My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, January 15, 2018

Estate Administration - The Importance of Advertising for Creditors

After writing the last two weeks about the Tax On Split Income Rules and the Ontario Minimum Wage Increase, I thought I would try a less controversial topic this week; that being the importance of advertising for creditors.

Over the years, I have written numerous times on the various issues associated with being named an executor, including this laundry list of requirements. Included on this list is the necessity to advertise for any creditors of the estate.

My guest blogger today is Patrick Hartford, who is the founder and managing director of NoticeConnect, which is a platform for publishing and accessing legal notices online to simplify the process of advertising for creditors. Patrick will discuss the importance of advertising for creditors and the risk to an executor if they do not do so.

Please note that while I agree it is important to advertise for creditors, the policy of this blog is to not endorse any specific company, so you will need to do your own research as to whether you engage NoticeConnect or not.

With the legal disclaimer out of the way, I thank Patrick for his blog post on this important, but often neglected estate issue.

Estate Administration - The Importance of Advertising for Creditors 

By Patrick Hartford


The majority of estate trustees in Ontario - both executors and administrators - are not advertising for creditors. This is a problem because trustees who do not publish a notice to creditors risk personal liability.

When someone dies, any outstanding debts of the deceased must be paid before the assets of the estate can be distributed to the beneficiaries. Whatever is leftover after the creditors have been paid can then be inherited by the deceased’s spouse, children, pets, etc.

It is the job of the estate trustee to identify and pay these outstanding debts.

Some debts are easy to identify, particularly if they involve a secured creditor like a mortgage lender. But there are often other debts that the trustee has no way of identifying. They could be old utilities or credit card bills, municipal taxes, or any other type of debt. The likelihood that outstanding debts exist increases if the deceased lived and worked in multiple cities or did business online.

It’s unrealistic to expect a trustee to play detective and track down every possible debt the deceased may have had. Instead, the law says that a trustee should ‘advertise for creditors’. In Ontario, this is governed by section 53 of the Trustee Act. Other provinces have similar legislation.

The trustee publishes a public advertisement, called a ‘notice to creditors’, stating that a deceased’s estate is being administered and any outstanding creditors have a set amount of time (typically 30 days) to come forward with their claims. When this time period expires, the estate will be distributed with regard only to claims that have been filed.

The law says that an estate trustee who advertises for creditors will be protected from liability if a previously unknown creditor comes out of the woodwork after the assets of the estate have been distributed. Conversely, if an estate trustee does not advertise for creditors, an outstanding creditor can sue the trustee personally for the full amount of the debt. There is no statutory limit or cap to this liability.

So why aren’t trustees publishing notices to creditors?

Sometimes because they are confident that the deceased had no outstanding debts that they are unaware of. This can be risky. Estates lawyers will tell you stories about clients who didn’t advertise for creditors, only to be caught by surprise later.

Another reason is the fact that advertising for creditors used to be prohibitively expensive. Notices to creditors used to be published in print newspapers, and publishing ads in multiple cities would easily cost thousands of dollars. While the estate covers this cost, few trustees wanted to spend this much money for print ads that few people would ever read. Fortunately, with the advent of services for publishing notices to creditors online and its acceptance in Superior Court (see this page for various articles and discussions on this case), the cost of advertising for creditors has been dramatically reduced and has restored its efficacy.

If you’re an estate trustee, it’s important to protect yourself from liability. Advertising for creditors will prevent you from having to pay the deceased’s old debts out of your own pocket.

Patrick Hartford, is the founder and managing director of www.NoticeConnect.com a platform for publishing and accessing legal notices online. Over 200 law firms, banks, and legal service organizations in Ontario have trusted NoticeConnect for publishing estate notices to creditors their clients.

The above blog post is for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Readers are advised to seek specific legal advice regarding any specific legal or estate issue.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Monday, January 8, 2018

Ontario’s Minimum Wage Increases

Today, I am writing about the changes to the Ontario minimum wage. For full disclosure, I wrote this blog post during the holiday break, with the intent to try and have a fair-minded discussion about this issue. However, as you likely know, all heck broke loose last week in respect of this issue, when certain retailers took steps to reduce the impact of the minimum wage increases and Ontario Premier Kathleen Wynne responded strongly informing them if they wish to pick a fight, pick it with her and not their employees.

