Monthly Archive: June 2017

U.S. Protectionism Tops List of Canadian Business Leaders’ Concerns

060117_Thinkstock_610668524_lores_kwFirst it was the lumber spat. Then came the milk battle. Trade issues with the United States are a hot spot these days.

And now, after U.S. President Trump backed a G7 pledge to fight protectionism, we head into negotiations starting in August for the retooling of the North American Free Trade Agreement (NAFTA). Meanwhile, a new IMF statement warns of major shocks to the Canadian economy that could come from a revised NAFTA.

Biggest Worries

In the midst of all this talk about trade, those in leadership positions at public and private businesses were asked in a recent survey: What is the top challenge to growth of the Canadian economy? U.S. trade protectionism was the top answer. Some 23% of Canadian chief executives, chief financial officers and chief operating officers cited “protectionist trade sentiments in the United States” as their top economic concern, according to the CPA Canada Business Monitor (Q1 2017).

The Harris Poll conducted the survey from March 30 to April 18, a time when Trump appeared to have softened his position on the North American Free Trade Agreement.

Trump was elected in 2016 with a campaign promise to renegotiate NAFTA, which comprises Canada, the United States and Mexico. Yet in February, when meeting with Prime Minister Trudeau, the U.S. president publicly said he would only “tweak” Canada’s side of the agreement and focus on the “unfair” U.S. commercial relationship with Mexico.

Since the Business Monitor survey ended, however, Trump has boosted tariffs on Canadian lumber shipments and came close to signing an executive order to pull the U.S. out of NAFTA. At the last minute, he reportedly told reporters: “I decided rather than terminating NAFTA, which would be a pretty big, you know, shock to the system, we will renegotiate.” Trump added that if he is “unable to make a fair deal,” he will terminate the trade pact.

Oil and Economies

Second on the list of threats to the Canadian economy, the survey showed, is oil prices, with 17% of respondents saying they’re concerned about this. Tied in third place at 14% were “uncertainty surrounding the Canadian economy” and “the state of the U.S. economy.”

Still, the national economy seems less threatening to executives than it did a year ago: 38% of respondents described themselves as optimistic about the economy, up from 32% in the previous quarter and significantly higher than 22% a year earlier. Another 47% said they are neutral and only15% said they are pessimistic. Despite potential volatility, a cautiously optimistic mood still prevails.

“This quarter’s results reinforce Canada’s underlying economic momentum,” says Joy Thomas, president and CEO of CPA Canada. “Uncertainty remains a constant shadow over the country’s growth prospects because of trade and oil prices but the business leaders are not allowing themselves to be paralyzed by it as demonstrated by the climb in optimism.”

Respondents to the Business Monitor survey appear quite bullish about when it comes to expectations about their own companies:

  • 58% are optimistic about the next twelve months, up from 54% in the previous quarter.
  • 69% said they’re anticipating revenue growth over the next year.
  • 63% reported they expect an increase in profits, up from 57% in the previous quarter.

Canada’s Tax System

The survey also asked if the leaders would welcome a comprehensive review of Canada’s tax system. There was overwhelming support for the idea. More than 7 in 10 (72%) agreed that such a review is required. Of the responses, when asked what a review could accomplish:

  • 89% said it would keep Canada’s “personal and corporate tax rates competitive with other advanced economies.”
  • 88% said it would “reduce complexity, while maintaining a fair and efficient tax system.”
  • 86% said it would “modernize the tax system in line with current business and economic realities” and attract investment.
  • 84% expected it would “reduce administrative costs for business and government.”
  • 72% said it would “keep the tax base broad, with fewer tax preferences.”
  • 71% said it would “reduce the possibility of unacceptable tax planning.”
  • 68% said it would “increase compliance by taxpayers.”

IMF Issues Statement about Canada

Meanwhile, the International Monetary Fund (IMF), in its latest report on the state of the Canadian economy, noted that the imposition by the U.S. of higher tariffs or new non-tariff barriers under a revised NAFTA “would undercut growth prospects in Canada, leading to a permanent reduction in investment and consumption.” It added that if the U.S. administration pushes ahead with its plans to cut the U.S. corporate tax rate, Canada may become “less attractive as an investment destination.”

The IMF explained: “While the global economy has improved with stronger manufacturing activity, the renegotiation of NAFTA, U.S. policies on tax reform and climate change, and the timing and form of the U.K.’s withdrawal from the EU could tilt policies toward protectionism and economic fragmentation. This would have significant consequences for Canada, an economy that is highly reliant on trade and cross border flows.”

Regarding the Canadian tax system, the IMF said: “A more simple and efficient tax system is important to encourage greater participation in the labor market, and promote investment and innovation, so that Canada’s tax competitiveness will be preserved with the rest of the world.”

The IMF also warned that the property transfer taxes on purchases by foreign residents introduced by the British Columbia and Ontario governments target capital flows and discriminate against non-resident buyers. It said the provinces should replace these measures, with possible alternatives including “a combination of prudential and tax-based measures that discourage speculative activity without discriminating between residents and non-residents.”

