Monthly Archive: November 2016

Inside Public Accounting The 2016 Best of the Best Firms Canada

inside-public-accounting 2016_best-of-the-best_web

THE 2016 BEST OF THE BEST FIRMS CANADA

Listed in alphabetical order

FIRM / HEADQUARTERS CEO / MP PARTNERS / STAFF
GGFL / Ottawa Deborah Bourchier 11 / 79
PSB Boisjoli LLP / Montreal Marc Elman 18 / 135
Segal LLP / Toronto Dan Natale 12 / 70
Shimmerman Penn LLP / Toronto Maj-Lis Vettoretti 6 / 27
Williams & Partners / Markham, Ontario Nick Angellotti 9 / 45

Copyright © 2016 The Platt Group / INSIDE Public Accounting / www.insidepublicaccounting.com

Dan_Natale

Being named one of Inside Public Accounting’s (IPA) Best of the Best Firms in Canada for 2016 is a tremendous honor for Segal LLP and a clear reflection of our team’s dedication and hard work. This is the first year Canadian firms have been considered for the Best of the Best recognition; IPA honors CPA firms across North America for their overall superior performance. “Best of the Best firms are built on a strong foundation of openness, trust and respect for their employees. They are not content to stand still. They plan ahead for the future of the firm and they anticipate the needs of their clients” says Michael Platt, publisher of IPA. We congratulate our fellow honorees and thank IPA for this important acknowledgment. Over our forty-year history, our clients have come to expect exceptional service from Segal and this acknowledgement is an affirmation that our focus on culture, collaboration and client service is a successful formula, one we are committed to as we look to the future.

Dan Natale CPA,CA
Managing Partner, Segal LLP 

Claim Every Tax Credit Available

Credits can help save money on your tax bill because they trim the amount due. Moreover, each of the provinces has its own system of rates applying to the credits, which can lower your tax liability even more. Some credits can be transferred between people in the same family to optimize their use.

Fundamentally, you calculate your federal tax credit by multiplying a dollar amount by the lowest federal tax rate. The dollar amount of some tax credits — such as the basic personal, age, and spousal credits — are indexed to increases in the Consumer Price Index. Unused tax credits aren’t refundable.

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Severe and Prolonged

The Canada Revenue Agency (CRA) considers impairment severe if it markedly restricts your daily living activities. It is prolonged if it has lasted, or is expected to last, at least 12 months.

The courts, however, have considered the overall impact that a disability has had on taxpayers’ lives.

For example, the Tax Court of Canada has ruled that although an individual suffering from chronic fatigue syndrome wasn’t markedly restricted from performing any of CRA’s specified list of basic daily activities, she qualified for the credit because of the cumulative restrictive effects the illness had on her ability to function (Gibson v. The Queen, 2014 TCC 236).

These tax credits can be a gold mine. Here are some of the most common federal credits:

Basic personal. Each year, every taxpayer can earn a certain amount of income before paying any federal tax. This amount normally changes annually. The basic personal tax credit is calculated by multiplying the tax rate for the lowest tax bracket by the basic personal amount.

Spousal or common-law partner amount. If during the year you supported a spouse or common-law partner whose income was less than the basic personal amount, you may claim a tax credit. Both spouses can’t claim the credit for each other in the same year. The credit declines as the spouse’s income increases and is eliminated when income reaches a certain level. Special rules may apply if your status changed during the year.

Amount for an Eligible Dependent. This benefit is calculated in the same manner as the spousal credit for any time during the year that you were single, divorced or separated and supported a dependent who lived with you. But there are restrictions, including:

  1. The dependant, other than a child, must be a Canadian resident.
  2. A dependant child must be either under 18 at any time in the year, or any age if dependant by reason of mental or physical infirmity.
  3. The claim may be used only for one dependant.

CPP and EI premiums. If you pay premiums for Canada Pension Plan and Employment Insurance, you can claim the credit on the amount paid. If you are self-employed and pay both the employee and employer CPP premiums, you can claim a credit for half the amount (the employee portion) and a deduction for the employer’s half.

Disability. The credit applies if a Canadian medical doctor certifies that you suffer from severe and prolonged mental or physical impairment. (See right-hand box) Other professionals may certify specific disabilities: An optometrist can certify sight impairment or an audiologist can certify a hearing disability.

Caregiver. You can trim your tax bill if you are 18 or older and care for an ailing, dependant relative, parent or grandparent including an in-law, who is at least 65 years of age. This credit isn’t available on behalf of an individual for whom the amount for an eligible dependant credit or infirm dependant credit has already been claimed.

Medical. You can claim a credit for any non-reimbursed medical expenses on your own behalf or for your spouse or common-law partner. You can also claim expenses for other dependants, but the total may have to be reduced by a portion of the dependant’s income.

Public transit. You can claim the cost transit passes of monthly and longer durations. You can also claim shorter-duration passes if each allows unlimited travel for at least five consecutive days and you purchased enough of these passes to cover 20 days in any 28-day period. You may claim electronic payment cards when they are used to make at least 32 one-way trips within 31 days. The credits may be claimed by either the taxpayer or the taxpayer’s spouse or common-law partner for transit costs incurred by themselves and their dependant children under the age of 19. Keep your passes and receipts so that you can substantiate your claim.

