May 2013
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May 13, 2013 5:12 PM
Rona Birenbaum
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You’ve heard of High Frequency Trading (HFT) but have you seen it?
The 2010 flash crash has been blamed on HFT. For those of you who forget the details, the term “flash crash” was coined when the U.S. stock market lost 1000 points in a matter of minutes before recovering most of these losses a few minutes later. The crash was triggered by HFT algorithms initiating a selling cycle that wiped out billions of dollars of value before anyone knew what was going on. The trades were processed by computers, rather than human beings making buy and sell decisions based on fundamental valuation measures.
Market data research firm Nanex created this amazing video that illustrates a ½ second of trading activity in Johnson & Johnson (symbol JNJ) on May 2, 2013.
I asked Keith Graham, veteran portfolio manager with Rondeau Capital and manager of the NexGen Turtle Canadian Equity fund if investors should be concerned.
“I view it as legalized “front running” and it should be stopped. I think it creates enormous volatility and is bad for the capital markets overall. It is another issue that is causing the public to lose faith in capitalism etc. and this is very bad for our economy (and our society I think) in the long term.”
Regulators around the world are trying to figure out whether and how much they should regulate HFT. That is an emerging story. Stay tuned.
"This information is general in nature and is not intended to constitute specific investment advice for any individual.” |
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April 2013
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Apr 10, 2013 12:54 PM
Rona Birenbaum
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The AODA’s deadline for providers of goods and services with 20 or more employees to file a Customer Service Accessibility Compliance Report was December 31, 2012.
AODA stands for the Accessibility for Ontarians with Disabilities Act. Many business owners are unaware of the law that requires the filing of a compliance report. They are also unaware of the onerous penalty for non-compliance.
Employment lawyer, Doug MacLeod tells the story of a client of his that received a non-compliance letter from the Ontario government. Her organization was given 15 business days to comply with AODA. Thereafter, the organization would be subject to a fine of $50,000 for each day the organization did not comply with AODA.
“The government has provided fairly user friendly tools to assist employers fulfill their obligations under the act” MacLeod says. There is a detailed package that provides directions on compliance reporting. MacLeod suggests not waiting until you receive a letter from the government to develop an accessibility policy and file the compliance report. “It appears that employers are being given very short deadlines for compliance. It is prudent to file the report now, even though the deadline has passed.”
Businesses with fewer than 20 employees don’t need to file the compliance report, but they are still have obligations under the Customer Standard of AODA. Such obligations include: establishing policies, practices and procedures on providing goods or services to people with disabilities; providing people with disabilities with notice of a temporary disruption in facilities or services; and providing training to certain persons about the provision of its goods or services to persons with disabilities.
The Ontario government provides a range of online resources to help business owners fulfill their obligations under the Act.
• For every provider of goods and services (except sole proprietors) there is a an accessible customer service policy template.
• For every provider of goods and services (except sole proprietors) there is a 45-minute online training course for employees.
• For every provider of goods and services with 20 or more employees there are directions on compliance reporting.
These resources, along with advice from your employment lawyer, are all that you need to become compliant with the Accessibility for Ontarians with Disabilities Act.
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March 2013
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Mar 26, 2013 10:51 AM
Rona Birenbaum
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This summary is intended to highlight the aspects of the budget that will affect some or all of our business owner clients. It is not meant to be a comprehensive outline and analysis of the budget.
Corporate income tax rates
There were no changes porposed to any corporate income tax rates.
Hiring credit for small business
The temporary hiring credit for small business will be extended for another year. The credit will be available to employers whose EI premiums were $15,000 or less in 2012.
Scientific research and experimental development tax credit (SR&ED)
More detailed information will be required when taxpayers use third parties to prepare a claim. Business numbers for each third party along with details about billing arrangements including the existence of contingency fees and the amount of fees payable, will be required. The claimant will have to certify if there was no third-party involvement in preparing the claim. There will be a new $1,000 penalty for all claims where the required information is missing.
Leveraged insured annuities
Leveraged insured annuities use a combination of borrowed funds, lifetime annuities and life insurance policies to create a current interest expense deduction, reduced capital gains tax payable on death, receipt of tax –free growth within the policy and an increase to the capital dividend account of the corporation. We have never been comfortable with such a strategy and now this budget has taken steps to eliminate the tax benefits that made the strategy so marketable.
10/8 arrangements
10/8 arrangements use life insurance policies and borrowed funds to create an ongoing interest expense deduction, a tax deduction for a portion of the life insurance premiums paid and an increase to the capital dividend account of the corporation. This is another tax driven insurance strategy that has always made us uncomfortable, and now this budget has taken steps to eliminate the tax benefits that made the strategy so marketable.
To facilitate the windup of existing arrangements before 2014, the budget proposes to alleviate the tax consequences of withdrawing from a policy under this arrangement to repay the borrowing, if the withdrawal is made on or after March 21, 2013 and before January 1, 2014.
