Author Segal LLP

Keep an Eye Out for Abusive Entitled Employees

thmb_office_staff_silhouette_black_white_gold_bzWhen Communication Can Backfire

If you think there’s been an increase in employees with an entitlement mentality at your company, you may be right. It’s a trait that seems to be more prevalent as increasing numbers of Millennials (also called Generation Y) enter the workforce.

Up and Coming

Management Generation

Just ahead of Gen Y is Gen X, the group that will succeed Baby Boomers as managers over the next several years.

So how does that generation compare to current management? Research shows that Baby Boomers outrank them in business knowledge, are more likely to apply functional and technical expertise on the job, and are better at coaching, assisting personnel development and managing project execution.

But the Xers have the upper hand when it comes to analysis, strong work commitment and the inclination to strive to self-improvement. Some predict that Generation X managers will complete a shift to a more collaborate style of management that tries to generate a collective buy-in to achieve goals.

Baby Boomers are still mostly in charge, but in many ways, they feel disillusioned by the changes they see in younger workers. They see younger workers treating jobs as though they were both an entitlement and disposable.

Those same younger workers see older managers and supervisors as rigid and wonder why, in this increasingly mobile world, they remain in jobs that are no longer satisfying.

And this can create friction on the job. Research shows that employees with a sense of entitlement have overblown views of their abilities and the recognition they should receive. These “entitlement-minded” individuals can create numerous problems for co-workers and supervisors. They are also likely to abuse their colleagues and suffer from job frustration.

These psychologically entitled employees tend toward:

  • Unethical behavior and conflict with supervisors;
  • High pay expectations;
  • Low job satisfaction, agreeableness, agreeableness, emotional stability and empathy;
  • High levels of turnover intent; and
  • Self-centered behavior.

Exacerbating the problem: Trying to communicate more with these employees is the wrong approach. In fact, it can backfire. Trying to improve the entitlement-minded employees’ behaviour by increased communication and feedback may aggravate their frustration and abusiveness.

On the face of it you would think the most effective approach would be to boost the frequency of evaluations and amount of job-related information. But this can have the opposite effect and increase the job-related frustrations reported by these employees.

Why? Because evidence suggests that psychological entitlement is a perception that can distort the messages conveyed in supervisor communication. Thus, these employees can perceive evaluation as criticism, reject any information that doesn’t match their entitled worldview and perceive high levels of supervisor attention as a reaffirmation of their value.

How do you spot psychologically entitled individuals among your employees and potential hires? Look for people who:

  • Exhibit a tendency to take credit for good outcomes and blame others when things go wrong.
  • Act as if they are generally superior to their coworkers.
  • Perform a variety of jobs with different challenges and skills and vocally affirm that they were valuable contributors to each, even if actual performance doesn’t support the claims.
  • React negatively when they do not receive the praise and annual raises they think they deserve.
  • Feel unappreciated and ultimately unmotivated when they receive rewards commensurate with their actual efforts and abilities.

And how do you deal with them? Here are six practical suggestions and insights:

1. Remove as much ambiguity as possible. Document who performs specific tasks so credit and blame are accurately placed;

2. Ensure clarity about who is responsible for what;

3. Guard against behaviours that smack of “office politics” by entitlement-minded employees;

4. Keep an eye out for abusive behaviour and take steps to prevent it;

5. Consider if it would be cost-effective and successful to send entitled employees for professional counseling and coaching; and

6. Fire the errant employees if you determine that there is no solution to the problem that is not too costly in terms of time and money.

Use Your RRSP to Lend Yourself a Tax-Deductible Mortgage

012017_Thinkstock_144318112_lores_KWAre you mulling how much to contribute to your Registered Retirement Savings Plan (RRSP) this year and wondering if you could get a bigger return than you get from mutual funds or GICs? There might be a strategy you should consider.

For many, mutual funds are well-suited to their savings strategies. They generally provide a reasonable rate of return. However, for others, there may be an option that potentially sidesteps the risks of market volatility, increases savings, provides deductible debt and even lets you exceed your usual contribution limits. It’s complicated, so consult with your tax advisor, if you think the plan might work for you.