Adoption. You my claim a credit for adoption expenses up to a certain amount in the year the adoption is finalized. Eligible expenses include: fees paid to a federally or provincially licensed adoption agency; court, legal and administrative expenses; reasonable and necessary travel and living expenses of the child and the adoptive parents; document translation fees; mandatory fees paid to a foreign institution; expenses related to the immigration of the child, and other reasonable expenses required by a provincial or territorial government or an adoption agency. Quebec residents may claim a refundable tax credit for adoption expenses that equal half of the total eligible cost of adoption.

Tuition and textbooks. You may claim tuition fees exceeding $100 for post-secondary courses at a college or university or, if you are 16 years of age or older, for courses at approved institutions to improve your occupational skills. Keep an official income tax receipt in case the CRA asks for it, but it doesn’t have to be attached to your income tax return. The 2016 budget proposes to eliminate the federal education and textbook tax credits.

Interest on student loans. Federal, provincial and territorial non-refundable credits may be claimed on loan interest. The credits are calculated by multiplying the lowest tax rate by the amount of the interest. The exception is Quebec, which uses a fixed rate.

Only loans under the Canada Student Loans Act, The Canada Student Financial Assistance Act or similar provincial or territorial government law qualify for the credit. Interest on student loans from financial institutions don’t qualify. While only the student can claim the credit, the loan itself can be paid either by the student or a relative, such as a parent.

Unused interest amounts can be carried forward for five years, so if your taxes are zero in a particular year you can save the credit to use later.

Pension income amount. You may claim federal, provincial and territorial credits on certain pension income. The credit is non-refundable but any unused portion may be transferred to a spouse or common-law partner, although the unused amount may not be carried forward or back.

Donations. Generally you may claim as much as 75% of net income as donations except in the year of and the year preceding death. In those years 100% of net income can be claimed. These rules don’t apply to capital property.

If you are a first-time donor, however, you can claim an extra 25% non-refundable credit when you claim your charitable donation tax credit. This means that you can get a 40% credit for as much as $200 in cash donations and a 54% credit for the part of the cash donations that is over $200 but not more than $1,000. First time donors are individuals who haven’t claimed a donation credit after 2007.

If you aren’t a first-time donor, the tax credit for the first $200 in donations or gifts to an eligible charity is at the lower personal tax rate except in Quebec, which uses a fixed rate. The credit for the amount exceeding $200 is at the highest federal provincial or territorial tax rate except in Alberta, which applies a fixed rate.

If you and your spouse or common law partner have combined donations of more than $200, you may combine them and claim them on one tax return. Donations may be carried forward for up to five years.

Consult with your professional advisor for more details on these credits.

Recoup the Cost of Work-Related Courses

When you or an employee returns to the classroom to follow work-related courses or obtain a higher degree, some of the costs can be deducted and others are eligible for tax credits.

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Other Considerations

Other factors to consider and discuss with your accountant include:

The tuition tax credit may be used for fees to take exams required to obtain a professional status recognized by federal or provincial statute, or to be licensed or certified in order to practice a profession or trade in Canada. Ancillary fees and charges are also eligible for the credits.

You may deduct tuition fees for auditing courses where you attend lectures but don’t take exams or receive credit.

You may claim a tax credit for transit passes generally totalling at least one month’s duration.

You may claim a GST credit if you are eligible.

In general, expenses are not deductible if they are eligible for tuition, education or other tax credits, if they are capital expenditures that produce a lasting benefit to the taxpayer or if they are personal or unreasonable. You could not, for example, deduct the costs when:

  • Medical general practitioners train to qualify as specialists;
  • Lawyers take an engineering course unrelated to their legal practice, or
  • An employee takes university or other courses leading to a degree or other certificate unrelated to your business.

Employers who pay for or reimburse employees for their tuition may deduct reasonable amounts as a business expense regardless whether the business or the individual benefits from the course. If your company provides an employee or former employee with a scholarship or bursary on the condition that the employee will return to the business, the amount paid is considered employment income.

Employees incur taxable benefits when courses are business-related and not directly related to your business (e.g. stress management, employment equity, first aid, and language courses) or when the employee develops personal interests or technical skills not related to your business.

Tax Deductions

You may deduct as a business expense the costs related to courses and training that maintain, update or upgrade an existing skill or qualification. For example, the following costs would generally be tax-deductible:

  • Professional development courses taken as required or recommended by a professional body to maintain professional standards;
  • Tax courses taken by lawyers or accountants who are qualified to do tax work, whether or not they have previously been involved in such work, and
  • Courses on electronic ignition taken by the owner of an automobile repair shop.

Eligible expenses include travel, food and beverages and lodging. They do not include tuition and other costs for which there are tax credits. Thus, if you or an employee plans to obtain an MBA, you could not deduct the costs, but they would generally be eligible for tax credits.

