Author Segal LLP

Dealing with a Layoff or Forced Retirement

lores_hr_cost_cutting_fired_terminated_envelope_job_employment_words_amIt doesn’t matter whether you’re employed in the private or public sector – companies and government agencies equally struggle to boos the bottom line and stay within tight budget constraints.

Those efforts can sometimes result in downsizing. With little notice in many cases, employees are presented with severance packages or incentives to retire early.

If that unfortunate scenario occurs, you may not be in the state of mind, or have sufficient knowledge, to properly evaluate the offer. Downsizing packages often involve decisions that go beyond severance pay, including benefit replacement and pension considerations. A qualified financial planner can help you assess the package and consider the following issues:

Family finances. Income uncertainty can be a challenge, especially if you’re facing post-secondary education costs for children and other major ongoing expenses, such as a mortgage. The impact on your spouse, especially if he or she is still working, should also be addressed.

Tax planning. Your package may include a significant lump sum, which means you need a strategy to minimize taxes. For example, you might review your RRSP contribution limits and consider using the “retiring allowance” to defer much of the income tax as possible. Or some of the money could be applied to your spouse’s RRSP. In some cases, an employer may agree to make payments over two years. Proper planning in this area is essential, as some of these tax-planning opportunities are only available during the year of severance.

Spending habits. Compile a budget to track monthly expenses. A budget also helps you make changes to your spending patterns. You may decide to impose some restrictions and consolidate debts to reduce interest costs.

Pension choices. This can be one of the most critical financial choices. You should fully understand pension options, because the decision is permanent. If you plan to draw on your pension, determine whether a single or joint life pension is needed, as well as whether you want a guarantee on future income.

If you’re not at pension age yet, you may elect to have a deferred pension or take a “commuted value” out of the plan to rollover to your own locked-in RRSP.

Group benefit replacement. Determine if any employee benefits will continue. You may have to add to your budget premiums for health, dental, life and critical illness insurance to replace lost benefits. An assessment of whether to “self-insure” some of the costs or pay premiums to an insurance company to cover the potential risk needs to be completed. You may be able to apply to become a dependant under your spouse’s group insurance plan. Some coverage, such as disability insurance, will be discontinued because you’re no longer employed.

Income and asset review. By calculating your assets and potential sources of income, you can determine any shortfall in your budget. Income from your spouse or partner may help defray expenses. Consider all assets and sources, such as RRSPs, savings, and Canada Pension and Old Age Security. Review investments. Your risk tolerance has probably changed as a result of your unemployed status.

By using the services of a qualified financial professional, you can get the most out of your severance or early retirement package. Call our firm for help developing a realistic plan that reflects your personal situation and allows you to get on with life.

Tee Off for Success

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A Smart Venue for Business

Golf has its detractors but one thing is clear: The game is a valuable way for companies to bring in revenue.

“Eighteen holes of match or medal play will teach you more about your foe than will 18 years of dealing with him across a desk.”

— Sportswriter Grantland Rice

Scoring an Eagle

Golf can drive home some lucrative business. Here are some of the ways executives believe the sport helps:

It’s a good way to establish close business relationships and make new business contacts.

  • The way people play golf is similar to how they conduct business.
  • Golf demonstrates levels of competitiveness and motivation and provides time to get to know a person’s character. A person who cheats on the golf course would probably cheat in business. Similarly, a bad temper on the course probably means a bad temper in the office.
  • Some of the biggest deals involve time on the golf course and most are closed a few days after a round of golf.
  • The time spent immediately after a round eating and socializing (the “19th hole”) is a key part of doing business.
  • On the course, the back nine is the best time to bring up business.

Many executives believe golf is an essential business tool and that behaviour on the golf course indicates behaviour in business. But strategic golf isn’t the same as recreational golf. Courting business on the course means keeping your business purpose in mind and focusing on your customers. You need to shift effortlessly between business and the sport.

Golf can be expensive but it’s widely viewed as a profitable investment. According to some estimates, Canadian businesses bring in more than $1,500 in business revenue for every dollar spent on strategic golfing. That may explain why the golf course outscores the hockey arena as a venue for business. (It comes in second place just below restaurants.)