Tax Deductible Debt

The strategy also allows you to take on tax deductible debt. Normally, mortgages fall into the category of debt-bearing interest that can’t be deducted from taxes. Typically, over the term of the loan, most end up paying thousands of dollars in interest to the lender. If your RRSP is large enough, you can lend its capital to yourself to finance a mortgage inside a self-directed RRSP and pay yourself that interest, which provides a healthy fixed-income return. You earn the interest as you repay the principal of the mortgage to yourself. That keeps the cash working even as it’s being paid back.

The first two steps in this strategy are:

1. Set up a self-directed RRSP, and

2. Put the mortgage into the plan.

Your self-directed RRSP may hold a mortgage on any residential or commercial property in Canada that you own, provided:

  • You have cash or cash equivalents in your RRSP that equal the amount of the mortgage.
  • A lender approved by the National Housing Act administers the mortgage (the lender will charge fees for the service).
  • The mortgage interest rate and other terms and conditions reflect normal commercial practices.
  • The mortgage is insured either by the Canada Mortgage and Housing Corporation (CMHC) or by a private mortgage insurer.

However, while the mortgage is insured, you can’t miss a payment or two even though you’re borrowing your own money. Failing to make payments means the administering financial institution could place the mortgage into default and sell the property.

Instead of using the cheapest interest rate, like the one you’d want to get from your financial institution, you can pick the posted rate because you want to pay as much interest as you can to yourself. Posted rates are generally double the current returns on guaranteed investment certificates (GICs) and non-high-yield bonds.

How it Works

Let’s say you have a $200,000 mortgage and the same amount in your self-directed RRSP. The money in the plan can be used to pay off the mortgage lender and you then start making regular mortgage payments to your RRSP — in other words, to yourself.

If your mortgage is paid off, you might want to borrow $200,000 on a home equity loan and spend that money on some conservative investment that will yield a stable rate of return in a non-registered investment portfolio. You then take $200,000 from your RRSP to pay off the equity loan.

In the end, you:

  • Set up an investment portfolio outside your RRSP without paying any tax, and
  • Make what amounts to a tax-free transfer of equity into your RRSP.

So, if you set up an RRSP mortgage with a 25-year amortization period and you are paying yourself back $1,400 a month, you’ll eventually contribute $420,000 to your RRSP, more than twice what you took out.

That may result in paying more than the normal allowable RRSP contributions. Generally, your contribution limit is based on your annual income. But because your RRSP holds the mortgage, you must make those regular monthly payments into the RRSP regardless of what your annual income is.

Another point to keep in mind: If you borrow money on a home equity loan to invest outside your RRSP, the interest on that loan is tax deductible. If you borrow money to put into your RRSP, you can’t deduct the interest.

Cost Considerations

When considering holding your mortgage in a self-directed RRSP, there are several financial considerations to discuss with your tax advisor:

  • Compare the rate of return on the mortgage — taking into account the one-time and annual costs associated with holding the mortgage — to the rate of return on an alternative investment.
  • The strategy requires opening a self-directed RRSP.
  • There are set up, appraisal and legal fees, as well as the cost of the mortgage insurance premium. That can range from 0.6% to 3.85% of the amount of the mortgage (these rates are scheduled to rise in March, reflecting the new regulatory capital framework for mortgage insurers that came into effect on January 1, 2017).
  • The premium depends on the loan-to-value ratio of the mortgage and is calculated on the total mortgage amount no matter how much money you have in your RRSP.

The longer the amortization period, the more you put into the RRSP. However, you could make your RRSP mortgage “open,” meaning you can pay it off at any time without penalty. This tactic comes at a premium rate, so you wind up paying more interest. The same applies if you create an RRSP mortgage as a second mortgage on your home.

This strategy is complex and doesn’t make financial sense for everyone. Your advisor can help you to determine if this retirement savings tactic is in your best interests.

Owning Vacation Property in the U.S. Is a Complex Proposition

011317_Thinkstock_538452657_lores_KWIt’s about that time of year when Canada’s snowbirds are enjoying warmer weather in southern parts of the United States and may be thinking about whether to buy a permanent vacation home there. They may want to rent it out for part of the year or sell the U.S. property they own. Other Canadians like skiing and skating they can do here in the winter and prefer to vacation south of the border during the spring and summer where the warm weather may start earlier and last longer.

