Author Segal LLP

The Current Lowdown On Remote Workers

040617_Thinkstock_536923559_lores_kwIBM, which has pioneered remote working for decades, recently joined some big name businesses that are now banning that practice.

The technology giant banned telecommuting or remote working for its marketing department in the United States. The move means the company has joined the likes of Yahoo, Google and Best Buy. Those businesses also generally don’t allow remote work.

Pretty much since it began, remote work has been controversial. Some of the major questions surrounding the issue are:

  1. Are remote workers more or less productive or creative?
  2. Are they more satisfied or more isolated?
  3. Do they feel more or less valued?

In an effort to answer these questions, Polycom, which provides voice, video and content collaboration solutions, commissioned a survey of 24,000-plus workers in 12 countries — including Canada. While the results varied by country, three key trends remained constant:

  • 62% of the global working population currently takes advantage of flexible working practices,
  • 98% say being able to work from anywhere boosts performance, and
  • 92% say they believe video conferencing or collaboration helps improve workplace relationships and teamwork.

(There are many pros and cons to the issue that are listed in the chart on the right.)

So let’s say you’re leaning toward offering your employees the chance to work remotely. Appropriate oversight will be necessary to avoid potential fraud and abuses that can wipe out many, if not all, of the benefits associated with a work-from-home program.

Before allowing employees to commute to their home-based desks, answer the following questions to help ensure that you minimize the risks and maximize the returns of the program:

1. Which jobs make sense from home?

There are numerous positions within a company that, despite pleas to the contrary from employees, aren’t suitable candidates for a work-from-home program.

For example, allowing a manager with a broad span of control to work at home is typically not a good idea. Managing by phone is often far less effective than being physically present. Also, employees may resent that their manager works from home while they’re stuck in the office.

Before announcing a work-from-home program, identify all of the positions that won’t be allowed to participate. Be sure to engage your company’s legal counsel to ensure that the process doesn’t violate employment law or create employee relations issues.

Pros Cons
Cost savings. Having employees work from home can reduce the demand for office space and also cut facility operating and parking costs. Not for everyone. Some employees fear less “face time” will reduce their chances for promotion. Others need or want an office environment.
Work/ life balance. There is more time for employees to care for their loved ones and address home emergencies. Time disputes. 

Without a system to record hours, disputes may arise over the time actually worked.

It’s green. Reducing the number of commutes to the workplace saves fuel, reduces vehicle carbon emissions and traffic congestion. Performance fears. Managers may equate remote work with an automatic drop in performance and may need to adjust to a culture oriented toward results more than toward processes.
Continuity. Working from home may mean that at least some of your company’s operations can continue during a snowstorm, natural disaster, terrorist attack or other emergency. Security. The IT infrastructure must be properly designed. Some jobs may simply not be able to be performed at home for security reasons.
Accommodation. Working from home can better accommodate individuals with disabilities. Friction. Staffers in the workplace may resent remote workers.
Performance may be enhanced. Remote workers may exceed their performance in the traditional workplace. Many report that they convert the old drive time into productive working hours. There may be fewer interruptions and absenteeism may drop. Performance may suffer. Outside a traditional structure, some employees may lose productivity by cleaning house, watching their young children, watching television or being otherwise distracted.
Job satisfaction. Working from home can increase personal freedom and flexibility, improve morale, and decrease stress. Safety. There may be liabilities if employees are injured off-site. Consult with your attorney.
Retention and recruitment. Offering a work-at-home option can boost your company’s attractiveness in the job market and lead to reduced turnover. Equipment cost, loss and damage. You must address who pays for equipment, how it is to be used and what to do if it is lost, stolen or damaged.
Staying in touch. Using instant messaging, conference calls, webinars, collaboration software and other technology can help employees feel less isolated. Team conflicts. Relationship problems among remote teams can be harder to resolve than those among on-site employees.

2. Which employees will be eligible?

For employees that are underperforming or have a track record of discipline issues, working from home may be viewed as an opportunity to “hide out” and avoid the scrutiny that comes from working in an office. Together with your human resources department, develop criteria that employees must meet in order to be considered for the program.

For example, you might require candidates to earn a “meets expectations” rating in their performance reviews and have no outstanding discipline issues.