I have updated the post to account for some of these recent events and comments, but the intent remains the same, an attempt to have an even-handed review of the issues surrounding this significant labour change. In my opinion, that review ends in two conclusions:

1. The various studies related to minimum wage increases are not conclusive.
2. Small business owners, in general, will take steps to maintain their bottom line and in many cases, those steps will likely be diametrically opposed to the government policy intent. 

So, what is all this uproar about? As of January 1st, the Ontario Liberal government increased the minimum hourly wage to $14, with a further increase to $15 on January 1, 2019. That is a 32% increase since the beginning of 2017. This follows the lead of Alberta which plans to increase its minimum wage to $15 by October 2018.

This issue is very complex. I have conflicting views: through the prism of an individual and fair-minded person, I feel higher minimum wages, especially in high cost provinces like Ontario and Alberta are necessary to keep workers in these provinces, and to allow those individuals to maintain a minimum standard of living. As an advisor to small businesses, and a former employer of 35 or so people, I also understand one of the main objectives of a business is to make money and increase the bottom line. The margins on products or services are very often correlated to the cost of wages and salaries and thus, any increase to these expenses, can have significant profit consequences.

What the Studies Show


In December of 2017, the Bank of Canada released this report, titled "The Impacts of Minimum Wage Increases on the Canadian Economy".

 Some of the key findings of the paper are as follows:
  • 8% of employees in Canada work at the minimum wage and estimates in the literature suggest that changes in the statutory rate have historically affected the wages of up to 15 per cent of employees with lowest wages. 
  • There could be a very modest inflationary effect ranging from 0.0-.02 percentage points over the next couple years.
  • The increases in the minimum wage lead to higher real wages, which push up firms’ marginal costs, and thus inflation increases accordingly as a fraction of firms adjust their prices in the short term.
  • Weaker labour demand leads to reduced employment and lower hours worked, although the net impact on labour income is positive.
  • Employment losses may amount to about 60,000 workers (it is my understanding this does not mean 60,000 in job losses, but means 60,000 fewer jobs may be created and in the detailed part of the report, it states the number could be as low as 30,000 or as high as 136,000 depending upon the measure used).
  • Consumption would be reduced slightly as the higher inflation would elicit a slight interest rate increase, which would more than offset the higher labour income.
  • Potential output should remain unchanged in the short run. Longer-term effects are possible through automation, productivity changes or changes in labour force participation. The sign of these longer-term effects is, however, ambiguous.
In this Talent Economy article titled “How Does the Minimum Wage Impact the Economy?" a U.S. publication, the author references several academic papers. The first study by The Institute for Research on Labor and Employment, finds “that a $15 minimum wage in California would increase earnings for 38 percent of the state, and businesses would see a reduction in turnover and increases in productivity. Raising prices by 0.6 percent through 2023 would offset increased payroll costs” which reflects a positive outcome of a higher minimum wage.

Yet, in the same article, the author quotes a report published in August 2016 from The Heritage Foundation that finds that a nationwide minimum wage of $15 per hour would lead to 9 million jobs lost, and states with lower costs of living would see the most negative impact. “Efforts to create jobs and reduce poverty should not center on forcing employers to pay higher starting wages,” the story concludes.

So, the studies are not conclusive one way or the other.

The Government's Position


In this Toronto Star opinion piece written yesterday by Kathleen Wynne, the Premier of Ontario, she opines the minimum wage increase is about fairness and opportunity for the citizens of the province. She does not feel the economics gains in Ontario have been shared equally by employers with their employees.

Premier Wynne states the following in the editorial "Big businesses and major corporations continue to celebrate record profits, while many people in this province juggle multiple jobs and still can’t afford the basics. CEOs enjoy massive salary increases while their workers can’t pay their bills.
That’s not right, and it's not who we are as a society".