Tax Credits

In general, tax credits may be claimed for tuition fees if they:

  • Total more than $100 at a post-secondary school level paid to a university, college, or other educational institution in Canada;
  • Total more than $100 for a student who is at least 16 years old at the end of the taxation year with skills for (or improve the student’s skills in) an occupation, paid to an educational institution in Canada certified by the Minister of Human Resources Development;
  • Total more than $100 at a university, college or other educational institution in the United States to which a student living near the Canada-U.S. border commutes; or
  • Are for full time courses at a university outside Canada that last for at least 13 consecutive weeks and lead to a degree.

You cannot claim any amount less than $100 for the year or the costs of books, room and board, or student association fees. Otherwise, you can claim total fees. This could also include the cost of courses and seminars related to your work. Individuals taking courses as a condition of their job can claim the costs as an employment expense rather than as a tax credit.

The tuition tax credit may be claimed whether the students or the company pays the fees. However, if your business pays for or reimburses employees for all or a portion of their tuition, they may claim the credit only if the amount is included as a taxable benefit.

An education amount tax credit and a textbook credit can be claimed for each whole or part month in which a taxpayer was enrolled in a qualifying program. The amount of credits varies depending on whether the person was a full-time or part-time student. Individuals may claim the full-time credit if they attended only part-time and are eligible for the disability tax credit or would be eligible for the credit except that their disability is not severe and prolonged.

Unused Credits and Lifelong Learning

Unused tuition, education and textbook credits may be carried forward indefinitely to offset future income, or may be transferred to a spouse or common-law partner or to a parent or grandparent of you or your spouse or partner. The transfer of costs should not exceed more than the individuals can use on their tax returns. Any excess costs then can be carried forward.

If you have a Registered Retirement Savings Plan (RRSP), you may withdraw money tax-free to pay for qualifying full-time education and training for yourself or your spouse or common-law partner. However, you cannot withdraw money for both at the same time. If you are disabled, you can use the plan for both full-time and part-time education and training.

You may participate in the Lifelong Learning Plan as many times as you want, but you may not begin a new plan before the end of the year in which all previous withdrawals are repaid.

Consult with your accountant for more details.

Regularly Review Your Property Insurance

When you bought your home, you may have simply purchased a homeowners’ insurance policy sufficient to satisfy the requirements of your mortgage lender. But lenders only require policies that protect the house, not its contents.

lores_umbrella_rain_shade_insurance_weather_protect_sun_mbThose possessions are likely to grow in quantity and value over time and they need to be insured. You may also need optional coverage, called riders, for earthquakes, windstorms and other natural disasters or to increase the amounts paid out on certain items. In addition, remodeling, adding a room, and getting married or divorced are just some of the changes in your life that should prompt you to review your policy’s terms.

Here are some frequently asked questions about property insurance. The answers provide only general information. Consult with your financial advisor about your specific situation.

Q. What types of homeowners’ insurance can I purchase?

A. There are three types of policies:

  1. Standard, which protect against several named, or listed, perils that could damage your home and its contents, such as lightning, windstorms, hail, theft and certain types of water damage.
  2. Broad, which upgrade coverage on the structure to include all risks, but leaves the contents on a named perils basis. All risks policies generally list what is excluded from coverage, such as faulty workmanship and general wear and tear.
  3. Comprehensive, which provide all-risks protection on both the structure and its contents.

When you purchase a policy it’s important that it will cover at least 100 per cent of its replacement cost. This is not the same as market value of your home or the cost you paid for it. The market value of a home is the amount a willing buyer would pay to a willing seller, excluding the land, regardless of how much it would cost to rebuild the home. Replacement cost is what you would have to pay to repair or rebuild the entire home.

It’s impossible to predict what the exact cost will be to replace your home, so it’s critical to have enough coverage to take that into account. An appraiser can help you determine what it would cost to completely replace your dwelling. Also, check to be sure that the policy will automatically adjust to increases or decreases in construction costs in your area.

Q. What should I look for when it comes to water-damage coverage?

A. Generally look for policies that cover damage from plumbing overflows, holes in a roof, burst pipes and windows shattered during a storm that allow rain to blow in. Policies generally don’t cover damage from continuous seepage or sewer backups, but you can purchase that protection as a rider. For the most part, flood insurance isn’t available in Canada because flooding is considered inevitable. You should take whatever steps are necessary to protect your home and belongings from such disasters.

Q. How do deductibles work?

A. Your deductible is the amount you pay for covered damage before the insurance kicks in. Higher deductibles mean lower premiums but additional financial risk. Usually a deductible is a flat rate that can be as low as $500.

Many insurers offer percentage deductibles, particularly for coverage of damage from earthquakes, hurricanes and windstorms. Under these policies, you pay a certain percentage of your home’s insured value before you get reimbursements. For example, if your policy has a two per cent deductible and your home is insured for $250,000, you pay the first $5,000 in damages. Be sure your deductible is an amount you can afford to pay.