In any case, it’s important to understand the tax implications of owning or selling a home in the United States.

First off, if you plan to buy and want a mortgage, be prepared for a complicated process.

Typically, the process involves:

  • Completing a mortgage application,
  • Accessing your Canadian and/or U.S. credit history and having it reviewed,
  • Gathering income and asset documents,
  • Ordering and obtaining documentation for an appraisal and title search, and
  • Preparing closing documents.

It generally it takes as long as 45 days to get a home loan (it can last as long as 60 days if there are minor credit or income verification issues, and 75 days if there are difficulties with title transfers, missing documentation or insufficient appraisal values).

Typically, you’ll need to put down at least 20% of the value of the home. You’ll be asked to provide information and documentation about the source of the down payment. To avoid delays, it’s critical that once you’ve deposited your down payment into your banking account, it remains there.

Related Costs

The costs associated with obtaining a mortgage in the United States can be higher than in Canada, due largely to the third-party services needed to complete the process. There are standard application and transaction settlement fees for such services as property appraisal and title search. On average, expect to pay from 3% to 5% of the selling price in fees.

In addition, U.S. mortgage interest is compounded monthly, while in Canada it is compounded semi-annually. If you decide to become a permanent resident of the United States, interest payments may be tax deductible on the U.S. tax return you’ll be required to file.

And keep your eyes open for the foreign national premium. Many U.S. banks charge Canadians this premium, primarily due to a lack of information on the prospective mortgagee’s credit history. It can add 1% to 3% to your mortgage rate.

Rental Income

Many vacation property owners rent out vacation property when they aren’t occupying it. This rental income may be taxed in both countries. As a Canadian, you’ll have to comply with relatively complex U.S. income tax laws and reporting requirements. You may choose one of the following two options:

The United States tax rules that apply to ownership of U.S. real estate by foreign persons are different from the rules that apply to Americans. Canadian residents receiving rental income from U.S. real estate are usually subject to a U.S. withholding tax of 30% of the gross income. However, an alternative is to choose to pay tax on the rental income on a net basis. If you choose that option, you’ll have to file a tax return with the Internal Revenue Service (IRS) reporting your net rental income. That’s done by making this election with the IRS and providing appropriate information to the tenant. This election is permanent and can only be revoked in limited circumstances.

Don’t assume that because expenses exceed rental income you won’t have to file a tax return or have tax withheld. The IRS requires that a withholding agent (such as a real property manager who collects the rent on your behalf) be personally and primarily liable for any tax that must be withheld from the rental income. If you fail to file a timely tax return, the agent will be liable for the amount due as well as interest and penalties. In addition, you’ll no longer be able to claim deductions against the rental income causing the gross rents (instead of net rents) to be subject to the 30% tax.

Mandatory Depreciation

In addition, unlike Canadian tax rules, depreciation is a mandatory deduction in the United States. If you don’t file a tax return, you’re still deemed to have claimed depreciation and could be subject to recapture. Failure to file a return also reduces your ability to carry forward passive activity losses. As a result, on a subsequent sale of the property, you’d have a taxable income inclusion in the form of recapture with no offsetting loss carry-forward.

In Canada, of course, you’ll pay graduated federal taxes on worldwide income, including revenue from your U.S. property after deducting applicable expenses. You can generally claim a foreign tax credit on your Canadian taxes for the U.S. taxes you pay.

Selling the Property

The general rule is that the agency closing the sale withholds 10% of the gross sales price and remits it to the IRS. This is simply a withholding that the IRS will apply against the tax payable on any capital gain. There are a couple of exceptions:

1. The withholding doesn’t apply if it is sold for less than US$300,000 (C$393,000) and the purchaser intends to use the property as a residence, and

2. You can apply to the IRS to have the withholding tax reduced if the expected tax on the transaction will be less than 10% of the sale price.

Any gain on the sale is taxable and you must file a tax return with the IRS. If the tax is less than the amount withheld, you’ll receive a refund for the difference. The U.S. tax you pay generates a foreign tax credit that can be used to reduce your Canadian tax liability. If you’ve owned the property continuously since before September 27, 1980, for personal use only, there’s a provision in the Canada-US tax treaty that can be used to reduce the gain. Consult with your tax advisor.