Four Tips for Global-Thinking Businesses

If you’re among those who see the winds of potential U.S. trade protectionism as a threat, but you’re still considering expanding beyond Canada, here are four tips that may help you:

1. Decide if your business is ready. Some products sell well in foreign markets, but others aren’t so welcome. There are cultural differences, so conduct market research very carefully. Understanding supply and demand for your product or service can help you forecast potential sales and decide whether you can reach a reasonable profit margin.

2. Plan a global strategy. For some companies, expanding globally is as simple as setting up an e-commerce website and marketing to customers in a target area. Others may require an overseas branch. Either way, you need a detailed plan that includes a thorough risk assessment. Working with established logistics partners that have experience in your markets can help you establish a clear strategy.

It’s also important to ensure your business is equipped to handle the demands of international trading. Consider starting in just one or two markets that offer low risks and high potential. Overexpansion could derail your international ambitions.

3. Know the laws. You must follow local regulations governing the import and export of goods. It’s simple enough to ship goods, but the laws can be complex and violating them can be costly. Rules governing foreign ownership of assets and taxation can be particularly high hurdles.

4. Play the long game. Your company’s senior management should be committed to any overseas move, including functions in human resources, operations and finance — then be prepared to wait. It’s not uncommon for companies in a foreign market to work with negative cash flow for up to five years, if not more. Be ready to sustain operations if they’re losing money and possibly put up even more money for unpredicted challenges and potentially more complex bureaucracies. And don’t underestimate the effect of currency fluctuations on profit.

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

Smart Planning Can Lead to Owning Your Own Lakeside Cottage

060917_Thinkstock_153499887_lores_kwThe Victoria Day long weekend recently kicked cottage season into gear and many taxpayers are thinking about whether to buy a summer cottage, sell one or give one to the kids.

Each of these choices has tax implications.

First, let’s say you’ve been renting the same cottage each summer for years and now the owner is settling some affairs and has asked if you’d like to buy it. You’ve spent many years there, your children have built up memories there and you plan to continue spending summers at the lake. You take the owner’s offer.

There are no tax implications for you that result from the purchase. There are issues, however, for the owner, which may apply to you later, as you’ll see below.

Canada Revenue Agency (CRA) will consider the cottage a personal-use property provided it’s used primarily by you or your relatives.

Adjusted Cost Base

However, you’ll want to start tracking the adjusted cost base (ACB) of the cottage. The higher that figure, the lower any taxable gain you’ll have to report once you dispose of the property either by selling it or transferring ownership through gifting or inheritance.

The adjusted cost base includes the original purchase price plus qualifying capital outlays such as:

  • Upgrades to the property (you’ll have to demonstrate that the original purchase price would have been higher if the repairs hadn’t been necessary),
  • Renovating to winterize a property or add new elements to the structure such as additional bedrooms or new bathrooms,
  • Building a new deck,
  • Installing windows or a roof that are better than the originals, and
  • Putting in a new well or pump.

General repairs don’t count as capital improvements and you can’t value any work you personally perform on the home.

The excess of the proceeds of disposition deemed or realized over the ACB (and any selling costs) is generally a capital gain for income tax purposes.

If you simply sell the property, you can designate it as your principal residence, take the exemption on any capital gain and sell it tax-free. A cottage can be designated as your principal residence for each year in which you, your spouse or common-law partner, and/or your children were residents in Canada and ordinarily lived in it for some time during the particular year.

To optimize the benefit of the exemption, taxpayers generally apply it to the property with the greatest accrued gain. Keep in mind, however, the property can’t be income-producing during the years it is designated as a principal residence.

In the past, when you disposed of your principal residence, you didn’t have to report the sale on your tax return if you were eligible for the full exemption. That has changed. Starting with the 2016 tax year, the CRA grants that exemption only if you report the sale and designation of principal residence on Schedule 3, Capital Gains of your income tax return. You’ll be required to report basic information such as a description of the property, the date you sold it and the proceeds of disposition.

The rules of the principal residence exemption are complex, so consult with your tax advisor.

Capital Losses

You generally can’t deduct a capital loss on your cottage when you calculate your income for the year. You also can’t use a loss to decrease capital gains on other personal-use property. When property depreciates through general use, the loss on its disposition is a personal expense.

If you’re primarily renting out the cottage, however, you may be able to claim a capital loss. But keep in mind that you may lose the personal-use exemption if you rent it out for most of the year. That exemption can come in handy to help shelter any gain from the disposition if the cottage appreciates in value.

If you rent it out only occasionally to help defray some costs of ownership, talk with your tax advisor about how to report income and expenses on your tax return.

Change of Use

This brings up the issue of the changing use of the property. On the day you begin to rent the place, CRA considers that you sold the cottage and, on that same day, reacquired it — with both transactions at the fair market value of the property on the day. Normally, the CRA won’t apply the change-in-use rule if you meet three conditions:

1) Your rental of the property is secondary to your use of it as the family vacation property,

2) You make no structural changes to earn income, and

3) You don’t claim depreciation (capital cost allowance) on the property.

If you don’t meet those three conditions, you’ll need to calculate and report a capital gains tax or loss on the difference between the fair market value and the property’s adjusted cost base (ACB). Under the new reporting requirements that started for the 2016 tax year, you’ll have to report the deemed sale on Schedule 3, Capital Gains or Loses, of your tax return for the year of the deemed sale.

