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Taking it Easy at Your Own Cottage Starts with Smart Planning

062316_Thinkstock_482345735_lores_KKThe living seems so easy on the lake, at the beach or in the mountains.

If you’ve been renting a vacation retreat each year, you may think it’s finally time to dive in and buy one of your own. It can be the right choice, but be sure you go in with your eyes wide open.

Cottages can be pricey, not just because of the cost of purchasing a place but also because of ongoing maintenance, unexpected repairs and perhaps renovations. Don’t forget that what you spend on your cottage can have a significant effect on taxes when you sell it.

Before you sign the mortgage or withdraw from your savings, ask yourself if owning a cottage makes financial sense for you. Do you want to tie up a chunk of your savings in real estate?

Once you’ve mulled over these issues, you’re ready to start.

Choosing a Property.

To ensure your cottage both fulfills your getaway dreams and is a financially smart choice, you need to find the right property in the right location for the right price. Two major possibilities will dictate what you buy and where:

1. Using the place as a retreat and a place to retire. A cottage for the family needs sleeping, cooking, dining and congregation areas adequate for family and guests. A potential place to retire should also have easy access to shopping, gas stations, hospitals and entertainment. If you’re planning to retire there, the place obviously needs to be winterized.

2. Earning extra money by renting out the house. A cottage can be easier to rent out when it’s located in a high-demand, and more expensive, area such as on a lake or near a ski resort. In general, the more isolated and quiet the location, and the further away from the water or other attractions, the lower the rent you can ask.
You also need to consider all of the costs involved. In addition to the down payment, any monthly mortgage payment and interest, you’ll incur costs such as:

Property taxes, insurance Maintenance, repairs
Utilities, propane refills Travel, gasoline
Condo, marina fees Garbage, trash removal

Finally, if you need financing, that also should factor into the type of property you choose. Cottages often fall into one of two categories when it comes to getting a mortgage:

1. All-year winterized properties. These have features similar to residential homes such as insulation, running water all year, central heating and sometimes basements. These are good candidates for mortgages.

2. Rustic properties. These may have wood stoves or fireplaces and sit on blocks or piers. These may be more difficult to finance and may require heftier down payments to avoid mortgage insurance. The worst case scenario: You may have to tap into your savings.

Tax Planning

Once you’ve sorted out these issues, it’s time to turn to tax planning. That’ll involve keeping track of the following:

Capital improvements. At some point, you’ll inevitably give up the cottage, either by transferring ownership (succession, gifting and inheritance) or selling it. Document any capital expenditures you make over time so you’ll be able to calculate an accurate adjusted cost base (ACB). The higher your ACB, the lower any taxable capital gain you’ll have to report.

Your adjusted ACB is the sum of the initial cost of the property plus qualifying capital outlays such as:

  • Making changes to upgrade a property (you’ll have to demonstrate that the original purchase price would have been higher if the repairs hadn’t been necessary),
  • Renovating to winterize a property or add new elements to the structure such as additional bedrooms or new bathrooms,
  • Building a new deck,
  • Installing new windows or a roof that are better than the originals, and
  • Putting in a new well or pump.

General repairs don’t count as capital improvements and you can’t value any work you personally perform on the home.

The excess of the proceeds of disposition deemed or realized over the ACB (and any selling costs) is generally a capital gain for income tax purposes.

As you can see, keeping accurate documentation of outlays is critical, particularly if Canada Revenue Agency (CRA) wants documents to support the ACB. Capital losses. You generally can’t deduct a capital loss on your cottage when you calculate your income for the year. You also can’t use a loss to decrease capital gains on other personal-use property. When property depreciates through general use, the loss on its disposition is a personal expense.

If you’re primarily renting out the cottage, however, you may be able to claim a capital loss. But keep in mind that you may lose the personal-use exemption if you rent it out for most of the year. That exemption can come in handy to help shelter any gain from the disposition if the cottage appreciates in value.

If you rent it out only occasionally to help defray some costs of ownership, talk with your tax adviser about how to report income and expenses on your tax return.

Changing use of property.

Before turning your personal-use property into an income-producer by renting it out, discuss the tax consequences with your accountant. Rental income will be taxable, but you can claim some expenses to offset the income, including:

  • A reasonable portion of the operating expenses, and
  • Costs directly associated with renting the property (such as cleaning, advertising, commissions or fees paid to rental agents, and property management fees).