Business Owners Position


Business owners are far from a homogeneous group and have varied situations and opinions on the topic. However, in general their position seems to be that minimum wages are an admirable social position, but it is not a practical policy, especially for certain industries such as restaurants and retail outlets (For example, it has been reported by the Great White North Franchisee Association, that the cost of implementing minimum wage hikes to each Tim Horton’s franchisee is $6,968 per employee and for the typical store, that results in increased costs of $243,889). Many small business owners feel the increase in minimum wage should be much smaller, phased in over more years and done in conjunction with tax policy that assists lower earning citizens.

How Retailers and Business Owners Can Manage Rising Minimum Wages


As discussed by BDO Canada LLP in this report titled “Nine Ways Retailers Can Manage The Rising Minimum Wage” there are both tactical and strategic options retailers can consider to reduce the impact on their businesses, where the impact of the minimum wage increase is significant.

Tactical Options


The BDO reports provides tactical options including: reducing employee headcount, optimizing shifts that employees work, reducing store hours to match customer shopping behaviour, reducing costs in other areas of the business and finally raising prices, which in effect, passes the wage increase onto the consumer.

In Ontario last week, there were widely reported cases where well known franchise owners scaled back work breaks, benefits and banned employees from accepting tips in an attempt to try and offset the minimum wage increase. These reports led to a huge outroar and publicity. These cases should cause business owners pause for thought; in that, tactical changes must also consider how your customers will react if the changes become public.

Strategic Options


The BDO report notes strategic options range from expanding technology beyond the self-checkout, optimizing government incentives, outsourcing non-core functions, and by giving the consumer more for their money.

In this article by Brenda Bouw in The Globe and Mail titled “Ontario small-business owners raising prices to cover minimum wage hikes”, the author considers the connection between tactical (price increase) and strategic (better client service) when she quotes retail consultant Doug Stephens of the Retail Prophet. Mr. Stephens says if prices are increased; “businesses could also view it as an opportunity to boost their customer service, by giving them more for extra money”. He goes on to say businesses should view this as “a watershed moment to design better and more enjoyable customer experiences that are actually worth more to their consumers”.

Issues Are Not Always Black and White


I have and have had, many small business clients who bend over backwards to never fire employees and to assist them as much as possible and some have even made 100% retention of their employees a condition of them selling their company. Often business owners are portrayed as heartless and just chasing the almighty dollar, yet, I have found many small business owners are the exact opposite and they care deeply about their employees. But, people are in business to make money, so while they may be conflicted in their actions and concerned for their employees, in most cases, their bottom line will influence their decisions.

Increasing the minimum wage has significant consequences to both a provinces employees and employers. Hopefully the economy is strong enough the next few years to absorb these increases, but in the end, only time will tell how these wage increases will impact Ontario and Alberta and whether the governments policy and intention will be served.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Monday, January 1, 2018

The Revised Tax On Split Income Rules

On December 13, 2017 the Liberals released a new and improved version of their income sprinkling/tax on split income (“TOSI”) proposals. The government’s backgrounder stated, “the revised draft legislative proposals include changes to better target and simplify their application”. I can agree with the targeted assertion; as some overly expansive drafting was corrected, but simplification, not in my world.

The new rules while more objective than the previous version, are still very subjective. In my opinion these revisions will just create more angst among the small business owners caught by these proposals and will result in court cases for years. Add in that these rules were released the week before the Christmas holidays and not issued in conjunction with the passive income rules that are supposedly to come in the next budget (planning for dividends may be dependent or intertwined with the final passive rules) and I don’t think the Finance Minister will be winning any politician of the year awards from any private business associations.

In my opinion, all these TOSI rules would not be necessary if the government would have simply disallowed income sprinkling for anyone under age 25 that that does not work full-time in a business and for all Canadians (whether business owners or not) started taxing spouses as a single-family unit. But then, nobody asked me.

Today, I will summarize whom I see as the winners and losers of these new proposals and those caught in the grey area. Finally, I will provide some details on the revisions to the TOSI rules.

As this legislation is new and will likely still require some clarification, I want to make it clear that this post is solely for general information purposes. You should consult with your professional advisor, so they can review these proposals based on your specific fact situation.