Rental income is taxable, but you can claim some expenses to offset the income, including:

  • A reasonable portion of the operating expenses, and
  • Costs directly associated with renting the property (such as cleaning, advertising, commissions or fees paid to rental agents, and property management fees).

Estate Planning

Another choice to make is whether you want to pass the cottage on to your heirs. If that is your goal, first check with them to determine if they want the cottage. If they do want it, you need to decide who gets it, how they get it and how they’re going to pay for maintaining it. If you can’t claim the principal residence exemption on the vacation home, the children will need to pay a capital gains tax when the second parent dies.

They should be prepared for a shock. Although the capital gains tax is 50% of the gain, the hit could be significant if you’ve owned the cottage for years given the rise in property prices.

You could transfer the property before you die — or gift it — and pay the tax. To avoid other potential complications, for example an ex-spouse of one of the kids makes a claim on the property, you may consider creating a trust.

Consult with your tax advisor, who can help you sort through all the financial and estate-planning implications.

Need to Increase Your Retirement Cash Flow?

lores_mortgage_options_types_rates_lengths_terms_mbRetired people sometimes find themselves in a cash bind, but there might be a solution for homeowners in the form of a reverse mortgage. You’ve probably seen ads on television or in magazines about this type of mortgage and wondered if it could work for you. Reverse mortgages can be a useful tool for seniors who have built up equity in their home and are looking to supplement their cash flow in retirement but they are not for everyone.

What Is a Reverse Mortgage?

A reverse mortgage is a loan secured by a home, like any other mortgage. Unlike a regular mortgage, no re-payment of the loan is required until the home is sold, the last surviving spouse dies, or the owner moves out.

Additional Requirements:

  • You must be at least 62 years of age.
  • The home must be your principal residence.
  • Any existing mortgage must be paid off by the proceeds of the reverse mortgage.

Why Is It Called a “Reverse” Mortgage?

A regular mortgage balance decreases over time as payments are made, until finally it is paid off. In a reverse mortgage, the balance increases over time due to interest charges. This is the reverse of a regular mortgage.

How it works: Depending on your age, marital status, and the property, you can unlock as much as 40 per cent of the appraised value of your home. (See right-hand box for additional requirements.)

Let’s say you’ve paid off – or nearly paid off – a conventional mortgage and the home is valued at $300,000. You could wind up with a tax-free $120,000 cash advance. You can take the money in a lump sum or in instalments over the time you remain in the home.

Payments aren’t due until the home is sold or the surviving spouse dies, although you can opt to pay the mortgage earlier. The lender makes its money by recovering the principal and interest when the home is eventually sold.

On the face of it, these mortgages appear to be a good deal for several reasons:

  • The money received is not taxable.
  • The cash advance doesn’t affect government benefits programs such as Old Age Security and the Guaranteed Annual Supplement.
  • Payments are deferred as long as you remain in the house.
  • The mortgage will never exceed the fair market value when the house is eventually sold.
  • You can use the money any way you want (in fact, you can use the money to buy an annuity or purchase life insurance to pay off the reverse mortgage, which means you can still leave the home free of debt to your heirs).
  • You can still sell the house if that becomes necessary, although there may be an early repayment penalty.
  • If you choose to pay the mortgage interest annually, the payment may be tax deductible if the borrowed money is invested.

However, before deciding a reverse mortgage is the tool for you, there are some disadvantages to consider:

  • Interest rates are as much as two percentage points higher than on a conventional mortgage. For example, if conventional mortgage rates are five per cent, a reverse mortgage could cost you seven per cent. The rates are set annually and based on the rate for one-year Government of Canada bonds.
  • Interest continues to accumulate, so in theory the loan, plus interest, could eventually exceed the value of your home. If you sell the house, proceeds will be used to repay the debt and you would have nothing left.
  • Set-up, appraisal and legal fees can run from about $1,800 to as much as $2,300.
  • You cannot move to another home and keep the loan, which means you can’t rent out the place and still keep the reverse mortgage cash advance.

Proceed with Caution: If you think a reverse mortgage might work for you, consult with your accountant first. Generally, a reverse mortgage is a last resort alternative for homeowners.

Inside Job: Countering Cash Skimming

thmb_sales_cash_drawer_register_retail_money_teller_change_amLike Taking Milk from a Baby

Cash skimming is one of the most common and easiest types of occupational fraud, regardless of an organization’s size. Fortunately, there are relatively uncomplicated ways to fight it.

Look for These Red Flags
Regardless who skims money, the effect on your enterprise remains the same: Revenue is lower than it should be while the costs of producing it remain the same.
There are warning signs that indicate the possibility of fraud at your organization. Here is a checklist of tell-tale signs. They don’t necessarily indicate fraud, but the more red flags the greater the likelihood skimming is occurring at your business:
1. Declining or flat revenue.
2. Increasing cost of sales.
3. Increasing or excessive inventory shrinkage.
4. Narrowing ratio of cash sales to credit card sales.
5. Shrinking ratio of cash sales to total sales.
6. Increasing ratio of gross sales to net sales.
7. Discrepancies between customer receipt and company receipt.
8. Customer complaints and inquiries.
9. Forged, missing or altered refund documents.