Q. Can I get a discount?

A. Many insurers offer discounts to people who own newer homes, have installed such safety features as smoke detectors and burglar alarms or have not filed claims for a specific period of time. Some companies even offer discounts to non-smokers.

Q. What is liability coverage?

A. This covers unintentional injuries to visitors or accidental damage to a neighbour’s house as well as legal costs if you are sued. A minimum of $1 million is recommended.

Q. How are claims paid on personal possessions?

A. Most policies cover personal possessions at a rate of 50 per cent to 70 per cent of the amount of insurance you have on the dwelling. In other words, if your home is insured for $100,000, your policy would cover from $50,000 to $70,000 of the value of the contents. You can purchase two types of coverage:

  1. Cash value policies that pay the depreciated value of the item, which is the replacement cost minus a deduction based on the age and condition of the original item.
  2. Replacement cost policies that reimburse you for the full amount. If you have this coverage and opt for a cash settlement, you will be paid on a depreciated basis.

Q. Are there monetary limits on the coverage of specific possessions?

A. First, standard and broad policies don’t generally provide coverage for such valuable items as furs and jewellery. But even with comprehensive insurance, the dollar limits may be inadequate not only on those items but also on stolen cash, garden tractors, computer software, bicycles, and collections of coins, stamps and cards. The good news is that you can generally purchase reasonably priced riders for supplementary coverage. When it comes to art and antiques, you need to look for specialty insurance policies.

Q. Will my homeowner policy pick up the extra cost of having to conform to new building codes if I have to rebuild my home?

A. No, most insurance policies do not pay for this. You may be able to purchase a rider, but it may pay only a portion of the increased costs.

Q. I live in a condominium and the condo corporation carries insurance. Do I need my own policy?

A. Yes, because the corporation’s insurance covers only items that are part of the building. You need insurance for upgrades you make to the unit, for your possessions and for personal liability.

Q. What is title insurance?

A. Title insurance compensates you for losses from such factors as unknown title defects, existing liens, encroachment issues, fraud, and other issues that can hinder your ability to sell your property. When considering this insurance, carefully review the exclusions.

Get the Most Tax Benefit From Your Charitable Spirit

The airwaves and your mailbox are probably filling up with messages of altruism — or they will be soon. The holidays are on their way and so are charities’ pitches for donations.

And many of us will heed the calls. The latest World Giving Index puts Canada in sixth place globally in overall generosity. The survey tracks donations of money, time and random generosity to strangers. Compiled by the United Kingdom’s Charities Aid Foundation, a registered charity, the index ranks Canada 11th in terms of donations, above the United States (13), but below high-giving countries such as Myanmar (1), Australia (3), New Zealand (5), the UK (7) and Ireland (10).

111116_thinkstock_187068179_lores_kwAccording to the most recent Survey of Giving, Volunteering and Participating by Statistics Canada, 82% of Canadians age 15 and older gave money to charities in 2013. Overall, Canadians gave $12.8 billion to charitable or non-profit organizations that year.

And in a new twist, technology continues to change the donation landscape, at least when it comes to Millennials. A recent Charitable Giving study by Capital One Canada found that Millennials are more likely to donate to charities that offer digital payments (53%), and are more likely to trust charities with a strong digital presence (50%).

Many people do respond to year-end appeals, which is why many charities make them. And of course, many donors claim the available tax breaks. If you count yourself among the philanthropic Canadians, there are a few issues to understand before you click “Donate Now” or write a cheque.

At the top of the list is whether your charity of choice is registered. Only charities or qualified donees that are registered with Canada Revenue Agency (CRA) can issue the receipts you need to claim tax breaks.

Once you’ve chosen a charity, there are other issues to consider. Here are seven of them:

1. Donations are credits, not deductions. You’ve probably heard that you can take deductions for your charitable donations. In reality, your gifts qualify for a nonrefundable tax credit.

You aren’t required to claim donations in the year you make them. You can reach back as far as five years to use unclaimed donations and carry them forward for as long as five years.

In addition, the CRA has ruled that as an administrative practice, taxpayers can initially choose which spouse or common-law partner will report a donation or gift and can subsequently transfer any carry-forward balances from one to the other.

While you may not think you donate enough to merit a strategy, keep in mind that even small amounts can add up to significant tax savings over time. Generally, you can get a credit for all donations to registered charities for as much as 75% of your net income. In the year of death (and going back one year), the limit is 100% of net income. The limit also is 100% of net income for certain gifts, such as ecologically sensitive land and cultural property.

In addition, if you haven’t donated before, you’ll get a supplemental credit: the First-Time Donor’s Super Credit. This adds 25% to the rates used in calculating the credit for as much as $1,000 in donations.

The tax break currently is available through 2017 for individuals and their spouses who haven’t claimed a tax credit since 2007.

It is calculated as the total of the:

  • Lowest income tax rate for a year multiplied by the first $200 of charitable donations, and
  • Highest income tax rate for the year multiplied by the portion of the donations claimed that exceeds $200.