Scorecard


Winners


1. Business owners over 65

2. Individuals who inherited shares of a small business

3. Businesses where shares, votes and value are allocated evenly among family members and are not service businesses

4. Canadians who work at least 20 hours a week on a regular and continuous basis in the family business

5. Retired owners that were caught under the initial rules because they were considered related even though an arm’s length person now ran the corporation

Losers


1. Beneficiaries of shares held by Family Trusts

2. Professionals

3. Small businesses that provide services and do not sell products

4. Estate freezes recently undertaken and/or where there is large redemption value remaining in the preference shares issued upon the freeze

Unclear


1. Families were shares have already been distributed from a trust or were purchased upon incorporation and the parents have voting control

2. Estate freezes where most shares have been redeemed

The New Rules


The new rules are very detailed and I do not intend to regurgitate all of them here. I will summarize the rules only at a high level. For details and FAQ’s, please see this CRA link  (scroll half-way down the page to related products and you will see guidance and other more technical material).

The new rules have four key exclusions: 1. An excluded share test 2. Excluded business test 3. Reasonable rate of return test and 4. Retirement and inheritance exclusion.

I will summarize them below and discuss how they may affect you.

Excluded Shares- The share ownership test


The TOSI rules will not apply where you have attained the age of 25 and all of the following conditions are met:

  • You own at least 10% of the outstanding shares of a corporation in terms of votes and value and the corporation meets all the following conditions:

(a) It earns less than 90% of its income from the provision of services

(b) It is not a professional corporation

(c) All or substantially all its income is not derived from a related business

At first blush, this test seems like a god-send for private corporations where family members are shareholders and have attained the age of 25. However, in many cases the parents have the majority of the voting rights and may have significant value in preference shares as result of a prior reorganization or estate freeze. Where the issue is only votes, you may be able to reorganize your corporate share structure to meet this condition as the government has stated that even though the rules are applicable January 1, 2018, you have until December 31, 2018 to get your corporate house “in order”.

This rule will essentially preclude the use of family trusts for income splitting purposes other than the capital gains exemption. It is important to note, that the TOSI rules will not apply to capital gains on the sale of qualified farm or fishing property and to the sale of qualified small business corporations (“QSBC”). Most private corporation owners reading this blog post have shares that either qualify as QSBC shares, or can be made to qualify for the capital gains exemption through a purifying transaction (see this post I wrote on this topic). The exclusion for the sale of these shares is not age dependent (however, where an individual is under 18 and the sale is to a related party, the exemption will be problematic). Not that I want to look a gift horse in the mouth, but we have all these complex rules to prevent income sprinkling and you are still allowed to allocate the 2018 exemption amount of $848,252 to a minor?

Professional corporations are excluded, as they have been one of the main targets of the Liberals throughout this whole debacle. However, pay careful attention to the word “services”. At first glance you think services is just another arrow aimed at professionals, but services as written (it is not defined anywhere) would seem to include the services of a barber, gardener, massage therapist, computer consultant etc. Many small businesses may not meet this exclusion if they don’t earn at least 11% of their revenue from the sale of products. In my opinion, this provision may “blow-back at the government once it is better understood; assuming the literal interpretation is the proper reading. It should be noted that if you and your spouse/children 18 years old and over meet the labour criteria for the excluded business test based discussed below, then having a service business will not in itself preclude you from income sprinkling.

The related business in (c) above is just a provision to ensure a service business does not impose another business between it and the family member to get around the rules, although, some tax observers are concerned this provision could accidentally cause issues where shares are held through a holding company. This is one area that the Liberals will need to clarify.

