trademark protection application directly. If it does not have offices there, it must use an authorized trademark agent. Warning: A registered trademark that is not used for three consecutive years in China is subject to cancellation.

Once a trademark license contract is signed, your organization must submit a copy to the Trademark Office within three months. The licensee must submit another copy to the local county SAIC. The contracts must include provisions showing your company agrees to supervise the quality of the goods the licensee manufactures and include a requirement that the licensee will put its name and address on the items.

Patents: Chinese patent law recognizes three kinds of patents: invention, utility model, and design. Applications are made to the State Intellectual Property Office. If your business doesn’t have an office in China it must apply through an authorized patent agent. The protection lasts for 20 years.

When your company applies for a patent in Canada, it can also submit an application for a Chinese patent. If your business already has a patent in Canada, you should apply in within one year for inventions and utility models and within six months for industrial designs. Any later than that and China may decide not grant a patent because authorities there won’t consider the invention to be “new and innovative.”

Copyright: As in other countries, there is no need to register a copyright to receive protection under Chinese law. Foreigners have copyright protection of their works if they were the first to publish the work in China. However, as is the case in Canada, registering a copyright with the Chinese authorities eases the process of copyright enforcement. Authorities can confiscate and destroy infringing products, but criminal prosecution is infrequent.

Trade Secrets: These also do not require registration. However, your business must be able to show that it has set up policies and procedures to safeguard its trade secrets. Your company’s treatment of the trade secret will dictate whether or not the courts grant protection. The theft of trade secrets is punishable under civil and criminal law.

To help further safeguard your IP rights in China, consider these steps:

  • Conduct due diligence on partners, agents and distributors. Associates or former employees are frequent sources of intellectual property infringement
  • Cover all aspects of your business’s IP with clear contracts that include clauses on your ownership rights and on limitations over the use of IP by partners, distributors, and licensees. Contractual problems are a frequent source of infringements. Have your legal advisers review all agreements and consult with you during negotiations.
  • Require employees to sign confidentiality and non-disclosure agreements as well as accords dealing with the use and ownership of intellectual property.
  • Engage a qualified intellectual property attorney if you plan to pursue an enforcement action. The Chinese agency to notify will depend on the type of intellectual property involved as well as the region of the country where the dispute has arisen.

If your organization does not register its intellectual property it risks having its inventions registered by others operating in bad faith. While there are mechanisms to pursue recourse, the legal processes can take years to wind their way through the system at considerable expense and trouble. The safest action is to register your intellectual property as soon as possible and to remember to register the Chinese character versions of their trademarks.

Don’t Treat Succession as if Your Business Were the Royal Family

lores_handing_baton_hands_exchanging_kkWilliam and Kate’s recent visit with the children brings to mind the issue of succession.

Of course for the Windsors, succession is a done deal. Prince Charles, the oldest child, will succeed Elizabeth II unless he dies or gives up his right. Prince William gets his chance after that.

Some family-owned businesses follow a similar model of succession. The current head or owner of the company passes the baton on to the oldest child — and in some cases, the oldest male child.

The Key Is Survival

But the old saying, “shirtsleeves to shirtsleeves in three generations,” describes a concerning fact about this standard of succession. Many family businesses that are passed down to children and then grandchildren may not survive through the third generation.

History shows that this path of succession often leads to inefficiencies and mistakes that jeopardize the continued existence of these family businesses. There are a lot of reasons for this, including that the first-born isn’t necessarily the most qualified. Still, keeping the business in the family can often yield more wealth for generations to come than any investments you might purchase with the proceeds from selling it.

If you decide to keep your successful business in the hands of the family, you need to begin the process of choosing a successor. That choice will have a direct impact on your financial future and retirement. Picking the wrong person (or handing over the reins too soon) can cause your company’s fortunes, and your retirement financing, to deteriorate. The worst-case scenario is that the business will fail.

Steps to Consider

If your company’s policy is to let the oldest child automatically take the reins, you might want to step back and consider other approaches. Here are eight common-sense steps to consider to help choose your best successor:

1. Determine if any of the next generation is even interested in continuing to work for, and more importantly, manage the business. And set a target date for the takeover. It can be difficult to keep a designated heir in place without a timeline. It needn’t be a specific date. A series of milestones leading to being prepared to take over is sufficient.