2. Give publicly traded shares and stock options. If you donate certain types of capital property to a registered charity or other qualified donee, you may be eligible for an inclusion rate of zero on any capital gain realized on the gifts. Qualifying property includes:

  • Shares of the capital stock of a mutual fund corporation,
  • Units of a mutual fund trust,
  • Prescribed debt obligation (for example, government savings bonds),
  • Ecologically sensitive land (including a covenant, an easement, or in the case of land in Quebec, a real servitude) donated to a qualified donee other than a private foundation where conditions are met, and
  • Shares, debt obligations or rights (for example, security stock options) listed on a designated stock exchange.

For donations of publicly traded securities, the inclusion rate of zero also applies to any capital gain realized on the exchange of shares of the capital stock of a corporation, subject to certain conditions. In cases where the exchanged securities are partnership interests, a special calculation is required to determine the capital gain.

If you didn’t receive an advantage for your donation, the full amount of the capital gain is eligible for the inclusion rate of zero. If, however, you received or are entitled to an advantage, only a portion of the capital gain is eligible for the inclusion rate of zero. The remainder is subject to an inclusion rate of 50%.

Check with your charity about how to make such gifts. For more information, consult with your tax advisor.

3. Combine spousal donations. Donations made by one spouse or common-law partner can be claimed by either one. To maximize the credit, lump your donations together for a larger credit.

Also, some or all of your donations may be carried forward for up to five years. This may allow you to take advantage of the higher credit for donations exceeding $200. Consider carrying forward donations made in low-income years, or in years when other credits are used. If donations exceed the 75% net income limit, save some for future years. When it comes to the Super Credit, you and your spouse or common-law partner can share the claim, but the total combined donations claimed can’t be more than $1,000.

4. Donate in kind. The CRA allows tax credits for gifts of property, but not for services. Common items include:

  • Valuable art,
  • Antiques,
  • Clothing,
  • Toys,
  • Household goods, and
  • Food.

5. Donate special items. There are special rules for donations of cultural gifts, and for artists who donate their work. Talk with your advisor.

6. The system is two-tiered. To encourage donations, the federal and provincial governments have set up a two-tiered tax credit system. First, you add up your donations and then:

  • The first $200 qualifies for a tax credit at the lowest tax rate. When the federal and provincial programs are combined, you cut your taxes by about 25% of the amount of the donation (the exact amount varies by province).
  • Any amount exceeding $200 qualifies for a credit at the highest tax rate. For this donation, you save about 45% in taxes, depending on your province.

7. Receipts are essential. Keep your receipts and be sure they are signed on behalf of the organization and have the charity’s name and registration number, date, serial number, amount donated and donor’s name. They also should have the URL of the CRA (www.cra-arc.gc.ca/charities).

If you file your taxes the old-fashioned way, on paper, your tax advisor may ask for your receipts. If you file electronically, save them in case the CRA asks for them later.

Receipting carries certain administration burdens, so a charity may choose to issue receipts according to certain criteria or not to issue receipts at all. Some registered charities set minimum donation thresholds for receipting. Others don’t provide receipts during certain fundraising events, but don’t hesitate to ask for one.

If you donated to an employee charitable trust, or through your employer as an agent of a registered charity, your T4 slip (Statement of Remuneration Paid should show your total donations for the year. In these situations, the CRA accepts your T4 slip as your official receipt for income tax purposes.

If you plan to donate this or any other year, and you have questions, consult with your advisor to help ensure that you maximize the benefits.

SMEs Fall Short in Tapping International Market

102716_thinkstock_517711792_lores_kwCanadian small and medium business enterprises (SMEs) largely aren’t tapping into the markets abroad, other than the United States, even though they concede that exports are a key factor to remain competitive in a global market.

SMEs are keen to do business abroad, according to the sixth annual Small Business Challenge survey by United Parcel Service (UPS) Canada. Of 300 respondents in the survey, only 43% are doing business with countries outside of Canada and the U.S., although 61% said they hope to do business in Europe, while 42% are eyeing South and Central America.

“It’s important for [SMEs] to recognize that continued growth relies heavily on expansion, and international exports are key contributors to success,” said Paul Gaspar, director of small business, UPS Canada. He added: “Canadian and international governments are focusing on the easy exchange of international goods. Today, three-quarters of Canadian SMEs recognize that Canadian Free Trade Agreements create opportunities within foreign markets by reducing trade barriers.”

The survey revealed that 76% of Canadian SMEs exporting to international markets consider their websites as their main commerce channel. Facebook pages came in second, with 41% saying they used that social media tool for business.

More Highlights

Other highlights of the survey include:

  • 39% of SMEs don’t have a supply chain in place, and 9% of those said they weren’t sure where to find or how to create one.
  • 52% have a supply chain strategy, and 42% of those have a third-party partner.
  • 74% said they had met or exceeded their business goals, of which 25% attributed it to the low Canadian dollar and 20% cited a boost in e-commerce and expansion to foreign markets.

According to UPS, the products of Canadian SMEs are sought after internationally because of their quality, the reputations of Canadian companies and the low exchange rate of the dollar.