3. How will you monitor productivity?

There’s an assumption that once employees are allowed to work from home their productivity will at least be equal to their “in office” performance — or may even be better. This may be true, but for employees who have never worked from home before, the distractions of home life (including a significant other, young children, noisy next-door neighbors or just plain loneliness) may be too much to bear and their productivity may actually decline.

This begs the question: Once an employee is out of sight, how will their performance be monitored? There are a number of technology solutions that can track keystrokes, periodically capture pictures of the employee’s computer screen as well as record activity within specific software systems. Regardless of the approach used, there should be some ways to track productivity and performance.

4. How will you communicate?

How many times have you misread and misunderstood an email? That kind of problem can be multiplied when staff is at home. Distance can lead to miscommunication and workers falling off the same page.

In the Polycom survey, 62% of respondents said they want access to collaboration technology to connect with their colleagues and 92% surveyed said they believe that video collaboration technology helps improve relationships and fosters better teamwork. The study also showed that an employee’s reliance on technology, especially video conferencing, actually drives them to pick up the phone more regularly. Two-thirds said their favorite colleagues work in a different location.

Video conferences and chats can help remote workers feel less isolated and you’ll be able to pick up on visual cues, reactions to changes and employees’ overall moods.

Chat apps or instant messaging also help. They will let everyone know who’s available once they sign in and allow for quick, short conversations without the telephone, which often involves more time than you want to spend.

Make time for small talk. When talking with employees on the telephone or on video, use some of the time to talk about more than work. Build rapport. It will help you work through any problems that may arise later. Showing you care is important to employees and will make them like working for you more. And have longer talks on occasion, where you can discuss their goals.

5. Should home workers use company computers?

An employee’s personal computer may not have the most up-to-date virus software in place and that raises the risk that the person could download a virus that could affect both the home computer and the company’s entire network. It’s also conceivable that the employee’s computer can be accessed by other members of the family. That raises concerns of data loss or theft, as well as disclosure of customers’ private information.

There can also be problems if an employee is working on a personally-owned computer and the employer receives an e-discovery request. Electronically stored information is routinely requested in civil and criminal proceedings. Complying can be difficult if, for example, an employer doesn’t know what files or records employees have on their home computers or if an employee alters files or destroys them after an e-discovery request is received.

If possible, remote employees should only be allowed to use company-issued computers. Doing so ensures that the employee’s computer is subject to the same virus and system upgrades as other company-issued devices and reduces the risk that your business will be unable to comply with an e-discovery request.

6. What happens if data does go “missing?”

Allowing employees to work in their home offices can give them the false impression that no one is watching what they’re actually doing with company data. Before your company launches a work-from-home program, think about the data that remote employees can access as well as what would happen if that data were lost, stolen or misplaced.

For example, if an employee working from home steals confidential data, how would your company know? If the employee was the victim of a home invasion and the company laptop was stolen, several issues arise:

  • How much company data is stored on that laptop?
  • Is it encrypted?
  • What could your company do to limit or mitigate the potential damage?

7. What about expenses?

The potential for expense fraud and abuse by remote employees can also be a concern. One simple way to combat expense fraud by work-from-home employees is to ensure they’re appropriately identified in the company’s expense reimbursement system as remote employees.

For example, an expense reimbursement system could require that employees include their home office or base on their expense statements. For remote employees that designation could appear as Remote or VE (virtual employee) or WFH (work from home). The actual naming convention isn’t important. What is important is that your company can periodically target expense reimbursement requests from remote employees to ensure that expenses are reasonable, consistent with their remote status and consistent with company policy.

With appropriate policies and safeguards in place, you can help ensure that your company reaps the benefits of a work-from-home program and that employees perform at their best, whether they’re working down the hall in the workplace, in their homes or in off-site offices far away.

If You’re Involved in the Sharing Economy, Know the Tax Implications

042117_Thinkstock_515968676_lores_kwHousehold debt and housing costs are rising and some Canadians — especially Millennials —are turning to the “sharing economy” to help mitigate their expenses.

The sharing economy allows individuals to use technology to arrange transactions so they can earn money from assets such as their homes and cars. There are tax implications for those who engage in these transactions.