But, like any other business investment, you want to maximize the return in terms of the amount of money and time spent.

To help with that goal, here are seven rules to help keep the game above par when playing with business associates:

1. Assess your corporate goals. Prepare for the day as you would for any business or board meeting. Think about what you want to accomplish, whether it’s to network, lay the foundation for new business, or strengthen a customer relationship.

2. Know the game. New golfers should have played at least five rounds of golf and have a few lessons before attempting to play business golf. If you score higher than average, let the rest of the group know in advance to save yourself some embarrassment.

3. Stay professional and polite. As a representative of your company, show professionalism in the way you play and adhere to dress codes. If in doubt, call the club to get the policy. Never wear jeans or tee shirts.

Obviously, don’t criticize how others are playing, don’t give advice unless asked, and don’t brag about your performance. In addition, don’t lose your temper, swear, or show rudeness. People who cheat at golf are often seen as likely to cheat in business.

And forget the cell phone. Many courses ban them and even if they don’t, turn yours off. A sure way to lose a sale is to have your cell phone ring or play a song just as your prospective customer is taking aim at a putt that’s going to win the round. Checking your e-mail messages on your PDA? That’s considered rude on the course.

4. Find the right mix. Put together a foursome with similar golfing abilities and temperaments. Ask if they prefer mornings or late-afternoon tee times. Introduce everyone so they feel at ease and consider providing a short advance bio of the players.

5. Let the client bring up business. Tolerance levels for business chat on the course varies widely, so follow the lead of fellow players. Don’t put business ahead of relationship building. Formal business discussions will follow on another day. If the conversation turns to business, keep it light and brief.

6. Don’t forget the 19th Hole.  After the round is over, make sure to allow time for some food, drinks and socializing. This is the time to talk business. Mix the discussions with talk about how the game went. Focus on the highlights, not the bad shots. If the game went badly, this is also a good time to smooth things over.

7. Follow through. After the round, make a phone call or arrange a visit and, hopefully, secure a signed contract. Otherwise, you haven’t finished the game or maximized your investment.

If you really hate golf, don’t bother with it. Pretending you’re having a great time when you’re miserable probably won’t work. The time and mental investment involved in golf is too great and the return will likely be too small. There are other ways to entertain prospects that everyone will enjoy.

Find Your Niche Market

thmb_blue_cool_lightbulb_idea_energy_amBe a Pioneer

Let’s face it; if you own a small or mid-sized company, you can’t compete with, say, Hudson’s Bay, Magna, Wal-Mart or Microsoft.

But you might find a niche those big corporations are ignoring and exploit it. The key to success for many companies is coming up with a specialized product or service aimed at a specific group of consumers. For example:

Position Your Niche

After deciding on a niche, you need to promote it.

Position the product or service as unique or a distinctive alternative to the competition. Of course, promotion strategies generally depend on the type of business and your marketing budget.

Nevertheless, there are some common elements in marketing strategies:

1. Identify customer needs and be responsive to them.

2. Offer reliable and competent service.

3. Know the competition and be on the lookout for new competitors.

4. Know the break-even point and set prices that recover the cost while still attracting customers.

5. Spend as much as you can on a regular basis to promote the niche.

6. Highlight the features that distinguish your product or service from the competition.

  • One grocery store in Vancouver caters to specific customer tastes by offering nearly 40 varieties of hot sauces.
  • A Saskatchewan business sells gourmet chocolates filled with Saskatoon berries.
  • An Ontario man started a business that searches for reliable suppliers and quotes for individuals and businesses, He got the idea when he bought aluminum siding after getting only three quotes and wondered how many others purchase big-ticket items based on only a couple of quotes.

Even if you’ve been in business for 20 years, you may still come across a niche that can add to your company’s success, offer a new career or just allow you to follow a dream.

For example, cattle farmers could focus on serving a demanding consumer market by raising certified organic beef, natural beef or certified hormone-free beef. That’s assuming the niche idea is good, they’ve done research and come up with a good marketing strategy.

Niche ideas come from many sources: a skill or hobby; a new way of doing something; or frustration when searching for a product or service and realizing others are probably going through the same thing.