Estate Planning and Other Financial Implications

There are many other tax implications related to owning a vacation property, including estate planning issues. A cottage is often viewed as common property within generations. If you hope to leave the cottage to your heirs, you’ll need to determine whether you plan to pass it on with a will, a sale or a trust. If you’ve inherited a cottage, there are other tax and financial issues to consider.

Consult with your adviser, who can help you sort through all the tax, financial and estate-planning implications.

How to Deal Sensibly with Boomerang Kids

061716_Thinkstock_475209512-flipped_lores_KKDid your twenty-something kids return to the roost? You’re not alone.

Millennials are the largest cohort in the Canadian workforce, according to 2014 data from Statistics Canada. And in ordinary times, the fact that 36.8% of our employees are between the ages of 18 to 34 would suggest that many of those young adults have moved away from home to live on their own, with roommates or with a spouse.

But these aren’t ordinary times. According to the most recent Statistics Canada census, 42.3% of people in their twenties lived at their parents’ homes in 2011. That’s well up from 32.1% in 1991 and 26.9% in 1981.

And data from a recent Pew Research Center survey, reflecting the earlier Canadian data, suggests that the trend is continuing. For the first time in at least 130 years, young people in the United States between the ages of 18 and 34 are more likely to be living at home with their parents than in any other living arrangement. The study found that 32.1% of Americans in that age bracket were living with their parents.

This isn’t just a North American trend: It’s evident across much of the developed world. Pew Research notes that according to Eurostat, the European Union’s (EU) statistical agency, nearly half (48.1%) of 18- to 34-year-olds in the EU’s 28 member nations were living with their parents in 2014.

They’re sometimes called boomerang kids. The trajectory of a child’s life used to be set in stone — grow up, fall in love, leave home and either get married or move in with a roommate or romantic partner. But that tide has turned and Millennials are more apt to leave, go to college or try their luck in the working world — and then return.

The question is, why? Millennials choose to go back home for many reasons, including:

  • A weak job market,
  • Low earnings,
  • Staying in school longer to compete effectively in the job market,
  • Large college debt,
  • Escalating housing costs, and
  • Postponing marriage.

“Helicopter parenting,” where parents hover over their children and micromanage their lives, may also be a factor in the Millennials’ decision to linger longer at home.

One serious downside for the parents of many Millennials is that they wind up in a sandwich, emotionally and financially supporting both their children and their own parents. One or both of these situations can take a chunk out of retirement savings and delay or tarnish their golden years.

A 2015 survey1 commissioned by CIBC found that one in four Canadian parents surveyed said they spent more than $500 a month to help cover expenses of their adult children, including:

  • Free room and board (71%),
  • Groceries and other household expenses (47%),
  • Cell phone bills (35%),
  • Monthly car payments and other vehicle-related expenses (23%),
  • Subsidized rent so adult kids can live elsewhere (17%), and
  • Help repay loans and other debts (12%).

It is probably no surprise, then, that two-thirds of respondents said their resources were being depleted by their boomerang Millennials.

For many young people, living with their parents is a fiscally-responsible decision that can be an ideal way to save for a house or start a business. However, some observers have questioned whether enough parents are discussing finances and budgeting with their adult children — for example, perhaps they should find a job that may be less than ideal in order to contribute to the household expenses.

If you have one or more adult child who wants to move back, here are some steps to consider taking to help ensure they eventually step out on their own:

1. Share your concerns. What worries you about sharing a house with your child? Do you want your child to pay rent, or cover his or her own cell phone and car expenses? What chores do you expect your child to do? And what does your child want? Vegan meals, sleepovers? Once you come up with a plan, review it every so often to see if everyone’s concerns are being met.

2. Set clear goals, rules and timelines. When your child moves back in, be sure to clarify expectations. Is there an age when you expect the child to leave or an event — such as finding a job — that would trigger a move? Setting these goals and guidelines will help keep your child from overstaying the welcome.

3. Put your financial future first. Decide ahead of time how much money you want to contribute — and can afford — to help out your boomerang kid. You may be close to retirement, or already in it, so don’t back away from requiring the child to help with expenses. The child must be told there are limits on your finances and that your financial security comes first.

