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Get the Most Tax Benefit From Your Charitable Spirit

The airwaves and your mailbox are probably filling up with messages of altruism — or they will be soon. The holidays are on their way and so are charities’ pitches for donations.

And many of us will heed the calls. The latest World Giving Index puts Canada in sixth place globally in overall generosity. The survey tracks donations of money, time and random generosity to strangers. Compiled by the United Kingdom’s Charities Aid Foundation, a registered charity, the index ranks Canada 11th in terms of donations, above the United States (13), but below high-giving countries such as Myanmar (1), Australia (3), New Zealand (5), the UK (7) and Ireland (10).

111116_thinkstock_187068179_lores_kwAccording to the most recent Survey of Giving, Volunteering and Participating by Statistics Canada, 82% of Canadians age 15 and older gave money to charities in 2013. Overall, Canadians gave $12.8 billion to charitable or non-profit organizations that year.

And in a new twist, technology continues to change the donation landscape, at least when it comes to Millennials. A recent Charitable Giving study by Capital One Canada found that Millennials are more likely to donate to charities that offer digital payments (53%), and are more likely to trust charities with a strong digital presence (50%).

Many people do respond to year-end appeals, which is why many charities make them. And of course, many donors claim the available tax breaks. If you count yourself among the philanthropic Canadians, there are a few issues to understand before you click “Donate Now” or write a cheque.

At the top of the list is whether your charity of choice is registered. Only charities or qualified donees that are registered with Canada Revenue Agency (CRA) can issue the receipts you need to claim tax breaks.

Once you’ve chosen a charity, there are other issues to consider. Here are seven of them:

1. Donations are credits, not deductions. You’ve probably heard that you can take deductions for your charitable donations. In reality, your gifts qualify for a nonrefundable tax credit.

You aren’t required to claim donations in the year you make them. You can reach back as far as five years to use unclaimed donations and carry them forward for as long as five years.

In addition, the CRA has ruled that as an administrative practice, taxpayers can initially choose which spouse or common-law partner will report a donation or gift and can subsequently transfer any carry-forward balances from one to the other.

While you may not think you donate enough to merit a strategy, keep in mind that even small amounts can add up to significant tax savings over time. Generally, you can get a credit for all donations to registered charities for as much as 75% of your net income. In the year of death (and going back one year), the limit is 100% of net income. The limit also is 100% of net income for certain gifts, such as ecologically sensitive land and cultural property.

In addition, if you haven’t donated before, you’ll get a supplemental credit: the First-Time Donor’s Super Credit. This adds 25% to the rates used in calculating the credit for as much as $1,000 in donations.

The tax break currently is available through 2017 for individuals and their spouses who haven’t claimed a tax credit since 2007.

It is calculated as the total of the:

  • Lowest income tax rate for a year multiplied by the first $200 of charitable donations, and
  • Highest income tax rate for the year multiplied by the portion of the donations claimed that exceeds $200.

2. Give publicly traded shares and stock options. If you donate certain types of capital property to a registered charity or other qualified donee, you may be eligible for an inclusion rate of zero on any capital gain realized on the gifts. Qualifying property includes:

  • Shares of the capital stock of a mutual fund corporation,
  • Units of a mutual fund trust,
  • Prescribed debt obligation (for example, government savings bonds),
  • Ecologically sensitive land (including a covenant, an easement, or in the case of land in Quebec, a real servitude) donated to a qualified donee other than a private foundation where conditions are met, and
  • Shares, debt obligations or rights (for example, security stock options) listed on a designated stock exchange.

For donations of publicly traded securities, the inclusion rate of zero also applies to any capital gain realized on the exchange of shares of the capital stock of a corporation, subject to certain conditions. In cases where the exchanged securities are partnership interests, a special calculation is required to determine the capital gain.

If you didn’t receive an advantage for your donation, the full amount of the capital gain is eligible for the inclusion rate of zero. If, however, you received or are entitled to an advantage, only a portion of the capital gain is eligible for the inclusion rate of zero. The remainder is subject to an inclusion rate of 50%.

Check with your charity about how to make such gifts. For more information, consult with your tax advisor.

3. Combine spousal donations. Donations made by one spouse or common-law partner can be claimed by either one. To maximize the credit, lump your donations together for a larger credit.

