Latest Articles

Personal FinanceTax Planning

Hand In Hand – How To Multiply Your Impact And Tax Savings With The Creative Use Of Life Insurance

Hand in hand_Insurance and tax

As we approach the season of generosity, it is common for most people to dip more into their pockets to support their favorite charities this coming Holiday season. Some will be playing catch up on their annual charitable donations while others will be looking to go far above their usual annual donations. As is typical, most will generally do this without much planning as they are often eager to support the various needs around their communities and around the globe.

It is not uncommon to see regular middle class income families give $5,000, $10,000, $20,000 or more in annual charitable donations to their favorite charities each year. These donations go a long way to make an impact in our communities and provide tangible benefits to those in need.
What if you could multiply those benefits with the same amount you are giving today? What if you could multiply the tax savings? What additional impact will this have on your favorite charities? What impact will this have on your legacy?

The good news is, we can in fact maximize our giving and multiply the impact of our donations to the charities we support and at the same time, minimize taxes. This is possible through the use of tax-exempt life insurance. Of the four tax-free options that our tax law permits, the use of tax-exempt life insurance is one of the less known tax strategies. You’re likely familiar with the other three options – 1) Principal Residence; 2) Tax-Free Savings Account (TFSA); and 3) Lottery Winnings. With the exception of lottery winnings, we do have some control over the use of these tax-free options to save on taxes.

If you own a home that is considered as your principal residence, on the sale of your home, you pay no taxes on the capital gains, if any. Similarly, funds invested in TFSA grow tax-free. Proceeds from lottery winnings are also exempt from taxes. Most people are familiar with these tax-free options and regularly take advantage of them as part of their tax planning. So why is the use of tax-exempt life insurance not as common? There may be a few reasons:

1. Lack of Knowledge: This is probably one of the biggest reasons why people don’t consider life insurance as a tax planning tool or even as a tool to protect the financial welfare of their loved ones. There is so much misinformation about insurance and in the midst of this kind of information, it’s challenging for most to see the real benefits of having insurance as great financial and tax planning tool.

2. Insurance is expensive: Truth be told, insurance is expensive, particularly, the kind of life insurance (whole life and universal life) that is suitable for tax planning purposes. With the ever growing costs of keeping up and managing family budgets to pay for things like food, clothing, housing, day care, car payments, kids’ education, etc., insurance is just outside of those “necessities” when money is tight.

3. Insurance provided through your job: Many people are offered life insurance as part of their employee benefit package and often, decide not to get additional insurance. They forget that coverage provided by these kind of employer-provided insurance is often not sufficient. In addition, if you leave the job, it’s typically the type of insurance that doesn’t “move on” with you.

4. Life insurance – it’s on my list…eventually: There’s no deadline on life insurance, no mandate from the government on purchasing it. Your parents may have never talked to you about its importance, and it’s certainly not the most invigorating topic for conversation. As a result, most never get to it.

Next week, we will be sharing additional information on this topic and we invite you to join us for a live event on Wednesday, December 5th from 6:30 PM in Mississauga. You can register for this event here.

Learn how you can multiply your current $5,000, $10,000 or $20,000 in annual charitable donation to hundreds of thousands of dollars of impact to your favorite charity through the use of tax-exempt life insurance.
In addition to the benefits that the use of tax-exempt life insurance provides for charities, it has similar significant benefits for families as a tool to minimize estate taxes and transfer wealth to the next generation.

read more
Business

Our Top Five Challenges In Running Our Business – Part 5 of 5

Fear image_2

This month, we conclude our series on the top five business challenges in running our business. If you’ve missed any of the previous articles, you can click on any of the three previous challenges below to read the details:

  1. Cash flow issues/Undercapitalization of your business
  2. No investment in a proven pipeline for new business
  3. Shallow dialogue with our clients
  4. Lack of differentiation in the marketplace
  5. Fear or reluctance to take risks or try new things

Fear is a major hindrance, not only in business but also in all aspects of life – in your professional career, in sports, in raising your family and in your faith. Although fear has a negative connotation associated with it, we must recognize that fear is a necessary part of life. In fact, fear is one of the major contributors to progress and development in our world today. The fear of dark and wild made fire important, the fear of invasion led to building of Great Wall of China and the fear of death and misery helped in making medical advancements. With this in mind, it is the way we react to fear that makes the difference – it can hinder us or it can trigger success and victory.