The term comes from the fact that money is taken off the top, the way cream is skimmed from milk. The reasons cash skimming can be so easy — and tempting — is that the money is often stolen before it’s ever recorded. That means there’s no need to alter accounting records or convert stolen goods into cash. There are many variations on the skimming theme, and two of the most common are:

1. Unrecorded sales: A salesperson sells goods or services to a customer and collects the payment, but doesn’t ring up the transaction. This is sometimes accomplished by opening the business on weekends or after hours and pocketing all or most of the cash receipts.

Here’s another example that doesn’t involves sales: An apartment house manager collects rents in cash for an apartment that is shown as being vacant.

2. Understated sales: An employee records a sale for less than the actual price and pockets the difference. In another version, the employee records a discount that the customer never receives and pockets the amount of the discount.

But skimming can also target refunds and accounts receivable. Those variations, however, require some alterations to books and records to avoid detection. For example, in receivables skimming, the thefts are often those that are simply unrecorded on the books. When funds are diverted from accounts receivable, the amount owed can be reduced on the books by write-off schemes.

Since any employee who comes in contact with cash can skim money, the usual suspects are salespeople, cashiers, mail clerks, and bookkeepers. But keep in mind that senior executives can easily override controls and skim cash. When senior management is involved the losses are usually much larger.

The key to preventing this type of fraud is to set up controls. How you go about doing that depends on the number of employees and the complexity of your enterprise’s accounting system.

Even a very small business can have effective internal controls that may consist simply of the owner carefully paying attention to a few cheques and keeping tight controls over employee access to cash and other assets. In any case, employees who handle cash should be bonded.

At the top of the list of effective ways to battle skimming is to segregate employees’ responsibilities. This means being sure that:

  • The person receiving payments and opening mail doesn’t also record incoming payments. Cheques that are received should be stamped “for deposit only”.
  • Cash receipts should be sequentially numbered, and all receipts should be accounted for.
  • A list of money, cheques and other receipts received in the mail should be prepared by someone other than the bookkeeper or individuals who record payments.
  • Bank deposits should be made by someone who does not receive cash and cheques. The same applies to custody of deposits.
  • Individuals with signing authority on bank accounts should not be responsible for bookkeeping or reconciling the bank accounts.
  • Cash refunds and discounts should require approval.
  • Cashiers should not have access to bookkeeping records, bank statements, incoming mail, or customer statements.

These controls can be put into effect with as few as three people. If you are the owner and the bookkeeper, only two people are needed to put these controls into effect.

Talk to a professional about other types of fraud and how to protect your company’s bottom line from less-than-honest employees.

Like Taking Milk from a Baby

Reap Tax Benefits from an Earn-Out Agreement

lores_canada_money_dollars_coins_calculator_pen_glasses_mbOrdinarily, any income from your business or property is fully taxable but when you sell your business you benefit from a capital gains tax, where only half of the proceeds from the sale is taxable income.

But let’s say you sell your business under an earn-out agreement where the buyer pays a partial amount up front and the remainder is derived from and based on meeting certain financial goals. The precise amount of your proceeds cannot be determined at the time of sale and, in fact, may not be known for several years.

That type of earn-out agreement depends on the use of — or production from — the company’s property, and ordinarily the money generated would be taxed as business income, not as a capital gain.

Canada Revenue Agency (CRA), however, recognizes that bind and allows you to use the cost recovery method of reporting the gains or losses if you meet the following five conditions:

  • You and the buyer deal at arm’s length.
  • The gain or loss is clearly of a capital nature.
  • It is reasonable to assume that the earn-out feature relates to underlying goodwill and that the two parties cannot reasonably be expected to agree on that value at the time of the sale.
  • The duration of the agreement does not exceed five years.
  • You, as the seller, file a copy of the sale agreement with your income tax return for the year of the sale, send a letter requesting the application of the cost recovery method to the sale, and agree to follow the cost recovery procedures.

Keep in mind, however, that if the deal amounts to an installment plan it is not considered an earn-out agreement for purposes of using the cost recovery method.Under the cost recovery method, you reduce the adjusted cost base (ACB) of your company’s shares when you are able to determine the amounts that will be paid. Amounts exceeding the ACB are considered a capital gain and the ACB becomes nil. All amounts that can then be calculated with certainty are treated as capital gains.

So let’s say your company’s stock’s ACB is $120,000 and you sell them all in an earn-out agreement. The sale price for the shares is $100,000 up front plus additional payments based on an earn-out formula over the next four years. The first $30,000 payment is due the year following the year of the sale. Here’s how the cost recovery works:

Year of the sale: You report no capital gain or loss, but the $100,000 reduces the ACB of the shares to $20,000 ($120,000 minus $100,000).

Year after the sale: The $30,000 payment due exceeds the $20,000 ACB, so you recognize a capital gain of $10,000. Half of that is included in your income as a taxable capital gain. You adjust the ACB of the shares to nil.

Following three years: The remaining payments under the earn-out formula are treated as capital gains, half of which are taxed.

The CRA recognizes a capital loss only when the maximum payable to you is less than the ACB of the shares. In that instance, the loss can be reported at the time of the sale. If, over time, it becomes clear that the actual total paid will be less than the initial maximum amount, a further capital loss can be claimed.