2. Decide which of the interested children has the best skills to take over. This might require outside assistance from trusted advisors or business consultants. Enlisting outsiders can help to eliminate any biases the family’s senior generation might have for — or against — certain offspring. A person outside the company will likely be impartial, have no real stake in the outcome and help you objectively evaluate potential candidates. Keep in mind, depending on your children and your family’s dynamics, it may turn out that someone outside the family who has worked in the business may have the skills and personality to lead into the future.

3. Don’t assume your primary choice wants to take on the mantle. Begin discussing the possibility long before you plan the transition. But be aware that the potential candidate may have a hard time getting his or her head around the idea. Leading the company is obviously going to be harder than just working for it. Not everyone has the strength, talent or understanding spouse who will allow them to take the reins.

4. If there’s more than one viable successor, give each a chance to win the job. This is no different from the process that often happens in publicly held companies and in many large private businesses. Each qualified candidate should be allowed to fill a position at the company and to progress up the ladder of management.

5. Rotate the jobs each candidate performs, if possible, so they gain experience in many areas of the business. Not only will this better groom the ultimate leader, it also will provide depth to the management team. The candidates should be trained in decision-making, leadership, risk management, people skills and handling stress. As each moves around the company, increase responsibilities and set more rigorous goals.

6. After a reasonable period of time, the “decision team” should select and meet with the best candidate to discuss expectations, compensation, terms of contract and other issues related to leading the company.

7. When there are multiple candidates, owners should meet with each one who wasn’t selected. Decisions will have to be made here, such as whether the person will stay in some executive position and be willing to work as a team with the new head and the other candidates. Don’t make the mistake of keeping candidates with the company simply because they’re part of the family. If someone isn’t a good fit, you may be better off terminating the business relationship.

8. Develop a well-communicated plan for the transition of power to the newly selected company head. This might take several months or even years. During this time, authority and decision-making should gradually be shifted from you to your successor, allowing you both to adjust to your new roles.

Don’t underestimate the human element and how much time and effort will be required to make the succession work. Developing a plan early will allow you to maintain control over the process and have the available information you need to make decisions. Once the plan is in effect, stick to it unless there are extenuating circumstances.

Other Resources

It’s a good idea to consult with your attorneys and tax advisors who specialize in family business succession to understand all the implications. When a successor has been adequately prepared, there will be limited or no disruption to your business when the person takes over. The change in leadership should be natural and expected by everyone.

CRA Phone Scam Revs Up: 2016 Victims Already Outpace 2015

092316_thinkstock_183160134_lores_kkYou come home from work, hit your telephone voice mail button and hear the following: “Court proceedings have begun, a lien is being placed on your property and the cops are on their way to put you in jail, unless you pay immediately.”

That’s what people are basically hearing in a recently revved-up telephone tax scam. The chances that you’ll receive phone calls like this have made a quantum leap this year. Police agencies across the country are issuing warnings, and the Canadian Anti-Fraud Centre (CAFC) reportedly has said that more people and businesses were victims of this scam in the first half of 2016 (811 victims defrauded of $2.5 million) than in all of 2015.

No matter how law-abiding a citizen you are, if you hear these threats, odds are you’ll panic for at least a second or two. Even if your accountant completed your tax returns, when you hear threats of jail and liens or worse, you might wonder if a mistake was made somewhere along the line or there was some bureaucratic blunder.

Scams Are Often Threatening

These forms of extortion can become extremely sinister, too. Earlier this year, the Royal Canadian Mounted Police warned of a phone call where the scammer threatened to kill the person or blow up his home if he called the police (of course, if you’re contacted by a scammer, that’s exactly what you should do).

Scams are nothing new to the Canada Revenue Agency (CRA), but the scammers are ever more inventive in the ways they actually try and get the money. Earlier, scammers asked victims to pay with prepaid credit cards. Now they ask for iTunes gift cards.