Canadian Taxation

As a Canadian resident, you must report and pay tax on your worldwide income. This includes capital gains realized on the sale of U.S. real estate, which are taxed at 50%. You can reduce your gross sales price with deductions for broker commissions, closing costs and attorney’s fees. After those deductions, you’re left with the capital gain. The gain will be calculated in Canadian dollars so the actual capital gain or loss reported would include a foreign exchange component in addition to any change in the U.S dollar value of the property.

Again, you can claim a foreign tax credit for the U.S. income tax paid on the sale.

Any home you own, including in the U.S., can be designated as your principal residence for each year in which you, your spouse or common-law partner, or your children were residents in Canada and ordinarily lived in it for some time during the particular year. That allows you to claim the principal home exemption.

Capital Gain

If you’re unable to designate your home as your principal residence for all the years you owned it, a portion of any gain on sale may be subject to tax as a capital gain. The portion is calculated using a formula that takes into account the number of years you owned the home and the number of years it was designated as your principal residence.

The principal residence exemption formula is:

Number of years the home is the principal residence, plus one, times the capital gain divided by the number of years the home is owned.

The extra year in the top of the equation (the “one-plus rule”) means that when you move, the old home and new home will be treated as a principal residence in the year of the move, even though only one of them can actually be designated as such for that year (for sales after October 3, 2016, the “one-plus” factor applies only when you reside in Canada during the year you buy the property).

So, say the following holds true:

  • You own the home for 20 years,
  • It has been your principal residence for 14 years,
  • The capital gain on the sale is $100,000, and
  • You lived in Canada when you bought the property.

The exemption amount = ([14 + 1) = 15 times $100,000] / 20 = $75,000, leaving a capital gain of $25,000, and a taxable capital gain (50%) of $12,500.

This article only covers some of the complex rules that come into play when you own real property outside Canada. Consult with your advisors so you comply with all the laws and requirements.

Get Healthier Kids and a Tax Break

Fitness in Canada has both health and tax benefits, so while your children are skipping, biking or swimming in a fitness program, you can take a non-refundable tax credit of as much as $500.


Club Memberships

If your child joins a club or other organization for two months or more you can claim the fitness tax credit on your tax return if:

  • More than 50 per cent of the programs available to a qualifying child as a result of membership are eligible programs, or
  • More than 50 per cent of available time is devoted to eligible programs for qualifying children.

For example, membership in a local boys and girls club entitles each child to participate in a wide range of programs, some of which are eligible, such as a biking club, weekend hip hop dances, open swim or gym or a ski club. Other programs not eligible for the credit would include career planning, board games or a reading club.

A receipt for the full amount of the annual membership cost can be issued if more than 50 per cent of the programs qualify. A receipt for the full annual membership fee paid can also be issued if more than half of the club’s scheduled program hours is devoted to eligible programs.

If neither of the 50 per cent tests are met, a receipt can be issued for a pro-rated amount.

Cost of Uniforms

Often a portion of the registration or membership fee is attributable to the cost of equipment or uniforms that are provided for use during the program.

At the end of the program, the equipment or the uniforms normally have little or no resale value, in which case the portion of the registration or membership fee attributable to their cost will be included in the eligible fitness expense.

In other situations, in addition to paying registration or membership fees, you may purchase uniforms or equipment from third-party suppliers or through the organization offering the program.

In these situations, the purchase price for the uniforms or equipment will not form part of the eligible fitness expense.

To claim the Children’s Fitness Tax Credit your child must be under the age of 16 at anytime during the year and be involved in a program that provides a “considerable amount of cardiorespiratory activity”, as well as training in muscular strength, balance, or flexibility. The credit is being eliminated for taxation years after 2016.

Calculating the Credit

You calculate the non-refundable credit by multiplying the eligible amount in fees by the lowest marginal tax rate. (A non-refundable tax credit means you must have income which you can apply the credit against.)

The fees must be paid in the year of the tax return.

If you paid a family membership to a qualifying program, the amount of the fee that is attributable to eligible children will qualify.