Fear often prevents us from taking risks or from trying new things. By our nature, we like to do what we’re comfortable with. If you’re an accountant like us, it’s worse as our tendency is to be super conservative, often hesitating to take risks. Here are some of the top fears we had to deal with over the years in our business and some we continue to struggle with:

  1. Not going all in: Five years ago we started this business with three partners – one working full-time in the business while the other two partners maintained their day jobs and worked part-time in the business. Although this had its benefits as we kept most of the cash flow from the business reinvested in the business, it hindered growth as there was less commitment to focus on client service, business development and other aspects of the business. Today, the two partners left in the business work full-time in the business and with a stronger commitment in the business, we’ve seen more growth in the last year than we’ve seen in the previous four years. Taking a calculated risk to commit yourself 100% to your business can pay off big time.
  2. Not finding funding: In the first article of this series we discussed the challenges we had with cash flow. We know that poor planning with cash flow is one reason why many businesses fail so early. On the other hand, one of the key reasons many people don’t even get started in business or invest in growing an existing business is because they can’t get the necessary capital to start. Early on, we were lucky to get a business line of credit to finance our operations. However, when we wanted to hire new employees we needed some more operational capital but our bank declined our request for increase in our credit line. This did not stop us from hiring even though at the time, we were not sure if we will have sufficient cash flow to pay salaries. Today, we’re dealing with similar challenges. We’ve recently bought a new office unit and will be hiring an additional employee even though the bank again refused our request to increase our credit line to fund the additional our operational costs. In making this decision, we’ve not allowed the fear of how we will deal with the additional expenses in the future hinder what we consider to be the right business decision for our firm. Even if you don’t have the necessary capital at first, you’ll soon learn that a slow and steady process of building your business may be the best thing for you rather than inaction.
  3. Not attracting customers: With the proliferation of accounting and tax services all around us when we started the business five years ago, we were initially terrified of taking the risks of starting this business and wondered if anyone will value our skills and service offering. If we lived in this fear, we would never have started. What we’ve learned over the years is that as we approached our business with joy and consistently delivered what we promised, we’ve undoubtedly experienced the joy of serving more and more clients who value our services and happily refer other customers to us. So don’t let this fear hinder you, instead focus on your marketing plan, on increasing your level of expertise and on consistently delivering on your service to your clients.
  4. Not earning enough to recover the investment in the business: Don’t quit because you don’t see an immediate return on your investment. If we wanted an immediate return, we will be out of business by now. In fact, after 5 years, if I calculate my return on investment, it will be minimal at best. I probably would have been better off investing in mutual funds. In business, you need to have a long-term perspective and this should keep you working even when you don’t see an immediate return. For some, it may take 5 years or less. For others, it may be 20 years or more. No matter how long it takes, stay focused and keep working!
  5. Not trying new services, new ideas and new markets: Our market is changing rapidly, particularly with the changes in technology and client expectations. As a result of this, agility is highly required to succeed in today’s market. As accountants, we are particularly vulnerable to the fear of trying a new service, new technology or going to a new market. It is easy to stay stuck in doing what we’ve always done even when the world around us is changing at a rapid pace. As a firm, we have committed to keep trying new ways to serve our clients including offering new services and trying new technology that will enhance service delivery.

As a business owner, you must recognize that risk is all around us. In fact, life is a series of calculated risk. Everything you decide to do has a margin of risk so be bold and face your fears head on. John F. Kennedy said it best when he said and I quote “There are risks and costs to action. But they are far less than the long range risks of comfortable inaction.