One woman reportedly was defrauded of more than $20,000 in this adaptation of the scam script, after being told that if she didn’t pay she’d be imprisoned for 11 years. She was told to buy the cards and call the scammers back with the activation codes on the back of them.

The criminals often will demand Social Insurance Numbers or the numbers of credit cards, bank accounts or passports. A recent wrinkle in this scam urges recipients to visit a fake website that looks identical to the CRA site. There, taxpayers are asked to verify their identities by entering personal information.

Fight Back

So what can you do to fend off scammers? The CRA recommends that you set up an account on its secure website called My Account. The agency will email your registration to you and you can confirm it online. It will also send you an email when you have a message in your account.

You can also contact the CRA to confirm that you do, in fact, owe back taxes or are due a refund. In addition, don’t use any phone number that the caller provides or that’s listed on your call display. Look up the phone number yourself from a reliable source.

Be aware that the CRA will never:

  • Contact anyone for personal or financial information,
  • Request payments from prepaid credit cards or iTunes gift cards,
  • Give personal information to a third party,
  • Leave personal information on voicemail,
  • Send email with a link and ask for personal or financial information, or
  • Ask for personal information of any kind by email or text message.

If you call the CRA to request a form or a link for specific information, a CRA agent will forward the information you’re requesting to your email while you’re on the phone. This is the only circumstance in which the CRA will send an email containing links.

More Tactical Moves

If you’re contacted by an unknown person claiming to be from the CRA, step back and ask yourself:

  • Why would the CRA be asking for personal information over the phone or in an email (or text) that it likely already has on file for you as a taxpayer?
  • Why would the CRA want you to pay outstanding money with gift cards?
  • Did you sign up to receive online mail through My Account, My Business Account or Represent a Client?
  • Did you provide your email address on your income tax and benefit return so you could receive mail online?
  • Are you being asked for information you wouldn’t provide on your tax return?
  • Are you expecting more money from the CRA?
  • Does what the caller is saying sound too good to be true?

In addition, here are 12 more steps you can take to help protect yourself from tax scams or identity theft:

  1. Be suspicious if you’re ever asked to pay taxes on lottery or sweepstakes winnings — they generally aren’t taxable.
  2. Keep access codes, user IDs, passwords, and PINs secret.
  3. Be careful before you click on links in emails you receive.
  4. Never confirm an ID by the information displayed on Caller ID, whether it indicates an individual, company or government entity. These numbers can be manipulated.
  5. Don’t use your Social Insurance Number as a piece of identification and never reveal it to anyone unless you’re certain the person or organization asking for it is legally entitled to the information.
  6. Pay attention to your billing cycles and ask creditors about any missing account statements or suspicious transactions.
  7. Shred unwanted documents or store them in a secure place.
  8. Make sure documents with your name and Social Insurance Number are secure.
  9. Immediately report lost or stolen credit or debit cards.
  10. Carry only the ID you need.
  11. Don’t write down passwords and carry them with you.
  12. Ask a trusted neighbour to pick up your mail when you’re away or ask Canada Post to put a hold on deliveries.

You also can contact your accountant, who is well-versed in the ins and outs of tax scams. If you become a victim, or know someone who has, call the Canadian Anti-Fraud Centre toll free at: 1-888-495-8501.

Start Building Your Rainy Day Fund

Every person needs a fund to tide them and their families over in the event of an emergency. Unfortunately, about 45 per cent of the country doesn’t have one.

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Where Do You Find the Money?

In theory, most people concede that a savings cushion is a great idea. In practice, however, many wonder where they are going to find the extra money to park in an account where it will simply sit waiting for a “what if” scenario to turn into reality.

The following eight suggestions can help you get a start on building a contingency fund relatively quickly and nearly painlessly:

1. Consider monthly savings as a bill that must be paid. To help, have the money automatically transferred from your chequing account or your paycheque.

2. Depending on the size of your family, skipping one meal in a restaurant each week could generate about $200 a month, or $2,400 a year. Look at your other spending habits. There are likely several “extras” you buy that you could do without for awhile.

3. Put at least half of your next pay raise, bonus or tax refund into your contingency fund. You won’t get used to the money so you won’t miss it.

