Author Segal LLP

Predatory Loyalty Programs Are Not Welcomed

thmb_security_chain_bzConsider the Effects

Loyalty programs are important marketing tools that can help promote repeat business and deepen customer relationships.

And in general, they don’t create problems. That is, unless the Competition Bureau becomes concerned that a company’s loyalty program abuses a dominant market position and diminishes competition.

Predatory Acts and Other Factors

 While the Competition Tribunal does consider the effect that a business practice has on competition, two cases illustrate other factors the panel considers when the issue involves abuse of dominance.

In Canada (Director of Investigation and Research) v. NutraSweet, the Tribunal ruled that a “necessary ingredient” for determining anti-competitive behaviour is an “intended negative effect on a competitor that is predatory, exclusionary or disciplinary”.

In Canada (Director of Investigation and Research) v. Tele-Direct, the Tribunal concluded that it was impossible to set out a list of objective actions for dominant companies that would never attract scrutiny. Instead, the overall character of the action needs to be considered on a case-by-case basis, weighing any legitimate business justification with anti-competitive effects.

The Competition Act constrains dominant companies in ways that don’t affect other market participants. And of course, the Competition Bureau and the Competition Tribunal take steps to delineate those constraints and to distinguish healthy competition from anti-competitive behaviour.

Some insight can be gleaned from a Tribunal determination that Canada Pipe Co.’s loyalty rebate program didn’t abuse the company’s market dominance by promoting exclusivity and weakening competition. The company offers significant rebates to distributors that stock cast-iron pipes supplied only by Canada Pipe.

The Tribunal conceded the company’s dominance in the cast-iron plumbing pipes and fittings market but noted that the distributors were free at any time to stock similar plastic products made by other manufacturers. The Tribunal also noted that the plastic, or PVC, versions have been taking an increasing share of the overall market.

In another loyalty program decision, however, the Competition Bureau expressed concerns that IKO Industries abused its market dominance and was hurting competition in the supply of low-end asphalt roofing shingles. The case never went to the Tribunal because IKO agreed to modify its program by, among other changes, allowing customers to choose between loyalty and volume-based rebates.

Both cases illustrate the effect-based approach under which a business practice is considered anti-competitive when its effect is to harm competition. In making those determinations, the specific aspects of a program and the nature of the market are considered. In fact, there are regulations specific to industries, such as a ruling that airlines cannot strategically use frequent flier and other incentive programs to exclude or discipline competitors.

Based on the Canada Pipe case, a loyalty program should include at least two features in order to pass muster:

1. An opt out, where the consumer can decide to end participation and choose another supplier without significant penalty. Canada Pipe let distributors leave the program and buy other products, including imported cast iron, with no penalty other than the loss of the rebates.

2. A legitimate business reason for the program. This feature is a bit more complicated and the Tribunal reaffirmed an earlier ruling that a business justification must be a “credible efficiency or pro-competitive” reason. That alone, however, is not enough. All known factors are taken into account in assessing the nature and purpose of the acts alleged to be anti-competitive. In the Canada Pipe situation, the program not only benefited small and medium-sized companies, it also helped the division gain better efficiencies, lower production costs and continue to offer a full product line.

In Canada, the effect a business practice has on competition remains an important consideration in determining whether behaviour is valid competition or runs counter to the law. At the same time, there are other considerations (see box above).

Final Note: The Competition Bureau has Enforcement Guidelines on the Abuse of Dominance Provisions, which state that an action is considered anti-competitive if it falls into one or more of the following categories:

  • Acts that raise rivals’ costs (or reduce rivals’ revenues) or that foreclose existing or potential rivals from key inputs or facilities.
  • Predatory conduct (such as predatory pricing).
  • Acts intended to facilitate coordinated behaviour among companies.

Keep Employees Satisfied: Salary Gains Expected to Hit Record Low


Canadian businesses are taking a cautious stand as salary gains in 2017 are expected to be the slowest in two decades.

A national survey of 500 companies across industry sectors by consulting firm Mercer Canada found that employers are projecting record-low salary increases next year, driven by weakness in the energy sector. Mercer Canada said the normally high-paying energy sector will also offer lower salary increases than other major sectors of the economy, which is a reversal from the past.

Raises are projected to be 2.6% across all employee groups, down from 2.8% in 2016 and 3% in 2015. Taking into account expected payroll freezes by some companies, overall pay raises next year are expected to be even lower, at 2.3%, according to the study, which is titled 2016/2017 Canada Compensation Planning Survey.