Here are some steps that can help you come up with ideas and evaluate their potential:

Make a list. Include hobbies, skills and interests, as well as things you hear people complain about. Ever hear someone say: “I wish someone would think of a way…? Brainstorm with employees, colleagues, friends and family for potential niche candidates.

Devise keywords. To get a rough idea of demand, turn your ideas into keywords. Then go to Internet search engines and type in “Overture Search Term Suggestion Tool”. Enter one of your keywords into the tool and in about 30 seconds, you will get a list of how many searches were made in one month on that keyword and variations. For example, a search for espresso maker found a total of 7,995 searches in one month. Of course this shows only the number of Internet searches, but it can help get a sense of potential demand.

Research seriously. When examining a market, answer these questions, among others:

1. What is the demand for the product?
2. Who are the consumers, where do they live and how do they shop?
3. How extensive is the market?
4. How much of the market can you expect to capture?
5. Is it a growth area?
6. How will your product or service fit in?
7. What does the competition look like?

Interview potential customers, talk to other entrepreneurs and use resources such as the local chamber of commerce, hobby and trade magazines, Industry Canada, Statistics Canada, as well as other government agencies and industry associations.

Databases can help determine buying habits in specific areas. For example, do shoppers in Ontario tend to buy high price, high quality products? Or do shoppers in Alberta tend to look for a good deal?

As you develop a niche, try to find the optimal mix of product, demand, services, price and marketing strategy (see right-hand box above for a few marketing tips). You don’t want a $3,000 product if you can only sell a few each year.

Have Fun: In any business, it helps to enjoy what you’re doing. Passion for your business can make the difference between success and failure.

CRA Gets Tough On Real Estate Tax Cheats

062317_Thinkstock_501212115_lores_kwCanada Revenue Agency (CRA) says it has taken significant steps to address tax cheating in the real estate sector.

The CRA says that, in recent years, it has increased its real estate audits, particularly in the Greater Vancouver and the Greater Toronto areas, where increased real estate speculation has heated the market. From April 2015 to March 2017, CRA audits of real estate transactions scooped up more than $329.4 million in unreported taxable income.

Protecting Tax Fairness and Integrity

The feds have taken other measures to curb tax cheating in real estate deals. Specifically, in a change aimed at making sure only eligible home owners claim a principal residence exemption from paying taxes on capital gains, you are now obliged to report the sale of principal residences to the CRA. Before the 2016 tax year, if the property was your principal residence for every year you owned it, you didn’t have to report the sale on your income tax and benefit return.

National Revenue Minister Diane Lebouthillier explains, “For many Canadians, buying a home is one of their proudest moments and represents one of their most important investments. Our Government has committed to protecting the fairness and integrity of the tax system for all Canadians, notably by cracking down on tax cheating in real estate transactions. This means that, without exception, every taxpayer abides by the same tax laws.”

The CRA says it plans to enhance its ability to combat tax evasion and avoidance by strengthening relationships with such key partners as provinces, territories and municipalities to expand, obtain and exchange information on real estate transactions. The agency also seeks the help of taxpayers. If you suspect that someone hasn’t reported income or GST/HST related to a real estate transaction, the CRA urges you to contact the National Leads Centre. Your identity won’t be disclosed, and you can provide information anonymously. Your tax advisor can provide you with the details.

In the midst of the recent heated real estate market, questions have been raised about what federal tax obligations the buyers and sellers of real estate must meet, and how the CRA ensures tax compliance on these transactions.

The Key Areas of Compliance Risk in Real Estate

There are five main areas of concern:

1. Questionable sources of funds. The sources of funds used to buy or maintain Canadian properties could be an unreported spring of money that was never taxed, either in Canada or another country. In certain circumstances, a large down payment on a home, or a property that is expensive to maintain, may indicate:

  • Unreported income, if the lifestyle of the buyer isn’t compatible with the income reported,
  • Tax evasion, or
  • Purchase of real estate by a low-income person concealing a wealthy buyer.