8 Tips

If you are interested in taking advantage of this by starting to export, here are eight tips to consider:

1. Plan your strategy. You need a detailed plan that includes a thorough risk assessment. It’s also important to ensure your business is equipped to handle the demands of international trading.

2. Choose a target niche early on. Import/export activities cover such a vast range of industries that new companies can benefit from focusing on a single target at first for experience and to establish a reputation.

3. Make contacts. This is likely the most important step. You may have relatives in a foreign country who can help or you may have frequently visited and established business relationships in a country. Sometimes you just have a feeling for what will sell in certain countries.

If you are starting from scratch, foreign consulates are a good place to start, and they can help you find out about a company’s solvency and reputation. And of course, the Canadian and International Chambers of Commerce, as well as the chambers of every city you’re aiming for, can help establish contacts.

Another, albeit time-consuming, step is to compile lists of all foreign and domestic businesses in your chosen niche and begin a direct sales and marketing campaign. Place calls, send emails and mail marketing materials directly to sales and purchasing managers in each company, and follow up on all conversations and agreements.

4. Find a local mentor or investor. This person can help guide you to understand the culture and the local consumer. If you don’t know one right off the bat, look to colleagues who might be able to connect you with others that are located in the country. You could also look at reaching out to local business networks or researching online for websites that specialize in expats living in the country in which you are looking to set up shop.

5. Determine your contacts’ needs. Compile a list of all the companies that expressed an interest in doing business with you in the previous step. Contact the purchasing and sales managers in each company to discover which products they have to offer to foreign buyers if you want to import and which products and materials they wish to purchase from a foreign source.

6. Develop a supply chain. Effective management of your supply chain is critical. When the supply chain plan is in sync with other operational plans within the company, the entire process of receiving and shipping products runs more smoothly. Build your supply chain plan in tandem with other senior managers to develop the most effective and efficient plan.

In simple terms, supply chain management is the coordination of all your activities related to filling client orders, from preproduction to delivery of the product. During this process, components of the product will change hands many times, from your suppliers to manufacturing, to storage, to shipping and, eventually, to the point of delivery and consumption.

7. Adapt to the local culture. In some countries you’ll need to customize your product or service to meet local customers’ tastes. At the very least, you’ll need to put your marketing message in the local language and make sure the meaning translates correctly.

8. Know your tax responsibilities. All roads lead to taxation. You’ll need international tax or legal counsel to identify which jurisdictions require sellers to be responsible for collecting sales taxes and which jurisdictions subject them to income taxes. Most U.S. states impose a sales tax on goods and/or services sold in that state.

Similarly, the European Union’s value-added tax (VAT) is imposed on certain services and goods sold to customers located in the member states of the European Union. Each member state may have different VAT rates, and different tax rules apply to sales of goods and provision of services.

Because in a typical e-commerce transaction, a seller based in one state frequently conducts business with a customer located in another state or a foreign country, the common issues are which tax laws of which state or country will apply. The federal, state and international tax laws applicable to Internet transactions are still evolving and can be complex and confusing.

Consult with your advisors. They can help you sort out your global plan as well as understand the laws and taxes in the countries where you may want to expand.

Caution Is the Rule in Naming RRSP Beneficiaries

Selecting beneficiaries of your registered retirement plans is one of the most important financial decisions you will make, and with a little thought you can maximize the benefits to your heirs by deferring taxes and keeping the assets out of probate and away from creditors.

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Review and Revise

Review your Will and other estate documents often to ensure that all the paperwork is consistent or problems can arise.

For example, say you name your daughter the beneficiary of a particular RRSP. You later make out a Will leaving all your RRSPs to all your children, but you leave your daughter’s name on that one plan. A Will can generally override an RRSP or RRIF beneficiary on file at a financial institution when the Will was prepared or updated at a later date. That is an unintended consequence of failing to review and compare documents periodically.

When you have more than one plan, it’s a good idea to list in your Will the number of each, the institution holding it and the intended beneficiaries to help avoid confusion and potential contention.

The most important action is to actually name someone to receive the assets from your Registered Retirement Savings Plans (RRSPs) and your Registered Retirement Income Funds (RRIF). Otherwise, the plans automatically go into your estate, which pays taxes that can devour as much as half the value of the assets.

Your estate will also have to pay probate fees and the assets become subject to creditors’ claims. (See right-hand box for other potential complications to avoid.)

When considering your registered plans it is critical to note that if non-dependent children or others are left plan assets in your Will, the full value will be taxed as income in your final return and only then will they receive their share of the estate.

Tax-Deferring Strategies

You can defer taxes if your beneficiary is:

  1. Your spouse or common-law partner, or
  2. A financially dependent child or grandchild who is either under the age of 18 or is mentally or physically infirm.

When you name your spouse or an infirm dependent, the assets are simply rolled over into the person’s registered plan, including a Registered Disability Savings Plan (RDSP). With an infirm beneficiary, the assets can also be used to purchase an annuity.