(Companies in energy-rich Alberta are projecting salary increases below the national average, partly because 40% of energy companies plan to freeze salaries in 2017. Excluding salary freezes, increases in the energy sector are projected to be 2.4%, still below the 2.6% national average.)

Highest-Performing Employees

When it comes to top performers, however, the survey found that businesses intend to continue giving higher-than-average salary increases. The average salary increase for the top 7% of workers in 2017 is expected to be 4.3%.

The salary projections exclude unionized employees because their increases are predetermined by negotiated agreements and aren’t typically subject to annual modifications depending on the company’s spending plans.

“People are being very cautious and conservative with what they’re planning for salary adjustments next year, primarily as a result of the economic uncertainty in the marketplace,” said Mercer’s Gordon Frost.

Non-Financial Ways to Keep Staff Members Content

If your company is among those expecting to offer lower raises next year, you may want to creatively address the issue taking into account why people come to work in the first place.

So, what exactly makes an employee satisfied? Money, of course, helps, but many studies have shown that as long as employees feel they’re fairly paid, there are many other factors that come into play and determine whether or not they’ll quit or, if they stay, they’ll continue to work hard. Here are 10 approaches to consider that may help keep your staff members content if there’s little cash for raises:

1. Give them a sense of purpose. Employees who have a sense of purpose are more focused, creative and resilient, so managers should make a point of reminding employees how their work is improving people’s lives. Distributing client or customer testimonials and announcing when corporate profits are donated to charities are a couple of ways to do this.

2. Increase benefits. Look into the costs of boosting the fringe benefits you offer. Explore your policies for benefits such as maternity and paternity leave, childcare reimbursements, gym memberships and bonuses for extraordinary performances. You also could offer an extra week’s vacation or a few additional days off.

Generally, employees look for benefits tied to health, family, and financial stability. The good news: Within each of these three categories, there are many creative solutions that don’t necessarily hurt the bottom line.

For example, you could add voluntary supplementary insurance such as life, critical illness or cancer insurance to your existing benefits options. This’ll enhance your offerings with no direct cost to your company. Premiums for voluntary insurance coverage are paid by employees who choose to apply. Voluntary plans help protect employees’ financial security in the event of a covered illness or injury with cash benefits that can go toward copayments, deductibles or any other health-related cost not covered by major medical insurance.

3. Allow flex work. Flexibility is something that employees crave but don’t often get. At some point, most employees need to spend some quality time with their families but are unable to do so, often because of their work schedules..

Flex work can take many forms but it usually involves giving someone the right to change where or when they work to help balance other responsibilities. Reasons for a flexible schedule could include allowing someone to pick up or drop off a child at day care or school, care for a loved one, enroll in a training or education program or participate in traditional indigenous practices such as hunting or fishing.

4. Provide strong interaction. Good communication is vital for keeping employees happy and satisfied. When a situation arises, employees want to be able to contact quickly the best person to help them resolve the issue.

Direct interaction fosters trust, openness and mutual accountability. Those values, in turn, help to create an environment where employees feel empowered to solve problems and try new things without endless meetings and paperwork.

4. Offer training and courses. Tuition reimbursement is a huge perk for employees. You could cover single classes they’re taking, help in their efforts to go back to college to get their degrees, and subsidize courses they’re taking to improve their careers. Training may takes the shape of free online training courses or massive open online courses (MOOCs) such as Coursera or edX. The idea is to help employees work on their careers.

6. Show gratitude. Recognition is one of the biggest rewards employees can get from managers. When they feel appreciated for their work, they become motivated to do more. At their best, formal recognition programs may pay for themselves through reduced turnover — saving the money you’d have to spend to hire and train a replacement.

8. Involve them decision-making. There’s a direct correlation between how involved employees are in decision-making in their department or team and their overall morale, motivation and satisfaction. Including staff in decisions makes them feel like a valued part of the team, and they tend to focus more on problem solving than blaming their problems on management.

9. Ask around. If you really want to know about your employees and keep them satisfied, get their feedback. They can give you insights that you might not have considered before. You may even get feedback about your current reward system. This’ll let you optimise your tactics for keeping them happy.

10. Keep staff in the loop. When employees don’t know what’s going on in their own company, productive time can give way to duplicate or unnecessary efforts. Worse yet, when employees get only part of the story, they’re left to fill in the blanks with gossip, rumors, and worry.

The bottom line is that if you can’t give employees large salary increases, you may be able to compensate them in other ways. Being creative can help foster a positive environment and keep turnover down.