The CRA can establish correlations between a taxpayer’s reported income and his or her lifestyle. The acquisition of expensive assets, such as a high-end home, without an obvious source of income, can be an indicator of potential unreported income earned from legal or illegal sources.

2. Property flipping. People, including real estate agents, who buy and resell homes in a short period for a profit are engaged in what is known as “property flipping.” There are three main categories of people engaged in this:

  • Professional contractors who sometimes demolish or renovate a property.
  • Speculators or middle investors who, for a profit, buy a property and assign the right to sell to another speculator or the final buyer. (This is called “shadow flipping” and it can occur many times between the first and final sale of a property. The original seller often doesn’t know that the property has been assigned to another buyer until the signing date.)
  • Individuals who buy real estate, renovate it, live in it for a short time and sell it to claim the principal residence exemption several times in their lifetimes.

The CRA acquires and analyzes third-party data and has found that some flips aren’t being reported or are being reported incorrectly. The profits from flipping real estate are generally considered to be fully taxable as business income, but there may be circumstances where they’re considered capital gains. The facts of each case determine whether such profits should be reported as business income or as a capital gain.

3. Unreported GST/HST. Generally, the builder of a new or substantially renovated home must charge and collect GST/HST when the home is sold and report that tax to the CRA.

If a builder leases a new or substantially renovated home, the builder is deemed to have sold the home to himself or herself. The GST/HST is payable on the fair market value of the home, including the land value, and the builder must report that tax to the CRA.

Generally, the deemed sale of a new or substantially renovated home isn’t considered to have occurred if:

  • A builder constructs or substantially renovates a home to be used primarily (more than 50%) as his or her place of residence, or a residence for a relative, and
  • The builder hasn’t claimed an input tax credit to recover any GST/HST payable for the construction or renovation

There may also be GST/HST implications for flipping transactions, if a property is new or has been substantially renovated. In most cases, the sale of used housing is exempt from GST/HST. One of the main conditions for the new housing rebate to be available is that you must buy or build the home as your or a relative’s principal residence.

If you buy or build a new home in Canada, but your principal place of residence is outside Canada, the house in Canada would be a secondary place of residence and wouldn’t qualify for the new housing rebate.

Also, if the intention at the outset is to flip the property, the eligibility requirement for the new housing rebate isn’t satisfied, as confirmed by several recent court decisions.

4. Unreported capital gains on the sale of property. Selling a property for more than it cost generally leads to capital gain. In most cases, capital gains are taxable and must be reported. Whether the gain is taxable depends on whether the property is a principal residence or whether the seller is a resident or nonresident of Canada. Consult with your tax advisor.

5. Unreported worldwide income. Residents must report their worldwide income. Nonresidents have to report only Canadian-sourced income, unless a tax treaty provides otherwise. Your tax advisor can discuss how residency is determined.

If you are involved in real estate, regardless of the degree, consult with your tax advisor to help ensure you are complying with CRA rules. And if for any reason you reported such income incorrectly, you advisor can help you file an amended return.

CRA Plans to Strengthen Its Voluntary Disclosure Program

061617_Thinkstock_123821271_lores_kwThe Voluntary Disclosure Program (VDP) will no longer be “one size fits all.”

The Canada Revenue Agency (CRA) says it is planning major changes to the program and has launched an online consultation allowing taxpayers to have a say about the proposals.

The disclosures program gives taxpayers an opportunity to voluntarily come forward and correct previous omissions in their dealings with the CRA. As a result, they may, under certain conditions, avoid prosecution, penalties and possibly interest on the amounts owed.

The CRA conducted an extensive review of the program in response to a recommendation by the House of Commons Standing Committee on Finance. The agency also benefited from the advice and recommendations by the Minister’s Offshore Compliance Advisory Committee, an independent committee of tax experts.

Recommended Changes

Here are some of the instances where that panel of tax experts urged a reduction in a taxpayer’s relief from interest and penalties:

  • Deliberate or willful default or carelessness amounting to gross negligence,
  • Active efforts to avoid detection through offshore vehicles or other means,
  • Large dollar amounts of tax avoided,
  • Multiple years of noncompliance,
  • Repeated use of the VDP,
  • A disclosure motivated by CRA statements regarding its intended focus of compliance or by broad-based CRA correspondence or campaigns,
  • Avoidance transactions undertaken or continued after implementation of the Common Reporting Standard, or
  • Any other circumstance in which a high degree of culpability contributes to the failure to comply.