If there is no maximum amount set out in the agreement, a capital loss can be reported once it can be established that the total of the amounts to be paid will not exceed the ACB of the shares.

Let the Wedding Bells Chime – After You Sign a Prenup

050417_Thinkstock_450149657_lores_ABFirst you say “Yes,” then you say “I do.” But between those two momentous events, some couples are choosing a third way to seal the deal: signing a prenuptial agreement.

Planning a wedding may leave little time for anything else, but consider this: A prenuptial agreement (also called a domestic contract or a marriage contract) may be as critical a negotiation as the price of food at the reception. And think about this: 43.1% of marriages end in divorce before a couple reaches their 50th anniversary, according to Statistics Canada’s 2011 snapshot on the topic of divorce.

Even couples who live together but aren’t married should consider having a cohabitation agreement. If you do marry, you can convert it to a prenup. Some couples arrange postnuptial agreements, which accomplish the same thing but are signed after the marriage — in some cases, years later.

When drafting and signing these agreements, both sides should have independent legal counsel.

Talking about finances, including how marriage or a common-law partnership will affect your taxes may seem pessimistic because it presumes the possibility of a divorce. But look at it as a form of insurance. People don’t buy a home assuming it’ll fall apart, but they buy homeowners insurance. Safe drivers buy auto insurance and healthy people have health and life insurance. It just makes sense. Prenups protect both spouses.

One way to ease the potential discomfort of broaching the subject is to say that your accountant or legal counsel insists you have a written agreement as part of your financial and estate plan.

So what exactly is a prenup? It’s simply a legal agreement that outlines how you’ll divide your assets in the event of a divorce. And it isn’t just for wealthy people. It works for everyone.

Blending Your Finances

Financial disagreements are one of the leading causes of marital problems. So, it’s important to consult with your tax advisor, banker and legal counsel before you tie the knot to get a handle on your financial, tax and estate planning strategies as a joint household. Here’s a checklist of important steps to consider:

1. Candidly discuss joint finances. For example, how much debt is each of you bringing to the marriage? What about savings? How is your credit rating? The older you are, the more (good and bad) financial baggage you may have.

2. Decide on joint or separate bank accounts — or both. Your banker can walk you through what will be needed to combine checking, savings and money market accounts.

Even if you decide to maintain separate accounts, it’s often helpful to have at least one joint account to pay for shared expenses, such as the costs of a mortgage or rent, household expenses and childcare. This account can be used for your combined needs, and it allows you both to keep track of how you’re spending money.

A joint account can also help avoid trouble and delays in case of death. If a spouse or common-law partner dies and there are separate accounts, the survivor could be unable to access the account until the estate goes through probate. That could take months.

3. Update deeds, wills and power of attorney documents. An attorney can discuss the full array of estate planning tools, such as various trusts, which might be relevant once you’re married.

4. Plan financial goals as a couple. Create an annual budget, as well as a contingency plan in case a spouse gets laid off or becomes disabled. Make sure you have several months’ income saved as an emergency cash reserve. Designate who’ll be responsible for paying the bills and reconciling the checkbook. Also look beyond your current financial situation. For example, discuss what you envision your retirement will look like, and whether current retirement account contributions are sufficient to achieve your long-term goals.

5. Review beneficiaries and the amount of life insurance policies. As your marriage progresses and if you have children, remember to update the beneficiaries of policies as well as retirement accounts. These assets will be distributed to your named beneficiaries, regardless of the terms of your estate planning documents. Coordinate designations with your estate plans. Review how much life insurance you hold. Do you need more to ensure that any children are treated fairly and equally?

6. Check property titles. Jointly owned property automatically passes to the co-owner.

Tax Benefits

Once you’ve determined how to split assets in the event you separate or divorce, turn your attention to taxes. Among the tax benefits are:

  • Spousal credits. You may claim this credit if, at any time in the year you support your spouse or common-law partner, you weren’t living separately because of a breakdown in the relationship, and his or her net income is less than $11,474 in 2017. However, if you claim the family caregiver amount for your spouse or partner, his or her net income must be less than $13,595. The amount is reduced on a dollar- for-dollar basis by the dependent’s net income. This credit could save you as much as $1,745 in federal taxes.
  • Transferred credits. Taxpayers whose income is too low to benefit from certain tax credits, may be able to transfer some to their spouses, including the age, pension, caregiver, disability and tuition (up to $5,000) credits.
  • Pooled medical expenses. You may claim medical expenses for your spouse or common-law partner when you file your tax return. You may get a bigger tax credit if the partner with the lower income claims all of the medical expenses for the couple. This is because the tax credit for medical expenses is based on a percentage of your income.
  • Pooled charitable contributions. You’re entitled to a 15% credit on the first $200 of charitable donations and a 29% credit for every dollar over $200. By pooling your donations together, you can reach the $200 threshold faster. As a first-time donor, you and your spouse or common-law partner may share the First-Time Donor’s Super Credit in a specific tax year. However, the total amount of donations that may be claimed for this credit can’t exceed $1,000. When it can’t be agreed on the amount of the credit that each of you will claim, the CRA may apportion the credit.
  • Split pensions. Up to half of eligible pension income can be transferred to your spouse or common-law partner. You’ll both be able to claim the pension credit and tax savings can be significant. Note: You and your spouse or partner don’t have to split the same percentage of pension income every year.