Also, some or all of your donations may be carried forward for up to five years. This may allow you to take advantage of the higher credit for donations exceeding $200. Consider carrying forward donations made in low-income years, or in years when other credits are used. If donations exceed the 75% net income limit, save some for future years. When it comes to the Super Credit, you and your spouse or common-law partner can share the claim, but the total combined donations claimed can’t be more than $1,000.

4. Donate in kind. The CRA allows tax credits for gifts of property, but not for services. Common items include:

  • Valuable art,
  • Antiques,
  • Clothing,
  • Toys,
  • Household goods, and
  • Food.

5. Donate special items. There are special rules for donations of cultural gifts, and for artists who donate their work. Talk with your advisor.

6. The system is two-tiered. To encourage donations, the federal and provincial governments have set up a two-tiered tax credit system. First, you add up your donations and then:

  • The first $200 qualifies for a tax credit at the lowest tax rate. When the federal and provincial programs are combined, you cut your taxes by about 25% of the amount of the donation (the exact amount varies by province).
  • Any amount exceeding $200 qualifies for a credit at the highest tax rate. For this donation, you save about 45% in taxes, depending on your province.

7. Receipts are essential. Keep your receipts and be sure they are signed on behalf of the organization and have the charity’s name and registration number, date, serial number, amount donated and donor’s name. They also should have the URL of the CRA (www.cra-arc.gc.ca/charities).

If you file your taxes the old-fashioned way, on paper, your tax advisor may ask for your receipts. If you file electronically, save them in case the CRA asks for them later.

Receipting carries certain administration burdens, so a charity may choose to issue receipts according to certain criteria or not to issue receipts at all. Some registered charities set minimum donation thresholds for receipting. Others don’t provide receipts during certain fundraising events, but don’t hesitate to ask for one.

If you donated to an employee charitable trust, or through your employer as an agent of a registered charity, your T4 slip (Statement of Remuneration Paid should show your total donations for the year. In these situations, the CRA accepts your T4 slip as your official receipt for income tax purposes.

If you plan to donate this or any other year, and you have questions, consult with your advisor to help ensure that you maximize the benefits.

Segal LLP is Excited to Announce Three New Senior Team Members

segal-team-imageHoward Wasserman, CPA, CA, CFP, TEP – Principal, Taxation
(Click Here for bio)

Vern Vipul, LL.B., M.Tax – Associate, Indirect Tax
(Click Here for bio)

Susan Hamade, CHRL – Director of Operations
(Click Here for bio

SMEs Fall Short in Tapping International Market

102716_thinkstock_517711792_lores_kwCanadian small and medium business enterprises (SMEs) largely aren’t tapping into the markets abroad, other than the United States, even though they concede that exports are a key factor to remain competitive in a global market.

SMEs are keen to do business abroad, according to the sixth annual Small Business Challenge survey by United Parcel Service (UPS) Canada. Of 300 respondents in the survey, only 43% are doing business with countries outside of Canada and the U.S., although 61% said they hope to do business in Europe, while 42% are eyeing South and Central America.

“It’s important for [SMEs] to recognize that continued growth relies heavily on expansion, and international exports are key contributors to success,” said Paul Gaspar, director of small business, UPS Canada. He added: “Canadian and international governments are focusing on the easy exchange of international goods. Today, three-quarters of Canadian SMEs recognize that Canadian Free Trade Agreements create opportunities within foreign markets by reducing trade barriers.”

The survey revealed that 76% of Canadian SMEs exporting to international markets consider their websites as their main commerce channel. Facebook pages came in second, with 41% saying they used that social media tool for business.

More Highlights

Other highlights of the survey include:

  • 39% of SMEs don’t have a supply chain in place, and 9% of those said they weren’t sure where to find or how to create one.
  • 52% have a supply chain strategy, and 42% of those have a third-party partner.
  • 74% said they had met or exceeded their business goals, of which 25% attributed it to the low Canadian dollar and 20% cited a boost in e-commerce and expansion to foreign markets.

According to UPS, the products of Canadian SMEs are sought after internationally because of their quality, the reputations of Canadian companies and the low exchange rate of the dollar.

8 Tips

If you are interested in taking advantage of this by starting to export, here are eight tips to consider:

1. Plan your strategy. You need a detailed plan that includes a thorough risk assessment. It’s also important to ensure your business is equipped to handle the demands of international trading.