CIBC Poll: The Majority of Parents Misunderstand Tuition Costs

090816_thinkstock_112808460_lores_kkDo you have kids in college or at university and have discovered you underestimated the cost and wish you’d saved more?

You aren’t alone. A recent survey for Canadian Imperial Bank of Commerce (CIBC) shows that while eight out of 10 Canadian parents claim they have a good understanding of the costs associated with a post-secondary education, almost 75% don’t really grasp the actual cost of tuition.

What’s more, almost 40% of respondents admit they don’t know what to budget for their children’s non-tuition costs, such as books, accommodation and living expenses. And many fundamentally don’t know how Registered Education Savings Plans (RESP) work, although many have set one up for their kids.

The poll showed that:

  • As many parents underestimate yearly tuition (25%) as overestimate it (22%), with another 27% saying they don’t know how much it is.
  • One in five (19%) believe their children can get by on less than $500 a month (the mean estimate for non-tuition costs was $1,333 a month).
  • The majority (81%) say they have a good understanding of the overall cost of post-secondary education, yet only 20% correctly estimate tuition at between $6,000 and $9,999. According to the most recent data from Statistics Canada, tuition ranges from as low as $2,660 in Newfoundland and Labrador to a high of $7,868 in Ontario.

“With parents not really knowing what the costs are, it’s not surprising that so many students end up treating their parents like ATMs once they’re in school,” said Kathleen Woodard, Senior Vice President, Retail and Business Banking, CIBC. A CIBC poll in August 2015 found that more than half of post-secondary students tapped their parents for additional financial support while at school because they ran out of money.

Parents’ Regret

The recent poll found that 39% of parents with children enrolled or recently graduated say it cost them more than expected, while 46% admit that in hindsight they should have started saving earlier.

In reality, it can cost at least $100,000, or $25,000 a year, for one child to go away to college or university for four years, Woodard says. Financial advisers generally say it’s important to start early and put aside as much as possible.

Not only are parents surprised by these costs, they lack a fundamental knowledge about the RESPs they set up to save for their kids’ post-secondary education. While 76% of parents have an RESP,

  • 53% think their contributions are tax deductible (they aren’t).
  • 45% think the money is only for tuition (it can be used for any purpose related to education, including general living expenses).
  • 31% aren’t aware that they can catch up on claiming missed Canada Education Savings Grants (CESGs).
  • 65% mistakenly believe the last year to make a RESP contribution is the year your child turns 17 years of age (it can be until the child turns 31).

The Basics

If you have children you hope will pursue a post-secondary education and you want to help, here are RESP basics to help get you started:

There are two parts to an RESP:

1. Contributions, which are the amount you put into the plan, and

2. Accumulated income, which encompasses everything else, such as grants, capital gains, interest payments and dividends.

When you make a withdrawal, specify whether you want it to come from contributions, accumulated income or both. Contribution withdrawals can be sent to you or the student. Those from accumulated income generally must be sent to the student unless he or she agrees the money can go to someone else.

Accumulated Income Withdrawals

1. They’re taxable in the student’s hands (contribution withdrawals aren’t taxed). Most students may owe little or no tax, including on summer and part-time jobs, as they generally have low incomes and are entitled to various tax credits.

2. There’s no withholding tax. It’s up to you to keep track of the tax due. Your RESP provider will issue a T4A slip for any distributions during the year.

3. The government generally restricts withdrawals for full-time students to $5,000 in the first 13 weeks of a program. There are no limits after that if the student remains enrolled. Withdrawals for part-time students are limited to $2,500 for every 13-week enrollment period (there are no limits on contribution withdrawals).

4. Withdrawals must be used to further your child’s post-secondary education. But this includes tuition, fees, textbooks and reasonable costs for moving, rent, food and transportation. Your RESP provider generally determines what are considered reasonable expenses.

5. For both full- and part-time studies, payments can last for as long as six months after the end of a student’s enrollment, if your plan allows this.

How Much Should You Withdraw?

Withdrawing from an RESP isn’t as convenient as withdrawing from your chequing account. Consider taking out enough money to keep the student going for awhile. But you may want to provide the money in regular payments rather than a lump sum, as your student may not be as financially savvy as you. If the student is in a co-op program and has two work terms and one school term in the year, it may make more sense to withdraw contributions rather than accumulated income in that year.

Important note: One smart move is to deplete accumulated earnings first. Contributions remaining in the plan are yours to use as you wish. You can transfer them to another child’s plan or withdraw them for personal use.