Tax-free rollovers. Designate your spouse as beneficiary of your Registered Retirement Savings Plan and Tax-Free Savings Accounts and then tax-free rollovers will be available after one spouse dies. In addition, when you die, you’ll be deemed to have sold all your assets. That can generate a capital gains tax. If you leave the assets to your spouse, taxes will be deferred until your spouse dies, or sells the assets.

Get Independent Professional Advice

Make certain you discuss all of these issues independently with your advisors before you commit to a life together.

MEC Ranks First Among Most Trusted Canadian Brands

051917_Thinkstock_466814888_lores_kwBrand trust is measured in several ways, and this year, outdoor gear retailer Mountain Equipment Co-Op (MEC) took top honors for the second year in an index of the most trusted brands in the country.

The Peter B. Gustavson School of Business at the University of Victoria recently published its annual Gustavson Brand Trust Index (GBTI). The index is aimed at raising the awareness of the role that trust plays in consumer purchasing decisions.

“Trust plays a vital role in our community, economy and collective mindset as Canadians,” says Saul Klein, dean of the Gustavson School of Business. “We have witnessed several breakdowns in trust over the past year, which we see reflected in our results. It is clear that trust can erode very rapidly but it takes a long time to build or to recover from missteps.”

The top 10 on the 2017 index (the 2016 rank is in parentheses):

1. MEC (1)

2. Canadian Automobile Association (a newcomer)

3. Costco Wholesale (3)

4. Fairmont Hotels & Resorts (8)

5. IKEA (22)

6. Chapters/Indigo (59)

7. President’s Choice (1)

8. Interac (11)

9. Cirque du Soleil (another newcomer)

10. WestJet (54)

Among the companies that have dropped on the index are:

  • Tim Hortons, which ranked No. 1 in 2015, came in at 27 on this index after dropping to 47 in 2016.
  • President’s Choice, which fell to 7 from 1.
  • Columbian Sportswear slipped to 28 from 9.
  • DAVIDsTea fell to 32 from 7.
  • Canon fell to 52 from 6.
  • Band-Aid dropped to 54 from 9.

The GBTI has found that consumers trust brands on two different levels:

1. Functional trust comes from traditional metrics such as quality, reliability and consistency.

2. Emotional trust differentiates brands and rests on such metrics as workplace practices, environmental policies and community responsibility.

Researchers found that brand trust increases with age and decreases as the income of a consumer increases. They also found that female consumers are more trusting than their male counterparts, although they rank the top brands similarly.

More Details about the Index

The GBTI uses a statistically representative sample of 3,125 consumers to score 249 Canadian companies and brands against 40 attributes. It measures five dimensions of trust that influence whether consumers recommend a brand to their networks:

1. Brand trust overall. Is the brand trustworthy and act with integrity?

2. Values-based trust. How do consumers perceive the brand’s social responsibility? (Researchers found this is becoming a more important driver of overall brand trust.)

3. Functional trust. How well do the brand’s products perform or function?

4. Relationship trust. How does the brand interact with its customers?

5. Word of mouth. Would consumers recommend the brand to others?

Here are a couple more insights you may want to apply to your business:

  • Consumers recommend brands that they perceive to be honest, consistent and reliable.
  • Older consumers tend to trust the top brands more than younger consumers do.

Here are five ways that can help your brand build trust with its customers? Let consumers:

1. Believe they can trust you. Consider offering a guarantee on your product. Few things speak louder than the confidence you show when you offer to refund a customer’s money if the product doesn’t measure up to what is expected. Even if your product is immediately consumed after purchase, there may be some way to create a guarantee to demonstrate your confidence in the product.

2. Understand they can rely on you. Being able to rely on the same supplier saves customers time and effort. Let your customers know that you’ll be there when they need you. You can do this by being visible when you land a new customer. Demonstrate your success by issuing press releases (if appropriate in your business) to tell customers what you’re doing. You may find including a story of a recent success in a conversation will prompt even more business.

3. Know you value their business. While a simple “thank you” can help convey your appreciation, going an extra step can strengthen the relationship. A gift, or at least a card during the holiday season or on a birthday, can show that you remembered a customer and may stimulate a “thanks for the gift” conversation.

4. Feel that you care. If your business sells to other businesses, try to establish a means to offer some insights into their operations. If you sell to others in that industry, share some ideas you have gained. Be careful not to divulge secrets, but telling a customer about someone else’s success may give them ideas for improving their businesses.

5. Enjoy their relationship with you. Everyone wants to be happy and few things create happiness like pleasant conversations. Make it a point to meet or call customers on a regular basis without making a sales pitch. If appropriate, a simple contact to your best customers on their birthdays may create more goodwill than almost anything else.

You can find the full list of most trusted brands here.

Life Insurance Policies as Investments

lores_insurance_policy_director_officer_board_mbUniversal life insurance and whole life insurance can be an attractive investment tool in the right circumstances.