Various other tax measures
• Accelerated capital cost allowance provisions for clean energy generation and mining companies.
• Elimination of corporate loss trading with a new provision that restricts the deductibility of losses in cases where there has been an acquisition of control of a corporation.
• Phasing out of the additional deduction available to credit unions over a five year period.
• Extention of the accelerated capital cost allowance for manufacturing and processing machinery and equipment acquired after March 18, 2007 and before 2014.
Please let us know if you have any questions about how the budget affects you.
"This information is general in nature and is not intended to constitute specific tax advice for any individual It is best to speak to your tax professional for specific tax advice.”
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Mar 26, 2013 10:46 AM
Rona Birenbaum
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This summary is intended to highlight the aspects of the budget that will affect some or all of our clients. It is not meant to be a comprehensive outline and analysis of the budget.
Personal income tax rates
There were no changes made to personal income tax rates, although tax brackets have been indexed by 2% to reflect the impact of inflation.
First-time donor’s super credit.
If you or your spouse or common-law partner have not made a charitable contribution since 2007 you are eligible to receive a one-time super tax credit for contributions up to $1,000. The donation must be made after budget day (March 21, 2013) and before 2018. The resulting benefit would be a 40% tax credit on the first $200 of donations and 54% on the next $800.
Lifetime capital Gains exemption
The budget proposes to increase the $750,000 lifetime exemption by $50,000 to $800,000. The limit will be inflation indexed for 2015 and subsequent years. This exemption is available only for dispositions of qualified small business shares, qualified farm property and qualified fishing property after 2013. If you already claimed the maximum exemption, the incremental new higher limits are available to you going forward.
Deduction for safety deposit boxes.
This deduction has been eliminated.
Dividend tax credit
The highest marginal tax rate on non-eligible dividends (typically paid to shareholders of a qualified small business) will increase from 19.58% to 21.22% after 2013.
Foreign reporting requirements
If you own specified foreign property with a cost that exceeds $100,000, you must file form T1135.
You can see the list of property that must be reported on the second page of the T1135 form.
For the majority of Canadians, property that they will have to report includes:
• Funds in foreign bank accounts
• Shares of Canadian corporations on deposit with a foreign broker; (not including U.S. IRA accounts)
• Shares of non-resident corporations held in certificate form or on deposit with a Canadian or foreign broker; (for example, US stocks like Apple, Coca Cola, etc.)
• Land and buildings located outside Canada, such as a foreign investment property; (this does not include property that is for personal use primarily)
• An interest in or a right to any specified foreign property, such as a foreign Trust
Character conversion transactions and corporate class funds
This refers to financial arrangements that attempt to convert ordinary income into capital gains, through the use of financial derivatives. Many corporate class fixed income mutual funds use such arrangements to minimize the tax burden for investors. As such, as these derivative contracts expire, the tax-efficiency of these funds will be reduced, albeit they will still hold a structural advantage as compared to mutual fund trusts and ownership of individual securities in non-registered accounts.
Taxes in dispute and charitable donation tax shelters
CRA is generally prohibited from initiating collection action in respect of assessed income taxes, penalties and interest in cases where taxpayers have formally objected to the assessment. In order to discourage participation in charitable donation tax shelters deemed offensive by CRA that lead to prolonged litigation and delayed tax collection, the budget proposes to allow CRA to collect up to 50% of the disputed amount pending ultimate determination of the tax liability. This measure will apply to 2013 and subsequent taxation years.
Testamentary trusts and graduated rate taxation
A common estate planning strategy involves the use of testamentary trusts (spousal trusts, for example) created in a deceased person’s will to hold a beneficiary’s inheritance. These trusts can be more tax efficient that receiving an outright inheritance because the trusts are subject to taxation at graduated rates and allow for the splitting of income between the trust and the beneficiaries. The Department of Finance is concerned with the increasing tax-motivated use of testamentary trusts and the impact on the tax base. The budget announced that the government will consult on possible measures to eliminate the tax benefits arising from the use of these trusts.
Please let us know if you have any questions about how the budget affects you.
"This information is general in nature and is not intended to constitute specific tax advice for any individual It is best to speak to your tax professional for specific tax advice.”
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Mar 4, 2013 9:23 AM
Rona Birenbaum
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Some Canadians have been asking their tax preparer not to file their return electronically because they believe that it increases the chance of an audit.
Whether e-filing increases the odds of an audit or if that is a myth is no matter. Starting in 2013, tax preparers who file more than 10 personal or corporate income tax returns are required by CRA to file them electronically.
What is the repercussion if a taxpayer refuses to file a return electronically? None for the taxpayer. It is the professional preparer who would be exposed to potential penalty for using an incorrect filing method.
So, if you want to file your tax return the old fashioned way, you will need to file it yourself or have a friend or family member help you. The good news is, there is helpful tax return software that is inexpensive and makes it easier than ever.
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February 2013
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Feb 14, 2013 3:58 PM
Rona Birenbaum
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If you are planning a trip to Florida anytime soon, do not pass GO, do not collect $200, but go directly to your local CAA office with $25 and passport photos.