4. Keep it short-term. Many adult children may try to hold out for the right job and want to live with you indefinitely. You may want to make it clear that moving back is a temporary fix and set a time limit that you can revisit if necessary.

While your Millennial is still living at home, discuss any of these topics that may apply:

  • Paying off debt. Encourage the child to get rid of bills, particularly high-interest debt, so it won’t compete with future rent or mortgage payments.
  • Establishing a good credit history. The child should get a credit card for small purchases and pay the full balance by the due date.
  • Building an emergency fund. This will help in the case of minor setbacks such as car repairs. The child should build a larger fund when possible to use in the case of losing a job. This can help avoid a return to your doorstep.

Talk with your financial adviser to come up with strategies to help avoid hefty debt and bring your fiscal lives into focus.

Consider a Freeze as You Plan the Future

Estate freezes are considered by many to be the cornerstone of estate and succession planning for Canadian family businesses.

Crystallizing Capital Gains

When considering an estate freeze, you will want to consider crystallizing capital gains in order to take advantage of the lifetime $750,000 capital gains exemption.

Let’s say you opted for an internal freeze, that Maple Leaf Co.’s shares qualify for the capital gains exemption and that you haven’t used any of that exemption.

Even with an internal freeze, you have the option of filing a holding company election that allows you to shed your common stock for an amount greater than its nominal ACB. In that scenario, you might elect that the shares be disposed of for $750,000, resulting in a capital gain of that amount, which you would report on your income tax return. That gain would be offset by the exemption.

Your preference shares would have an ACB of $750,000. On a future sale of the shares, or on your death, your capital gain would be $1.25 million ($2 million FMV minus $750,000). Without the crystallization and the capital gains exemption your capital gain would be $2 million.

Fundamentally, a freeze captures all or part of the value of appreciating assets at their current value and future growth accrues to your children who will take eventually take over the business.

The primary benefit is that the growth will not be taxed in your hands, either on an actual disposition or a deemed disposition on death. Among the other benefits are:

  • You can manage the tax liability on the gain accrued before the freeze by purchasing, say, life insurance in an amount to cover the known tax liability on the frozen assets;
  • The growth assets can be converted to the fixed amount in several ways that can offset any immediate tax consequences to you;
  • You retain control over the assets with sufficient voting rights, and
  • You may crystallize your capital gains exemption (see right-hand box).

Most commonly, estate freezes are accomplished either by creating a holding company or by reorganizing the capital structure of the existing company.

Holding Company Freezes

Under this method, which falls under Section 85 of the Income Tax Act, you trade your growth shares in exchange for fixed value preferred stock in a holding company. Those preferred shares have voting rights that allow you to retain control of the underlying assets. The designated children receive common shares in the holding company.

As an illustration of how this works, say you own Maple Leaf Co., holding 200 common shares with a total fair market value (FMV) of $2 million and a nominal ACB.

You incorporate Holdco and trade your Maple Leaf stock for 10,000 preferred shares in that new holding company. The new shares would:

  • Be redeemable at the FMV of the common shares of the family business;
  • Carry enough votes to allow you to control Holdco (you could also opt for non-voting preferred and then subscribe to a separate class of nominal value voting stock to retain control);
  • Be retractable so you or Holdco could require the redemption of some or all of the preferred shares, and
  • Have dividend privileges over the common stock and have preferential treatment if Holdco is ever wound up.

A holding company freeze is a tax-deferred transaction, so your accountant will file an election with Canada Revenue Agency (CRA). Under that election, you choose any purchase price ranging from the adjusted cost base (ACB) of Maple Leaf’s shares, which is nil, to their FMV at the time of the transaction. If you opt for the ACB, there will be no capital gain.

Meantime, your designated children would acquire new common shares, either through a stock subscription or as a gift. Those shares would have a nominal value but would reflect all future growth of Holdco, which would amount to half the future growth of Maple Leaf.

So, if over time Maple Leaf grows in value to $2.6 million, Holdco’s shares would be worth $1.3 million. Assuming the holding company had no other assets, $1 million of that value would be reflected in your preferred stock.

The remaining $300,000 would be reflected in your children’s common shares. So the capital gains that would normally be taxable to you becomes taxable to the children.

Internal Freezes

Here, you simply exchange common shares for new preferred shares under Section 86 of the Income Tax Act. New common stock is then issued to the children, either directly or through a trust.