Technically, the policies are life insurance policies, not investments, and the returns are generally slightly lower than mutual funds, but they have four significant advantages:

  • Proceeds are life insurance and thus not taxable.
  • The policy can specify a beneficiary and thus avoid probate fees.
  • The value of the investment grows tax free.
  • The policy is “creditor proof” because it isn’t subject to seizure by courts as other investments would be.

By paying more than the minimum premium, policy owners build up a surplus that can be put into various investments the insurance company holds on their behalf. The value of those investments is added to the face value of the policy when the insured person dies. That provides a tax-free payment of life insurance proceeds to the beneficiaries.

Since the life insurance company — not the policyholder — holds the investments the growth is not taxed the way other investments would be. This tax sheltering is similar to an RRSP, with the advantage that when the policy is eventually paid out on the death of the policyholder, there will be no tax on the proceeds.

You may also borrow money from the surplus in the policy at a low interest rate. This would allow you to finance your retirement from that surplus with tax-free money because the funds are in the form of a loan rather than income.

The loan is automatically paid off at death, reducing the insurance proceeds by the amount of the loan.

While the return on investment isn’t generally considered stellar compared to other investments because of the life insurance premiums that must be paid, these policies can be an attractive option if you need life insurance for estate planning purposes.

The actual life insurance cost (called the Cost of Pure Insurance) is very similar to term life insurance, and the policies offer the ability to accumulate a surplus that is invested to your advantage as the face value of the policies increase.

The underlying investments available in a life insurance policy have greatly increased over the past few years. Virtually any mutual fund is available through one carrier or another, along with annuities and GICs.

Talk to your financial advisor regarding these products if you think that you might benefit from universal life or whole life insurance.

Universal vs. Whole Life Plans

When discussing investments in universal or whole life insurance plans with your professional adviser, it’s important to know how the two plans differ.

Both contain four elements:

  • Mortality Cost: The part of the deposit that covers the pure cost of the life insurance death benefit.
  • Administration charge: This is the charge for administering the policy and premium tax.
  • Savings or Investment: The amount remaining after the above two charges are deducted. You will be provided with an illustration of how your savings will grow, often called the Cash Value, Fund Value, or Cash Surrender Value of your policy.
  • Return on the savings: This is the interest rate that is credited annually to the cash value in your account.

In addition, some policies guarantee that the costs will not change and guarantee a minimum return on investments.

Whole Life Insurance

These policies have a level cost that does not increase each year. Your first payment will be the same as your last payment. However, whole life policies disclose neither the mortality nor the administration costs.

Once those two costs are covered, the balance of the premium is the savings or investment portion. The returns depend on excess interest and investment earnings, savings in mortality costs, the operating expenses and the insurer’s board decision on what to pay.

Whole life policies also don’t disclose how they calculate returns on your savings portion and you cannot choose where the money is invested.

Universal Life Insurance

These disclose both the mortality charges and the administration charges, which are often guaranteed not to change for the life of the policy. These policies, in their newer forms, also offer a list of investment options that are similar in some ways to mutual funds. Some are even designed to reflect well-known funds and are even managed by mutual fund managers.

Get the Balance Right

Managing workplace harassment is a bit like navigating a minefield: You want to keep your company free of harassing behaviour; act quickly if there are incidents; and be fair to everyone involved. To complicate matters further, each of these issues presents potential liability.

There are several laws involved. The Canadian Human Rights Act, as well as provincial laws, puts the burden on

Identifying Harassment

lores_legal_law_judge_gavel_black_white_bzThe Canadian Human Rights Commission provides the following guidelines for defining harassment:
Unwelcome behaviour that demeans, humiliates, or embarrasses a person. This includes:

  • Actions, such as touching and pushing.
  • Comments, including jokes and name-calling.
  • Displays, such as posters and cartoons.

The Canadian Human Rights Act prohibits harassment related to race, national or ethnic origin, colour, religion, age, sex, marital status, family status, disability, pardoned conviction, or sexual orientation.

Disrespectful behaviour, commonly known as “personal” harassment isn’t covered by human rights legislation, but some employers put it in their policies.

Sexual harassment: This includes offensive or humiliating behaviour that is related to a person’s sex, creates an intimidating, unwelcome, hostile, or offensive work environment, or could reasonably be thought to put sexual conditions on a person’s job or employment opportunities.

Examples include questions or discussions about a person’s sex life; touching in an inappropriate way; commenting on attractiveness or unattractiveness; persisting in asking for a date after being refused, and writing sexually suggestive letters or notes.

Abuse of Authority. This occurs when a person uses authority unreasonably to interfere with an employee or a job. It includes humiliation, intimidation, threats and coercion.

Abuse of authority unrelated to the above legal prohibitions aren’t covered by human rights legislation, but some employers state in their policies that it will not be tolerated.

employers and managers to keep the workplace free of harassment. In addition, the Canada Labour Code requires employers to develop an anti-harassment policy and the Criminal Code protects people from physical and sexual assault.

When the Canadian Human Rights Commission evaluates a company’s liability in harassment complaints, policies and procedures play a major role. Employers are also responsible for monitoring the effectiveness of their policies, updating them if necessary, and ensuring that employees understand the policies and receive anti-harassment training.