I hope you have found this series on the top five business challenges we faced helpful. We encourage you to apply some of the lessons as you run and build your business. If you have any comments or questions, don’t hesitate to let us know. Best of luck!

read more
Business

Our Top Five Challenges In Running Our Business – Part 4 of 5

qtq80-Cg420A

This month, we will look at the forth challenge we faced in our business. If you’ve missed any of the previous articles, you can click on any of the three previous challenges below to read the details:

  1. Cash flow issues/Undercapitalization of your business
  2. No investment in a proven pipeline for new business
  3. Shallow dialogue with our clients
  4. Lack of differentiation in the marketplace
  5. Fear or reluctance to take risks or try new things

Most times, lack of differentiation in the marketplace is a slow killer of business. This is certainly the case in a competitive market. We can point to a number of recent examples of businesses that have failed because of lack of differentiation in the market place. A recent one that comes to mind is Sears Canada. With the intense competition in the retail space, there will be more business failures to come as many of these retailers are barely hanging on with some customers and some revenue skimp that has lasted for several months or even years.

We face similar challenges in our business as the services we offer is generally commoditized. This was made worse with the completion of the merger of the three accounting bodies in the last few years (CA, CMA & CGA all unified as CPA). This merger significantly increased the number of service providers in the marketplace providing services that were more or less exclusively provided by CA’s in the past. Now with the saturation of CPAs in the marketplace, it is harder to differentiate yourself as there is plenty of noise and chaos with everyone fighting for the same business. The only way to stand out is to come up with your own Unique Value Proposition.

We now understand that this is key area that must be addressed. We understand that without uniqueness in the services and solutions we offer, we will continue to fight for the bottom scraps with the many competitors in the marketplace. To address this, we’ve recently identified four industries we want to specifically target and we’re now intentional in putting our resources to target these client segments. We’ve started observing these client groups more closely to get a better understanding of the jobs, pains and gains that matter most to them. As much as we can, we’ve started putting ourselves in the shoes of our customers to learn about aspects of their jobs that they find unsatisfying; and to get a better glimpse of their unresolved pains and unrealized gains. With these lessons, we’re working hard to design solutions that will meet their needs.

Some of you would have noticed some of the changes we’ve made recently to better respond to the needs of our clients. This is an ongoing process and we anticipate many more changes to come as we learn more about our clients and their needs. Of course, differentiating yourself in the market place is not easy but you will agree with me that this is a core element of your business that must be addressed. Business owners who take this lightly will end up in trouble. We encourage you to grab a tool like Alex Osterwalder’s ‘Value Proposition Canvas’, stick it on your wall and work it. Dig in. Figure out the true value you bring to the table which is unique and different than others in the marketplace.

We will wrap up this series on the top five business challenges we faced next week with a look at how fear or a reluctance to take risks can impede your growth. Stay tuned!

read more
Business

Our Top Five Challenges In Running Our Business – Part 3 of 5

qtq80-2qqMv9

We are back this month looking at the third challenge we faced in our business. For those that have not been following, below is the list of the top five challenges we’ve been discussing over the last couple of months:

  1. Cash flow issues/Undercapitalization of your business
  2. No investment in a proven pipeline for new business
  3. Shallow dialogue with our clients
  4. Lack of differentiation in the market place
  5. Fear or reluctance to take risks or try new things

This month, we will focus on challenge # 3 – shallow dialogue with our clients. If you missed the first two, you can go here to read more – cash flow issues and pipeline for new business.

Products and services exist for one purpose – to solve a problem in the market place and to meet the needs of customers. Therefore, as entrepreneurs and business owners, we are in business to create products and services that will deliver value to our clients. To create an amazing product or service offering, a business owner must stay in touch with its customers through deep dialogue.

For years, we struggled with this and often times we were fearful to engage in deep meaningful discussions with our clients. It is particularly challenging for our business as we only get the opportunity to connect one-on-one with a good number of our customers once a year due to the nature of our business. Often times, we don’t make good use of the opportunity to engage in deep meaningful discussions to learn more about our clients – their big wins, dreams, pains and concerns. Now, we understand that shallow dialogue with clients can result in wasted business opportunities so we’re now mindful of this.

As entrepreneurs and business owners, you must walk 1,000 miles in the shoes of your customers. Not 10. Not 100. One thousand! You can only do this by asking questions, questions that will likely make you feel uncomfortable because they go far deeper than questions you’ve asked in the past. You must be intentionally and consistently curious to learn more about your customers.

