Author Segal LLP

Segal LLP A 2018 Best of the Best Firm

INSIDE Public Accounting (IPA) has named Segal LLP a Best of the Best Canadian Firm for the third consecutive year.  Segal is honoured to be one of only 5 Canadian CPA firms ranked as a 2018 Best of the Best firm based on a wide variety of financial and operational performance.

“We are honoured to once again be named a Best of the Best in Canada; it is a vote of confidence in our people and in Segal’s unwavering commitment to client service. Our vision and approach to providing high value and trusted service to our clients remains unchanged.  With our move to new offices at Yonge and York Mills we are now centrally located and in a better position to regularly meet with clients.” said Dan Natale, Managing Partner at Segal.

“Best of the Best firms excel by achieving the delicate balance of focus on culture, clients, team and financial results,” says Michael Platt, principal of the Platt Group and publisher of the accounting trade publication, INSIDE Public Accounting.

Quebec Sales Tax Registration

quebec

The recent Quebec Budget introduced significant revisions to the QST legislation to apply to the taxation of the digital economy and e-commerce in Quebec.

More specifically, effective January 1, 2019, non-residents of Canada will be required to register for QST and charge QST to specified Quebec consumers on sales of digital services and incorporeal moveable property.  This change will likely require non-resident media companies such as Netflix and iTunes to register for QST and charge QST to many Quebec consumers on subscriptions and other fees.

Further, effective September 1, 2019, residents of Canada but non-residents of Quebec will be required to register for QST and charge QST to specified Quebec consumers on sales of corporeal moveable property (such as goods), as well as sales of digital services and incorporeal moveable property.  As a result, a resident of Canada that is not resident in Quebec that sells goods to Quebec specified consumers through a website (or other means) may now be required to register for QST.  Pursuant to the current rules however, QST registration (and thus the collection of QST) may not have been required for such sales of goods by a non-resident of Quebec on the basis that the non-resident did not have a significant presence in Quebec.

The term “Quebec specified consumers” refers to a person who is not registered for QST purposes and whose usual place of residence is in Quebec.  Accordingly, suppliers that are only making sales to persons that are registered for QST purposes will not be required to register pursuant to the new rules.

Registration under the new rules will be pursuant to a different chapter of the QST legislation, with the result that any person registered pursuant to the new rules will not be entitled to claim any input tax refunds in respect to any QST paid in the course of their commercial activities.  Accordingly, any persons required to register pursuant to the new rules may wish to consider voluntarily registering pursuant to the ‘old rules’ to thus allow ITRs to be claimed.  However, registration and filing QST returns pursuant to the new rules will be streamlined and simplified.

In addition to the above changes, digital platforms will also be required to be registered for QST where the platform provide services to a non-resident supplier that enables the platform to make supplies of incorporeal movable property or services to specified Quebec consumers where the platform controls the key elements of transactions (such as billing, terms and conditions, and delivery).  This will result in certain conduits or other parties that are not necessarily the vendor of the property or services being required to charge and collect QST on certain transactions.

Registration pursuant to the new rules will not be required where the total taxable supplies made to consumers are less than $30,000 in the 12 previous months.  Further, all QST returns filed by registrants pursuant to the new rules are required to be filed quarterly. Lastly, the new rules provide that QST may be paid in certain currencies, including USD and Euro, provided the registrant is paid in that currency.

Vern Vipul, LL.B., M.Tax

Senior Associate, Commodity Tax

Segal LLP

IFRS 16 – A new leasing standard

lease-caar

IFRS 16 is a new leasing standard which will be replacing the old leasing standard, IAS 17.  This new standard is effective for annual reporting periods beginning on or after January 1, 2019.

Under the old standard, IAS 17 the substance of the lease agreement determined whether the lease was an operating lease or a capital lease.  For example, a lease transferring ownership at the end of the lease term or a lease for a period representing a major part of the economic life of the asset etc. would both be treated like capital leases.   IFRS 16 differs fundamentally from this approach.

In a nutshell, IFRS 16 requires all leases (with limited exceptions) to be capitalized.  The only exceptions to capitalizing are for (i) short term leases (12 months or less with no purchase option) and (ii) low-value leases (The IASB has suggested this amount is approximately $5,000 USD).

The impact of this new standard will mostly be felt by lessees that have significant operating leases.  As an example a car that is leased.  Under IAS 17 this car lease, if it met the conditions not to capitalize, would only expense the lease payments in the year and disclosed in the commitments note future lease payments.  Under IFRS 16, the right-of-use of the car would now be recognized as an asset on the balance sheet, and the related lease would be recognized as a loan liability on the balance sheet.

The initial measurement of the lease liability would be based on the present value of the future cash payments under the lease.  The initial measurement of the lease asset would be based on the cost of the right-of-use of that asset.

Subsequent to initial recognition, leased assets would be depreciated, and are also subject to impairment testing.  Liabilities would be reduced by the principal portion of the lease payments made.

Clearly one of the major changes from the adoption of IFRS 16 will be the introduction of a potentially significant asset and liability to the balance sheet.  The new standard will also require a number of additional note disclosures.  But, in addition to these major presentation differences and additional note disclosures, it will be very important to understand the impact that these changes will have on financial ratios and other financial metrics.  Consider, this partial list of the possible effects of adopting IFRS 16:

  • Current ratio – decreases because current liabilities increase (we recognize the current portion of a lease liability) while current assets do not change.
  • Asset turnover (Sales/total assets) – decrease because total assets increase, and sales do not change.
  • EBITDA (profitability) – will increase because expenses that would have been deducted under IAS 17 (e.g. rent expense or other operating lease expenses) will now, because of capitalization of the lease under IFRS 16, now be in the form of interest and depreciation expenses which are specifically excluded from EBITDA.