You would have the same benefits as with a holding company freeze without having to incorporate a holding company and without having to file the election form. The stock rollover in an internal freeze is automatic.

To illustrate how the internal freeze works, given the same scenario as above, you exchange your $2 million in Maple Leaf common shares for $2 million in new preferred shares. Your children acquire new common shares with a nominal value that would later reflect future gains in Maple Leaf’s FMV.

Your stock rollover is automatic and you realize no capital gain, unless you opt to crystallize that gain.

Tips to Boost Hiring Success


It’s every boss’s goal: Hire the right person for the job. To achieve this goal, you need to put more time and energy into a job analysis. With this tool, you can match an applicant’s skills and qualifications to those of the opening you are trying to fill.

Let’s imagine you’re hiring telephone service representatives to take orders on incoming toll-free lines. Here’s how a job analysis helps in your hiring decision:

  • Identify job tasks. These are the actual duties that make up the job. Don’t just list them. Identify how much time employees give to each task, and specify performance standards for each task. For example: “Telephone sales representatives spend more than 90 percent of their shifts taking phone orders. Normally, our representatives fill an average of 24 orders per hour.”
  • Isolate success factors. These are the skills, knowledge, abilities and behaviours essential to successful performance. The best way to single out these factors? Ask star employees and their supervisors to list them and then include the factors in the job analysis. For example: Telephone sales representatives must handle stress well. They like interacting with others and have good sales skills. They’re courteous, good communicators and make customers feel at ease.
  • Rate the importance of success factors. Ask employees to list in order of importance each of the factors they identified as essential to the job. For example: (1) Courteous manners. (2) Good communication skills. (3) Like interacting with others. (4) Ability to handle stress. (5) Good sales skills.
  • Draft interview questions. Directly tie these questions to the important success factors and job tasks. For example: “How have your communication skills helped you explain a difficult or unpopular concept to someone else?” “Tell me about a stressful job you’ve had and how you dealt with the pressure.” “Telephone sales representatives sit at the same station for up to eight hours a day. How do you feel about this job requirement?”
  • Always ask open-ended, rather than closed questions. Closed questions are generally answered “yes” or “no.” For example: “Did you like this article?” On the other hand, open-ended questions anticipate a thorough response. For example: “How does this article help you make better hiring decisions?”

Six Issues to Consider When Managing Remote Employees

office home silo man description sizeAllowing employees to work from home can provide significant benefits for your staff and your company. It can improve morale, reduce real estate and facility costs. It can even reduce traffic congestion and make the environment cleaner.

However, appropriate oversight is 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.



Cost savings.
Having employees work from home can reduce demand for office space and cut facility operating and parking costs.
Not for everyone.Some employees
fear less “face time” will reduce chances for promotion. Others need 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 lower performance and may need to adjust to a culture oriented more to results than processes.
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.
The IT infrastructure must be properly designed. Some jobs may simply not be able to be performed at home for security reasons.
Working from home can better accommodate individuals with disabilities.
Staffers in the workplace may resent remote workers.
Enhanced performance.
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 andabsenteeism may drop.
Worsened performance. 
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.
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.

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, are not 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 far less effective than being physically present. Also, employees are likely to resent that their manager works from home while they are stuck in the office.

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

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 is 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 must be some mechanism to track productivity and ultimately performance.

4. 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 is also conceivable that the employee’s computer can be accessed by other members of the family. That raises a real concern 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 at all 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 the rest of the company issued devices and less likely to contract an infection that could bring the company’s information technology infrastructure to its knees. Mandating that employees use company computers also reduces the risk that your business will be unable to comply with an e-discovery request.

5. 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 are actually doing with the company’s 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 decides to steal 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:
1. How much of the company’s data is stored on that laptop?
2. Is it encrypted?
3. What could your company do to limit or mitigate the potential damage?

6. What about travel expenses?

The potential for expense fraud and abuse by remote employees should be a major concern. One of the simplest ways to combat expense fraud by work-from-home employees is to ensure they are appropriately identified in the company’s expense reimbursement system as remote employees.

For example, most expense reimbursement systems require that an employee include their home office or base on their expense statement. For remote employees that designation could appear as Remote or VE (virtual employee) or WFH(work from home). The actual naming convention is not 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, management 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 are working down the hall in the workplace or in their home, or in an off-site office far away.