The latest numbers from Statistics Canada (StatsCan) show household debt at 167.3% of disposable income, which is a record. That means, on average, Canadians owe $1.67 for every $1 of disposable income.

The New Housing Price Index rose 3.3% over the 12-month period ending in February. This was the largest annual growth at the national level since June 2010. The actual (not seasonally adjusted) national average price for homes sold in February 2017 was $519,521, up 3.5% from where it stood a year earlier, according to the Canadian Real Estate Association.

Making Ends Meet

What’s a person to do to keep up? Some people are turning to short-term rentals to make ends meet, according to survey results recently released by Altus Group. According to Altus, which provides real estate research, its FIRM survey found that in the past year, 4% of all Canadian households of all ages had used a short-term rental accommodation service, such as Airbnb. The number rose to 7% for those with a mortgage.

The survey found that 22% of Canadians under the age of 35 had used a short-term rental service in the past year to rent out all or part of their homes. The four markets are Toronto, Vancouver, Calgary and Montreal.

“There has been a lot of speculation lately about potential investor involvement in short-term accommodation rental services like Airbnb,” Altus stated. “But focusing on households rather investors, how extensive is the practice of short-term rentals of space in principal residences?”

Short-term home rental services such as Airbnb, Flipkey and HomeAway make up part of the sharing, or gig economy. This article deals only with rental services, although the principles also apply to ride-sharing (in services including Uber and Lyft) and other parts of the gig economy.

Gigs Can Be for Renters, Too

Even renters are doing it. In large cities, 12% of millennial renters in the four largest Canadian markets said they had used a short-term service to rent out part of their home. Among the general population, 4% of all renters across the country had sublet part of their homes.

StatsCan data supports these results. The statistics agency reported in February that use of “private accommodation services” was highest among Canadians aged 25 to 34 (8.6%), 35 to 44 (4.8%) and 18 to 24 (4.4%). Use of private accommodation services was lowest among people aged 55 and older (2.1%). The agency defines private accommodation services as those “that connect travellers and hosts through a mobile application or website that acts as an intermediary and processes the payment from the traveller to the host.”

In fact, from November 2015 to October 2016, StatsCan found that Canadians spent $367 million on private accommodation services inside Canada, spending an average of $307.

About 69,000 adults living in Canada indicated that they had offered private accommodation services. Most of them were living in Ontario (31.1%), Quebec (26.4%) or British Columbia (25.1%).

However, using the sharing economy to help pay debts or ease the cost of housing or a mortgage isn’t really sharing in the sense of letting people live in your house for free.

Paying Your Share

Under Canadian tax law, you must declare any income from any source, including any money made through these part-time services.

If you collect more than $30,000 a year, you also have to collect and remit goods and services tax or harmonized sales tax (GST/HST). If you earn $30,000 or less a year, you don’t have to register for a GST/HST account, but you can voluntarily register to recover the tax. Provincial sales tax depends on the province.

Here’s how the CRA defines the sharing economy:

“A technologically fuelled way to consume and access property and services. In this economy, communities pool, loan, and share their resources through networks of trust.”

The tax agency says it’s “co-operating with industries, the provinces, and the territories to identify and address areas in this economy where the tax system and tax compliance might be affected.”

Rental or Business Income?

When it comes to calculating your income tax if you rent out your home on a short-term basis, you must determine if you are earning business or rental income. If you provide only the space, electricity, heat, laundry facilities and parking, you’re earning rental income and should generally file a Form T776, Statement of Real Estate Rentals. Also, the amount of space you rent is important. Two out of five rooms means you’re earning rental income in the eyes of the CRA.

On the other hand, if you provide security, meals or cleaning, you’ll probably be considered to be earning business income. In that case, you file a Form T2125, Statement of Business or Professional Activities. You’ll also have to submit Canada Pension Plan payments. Keep in mind, when you change the use of a property, there could be tax consequences (see lower box).

In either case, you can generally deduct the reasonable expenses you incur to earn the income.

Calculating Expenses

If you rent out only part of your house, you’ll have to calculate what percentage of your home you’ve been using for rental purposes and then multiply that by the number or nights you rented the space.

Keep all of your expense receipts and careful records of your calculations in case the CRA questions your claims.

If you participate in the sharing economy and underreport or don’t report your revenue, you’re participating in the underground economy. That could result in serious consequences.