The main goal of this very brief introduction to IFRS 16 was to hopefully convince those that report using IFRS (especially those with operating leases) of the potentially very significant effects of this changeover.  Even though 2019 seems far away, a change of this magnitude and complexity should be addressed well in advance.

Contributed by Trevor Reef, CPA, CA – Senior Manager, from Segal LLP. This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America.

This article is from the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America. These articles are meant to pursue our mission of being the best partner in your success by keeping you aware of the latest business news.

Effect of Holding Companies on Split Income

income

In 2017, new rules were introduced limiting the use of income splitting which allowed people the ability to income split with family members. The new rules were called Tax on Split Income (‘TOSI”). TOSI applies to situations where a family member has not contributed or worked in a family business and is applicable depending on age. For family members under 18, income splitting is restricted. The rules are less restrictive to family members 18-24 years old and less restrictive still for family members over 24 years old. There is also a special exclusion for those whose spouse is 65 years or older and was active in the business.

The details of the rules are beyond the scope of this article. However, we would like to highlight one corporate structure that has unexpectedly been caught in these rules: a structure where an operating company is owned by a holding company, the holding company is owned by an owner/operator and his/her spouse and adult children (over 25 years old), and the family members are not active in the business.

There is a special exclusion from TOSI dividends known as “Excluded Shares”. Excluded shares are defined as a corporation that is owned by the taxpayer where the following conditions are met:

  1. It is NOT a professional corporation.
  2. Less than 90% of the business income from the most recent fiscal year is from the provision of services.
  3. The individual taxpayer owns 10% or more of the votes AND 10% or more of the value of the company.
  4. 90% (all or substantially all) of the income of the corporation does NOT come from other related businesses.

The rules state that even if the 10% shareholding test is met, holding companies do not meet the test of Excluded Shares for a few reasons.

Firstly, they earn no business income. As per “b” above, it states that less than 90% of the business income is from the provision of services. CRA interprets this to mean that the corporation must have business income in the first place and that 90% of that business income is not from services. If a holding company only earns dividends from its subsidiary and/or investment income on its assets, it earns no business income and will therefore not qualify as an excluded share.

If the Holdco earns fees from the operating company so as to earn business income, the test in “d” would be a problem. The business income must come from a non-related business.

Bottom line is that having a holding company can be a problem to avoiding TOSI.  Seek the advice of your advisor to determine your exposure to TOSI and tax planning options.

Contributed by Howard Wasserman, CPA, CA, CFP, TEP from Segal LLP, Toronto. This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America.

This article is from the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North AmericaThese articles are meant to pursue our mission of being the best partner in your success by keeping you aware of the latest business news.

5 Things To Ask Your Accountant When Facing a Separation or Divorce

divorce

Separation and divorce are becoming more and more common in our society. It is important to consult and include your accountant in your divorce or separation proceedings since there are important financial and tax considerations that must be considered. Failing to do so may result in either an immediate tax burden or one that will appear a few years later.

Here are important issues to discuss with your accountant:

1. Spousal and Child Support

Spousal and Child Support and two separate forms of support. The first is paid to support the spouse and the other for the children as the wording implies. It is important to itemize your Separation Agreement to distinguish both child and spousal support. This is because spousal support is considered a tax deduction to the payor (the person actually paying the other spouse), and taxable income to the payee (the spouse receiving the support). Child support, however, does not have any tax ramifications.

Also, the tax implications may differ for both parties if an amount is paid on a periodic basis or as one lump-sum.

Your accountant can advise you on how to structure your support.

2.  Canada Child Benefit (CCB)

CCB is calculated based on the adjusted family net income. Therefore, both parents’ income is considered by the Canada Revenue Agency (“CRA”) to calculate the CCB.

In the event of a divorce or a separation of more than 90 days, it will be important to advise CRA as soon as possible of the change in marital status which will change the adjusted family net income and therefore change the CCB payments.

In order to be able to balance your budget post-separation or divorce, you should consult with your accountant to determine what each parent will be receiving in CCB.

3. Capital Gains Tax

When a couple is negotiating a possible sale of their former family residence during their divorce proceedings, they may need to consider capital gains tax following the sale. Different factors must be considered, such as when the home was purchased, and how much equity the parties have accumulated in the property since they have lived there. Your accountant should be able to advise you regarding whether or not you need to be concerned with capital gains tax and what you can do to plan around it.

4. Cashing Out Retirement:

Many times, one spouse intends to cash out their retirement account in order to buy another spouse out of a different asset. There are commonly tax consequences to transactions like these, and the couple should speak to their accountant about how to avoid negative tax ramifications.

5. Trading Assets:

There are often many different types of assets involved in a separation or divorce mediation. People own real estate, investment property, stocks, bonds, retirement and investment accounts, pensions, antiques, and more. Because of how diversified some people’s investments are, it is important to consider that all assets are not created equal. Some retirement accounts, for example, are pre-tax and some are post-tax. Therefore, if someone gets a home with $100,000 in equity and the other gets a retirement account that will be taxed when they take the money out that is currently worth $100,000, these assets may not be worth the same. This depends on the specific tax consequences that flow to each individual asset. It is important to also take into account the hidden tax costs that may be associated with an asset that will be transferred in a divorce proceeding.

Contributed by Valérie Marcil and Carl-Philippe Finn-Côté from Marcil Lavallee. This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America.

This article is from the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North AmericaThese articles are meant to pursue our mission of being the best partner in your success by keeping you aware of the latest business news.