It’s a good idea to get professional help drafting a policy. Among the components to include:

A clear and forceful statement. State that any form of harassment is intolerable and will be regarded as serious misconduct. This can help cut down on incidents and help employees feel comfortable filing complaints if necessary.

The consequences. Outline the potential penalties for harassment, including dismissal, and explain the steps that will be taken against individuals who make false accusations.

Definitions. Include examples of unacceptable conduct and list the categories covered under the Canadian Human Rights Act (for example, harassment based on sex, ethnic background or disability). Employees should know what harassment is and that it is against the law.

Rights and responsibilities. Employees need to know what is expected. Spell out the right to be free of harassment, the responsibility to treat others with respect, and, in the case of managers, the obligation to stop harassment.

Procedures. Outline the steps employees should follow if they are harassed. Sometimes employees are able to stop harassment just by speaking up or writing to the harasser. You can encourage them to do so. Keep in mind, however, that differences in power (age, sex, race, and so on) or status (such as a subordinate job) can make this impossible.

Investigations. Provide details of how charges will be investigated and resolved. Assure employees that everything will be confidential and that individuals making complaints or acting as witnesses on behalf of an employee won’t face penalties or retaliation.

A written policy can help employers decide whether to launch a formal investigation. For example, what is being alleged may not constitute harassment under the terms of the policy, because the offensive behaviour either was trivial or not based on a ground of discrimination as defined in human rights law. In such cases, informal discussions or counselling with the people involved may be sufficient.

Finally: Keep in mind that you are also responsible for harassment of non-employees by your employees. This includes potential employees, clients and customers.

(In a future article we’ll look at how to limit your company’s liability if an employee makes a complaint of workplace harassment.)

Be Careful When Dealing with Office Romances

thmb_business_tax_home_office_desk_laptop_amWhen Dealing with Office Romances

Prevent Disruption in Your Business

Professionals are judged for their professionalism. Well, at least they should be. But when it comes to workplace romances, sometimes colleagues judge each other based on who’s dating the boss.

“Sexual harassment does not include voluntary or consensual sexual contact between employees but “the Supreme Court has stated that managers who involve themselves with employees do so at their peril, as employees may later indicate that they felt coerced into the relationship even if that was not the manager’s intent.”

–  From the Manitoba Civil Service Commission’s
anti-harassment policy

 A Love Contract?

A few companies have adopted love contract policies, usually for top-level executives, CEOs, officers and, in some instances, directors.
They typically include:
A statement that each party is freely engaging in a relationship outside the workplace.
An acknowledgment that the parties feel no pressure to continue the relationship and fear no retribution if they choose to end it.
An affirmation that the parties will use the employer’s sexual harassment policy if problems arise as a result of the relationship.
An agreement to use an alternative to the courts to resolve work-related problems that might result.

“Employees flirting with each other, or becoming involved in a romantic or sexual relationship, are not harassing each other, as long as the relationship is consensual. If one of the employees changes her or his mind, and the other person persists in trying to continue the relationship, this is harassment.”

– From the Canadian Human Rights Commission’s
anti-harassment policy

In the past, some companies simply banned intra-office fraternization. But that often turned out to be largely unworkable. Thechemistry of human attraction has its own rules, and with long hours, long commutes and limited social lives, for many people these days, the workplace has become a natural environment for making friends and finding romance.

So much so that in one survey of Canadian employees, 63 per cent of respondents said they had been romantically involved with a co-worker. Another survey found that 17 per cent of working Canadians met their “significant other” at work.

But while workplace relationships may spark improved attendance, higher productivity and reduced illnesses, when those relationships turn sour, the fallout can disrupt the smooth flow of business.

Conceivably, the most destructive relationships are those between a manager and a subordinate. Most experts agree that these couples can promote jealousy and low morale among colleagues and open a company to charges of sexual harassment if the relationship ends badly. Moreover, such relationships can weaken a company’s credibility and destroy trust if co-workers start to think promotions depend more on who you know than on performance.

Fewer than one-third of Canadian companies have a romance policy. Instead, most take the position that relationships are private and inevitable given the long hours spent at work and that they are private. In general, businesses try to restrict activities that can harm business.

If your business is looking to institute guidelines for workplace dating, you want a policy that allows people to make decisions about their personal lives while limiting the possibility of sexual harassment litigation, conflicts and disruptions in the workplace. Here are four considerations:

1. Spell out standards for behaving responsibly with each other and with colleagues. Stress that “corporate couples” are expected to behave professionally at all times when they are on company business.

2. Clearly note that romance between a boss and a subordinate is inappropriate and subject to corrective action. The ethical move would be for the couple themselves to seek a change in the structure of their work relationship. While you don’t want to fire a manager for dating a staff member, you might want to transfer one or both of them to different departments.

3. Discourage displays of affection, sexual innuendo, suggestive comments and sexually oriented joking. As an employer, your business is legally bound to do everything possible to prevent sexually harassing behaviour.

4. Be clear that if an employee is not interested in, or receptive to, an advance from another employee, it should end there. Flirting and other acts of affection can be preludes to dating, but only if the receiving party is comfortable with them. They can also be preludes to sexual harassment claims.