If you get caught evading tax, you may face fines, penalties, or even jail time, in addition to paying the taxes owed on the unreported amounts. If you have to register for and collect GST/HST on your transactions, but you don’t, the CRA will charge interest or penalties or both, depending on the circumstances.

Making Corrections

Filing taxes and claiming expenses if you participate in the sharing economy can be complex. Consult with your accountant for help avoiding an audit and penalties. Your accountant can also help if you didn’t report revenue from previous years and want to make a correction.

Changes in Use

In certain circumstances, according to the CRA, you can be considered to have sold all or part of your property even if you didn’t actually sell it. This can occur if:

  • You change all or part of your principal residence to a rental or business operation.
  • You change your rental or business operation to a principal residence.

Every time you change the use of a property, for example changing all or part of your principal residence to a rental or business operation, you’re considered to have sold the property at its fair market value and immediately reacquired the property for the same amount. You have to report the resulting capital gain or loss for the year of the change.

If the property was your principal residence for any year you owned it before you changed its use, you don’t have to pay tax on any gain relating to those years. You only have to report the gain that relates to the years your home wasn’t your principal residence. Consult with your accountant about your situation.

Also, keep in mind that your mortgage lender may require you to inform it if you plan to occasionally rent out your home. Moreover, if you’re renting an apartment or condo, you’ll want to check with your landlord or the rules of the condominium corporation. You also should check provincial and other laws to about whether you can legally rent out space in your home, apartment or condo.

Learn more about the “Non-Resident Speculation Tax” (“NRST”) introduced in Ontario April 21, 2017

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2017 Ontario Provincial Budget Commentary

Our tax team presents an analysis of the Ontario provincial budget released on Queens Park on April 27, 2017.

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Regulators Keep Tight Reins on Corporate Behaviour

lores_business_man_building_street_walk_corporate_AMCanadian securities regulators are serious about corporate transparency and the need to maintain investor confidence in capital markets.

To achieve that objective, the regulators follow one set of rules in all provinces and territories and they apply to public companies, income funds, limited partnerships and some other entities. While the guidelines are voluntary – aimed at allowing business to tailor governance to their specific situations — companies that don’t comply with the disclosure rule will be breaking securities law and could face enforcement proceedings, as well as sanctions.

The governance guidelines set out a series of recommended best practices, including:

  • Maintaining a majority of independent directors on the board.
  • Appointing an independent chairman of the board or lead director.
  • Holding regularly scheduled meetings of independent directors without the presence of non-independent directors and management.
  • Adopting a written board mandate.
  • Outlining board responsibilities such as reviewing and showing satisfaction with the integrity of the company’s top officers and their efforts to develop a corporate culture of integrity.
  • Approving strategic plans at least once a year; actively taking part in succession planning; and overseeing internal controls.
  • Developing job descriptions for the board chairman, the chief executive officer and board committees.
  • Providing each new director with a comprehensive orientation, and all directors with continuing education opportunities.
  • Adopting a written code of conduct and ethics that deals with: conflicts of interest; protection of corporate assets; fairness toward shareholders, customers, competitors and employees; confidentiality; legal compliance, and ways to report illegal or unethical behaviour.
  • Appointing a nominating committee and a compensation committee composed entirely of independent directors.
  • Adopting a process for determining the competencies and skills of the board as a whole and applying this to the recruitment of new directors.
  • Assessing on a regular basis the board’s own effectiveness, as well as the contribution of each board committee and individual director.

Under the disclosure rule, companies must file a Corporate Government Disclosure Form with the provincial or territorial securities commission that requires information about each recommended governance practice, including:

  1. Information about the independence of directors and the names of other boards they sit on.
  2. Disclosure of whether the independent directors hold separate meetings and an explanation if they don’t.
  3. Disclosure of whether the board has adopted the recommended governance policy and if not, how their governance practices differ from the recommended standards and why that is appropriate to the company’s circumstances.
  4. Descriptions of the policies in effect and how they achieve the desired governance goals.

Companies are also required to file a copy of their ethics and conduct code (or any change to it) on the System for Electronic Document Analysis and Retrieval (SEDAR) by the date on which the issuer’s next financial statements must be filed.