The truth is your customers hold the key to your success deep in their pain, behaviour, dreams, values and the jobs they are trying to accomplish. So don’t shy away from digging deep as your next big product or service may just be a few deep conversations away. Deep discussions will not only help you come up with great solutions for your clients, it will also help build solid relationships based on trust.

I wish you good luck as you go deep with your clients. You and your business will certainly benefit from it.

Next time we will look into another critical area of running your business – differentiating yourself in the market place. Stay tuned!

read more
BusinessTax Planning

Update on the July 18, 2017 Tax Proposals – What We Know and What We Don’t Know

qtq80-lGIB8s

As most of you know, sweeping tax proposals were made by the federal Liberal government on July 18, 2017 that had some of the most significant changes to the taxation of Canadian private corporations since the early 1970′s. Following a dramatic and strong negative reaction to these proposals from tax practitioners, taxpayers and the business community, the government has since made pronouncements by news release that will adjust the original proposals. However, details about these changes are yet to be made public.

We have summarized the original proposals from July 18th, 2017 below with updates from the most recent news releases from the federal government. We have noted the items that are now off the table, however, there remains a great deal of uncertainty as to what the actual rules will be as of January 1, 2018 for those items that are still on the table.

The July 18 amendments can be summarized under the following headings:

  1. Multiplication of capital gains exemption;
  2. Conversion of income into capital gains;
  3. Dividends / income sprinkling;
  4. Taxation of passive income.

Multiplication of Capital Gains Exemption

In the initial proposals, there were rules that would eliminate the ability for family members to claim the capital gains exemption on shares of a private corporation where those family members were not active in the business. By way of news release, these proposed rules have been removed.

Conversion of Income into Capital Gains

There were a number of rules that proposed to re-characterize capital gains into income. As well, they affected the ability to pay out a capital dividend account when assets were sold to a related corporation.  Both of these proposed rules have been removed by way of news release.

Dividend/Income Sprinkling

These were the most detailed and far ranging rules. The aim of these rules is to tax family members at the highest marginal tax rate on dividends or income received from certain private corporations. In the past, dividends to minors were taxed at the highest tax rate. The new proposals are to tax family members up to 24 years old as well as all family members who have not worked in the business or contributed capital to the business.

These new rules propose a “reasonableness” test to determine if the amounts paid to the family members should be taxed at the highest tax rate or not. This concept is called tax on split income (“TOSI”). The notion of reasonability that is being proposed obviously makes this very subjective and we have many concerns about how these rules would be applied. In the draft legislation, these rules were to be effective January 1, 2018. So far, this is still on the table but it is unclear if the government will still go ahead with this.

Taxation of Passive Income

In the past, an active business could accumulate funds after paying corporate tax and invest those funds in whatever manner decided upon by the shareholders. The new rules are proposing to set a limit on the amount of investment income that can be earned using active business income. At present, the government has proposed a $50,000 annual limit and have indicated that they will table the draft legislation in their 2018 budget.

The details of how the income will be taxed are not available. The general idea is that if capital has been injected into the company from personal assets, then these rules would not apply. However, if the capital to invest in the business has been accumulated because the company or its subsidiaries engaged in an active business then these rules will apply.

The proposed rules would be that there is a tax of approximately 50% in the corporation and then full personal dividend tax upon payment out of the corporation. The difference between the proposed rules and the current rules is that under the current rules, the corporation would get a refund of a portion of the corporate taxes paid when dividends are paid. The net effect is that an individual taxpayer would be indifferent to earning investment income in a corporation versus personally. Each province has different tax rates and therefore there is not perfect integration. However, under the new rules the effective tax rate in Ontario, would go from 56% to 73% when considering the corporate and personal taxes.

Given the extremely high tax rate noted above, there has been a significant response to the government about changing these rules. However, there is currently no draft legislation and there is no effective date. It is unclear how the government will proceed with these rules.