4. When you pay off a car, a loan or your mortgage, redirect half the extra money to your savings.

5. Do you really need two cars? If you can live with just one, apply the monthly savings to the fund. You could also trade in your car for a smaller, less expensive model or a used vehicle and save the difference. Keep in mind, these actions can be temporary. Once you build your fund, you can regroup and reconsider your vehicle needs.

6. Round up to the nearest dollar each purchase you log into your financing software or your chequing account. If you spend $35.10, log it in as $36.00. You wind up thinking you have less to spend but in reality you are saving small amounts that add up.

7. Set a higher budget high for groceries than you actually spend. If you typically spend $350 to $375 on food, budget $400 and bank whatever you don’t spend of the amount you budgeted.

8. Save your coins and small bills. At the end of each day, dump into a jar the change in your pockets and the $1 bills in your wallet. At the end of the month you can bring a fair amount of savings to the bank.

Your adviser can help you come up with many other simple techniques to stop spending and start saving almost effortlessly.

Generally it is a smart precaution to have relatively liquid funds available that could cover from three to six months of budgetary expenses. The higher your net worth, the more you will need in your fund. Once you tap into the funds, be sure to replenish them.

So, why do you need this emergency fund? Because life is full of surprises. A contingency fund helps you to protect your most important assets during a crisis such as losing your job, becoming disabled for a time, needing a new roof, replacing your furnace when it gives out during a cold snap or being hit with a large tax bill just as your estimated quarterly payment is due.

Because contingency funds are meant for non-recurring expenses, you need to be able to access the money quickly. However, if you tend to be a spender, put the money into an account that requires a little effort to tap and don’t get a debit card attached to the account.

The challenge is how to invest the money in a way that it can be liquidated quickly without any major tax consequences. That means you shouldn’t expect to park your money in a high-yield account.

Contingency funds generally are not put into a long-term investment. You also want to ensure the money goes into a safe investment. The whole point of this fund is not to make a profit but to have it in a vehicle that can be cashed in within a day or two. So the best solution is likely to avoid any stock market or equity risk.

There are several places where you can put this money, none of which generates a high yield:

  • Savings accounts keep your money safe and generally are available the minute you need it. But they pay very little interest. Some online savings accounts do require a slight waiting period, a day or two, before you can access the money.
  • Money market mutual funds are relatively safe but also don’t offer much in the way of interest. When the money reaches a certain level, you could roll over all or some of it into a CD or Treasury bond. The money might not earn as much, but it is more difficult to access.
  • Cashable GICs and bonds can be liquidated quickly and are secure, but again, expect a low return.
  • A chequing account overdraft is a possibility, but it should be a last resort. The penalties are generally high, frequently $5 a day for each day the account is overdrawn.
  • A secure line of credit on your home is an alternative to a contingency fund. You can instantly access the cash at a relatively low cost and you don’t tie up money in a savings fund. However, you need to maintain discipline and not draw on the credit line for any other reason than a bona fide emergency. And as you soon as you can, start to pay it down to reduce the amount of interest you wind up paying.
  • Registered Retirement Savings Plans (RRSP) do not work well in emergency because if you take money out you pay taxes on it and cannot replace it.
  • Tax Free Savings Accounts (TFSA) on the other hand, do work. You earn tax-free investment money in these accounts and you could save the equivalent of three or six months’ salary within a TFSA in a secure investment such as a GIC. Then you could access the money quickly without paying tax on the interest income.

In addition, you can recontribute the money you withdraw beginning in the year after you take the money out, so you can replenish any funds you access in an emergency so they starting generating tax-free income again.

A margin account with your broker is another possibility. Many brokerage firms offer these accounts and allow you to borrow from them. There are no tax consequences as long as the money is taken simply as a loan. Taxes come into the picture only if you have a capital gain or loss from selling something to cover the loan. You still don’t incur tax until you sell assets in your portfolio.

Consult with your adviser to work out the best plan for setting up your contingency plan based on your financial situation.

Ramp Up Your Conversion Rates

thmb_computer_mouse_scroll_hand_ergonomic_bzLocation, Location, Location

Conversion rates may spark controversy over their definition and accuracy as indicators of success, but it seems here to stay. It is the figure that determines the bottom line of your e-commerce business. In fact, the actual conversion rate may be less important than the fact that it trends upward.