Spousal rollovers don’t use contribution room, but RDSP rollovers reduce the lifetime contribution limit of $200,000 and don’t generate a federal contribution.

Healthy financially dependent minors have the sole option of purchasing an annuity that must mature when they turn 18. The annual payments will be taxable.

In all these cases, the beneficiaries will pay taxes on plan withdrawals or annuity payments.

Successor Annuitants

Your options widen a bit when you name your spouse or common-law partner beneficiary of your RRIF. You can:

  1. Name your spouse the “successor annuitant,” where he or she simply starts receiving the payments.
  2. Arrange a lump sum payment. The fund will be collapsed, the investments sold and the proceeds rolled over into the spouse’s RRSP or RRIF. Among the disadvantages of this option is that the timing of the collapse may not be the best for selling the assets and there will be management fees.

Other Beneficiaries

Estate: It may make sense to name your estate the beneficiary if you want to:

  • Spread the tax liability among all your heirs;
  • Distribute assets to several people in different amounts;
  • Impose conditions on an heir in order to receive the assets, and
  • Hold the assets in trust.

Charity: You can name a registered charity and receive a tax credit of as much as 100 per cent, which can effectively eliminate taxes on your final return. You can instruct the charity how to distribute the assets through a Letter of Direction.

These are just some of the complexities involved in choosing beneficiaries for your registered retirement plans and minimizing taxes on your final return. Your accountant can guide you through the maze of estate planning.

Boost Company Success with Performance Measures

lores_project_plan_chart_progress_milestone_strategy_amIf you own a small business, you might consider incorporating performance measures to help it grow and become more successful.

Performance measures comprise aspects of your business that answer a basic question: “What key procedures or operations need to change to ensure our company’s continued success?”

Walmart is a good example of effectively using performance measurements. The company determined that to be competitive it had to streamline purchasing, lower costs and maintain top notch customer service.

The company started using satellite transmission technology to purchase directly from suppliers. That reduced purchasing costs and allowed Walmart to hold just enough inventory to serve its customers’ needs regularly without the cost of maintaining excess stock.

The company also created and hired the famous “people greeters” who welcomed customers as they walked into the stores. The tactics worked — the company successfully trimmed costs and improved customer satisfaction.

Take some time to review the processes that are critical to the success and continued operation of your business. Assess where your business operations can be improved. Most performance measures fall into one or more of the following categories:

Effectiveness: How well does the product conform to company and customer requirements?

Efficiency: How well does a process produce the required output at a minimal resource cost?

Quality: How well does a product or service meet customer needs and expectations?

Timeliness: Are units of work done properly and on time? You will need to define timeliness for discrete units of work, typically based on customer needs.

Safety: How do you rank the overall health of the organization and the working environment of its employees?

You may need to develop additional or different categories depending on the industry your business operates in and its mission.

While this may sound complicated, the process starts out quite simply with these two steps:

  • Review and evaluate how your business is functioning. As the owner you may be too close to the company to be objective about its strengths and weaknesses, so consider consulting with employees and customers for a more objective and accurate assessment.
  • Develop a clear vision of where you want the company to go. Part of this is determining whether you want a company that can simply provide you with a good standard of living in retirement or one you can pass on to your heirs who can expand the business and help it keep up with changing customer needs.

Write down your observations. Many managers understand the direction the company should take but never take the time to record it. Documenting the vision clarifies what the business is for both the employees and the customers. A good company vision can be explained in one sentence. Beauty products company Avon, for example, states it this way: “To be the company that best understands and satisfies the product, service and self-fulfillment needs of women – globally.”

Being aware of the gaps between what the company is now and what you want it to be in the future is critical to determine what actions you need to take. The processes you need to focus on could range from sales through production, but you must know what they are before you can work on closing the gaps between current operations and the future you hope for.

Most successful companies use performance measurements to stay on track and meet their visions and goals. Consult with your managers and advisers to help you measure and monitor key processes and areas at your company.

A Quick Guide to Bankruptcy

lores_bankrupt_business_debt_due_mbHere are some frequently asked bankruptcy questions. However, these answers only provide general information.

Consult with your accountant and legal adviser about how to proceed in your specific situation.

Q. Times have been hard on our business and we’ve been considering bankruptcy. What are the pros and cons?

A. Bankruptcy filings are generally a last resort. They could ruin your company’s reputation and will damage its ability to get credit for years. If you run into a brick wall with your creditors and run out of alternatives, however, your business may have no choice but to file for bankruptcy, primarily under one of the following two federal statutes:

 Types of Bankruptcy and Characteristics
 The Bankruptcy and Insolvency Act (BIA) Available to companies whose debts total more than $75,000 and less than $5 million. Allows for both reorganization under court supervision and liquidation.
 The Companies’ Creditors Arrangement Act (CCAA)  Available to businesses with debts exceeding $5 million. They continue to operate under court supervision while negotiating a Plan of Arrangement to pay creditors.

Creditors can initiate an involuntary bankruptcy proceeding under both laws, subject to certain requirements.