Other Changes

The federal and the Ontario government have both announced corporate tax rate reductions for small business corporations. The Ontario rate will decrease by 1%, effective January 1, 2018. The federal rate will decrease by 0.5% effective January 1, 2018 and by an additional 1% effective January 1, 2019. Although these tax cuts will benefit small business corporations, they will have a detrimental effect to the shareholders. To maintain integration, there will be a corresponding increase in the personal tax rates on dividend income. Consequently, individual shareholders receiving dividends after 2017 will be facing a higher personal tax rate.

read more
BusinessTax Planning

Involved In The Sharing Economy?

ride sharing

As most of you know, our sharing economy is growing at a much faster pace and our Government is trying to play catch up and looking for ways to bring in the tax revenues that go unreported by many involved in the sharing economy.

Earlier this year, CRA released a tax tip reminding those involved in the sharing economy to ensure that they comply with relevant income tax and GST/HST registration and reporting. CRA has identified five key sectors – accommodation sharing, ride sharing, music and video streaming, online staffing and peer/crowdfunding. CRA also noted that it is co-operating with industries, the provinces and the territories to identify and address areas where the tax system and compliance might be affected.

If you’re involved in the sharing economy, give us a call to discuss how we can help with your reporting and compliance requirements. We know this is an area CRA will be targeting in the coming months and will start reviewing individuals once they get access to the relevant data. My understanding is that Uber and Airbnb are now required to share information with CRA on activities in these sectors.

If you’ve been participating in the sharing economy for the past couple of years and have not reported any of the income, you will likely be a target. If that is you, get in touch with us today and we can discuss options to ensure you’re in compliance with CRA.

read more
Personal Finance

Are you focused on “Return on Life”?

qtq80-rBLFeR

Two weeks ago, I was at a seminar and had the opportunity of listening to a presentation by Mitch Anthony, author of “The New Retirementality: Planning Your Life and Living Your Dreams…at Any Age You Want”. For me, it was a great presentation as it aligned completely with my thoughts and ideas around retirement.

Return on Life (ROL) is getting the best life possible with the money and resource you have! It is a simple concept that challenges the old mentality around retirement. Retirement is not about reaching a particular age, it’s not about hitting a particular net worth target; it’s not about the excessive focus on Return on Investment (ROI). Retirement is all about change, it is a transition and it is very personal. Of course, to retire well requires good planning and guidance. In many cases, it requires changes in habits around money, but unlike the planning in our current market place that is excessively focused on ROI, reaching a certain age bracket and on net worth, a great retirement plan should be value-based.

A value-based plan focuses on generative values across families from generation to generation. Value-based planning goes to the core of our values as humans and takes into consideration not only wealth but also intimacy, spirituality, giving and other core values that are vital to us. Moving from ROI to ROL requires this kind of planning and thinking around wealth and retirement.

Over the last couple of months as I’ve been reflecting on my faith, my life experiences, my values and my businesses I’ve been increasingly drawn to the need to do more, not only for myself and my family/friends but also for my clients and the community. As I reflect on my own struggles and those of my clients around business building and finances in general, I believe there is a lot we can learn from this new perspective on financial and retirement planning.

As you may already know retirement is very personal. My vision for retirement will be different from yours. However, the media and the financial planning industry have created a picture of retirement that often raises fear rather than confidence or inspiration. In fact, in recent surveys, only two out of ten people feel comfortable they can achieve their financial goals. 70% of family owned businesses never make it to the next generation, and for those that do, only half make it to the subsequent generation. In our society today, overall contentment is low, principally because people focus too much on money, often spending it in the wrong places. Bankruptcies amongst seniors (ages 65 and up) is at an all-time high. These are pathetic stats that give me a great deal of concern. So there is urgency to act before it gets worse and that’s why I’ve been investing time and resources in recent months in this area to help change the trend.

Our financial/retirement planning industry is not as regulated as it should be and as a result, there are a lot of Advisors who are not qualified to be providing financial, retirement or investment advice. While there are a few good Financial/Retirement/Investment Advisors, majority of those who have a great need for financial and retirement advice cannot access the services of these Advisors as they often don’t qualify based on arbitrary qualification criteria such as net worth and investible assets. Often times, you need to have a net worth in excess of one million dollars or/and at least $250,000 in investible assets (cash or registered and non-registered investments in securities) to be accepted as a client. As a result, majority of Canadians are left without the help of a qualified Advisor. The only alternative left is to do it yourself. Now, Robo-advisors (Online Wealth Management firms like WealthSimple, etc.) have emerged and are now growing in popularity to meet the needs of these Canadians that have been excluded, based on their net worth, from the services of qualified Advisors.