If there’s accumulated income left in the plan, you may have to refund some CESG funds. You may have to repay CESG money in other situations, too, such as when a beneficiary doesn’t pursue higher education or the plan is terminated.

The government adds the grant money to your RESP. The basic grant gives 20% on every dollar you contribute, up to a maximum of $500 on an annual contribution of $2,500. That’s 20 cents on every dollar. Contributing at least $2,500 for each child will maximize the grants.

Grant room accumulates until December 31 in the year a child turns 17. If you can’t make a contribution in any given year, you can catch up in future years.

Depending on your net family income, you could receive an additional CESG, but if your family’s net income exceeds $90,563, you aren’t eligible. Keep track of the CESG money; you’ll have to repay any money exceeding the $7,200 lifetime limit.

There are no annual limits on your contributions, but there’s a lifetime limit of $50,000 for each child. And keep in mind that various provincial governments also have incentives for education savings that are administered through RESPs.

What if Your Kid Child Isn’t Interested in School?

If your child doesn’t want to pursue a post-secondary education, you have options for what to do with the money. Some may involve costs and tax consequences. Here are six possibilities:

1. Keep the RESP open for awhile. In a year or two, your child may decide to go to school after all. An individual or family plan can stay open for 36 years — 40 years for beneficiaries eligible for the disability tax credit.

2. Transfer money between individual RESPs for siblings tax-free (including any CESGs) if the child who benefits was under age 21 when the plan was opened. You may also have the option of transferring the money to another beneficiary, but consult with your financial advisor about this option and be sure you don’t over-contribute.

3. Pay for the education of another child in a family RESP.

4. Change beneficiaries or transfer the plan to another beneficiary if you have a group plan that allows this.

5. Transfer as much as $50,000 tax-free to your Registered Retirement Savings Plan (RRSP) or a spousal RRSP if:

  • The RESP has been open for at least 10 years,
  • All beneficiaries are at least 21 years old and aren’t currently pursuing a higher education,
  • You’re a Canadian resident, and
  • There’s enough contribution room in the RRSP.

6. Transfer the RESP to a Registered Disability Savings Plan on a tax-deferred basis if certain conditions are met. Any CESG money would have to be repaid to complete the transfer.

Of course, you could collapse the plan and the contributions would be tax-free. You would have to refund all grants and the accumulated income would be added to your gross income and taxed in your hands as ordinary income at normal tax rates — plus an additional 20%.

All of the complexities of RESPs go beyond the scope of this article. It’s in your best interest to consult with your financial advisor about the best strategy for making withdrawals.

Steps to Help Ease Your Debt Burden

Debt can sometimes seem like a weight that can never be lifted.


Pull the Reins on Your Other Debt Obligations

Your mortgage is not the only debt that may be weighing you down.

To illustrate, add up your total monthly interest payments, including credit cards, lines of credit, mortgages and car loans and consider what else you could be doing with that money.

Here are some tips to help you take control of your finances:

Pay down high-cost borrowings. Apply as much as you can to high-interest, unsecured and non-tax deductible debt first. This can help double up your mortgage payments. Use any source of extra cash. If you expect a tax refund, spend it on bills. If you expect a raise, don’t increase your standard of living, lower your debts. See if you can trim household spending and use the extra cash on your credit card bills.

Pay as you go. Use your credit card like a charge card. Pay it in full monthly. You can still maximize reward points while avoiding interest. Never pay one credit card with another. If you really need to reduce your debt load quickly, consult with your adviser to see if a low-rate line of credit would make sense.

Pay yourself first. Find an online bank with a good interest rate on savings and transfer money from your chequing account each time you get paid. Just $20 a week will give you $1,040 in a year, plus the interest.

If you are one of the Canadians whose debt-to-income ratio is too high, you may find that you are not able to keep up payments on your mortgage and other debts. If this is the case for you or someone you know, here are can help control mortgage debt:

1. Stress-test your budget: You must be able to afford your mortgage. Rule of thumb: Total housing costs, including mortgage, property taxes, and heating costs, should add up to no more than one-third of your household income. Test your budget using a mortgage payment based on a higher rate.

2. Carefully weigh fixed vs. variable-rate loans: Variable-rate mortgages are touted as a winning strategy over the long term because they generally cost less in interest and become even cheaper as rates fall. But in order to pay less than those with fixed-rate home loans, you take on the risk of escalating borrowing costs. Consider what would happen if payments doubled over the next few years as interest rates inevitably start to rise.