Program Eligibility Requirements

There are a variety of fitness programs eligible for the credit, including hockey and soccer, karate, football, basketball, folk dancing, swimming, hiking, horseback riding and many sailing activities. For other programs, the CRA may determine their eligibility on a case-by-case basis, but generally a physical activity program must:

  • Be supervised.
  • Be suitable for children.
  • Last a minimum of eight weeks, with at least one session a week (children’s camps must last five consecutive days and devote more than 50 per cent of program time to physical activity). For children 10 and younger, activities must last for at least 30 minutes; those for older children must last at least an hour.

Exceptions to the credit include:

1. Fees charged for regular school physical education programs, although fees charged for extracurricular programs at a school are eligible.

2. Recreational activities involving motorized vehicles (such as automobiles, motorcycles, power boats, airplanes and snowmobiles).

3. If your child registers for a golf club or organization that sponsors more than just physical activities, only the portion of the membership fee that is activities-based is eligible.

4. If fees include accommodation, travel, food, or beverages, that portion must be deducted when calculating the tax credit.

So let’s say you send your child to a hockey camp and pay a $700 registration fee for the one-week program. The camp provides hockey pucks, jerseys and goalie nets that are retained by the organization at the end of the program. The $700 fee you paid includes $200 for accommodation and $150 for meals.

The portion of the fee that is eligible for the credit is $350 ($700 minus $200 minus $150).

Unlike other tax credits, to claim the fitness credit you must have a receipt that includes:

  • Name and address of the organization
  • Name of the program
  • Total amount paid and the eligible amount
  • Date paid
  • Your name as payer
  • Your child’s name and date of birth
  • An authorized signature if the receipt is not produced electronically
  • The statement “This program qualifies for the Children’s Fitness Tax Credit.”

While it is not necessary to submit this receipt with your tax return, you should keep it for six years in the event that Canada Revenue Agency (CRA) wants to verify your claim.

Children With Disabilities

The age limit is higher for children with disabilities. You can claim the credit for a child with a disability who is under the age of 18 and eligible for the Disability Tax Credit. And there is a separate $500 non-refundable credit for eligible children with a disability subject to spending a minimum of $100 on registration fees for an eligible program.

This additional amount, according to the Department of Finance, “provides general recognition of the extra costs that children with disabilities encounter in becoming involved in programs of physical activity, notably with regard to specialized equipment, transportation and attendant care.”

While fitness programs can be costly, they are usually beneficial for your children. Talk to your financial advisor about how you can offset some of the expense by taking advantage of this credit.

Checklist for a Successful Sales Flight

thmb_transportation_jet_airplane__bzSuccessful sales transactions don’t happen by accident and they aren’t based on luck.

Top sales people are prepared for the expected and the unexpected, which means knowing what prospects are looking for and exceeding their expectations. Accomplishing that takes proper planning and a final examination of the factors involved in the sale.

So take a tip from pilots. Have a “pre-flight” checklist. Before every sales call, go though it completely. This proactive step reduces the chance of failure and increases the chance you’ll come back with a deal.

Take a look at our checklist to get started. You might want to add factors that specifically suit your product or service, industry, or your sales prospect.

Yes No  Checklist for a Successful Sales Call
Is the prospect qualified?


Have you confirmed the appointment?


If you are driving to meet the prospect, do you have the correct directions? Do you know how long it will take to arrive on time – or preferably, 10 or 15 minutes early?


Have you organized the necessary materials, including brochures, business cards, sales aids and other information?


Do you know the prospect’s culture and environment?


Do you understand the prospect’s business structure and industry?


Do you understand what drives the prospect’s business and competitive environment?


Do you understand the dynamics behind the prospect’s buying decisions? Are you aware of economic and other factors that could create resistance to the sale?


Are you aware of the internal and external factors that could affect the timing of the sale?


Have you double-checked to see if any factors have changed since your initial contact, including final checks of the prospect’s website; news, business and economic reports, and internal sources at the prospect’s company who may have information about recent developments?


Do you have a list of questions to ask the prospect that can help gauge how you can help the company with problems, challenges and growth opportunities?


Have you taken a few moments to visualize your success? If the goal is to make the sale, that’s the image you want to see. Of course, not every sales call is aimed at completing a sale. If the goal is to make some headway toward clinching a sale, visualize yourself and your prospect coming to an understanding. Remember, mental preparation can be half the battle.