Under the BIA, if your enterprise is insolvent a trustee takes possession of its unsecured assets and liquidates them, distributing the proceeds to creditors. Under reorganization, your business continues to operate while it comes up with a proposal to pay its debts, generally at a discount. A majority of creditors, as well as the court, must agree to the plan.

Once the reorganization is complete, the trustee discharges your business from bankruptcy. If creditors or the court reject the plan, your enterprise automatically is placed into liquidation.

Under the CCAA, the court appoints a monitor to look after the interests of creditors and to report on the reorganization progress. Your company’s management generally remains in charge, but the monitor will have a certain amount of authority.

Talk to Creditors

Talk to your company’s creditors to try to work out lower payments over a longer time frame.

This may buy your company more time to get back on track and you might be able to settle your debts for less than you owe, while maintaining a good credit record. Your accountant and legal advisors can provide guidance on how to go about these negotiations as well as help you find other options.

Q. One of our company’s customers owes us a great deal of money and has told us that the business is declaring bankruptcy. Should we back off?

A. Yes, provided that the customer has actually filed for court protection from creditors and is reorganizing. In BIA reorganizations, an automatic stay of proceedings is imposed on secured and unsecured creditors. The court can lift the stay under certain circumstances. Unsecured creditors can ask for relief from the stay but rarely are allowed to seize assets.

Similarly, under CCAA reorganizations, a broad stay on collections is imposed on both secured and unsecured creditors. As long as the stay is in place, creditors cannot take any action to collect debts. The initial stay is limited to 30 days, but the court may extend that any number of times if it determines that the Plan of Arrangement isn’t prejudicial to the creditors.

Until the customer actually files for bankruptcy proceedings, however, you can take whatever legal means are available to get your money, including repossession or negotiating a deal under which you might get more than you would in a bankruptcy proceeding.

Caution: If a customer pays you in preference to other creditors under a negotiation and then files for bankruptcy, the company may be charged with fraudulent preference.  If that happens, its possible you — or the customer — will have to pay back the money.

Q. If a customer files for bankruptcy proceedings, will we get any of our money?

A. That depends on the nature of the case and your creditor status.

Under the BIA, if the customer goes into liquidation, the trustee sells all inventory, accounts receivable and other property covered by a court order. The proceeds will be used first to pay priority creditors and trustee costs. The balance, if any, is paid to unsecured creditors. Secured creditors aren’t affected by this process, as they have the right to repossess secured assets and liquidate them to recover what they are owed.

If the customer is reorganizing, the amount you  receive  will depend on the terms you and other creditors agree to and your creditor status.

In CCAA reorganizations, there is a lot of flexibility on what the Plan of Arrangement can involve. It often includes offers to pay a percentage on the dollar of the money owed, and can call for swapping stock or a combination of cash and shares for debt. In order to be able to vote on the plan and receive any distribution you must file a Proof of Claim with the monitor.

Generally, creditors are paid in this order:

  1. Super-priority creditors such as the Crown for environmental damage costs and certain unpaid pension plan deductions.
  2. Secured creditors, including lenders and debt holders, who have a claim for debts incurred for a specific purchase (for example, a bank holding a mortgage).
  3. Preferred creditors, including those with certain wage claims, municipal tax authorities and landlords owed rent.
  4. Unsecured creditors such as suppliers and credit card companies who extended credit based on a promise to pay.
  5. Preferred shareholders.
  6. Common shareholders.

Under the CCAA, if a company defaults on a payment to a secured creditor, that creditor has the right to take possession of assets, sell off collateral and sue the company for any amount still owed. Also, if a class of creditors or the court does not approve the plan, the stay is lifted, which increases the likelihood that your business will be placed into bankruptcy.

Q. Will my company’s tax debts be eliminated in a bankruptcy filing?

A. Only if your business actually goes bankrupt. But even then, there are special rules that deal with tax debts in bankruptcy, so you really need to ask your tax accountant to review your company’s situation and confirm that your tax liability will be discharged if your enterprise goes bankrupt.

Q. I am on a corporate board. Are my personal assets at risk if the company files for bankruptcy proceedings?

A. That depends on the provisions of your directors and officers liability insurance policy (D&O policy). Review your company’s policy to determine if it covers defense costs and damage awards in the event of bankruptcy. For example, among other protections, the policy should:

  • Provide separate coverage for directors and the corporation or include excess coverage for directors and officers.
  • Allow continued coverage for innocent board members.
  • Require the insurer to pay covered defense costs and damages in advance or as they are incurred so that you don’t have to pay potentially millions of dollars and wait for reimbursement.

There are many other significant provisions related to bankruptcy that should be included in your D&O policy. Your professional advisers can help you determine what specific coverage you need.

Q. I hold stock in a company that appears likely to file for reorganization under CCAA. What happens to my investment?

A. Holders of common stock are typically last on the list and often get none of their investment back. Holders of preferred shares rank ahead of common shareholders, but often do not get back the full value of their shares. The CCAA allows a company to include shareholders in its reorganization plan and they then typically can vote on the proposal.