2. Choose a target niche early on. Import/export activities cover such a vast range of industries that new companies can benefit from focusing on a single target at first for experience and to establish a reputation.

3. Make contacts. This is likely the most important step. You may have relatives in a foreign country who can help or you may have frequently visited and established business relationships in a country. Sometimes you just have a feeling for what will sell in certain countries.

If you are starting from scratch, foreign consulates are a good place to start, and they can help you find out about a company’s solvency and reputation. And of course, the Canadian and International Chambers of Commerce, as well as the chambers of every city you’re aiming for, can help establish contacts.

Another, albeit time-consuming, step is to compile lists of all foreign and domestic businesses in your chosen niche and begin a direct sales and marketing campaign. Place calls, send emails and mail marketing materials directly to sales and purchasing managers in each company, and follow up on all conversations and agreements.

4. Find a local mentor or investor. This person can help guide you to understand the culture and the local consumer. If you don’t know one right off the bat, look to colleagues who might be able to connect you with others that are located in the country. You could also look at reaching out to local business networks or researching online for websites that specialize in expats living in the country in which you are looking to set up shop.

5. Determine your contacts’ needs. Compile a list of all the companies that expressed an interest in doing business with you in the previous step. Contact the purchasing and sales managers in each company to discover which products they have to offer to foreign buyers if you want to import and which products and materials they wish to purchase from a foreign source.

6. Develop a supply chain. Effective management of your supply chain is critical. When the supply chain plan is in sync with other operational plans within the company, the entire process of receiving and shipping products runs more smoothly. Build your supply chain plan in tandem with other senior managers to develop the most effective and efficient plan.

In simple terms, supply chain management is the coordination of all your activities related to filling client orders, from preproduction to delivery of the product. During this process, components of the product will change hands many times, from your suppliers to manufacturing, to storage, to shipping and, eventually, to the point of delivery and consumption.

7. Adapt to the local culture. In some countries you’ll need to customize your product or service to meet local customers’ tastes. At the very least, you’ll need to put your marketing message in the local language and make sure the meaning translates correctly.

8. Know your tax responsibilities. All roads lead to taxation. You’ll need international tax or legal counsel to identify which jurisdictions require sellers to be responsible for collecting sales taxes and which jurisdictions subject them to income taxes. Most U.S. states impose a sales tax on goods and/or services sold in that state.

Similarly, the European Union’s value-added tax (VAT) is imposed on certain services and goods sold to customers located in the member states of the European Union. Each member state may have different VAT rates, and different tax rules apply to sales of goods and provision of services.

Because in a typical e-commerce transaction, a seller based in one state frequently conducts business with a customer located in another state or a foreign country, the common issues are which tax laws of which state or country will apply. The federal, state and international tax laws applicable to Internet transactions are still evolving and can be complex and confusing.

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

Caution Is the Rule in Naming RRSP Beneficiaries

Selecting beneficiaries of your registered retirement plans is one of the most important financial decisions you will make, and with a little thought you can maximize the benefits to your heirs by deferring taxes and keeping the assets out of probate and away from creditors.

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Review and Revise

Review your Will and other estate documents often to ensure that all the paperwork is consistent or problems can arise.

For example, say you name your daughter the beneficiary of a particular RRSP. You later make out a Will leaving all your RRSPs to all your children, but you leave your daughter’s name on that one plan. A Will can generally override an RRSP or RRIF beneficiary on file at a financial institution when the Will was prepared or updated at a later date. That is an unintended consequence of failing to review and compare documents periodically.

When you have more than one plan, it’s a good idea to list in your Will the number of each, the institution holding it and the intended beneficiaries to help avoid confusion and potential contention.

The most important action is to actually name someone to receive the assets from your Registered Retirement Savings Plans (RRSPs) and your Registered Retirement Income Funds (RRIF). Otherwise, the plans automatically go into your estate, which pays taxes that can devour as much as half the value of the assets.

Your estate will also have to pay probate fees and the assets become subject to creditors’ claims. (See right-hand box for other potential complications to avoid.)

When considering your registered plans it is critical to note that if non-dependent children or others are left plan assets in your Will, the full value will be taxed as income in your final return and only then will they receive their share of the estate.