The committee stated that tax relief could be reduced by increasing the period for which full interest must be paid or by denying relief from civil tax penalties.

Actual Proposed Changes

The most significant policy change follows the committee’s first recommendation that the VDP should offer less generous relief in certain circumstances. Major cases of noncompliance that are disclosed won’t receive the same level of relief as they would through the current program.

A number of other tightening measures are being proposed, including measures that would:

  • Require the payment of the estimated taxes owed as a condition of qualifying for the program,
  • Exclude applications that involve transfer pricing,
  • Eliminate applications from corporations with gross revenue exceeding $250 million,
  • Exclude applications that involving income from crimes,
  • Change the way the amount of interest relief is calculated, and
  • Cancel relief if it’s discovered that a taxpayer’s application wasn’t complete due to a misrepresentation attributable to willful default.

“Our government has made cracking down on tax cheats a priority, because when everyone pays their fair share, we all continue to benefit from the social programs that improve our quality of life,” Minister of National Revenue Diane Lebouthillier said in announcing the plan to amend the program.

The VDP applies to disclosures relating to income tax, excise tax, excise duties under the Excise Act, 2001, source deductions, GST/HST and charges under the Air Travellers Security Charge Act and the Softwood Lumber Products Export Charge Act, 2006.

How the Program Currently Works

The VDP has two tracks for income tax disclosures. The first is a General Program. If accepted, these applications will be eligible for penalty relief and partial interest relief.

The second track is a Limited Program, which provides limited relief for applications that disclose major non-compliance, including one or more of the following situations:

  • Active efforts to avoid detection through the use of offshore vehicles or other means,
  • Large dollar amounts,
  • Multiple years of noncompliance,
  • Disclosures made after an official CRA statement regarding its intended focus of compliance, and
  • Any other circumstance in which “a high degree of taxpayer culpability contributed to the failure to comply.” For example, a taxpayer who has been transferring undeclared business income earned in Canada to an offshore bank account since 2010.

Relief Provided Under the VDP

1. Penalty Relief. If a VDP application is accepted as having met all required conditions, the taxpayers won’t be charged penalties. The agency’s ability to grant penalty relief is limited to any taxation year that ended within the previous 10 years before the calendar year in which the application is filed.

Taxpayers also won’t be referred for criminal prosecution with respect to their disclosure (such as for tax offences) and won’t be charged a gross negligence penalty even where the facts establish that the taxpayer is liable for such a penalty. However, taxpayers will be charged other penalties when they apply.

2. Interest Relief. In addition to penalty relief, if an application is accepted, taxpayers may receive partial relief from interest related to assessments for years preceding the three most recent years of returns required to be filed (subject to the limitation period).

Generally, interest relief will be 50% of the applicable interest for those periods. Full interest charges will be assessed for the three most recent years of returns required to be filed. No interest relief will be provided to taxpayers whose application is accepted under the Limited Program.

The CRA urges taxpayers to participate in the consultation, saying everyone has a role to play to ensure the tax system is more innovative, responsive and fair for all Canadians. The consultation allows taxpayers to have their voices heard and to play a role in shaping policy.

Questions to Consider

Among the questions the CRA would like taxpayers to address in the online consultation are:

1. Is VDP the right program for taxpayers to fix mistakes? The CRA wants to know if the VDP should apply to those who make errors on their income tax returns, or just to those who knowingly choose to avoid paying taxes.

2. Do the changes strike the right balance? When conducting its review, the CRA considered comments made by the Offshore Compliance Advisory Committee about striking the right balance between helping those who were fully compliant and having appropriate consequences for those who were seriously breaking the rules.

You can find out more by going to CRA’s web page.

Next Steps

Comments are requested by August 8, 2017. The CRA plans to announce changes to the program in the autumn of 2017. The consultations will assist the Government of Canada on determining the next steps for the VDP policy.