The conversion rate metric is defined as the percentage of Web site visitors who actually complete an action that you want. By measuring a percentage of traffic, you can gauge how well your site is doing regardless of traffic levels. But rates vary from site to site and there aren’t any standardized measurement techniques.

The Basic Tenets

Conversion is essentially driven by sound selling practices specific to each merchant’s business model. The study Merchant Secrets for Driving Conversion lists the following ten basic tenets that successful online retailers follow:

  1. Designing a well-branded catalogue.
  2. Stocking desired merchandise at a fair price.
  3. Offering consistent policies and convenience tools across all channels.
  4. Providing intuitive navigation throughout the site.
  5. Presenting key pages with well thought-out design and functionality.
  6. Deploying merchandising features that meet the needs of your primary shopper types.
  7. Testing suggestive selling strategies to increase the average order size.
  8. Maintaining a keen awareness of the competitive landscape and category benchmarks.
  9. Striving to deliver more personalized shopping experiences.
  10. Prioritizing responsiveness to customer actions and communication

For a retail Web site, the conversion rate is usually the percentage of visitors who actually make a purchase from the site.

The rates vary according to industry, target market, site quality and other factors, but generally range from 0.5 per cent to eight per cent, and even more than 10 per cent for the lucky few.

So, given that this metric appears here to stay and is used as a benchmark by many, what can you do to boost your conversion rate? Several things, according to a study entitled Merchant Secrets for Driving Conversion, conducted by Chicago consultancy the e-retailing group and based on interviews with 30 merchants

While many factors that drive conversion rates upward are situational, depending on the specific category or season, the study shows that several appear to work for everyone, including:

The Products

Right Product – It doesn’t really matter if you have a store or a site, or both, first and foremost shopping is about product. Having the right product is the number one tactic for driving conversion. So regardless of the season or the category of your product, you must have the winning goods on your site. If you don’t, your competitors will.

Right Price – You have to match the right price to the right product. Whether you are simply aware of what the competition is charging or you use webcrawling technology to determine your competitors’ pricing, you need to keep what you charge on a competitive level.

Freebies – Most people like to get something for nothing, so major drivers of conversion are enticements such as deep discounts, a free service with the product or the old standby, “buy one get one free.” And free shipping can go a long way toward boosting your conversion rate. There is anecdotal evidence that offering free shipping drives sales better than a 30 per cent discount and that conversion rates bump up a few percentage points whenever free or minimal-cost shipping is offered.

The Web Site

Search – You must have a search tool, it must work quickly and accurately and it must offer items relevant to the shopper’s keyword. Search results also help cinch sales if they bring up special offers, top sellers, cross-sellers and up-sells.

Streamlined checkout – The customer may have the cart full but if that consumer is confronted with complicated and time consuming steps before the sale is completed you run the risk of losing the sale. Optimize your shopping carts, keep everything in the upper half of the page and let the shoppers know where they are in the purchasing process. Of course abandoned carts aren’t always a major issue and that metric needs further study. Some shoppers return and complete their order within 30 days and use the cart as a placeholder.

Navigation – Speed and ease highlight a site’s performance and it is imperative that your navigation is easy, logical and intuitive. Ease of shopping encourages not only conversion but also more purchases. Good navigation includes quick access to key categories, customer service, cross-channel capabilities, as well as information that supports the company as a whole. A number of merchants mentioned the value of easy access to such subcategories as Men’s, Women’s, New, Gift Ideas, Top Sellers and Promotions.

Product page – Where the shopper lands on your site is often a product page, which in essence becomes your home page. That, then, needs to be complete and full of information that can answer every question or concern. Product descriptions should allow for a quick overview and provide in-depth information. If a single feature is missed, you risk losing the sale. Merchant guarantees can help boost conversion rates, as can product ratings, zoom photos, and colour change technology.

When selecting the location and nature of the items on the product page, consider:

  • The category and what works best.
  • The number of items you wish to promote (three or at most, four).
  • The most relevant tactics, such as cross-selling items, up-selling items or similar products.
  • Supporting messages so shoppers quickly scan recommendations, for example customer favourites or top sellers.