Fixed-rate mortgage payments, in contrast, are not affected by rate increases so you always know what you will pay over the term of the loan. Typically, you can switch to a fixed-rate from a variable-rate without penalty.

3. Make a larger down payment: Before taking out a mortgage, try to pay off short-term debt. Then put as much as possible up front on your mortgage.

The larger the down payment, the less interest you will pay over the life of the loan. Aim for at least a 20 per cent down payment to avoid having to buy default insurance.

4. Choose your amortization wisely: A longer amortization may mean lower mortgage payments, but it also means more interest. Be disciplined about paying down the mortgage as quickly as you can.

Try to refinance to a shorter amortization as soon as possible. The sooner you are mortgage-free, the quicker you can build your retirement savings.

5. Maximize your payments: Your lender will let you pay more than required to service your loan. The extra amount will vary by institution, with some even allowing you to double your scheduled payments.

In addition, consider taking advantage of prepayments when possible. The extra payments are applied directly to the principal of the mortgage, reducing the loan’s balance outstanding.

6. Use equity lines of credit cautiously: If the value of your home is higher than the amount you owe, you can apply for an equity line of credit, although the government will not insure it. These and other credit lines can be useful for financial emergencies, but they add to your debt burden.

If you take one out, be sure you have a plan to pay it down as quickly as possible. In the event of a short-term cash crunch, your lender may offer alternatives, such as withdrawing funds from your extra payments or skipping a mortgage installment.

Consult with your financial adviser, who can help you decide how much you can comfortably afford when buying a first home, trading up or looking to refinance. Your adviser can also help you to identify how borrowing strategies can play a role in achieving your financial goals and offer solutions that make sense in your situation.

CRA Has Its Sights on Rental Income

lores_rural_land_use_country_fence_ranch_farm_property_tkInvesting in condominiums operated as hotels — where you own individual units that are often split into one-quarter shares — can present some income-earning opportunities, but they can be complicated when it comes to GST/HST.

If you are considering one of these investments, keep in mind that you must pay 5% GST; 13% HST on the purchase price and cannot claim the GST/HST new housing rebate because neither you nor your family will occupy the unit. Nor can you claim the GST/HST Rental Property rebate, because the unit is not rented out on a long term basis.

However, if you are a GST/HST registrant, you can buy the unit without paying the GST/HST. This is because when a property is used 90 per cent or more for commercial purposes, a GST/HST-registered buyer can claim an input tax credit equal to the GST/HST paid on the purchase.

There a few issues you should keep in mind related to owning short-term rental condos to help ensure you stay within tax law and survive potential audits of this favorite CRA target:

1. Rentals for fewer than 60 days aren’t characterized as residential complexes, which are exempt from GST/HST. Instead they are usually characterized as “hotel, motel, inn or boarding house, lodging house and other similar premises.” That means GST/HST is charged on the rentals and you can claim input tax credits on GST/HST paid on expenses relating to them.

2. If you or your family does stay in the unit, you will have to allocate a portion of the input tax credits as personal. That portion cannot be claimed as input tax credits, even if they are related to the purchase of the unit. When personal use is more than 50 per cent, you cannot claim any input tax credit on the purchase price.

If you do want to stay in the condominium complex, say for a vacation, you are generally better off staying in another unit and paying rent or arranging a swap with another unit holder. In the latter case, you both report rental revenue on the use of each other’s units.

3. Management companies who typically run these complexes do not claim input tax credits on expenses related to the units, although they do usually collect and remit GST/HST on the unit rentals. The companies will send you monthly reports on revenues and expenses. In addition, the management companies normally take care of renting units, the day-to-day operations of the complex and other routine matters.

Your record keeping is minimal, generally consisting of keeping the management company’s annual report to you and retaining receipts for expenses associated with the rental unit.

Here is an illustration of the types of expenses that are usually incurred and the GST/HSTrefund that would result if you were registered for GST/HST:

Expense ($)

Input Tax Credit ($)

GST/HST self assessed on purchase — $5,000


Unit purchase, GST/HST offset by tax credit



Net GST/HST payable on purchase price


Costs typically subject to GST/HST and refunds registered owners can claim



  • Legal costs on purchase
  • Management fees
  • Maintenance and Repairs
  • Travel
  • Strata Fees













The refund depends on the amount of GST/HST paid out. The more expenses are subject to GST/HST, the greater the refund.

One final caution: You must be registered for GST/HST before the sale closes, or you cannot claim the input tax credit on the purchase. Talk to your tax professional before you purchase the unit if you think that you might benefit by registering for GST/HST.