Author Segal LLP

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.

Fraud: Better Safe than Sorry

fraud

No companies are safe from fraud, no matter how big they are or what industry they’re in. According to the International Trade Council, 5 per cent of revenues (representing US$800 billion worldwide) are lost to internal or external fraud.

The most common fraud tactics include corruption, misappropriation of assets, and financial statement fraud. And with cybercrime on the rise (the Online Trust Alliance reported an 18.2 per cent in reported breaches in 2017 compared to 2016), fraud prevention and detection measures are becoming more and more important.

The various costs of fraud

In Canada, the total financial losses due to fraud[1] have reached an average of $200,000 in 2018. It should be noted that this average may be under-estimated, especially because a lot of fraud goes undetected by companies, and some firms are too embarrassed to report fraud — especially if it came from an internal source.

Organizations without effective fraud prevention and detection measures expose themselves to serious consequences that go beyond cost: it could affect employee morale, the company’s reputation, business relationships, and share price. All that to say that the cost of establishing a fraud prevention and detection system are almost always going to be lower than the cost of not establishing one.

Fraud detection methods

While there are many fraud prevention and detection measures a company can take other than a system, including employee education, a culture of honesty and third-party support in this area, a system is considered the most effective detection measure, with an effective rate of nearly 50 per cent[2], as demonstrated by these 2018 findings on the reasons for fraud compiled by StatsCan.[3]

fraud-form

The forensic accountant’s role

A forensic accountant familiar with the specific risks in your industry can help you establish an effective system. They know fraudsters’ tricks, how to detect them and how to create a system that neutralizes them.

Contact us to learn more about setting up a fraud prevention and detection system specifically for your company.

Contributed by Jacqueline Lemay, CPA, CA, CA-EJC, CFF, from Demers Beaulne. 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.


[1] According to cases included in the Report of the Nations – 2018 Global Study on Occupational Fraud and Abuse, Association of Certified Fraud Examiners (hereinafter “ACFE”).

[2] Statistics Canada, Fraud Against Businesses in Canada: Results from a National Survey, by Andrea Taylor-Butts and Samuel Perreault, 2007-2008.

[3] 2018 ACFE study.

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.

The Segal Team has Moved!

We are very pleased to announce that Segal has moved to our brand-new offices at York Mills Centre.

segal-office


Our New Address:
4101 Yonge St., Suite 502
P.O. Box 202
Toronto, ON  M2P 1N6
Main Number:  416-391-4499 (same)


Conveniently central for clients and staff, we are 1-minute south of the 401 and minutes from downtown on the subway, at the northeast corner of Yonge and York Mills.

Our new office overlooks a beautiful green space with natural light throughout, underground guest parking, GO/TTC bus and subway access at York Mills station.

Valuations for Income Tax Purposes

income-tax

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.

Valuations for Income Tax Purposes – What Does the Canada Revenue Agency (“CRA”) think?

Tax planning and corporate restructuring have become an integral part of the services provided by professional advisors to their clients. A key component of any plan is establishing the fair market value (“FMV”) as the valuation represents the first step towards assessing the tax consequences of any transaction.

Given the increased level of complexity in many tax plans, “cutting corners” by not obtaining independent valuation advise may lead to unintended consequences such as income tax penalties or failure to achieve the desired after tax results.

In practice, a Chartered Business Valuator (“CBV”) may be engaged to assist you in the following tax related situations:

  • Estate Freezes where the FMV of various classes of shares may need to be determined;
  • Corporate Reorganizations where business assets and related debt are being transferred from one entity to another;
  • Death of a shareholder where FMV of assets is required for the Terminal Tax Return;
  • Emigration, where under certain circumstances a taxpayer is deemed to dispose of their worldwide assets at FMV;
  • Defending a FMV previously filed in a tax return under audit by CRA.

So what is CRA’s position on valuation?

Information Circular 89-3 (“IC 89-3”), Policy Statement on Business Equity Valuations, outlines the general valuation principles and policies adopted by CRA in the valuation of securities and intangible property of closely held corporations for income tax purposes.

There are no formal requirements in IC 89-3 for a valuation by a CBV, however this should not be taken as a recommendation to apply a “do-it-yourself” approach to valuation, as IC 89-3 requires:

  • The standard of value to be used is FMV;
  • All relevant factors of the entity being valued must be considered;
  • The approach to valuation must be justified;
  • Factors used in determining the valuation multiple applied must be disclosed;
  • Reasonable Judgement and Objectivity must be used.

In addition to IC 89-3, IT Folio S4-F3-CI provides CRA’s policy on Price Adjustment Clauses which states:

  • FMV must be determined by a fair and reasonable method;
  • FMV does not have to be determined by a valuation expert, BUT it is not sufficient to rely upon a generally accepted valuation method;
  • It is necessary to perform a complete examination of all relevant facts and valuation methodology must be properly applied.

Finally, there are provisions in the Income Tax Act to apply gross negligence penalties to third parties (preparers) making, or participating in the making of, false statements or omissions in matters of valuation where there is a substantial difference between the FMV as filed and the FMV attributed by CRA. These penalties can be substantial depending on the circumstances.

In light of the above, best practice dictates engaging a CBV or at least having a CBV review a non-valuation practitioner’s valuation to avoid potential pitfalls including a challenge of your FMV by CRA.

A CBV will apply the proper application of generally accepted valuation methods and use their experience and professional judgement essential in any situation where there could be doubt about the value of a private corporation.

If in doubt, consider consulting a CBV for guidance.

Contributed by Michael Frost and Andrew Dey from Mowbrey Gil. 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.

New Quebec sales tax and e-commerce

quebec

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.

Measures relating to the Quebec sales tax and e-commerce

The rise of e-Commerce created QST collection difficulties for suppliers with no physical or significant presence in Quebec. This situation negatively affected Québec’s supplier competitiveness, and it’s shorting the provincial government necessary revenue. The policy response to this was the Mandatory Registration System (MRS).

About the MRS

In its 2018-2019 budget, the Quebec government introduced the MRS (also known as the “specified registration system”) for non-resident suppliers. The rules require non-resident suppliers to collect and remit the QST on taxable incorporeal movable property and services supplied in Québec to people who live in Québec but who are not registered for the QST. Moreover, Canadian suppliers will be required to collect and remit QST on corporeal movable property supplied in Québec to a Quebec consumer.

To establish residency and location, non-resident suppliers can refer to a customer’s billing address, IP address or banking information. And customers who falsify this information could face stiff penalties.

MRS and eCommerce

Digital property and services distribution platforms (“digital platforms”) are now required to register under the MRS in cases where the digital platform controls the key elements of transactions with specified Québec consumers (billing, transaction terms & conditions and delivery).

Mandatory registration will apply to non-resident suppliers (NRS) when the value of taxable goods and services exchanged in Québec exceeds $30,000 a year. As NRSs registered under the new MRS are not subject to other QST provisions, claiming an input tax reimbursement is not possible. However, an NRS can register under the general QST if it meets registration requirements.

The Québec government’s goal is the make the MRS simple and easy to use. The return must be filed electronically on a quarterly basis and the remittance can be paid in USD and EURO.

The MRS comes into effect on January 1, 2019, for non-resident suppliers outside Canada, and September 1, 2019, for non-resident suppliers located in Canada.

For more information about the MRS, what it means for your business and how it may or may not affect how you do business, book a consult with us and we’ll get you prepared for continued success in Québec.

Contributed by Benoit Vallée from Demers Beaulne. 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.