Entry and Exit: While you’re at it, take a close look at where your online shoppers land and where they leave. Exit pages could indicate a place where you need to add some encouragement to stay or to buy. And if you compare conversion rates based on where customers landed, you may find that some of those landing sites need improvement.

Predatory Loyalty Programs Are Not Welcomed

thmb_security_chain_bzConsider the Effects

Loyalty programs are important marketing tools that can help promote repeat business and deepen customer relationships.

And in general, they don’t create problems. That is, unless the Competition Bureau becomes concerned that a company’s loyalty program abuses a dominant market position and diminishes competition.

Predatory Acts and Other Factors

 While the Competition Tribunal does consider the effect that a business practice has on competition, two cases illustrate other factors the panel considers when the issue involves abuse of dominance.

In Canada (Director of Investigation and Research) v. NutraSweet, the Tribunal ruled that a “necessary ingredient” for determining anti-competitive behaviour is an “intended negative effect on a competitor that is predatory, exclusionary or disciplinary”.

In Canada (Director of Investigation and Research) v. Tele-Direct, the Tribunal concluded that it was impossible to set out a list of objective actions for dominant companies that would never attract scrutiny. Instead, the overall character of the action needs to be considered on a case-by-case basis, weighing any legitimate business justification with anti-competitive effects.

The Competition Act constrains dominant companies in ways that don’t affect other market participants. And of course, the Competition Bureau and the Competition Tribunal take steps to delineate those constraints and to distinguish healthy competition from anti-competitive behaviour.

Some insight can be gleaned from a Tribunal determination that Canada Pipe Co.’s loyalty rebate program didn’t abuse the company’s market dominance by promoting exclusivity and weakening competition. The company offers significant rebates to distributors that stock cast-iron pipes supplied only by Canada Pipe.

The Tribunal conceded the company’s dominance in the cast-iron plumbing pipes and fittings market but noted that the distributors were free at any time to stock similar plastic products made by other manufacturers. The Tribunal also noted that the plastic, or PVC, versions have been taking an increasing share of the overall market.

In another loyalty program decision, however, the Competition Bureau expressed concerns that IKO Industries abused its market dominance and was hurting competition in the supply of low-end asphalt roofing shingles. The case never went to the Tribunal because IKO agreed to modify its program by, among other changes, allowing customers to choose between loyalty and volume-based rebates.

Both cases illustrate the effect-based approach under which a business practice is considered anti-competitive when its effect is to harm competition. In making those determinations, the specific aspects of a program and the nature of the market are considered. In fact, there are regulations specific to industries, such as a ruling that airlines cannot strategically use frequent flier and other incentive programs to exclude or discipline competitors.

Based on the Canada Pipe case, a loyalty program should include at least two features in order to pass muster:

1. An opt out, where the consumer can decide to end participation and choose another supplier without significant penalty. Canada Pipe let distributors leave the program and buy other products, including imported cast iron, with no penalty other than the loss of the rebates.

2. A legitimate business reason for the program. This feature is a bit more complicated and the Tribunal reaffirmed an earlier ruling that a business justification must be a “credible efficiency or pro-competitive” reason. That alone, however, is not enough. All known factors are taken into account in assessing the nature and purpose of the acts alleged to be anti-competitive. In the Canada Pipe situation, the program not only benefited small and medium-sized companies, it also helped the division gain better efficiencies, lower production costs and continue to offer a full product line.

In Canada, the effect a business practice has on competition remains an important consideration in determining whether behaviour is valid competition or runs counter to the law. At the same time, there are other considerations (see box above).

Final Note: The Competition Bureau has Enforcement Guidelines on the Abuse of Dominance Provisions, which state that an action is considered anti-competitive if it falls into one or more of the following categories:

  • Acts that raise rivals’ costs (or reduce rivals’ revenues) or that foreclose existing or potential rivals from key inputs or facilities.
  • Predatory conduct (such as predatory pricing).
  • Acts intended to facilitate coordinated behaviour among companies.