A new Florida state law was enacted on January 1, 2013 requiring all international visitors have an international driving permit before getting behind the wheel on state roads.
The law is intended to help local police interpret foreign drivers’ licenses. That is why there is hope that eventually visitors with English-language driver’s licenses will be exempt from this law, but for now the international permit is required.
You can obtain the necessary permit application and information on the new legislation at your local Canadian Automobile Association office. CAA has done a good job of summarizing related information on their website here.
If you are already in Florida, applications can be processed by mail.
UPDATE: Canadians told not to worry. See updated details here.
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January 2013
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Jan 14, 2013 8:57 AM
Rona Birenbaum
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Being self-employed has many benefits, one of which is that business owners get increased tax planning opportunities.
Self-employment is a great tax-shelter because of the many tax deductions available to entrepreneurs. CRA allows deductions for a multitude of expenses as long as the costs and reasonable and were incurred in order to generate income for the business.
CRA isn’t going to take your word for it though, so recordkeeping is essential. One of the most common mistakes that entrepreneurs make is commingling personal and business expenses.
What does commingling look like?
• Using one credit card for both personal and business expenses.
• Using one chequing account for both personal and business expenses.
• Moving money from personal accounts to business accounts and vice versa without adequate documentation or explanatory notes
The advantages of segregating business and personal finances
• Your accountant (or you) can easily prepare your tax return. Less time spent by the accountant means lower accounting fees.
• You won’t break into a sweat if CRA decides to do a business expense audit.
• It is easier to assess the profitability of the business.
Separating your business and personal income and expenses will result in greater financial clarity, and fewer problems with CRA.
This information is for general information only and is not intended to constitute specific tax advice for any individual.
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Jan 9, 2013 11:11 AM
Rona Birenbaum
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Scientific research and experimental development credits (SR&ED) represent a significant financing and cash flow source for Canadian small businesses. Under this tax incentive program, corporations can get a tax credit of nearly 40% on eligible R&D expenses. In addition, should the corporation not have income taxes to pay, then in many circumstances the corporation can receive a cash refund of the amount of the tax credit.
For 50 of Canada’s fastest growing companies these credits represented 22% of their financing in 2012, according to the 2012 Profit Magazine Hot 50 report.
But changes have come to the program. One of the most significant is the elimination of R&D capital assets as eligible deductions under the program as of 2014. That means that 2013 is the last year that such eligible investments will generate a SR&ED tax credit.
Howard Lerner, CA and partner at Richter LLP in Toronto advises client that any planned capital expenditures that would be eligible for SR&ED should be acquired and used before December 31, 2013.
Examples of the type of equipment that often qualify under the program are:
- Equipment used in a test facility or laboratory
- Computer equipment used for testing software programs that would qualify for SR&ED
- Equipment used in testing food processing e.g. ovens, freezers, etc.
- Automobile used to test an alternative fuel source.
Before making such investments, speak with a tax advisor knowledgeable in SR&ED to find out if the expense is likely to qualify under the program.
Business owners of specialized equipment companies should put their sales force on over-drive to capture this window of opportunity. After 2013, the after tax cost of these products will rise significantly for customer
"This information is general in nature and is not intended to constitute specific tax advice for any individual"
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December 2012
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Dec 10, 2012 10:25 AM
Rona Birenbaum
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The spirit of the holiday season inspires charitable giving. Whether it is dropping a few coins in the Salvation Army bucket, helping out at a local food bank, or by donating funds in lieu of gifts, it really is the season of giving. Here at Caring for Clients, in lieu of holiday greeting cards, we made a donation to World Vision, in particular to programs that generated corporate matching donations.
To help you decide which organizations to support, Moneysense publishes an annual guide which provides detailed information on how charities raise and spend giving dollars. Check it out here.
Happy holidays and happy giving!
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November 2012
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Nov 8, 2012 12:49 PM
Rona Birenbaum
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Being self-employed has many benefits, one of which is that business owners get increased tax planning opportunities.
Self-employment is a great tax-shelter because of the many tax deductions available to entrepreneurs. CRA allows deductions for a multitude of expenses as long as the costs and reasonable and were incurred in order to generate income for the business.
CRA isn’t going to take your word for it though, so recordkeeping is essential. One of the most common mistakes that entrepreneurs make is commingling personal and business expenses.
What does commingling look like?
• Using one credit card for both personal and business expenses.
• Using one chequing account for both personal and business expenses.
• Moving money from personal accounts to business accounts and vice versa without adequate documentation or explanatory notes
The advantages of segregating business and personal finances
• Your accountant (or you) can easily prepare your tax return. Less time spent by the accountant means lower accounting fees.
• You won’t break into a sweat if CRA decides to do a business expense audit.
• It is easier to assess the profitability of the business.
Separating your business and personal income and expenses will result in greater financial clarity, and fewer problems with CRA.
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