Tax-Deferring Strategies

You can defer taxes if your beneficiary is:

  1. Your spouse or common-law partner, or
  2. A financially dependent child or grandchild who is either under the age of 18 or is mentally or physically infirm.

When you name your spouse or an infirm dependent, the assets are simply rolled over into the person’s registered plan, including a Registered Disability Savings Plan (RDSP). With an infirm beneficiary, the assets can also be used to purchase an annuity.

Spousal rollovers don’t use contribution room, but RDSP rollovers reduce the lifetime contribution limit of $200,000 and don’t generate a federal contribution.

Healthy financially dependent minors have the sole option of purchasing an annuity that must mature when they turn 18. The annual payments will be taxable.

In all these cases, the beneficiaries will pay taxes on plan withdrawals or annuity payments.

Successor Annuitants

Your options widen a bit when you name your spouse or common-law partner beneficiary of your RRIF. You can:

  1. Name your spouse the “successor annuitant,” where he or she simply starts receiving the payments.
  2. Arrange a lump sum payment. The fund will be collapsed, the investments sold and the proceeds rolled over into the spouse’s RRSP or RRIF. Among the disadvantages of this option is that the timing of the collapse may not be the best for selling the assets and there will be management fees.

Other Beneficiaries

Estate: It may make sense to name your estate the beneficiary if you want to:

  • Spread the tax liability among all your heirs;
  • Distribute assets to several people in different amounts;
  • Impose conditions on an heir in order to receive the assets, and
  • Hold the assets in trust.

Charity: You can name a registered charity and receive a tax credit of as much as 100 per cent, which can effectively eliminate taxes on your final return. You can instruct the charity how to distribute the assets through a Letter of Direction.

These are just some of the complexities involved in choosing beneficiaries for your registered retirement plans and minimizing taxes on your final return. Your accountant can guide you through the maze of estate planning.

Boost Company Success with Performance Measures

lores_project_plan_chart_progress_milestone_strategy_amIf you own a small business, you might consider incorporating performance measures to help it grow and become more successful.

Performance measures comprise aspects of your business that answer a basic question: “What key procedures or operations need to change to ensure our company’s continued success?”

Walmart is a good example of effectively using performance measurements. The company determined that to be competitive it had to streamline purchasing, lower costs and maintain top notch customer service.

The company started using satellite transmission technology to purchase directly from suppliers. That reduced purchasing costs and allowed Walmart to hold just enough inventory to serve its customers’ needs regularly without the cost of maintaining excess stock.

The company also created and hired the famous “people greeters” who welcomed customers as they walked into the stores. The tactics worked — the company successfully trimmed costs and improved customer satisfaction.

Take some time to review the processes that are critical to the success and continued operation of your business. Assess where your business operations can be improved. Most performance measures fall into one or more of the following categories:

Effectiveness: How well does the product conform to company and customer requirements?

Efficiency: How well does a process produce the required output at a minimal resource cost?

Quality: How well does a product or service meet customer needs and expectations?

Timeliness: Are units of work done properly and on time? You will need to define timeliness for discrete units of work, typically based on customer needs.

Safety: How do you rank the overall health of the organization and the working environment of its employees?

You may need to develop additional or different categories depending on the industry your business operates in and its mission.

While this may sound complicated, the process starts out quite simply with these two steps:

  • Review and evaluate how your business is functioning. As the owner you may be too close to the company to be objective about its strengths and weaknesses, so consider consulting with employees and customers for a more objective and accurate assessment.
  • Develop a clear vision of where you want the company to go. Part of this is determining whether you want a company that can simply provide you with a good standard of living in retirement or one you can pass on to your heirs who can expand the business and help it keep up with changing customer needs.

Write down your observations. Many managers understand the direction the company should take but never take the time to record it. Documenting the vision clarifies what the business is for both the employees and the customers. A good company vision can be explained in one sentence. Beauty products company Avon, for example, states it this way: “To be the company that best understands and satisfies the product, service and self-fulfillment needs of women – globally.”

Being aware of the gaps between what the company is now and what you want it to be in the future is critical to determine what actions you need to take. The processes you need to focus on could range from sales through production, but you must know what they are before you can work on closing the gaps between current operations and the future you hope for.

Most successful companies use performance measurements to stay on track and meet their visions and goals. Consult with your managers and advisers to help you measure and monitor key processes and areas at your company.