Fortunately, I am in a profession that gives me some close insights into people’s personal finances and preparedness for retirement. Coupled with current research in this area, my own experience around personal finance and what I’ve seen over the years in the financial affairs of friends and clients I’ve worked with, we will fall short, way short of meeting our retirement needs if we don’t take concrete action towards planning for a better future. The principal reason we will fall short is lack of planning. Often, we underestimate what lies ahead and the financial implications of what it takes to sustain the lifestyle we enjoy today. Just think about it for a moment, if you lose your job or source of income today, how long will it take you to go completely bankrupt? Three months? Six months? Maybe one or two years? Or perhaps you don’t even know, which simply means you don’t have a plan, it could well be less than 3 months.

The good news is that we are doing something about this. We want to change the trend and change the discussions around retirement and financial planning. We want to remove fear and give people the confidence they need as they begin to take meaningful actions toward planning for their future. First, I must admit that I don’t know it all. In fact, if I lose my job today, I will only last a few years before I go totally bankrupt, so I am very much an open-minded student learning as much as I can to get to where I want to be.

So I invite you to join me in this learning journey and together let’s build something we will all be proud of. For those of you on Facebook, you can join the private Facebook Group called “Plan To Retire Well” that I have recently created. For those not on Facebook, you can join My Email List here. Through accountability, objectivity, proactivity, education and meaningful partnerships, we will bring clarity and help each other take actions that will enable you move from where you are today to where you want to be in the future.  Ultimately, my goal is to help you live the life you want with the means you already have. More to come…stay tuned!

read more
FamilyPersonal FinanceTax Planning

DON’T BE A FOOL…

qtq80-dtPY21

After tax season, one of the things we recommend to our clients is to set aside time to review their tax return and start thinking about opportunities to improve their tax situation in the months and years ahead. In other words, to start making plans to ensure they are using all legal strategies available to minimize or defer taxes. If you make the connection, you will realize that a dollar saved in taxes can have a positive impact on your financial and retirement planning.

When it comes to retirement planning, majority of Canadians don’t even know where they stand and some don’t even realize that saving for retirement is not an option, it is a must-do! The reason is simple, you need to know if you will have enough money to eat and to take care of your most basic needs like housing.

No matter your age or your current financial situation, it is critical to do an assessment now and determine where you are today and where you need to be when you retire. This assessment will determine the gap you need to address. In a recent article published in the Toronto Star, Gail Vaz-Oxlade writes if you don’t know where to start, or if you’ve been putting it off because you’re not sure of all you need to consider, it’s time to start figuring it out. She concludes that if you use “I don’t know” as an excuse, you’re a fool!

Don’t be a fool. If you don’t know where to start, consider consulting a professional to help you get started. From our research and discussions with some of our clients, here are some of the common reasons why most people don’t plan or don’t take retirement planning seriously:

  1. They don’t know where to start
  2. They lack knowledge of financial/retirement planning
  3. They think financial/retirement planning is only for the rich and wealthy
  4. They think they are too young or too old to start
  5. They don’t trust financial planners
  6. They think government benefits will be sufficient to take care of their retirement
  7. For those who contribute to a work pension plan, they think the pension will be enough for their retirement even when they have no idea what the monthly pension income will be when they retire
  8. For those who have a financial/retirement plan, there is no accountability or periodic monitoring to ensure they are on track to a successful retirement

We can help you get started and dispel some of these misconceptions about financial/retirement planning. Given our unique position as accountants and tax advisors, we get the opportunity to work with a variety of clients at different stages in their financial/retirement journey. In addition, we have partnered with a financial planner and a wealth advisor to ensure that all aspects of your financial/retirement planning is taken care of.

In the coming months, we will share some more insights on this topic and how you can benefit from what we are developing in our practice to ensure that you have enough not only to meet your most basic needs when you retire, but to meet your desired retirement objectives, whatever that may be. To learn more, please contact Ken Green via phone at 416-706-3491 or via email at ken.green@greenmeiklesmith.com.

read more
1 2 3 4
Page 1 of 4