Excluded Business –The labour test


The TOSI rules will not apply where you are 18 or over and have been employed by an excluded business, which is “a business in which the individual is actively engaged on a regular, continuous and substantial basis in the taxation year of the individual in which an amount is received or in any five previous taxation years". The CRA states that “To access the exclusion in respect of five previous years of labour contributions, it is not necessary that the five previous years be consecutive or after 2017. Any combination of five previous years would satisfy the test”. The test will also account for businesses’ that are seasonal, such that the test will apply to the seasonal period

Finally, the CRA says “To provide greater certainty (but without limiting the generality of the test), an individual who works an average of 20 hours per week during the part of the year that a business operates will be deemed to be actively engaged on a regular, continuous and substantial basis for the year. If an individual does not meet the 20-hour threshold, then it will be a question of fact as to whether the individual was actively engaged in the business on a regular, continuous and substantial basis. However, even if an individual aged 25 or older does not meet the regular, continuous and substantial threshold, the TOSI will apply to amounts derived from a related business only to the extent that they are unreasonable (i.e., only the unreasonable excess will be subject to the TOSI)”.

This labour test is a fairly clear bright-line test; you must work over 20 hours per week for at least five previous years or you get into a subjective reasonability test that will likely result in most amounts being in excess of reasonability.

The CRA provided some guidance in the materials stating that records such as timesheets, schedules and logbooks will be sufficient to confirm the hours a person worked.

Reasonable Return on Capital Test


There are two tests within this exclusion:

1. Safe Harbour Test

2. Reasonable return test

Safe Harbour Test


Where an individual 18-24 years of age has contributed capital, and does not qualify for the excluded share or excluded business exclusions, they may still qualify for a “safe harbor exemption” (No that does not mean you take your money and hide it in a safe harbor in the Turks and Caicos).

It means that you will be provided an exclusion from TOSI income to the extent of your capital contribution x a prescribed rate (currently only 1%). i.e. If you contribute $100,000, you multiply the $100,000 x 1%=$1,000 and you can exclude $1,000. To be a blunt bean counter, this exclusion is pretty much useless, since a) The reality is that in probably 95% of the cases, most shareholders only contribute $100 or less to purchase their shares and b) as noted above, the low prescribed rate means even if you did contribute a fair bit of capital, such as $100k, your exclusion is still a meager $1,000.

Reasonable Return Test


For those 25 years of age and older, this very subjective test says that a reasonableness test is to be applied to such factors as:

  • Work performed 
  • Risks assumed by the individual in the business 
  • Any other factors that may be relevant

Your guess is as good as mine as to how this would be applied. Consider Mr. A who is a shareholder and works full time in his business. His daughter also a shareholder, is a computer science student who comes up with a software application that leads to over one million dollars in new revenue for the business. What is her "reasonable" entitlement to dividends?

Retirement and Inheritance


The initial drafting of the proposals appeared to have inadvertently caused the TOSI rules to apply to retired private corporation owners and Canadians who had inherited private corporation shares. The new proposals have addressed these concerns.

The new TOSI rules provide the following exemptions:

1. Where an active owner-manager (someone who met the labour contribution rules) reaches age 65, the TOSI rules will not apply to their spouse (no matter their age). Note: these rules do not mean you can split your dividends like you do your pension income. They only allow you to pay dividends to your spouse who is not excluded by any of the provisions and avoid the TOSI rules where you are 65 or over.

2. If you are over 18 and inherit shares in a private corporation from someone who met the TOSI one of the TOSI exclusions, those shares will continue to be excluded.

Salary


The new rules do not apply to salary. However, there has always been a reasonableness test for salaries paid to family members vis a vie what would you pay an arm’s length persons and that rule will still apply.

Prescribed loans


The new rules do not appear to prevent the use of prescribed loans where you purchase public securities. See this blog and speak to your advisor about whether this strategy would be advisable for your situation.

At this time, I am not entirely comfortable answering questions on these proposals, until we have further clarity. So, if you ask a question or provide a comment on this post, I may not answer the question or will couch the answer. So please don’t expect definitive answers if you ask a question.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Monday, December 18, 2017

The "Hole" In Life Insurance - Part Two


This is my last post for 2017 and I wish you and your family a Merry Christmas and/or Happy Holidays and a Happy New Year. I will comment on the recent Liberal revisions to the "income sprinkling" proposals in my first blog post in January. The timing of these proposals (just before the Christmas holidays), the subjectivity still remaining in these rules and the fact the passive income rules are still apparently a couple months away has left the small business community seething and still pretty much paralyzed (in many cases, dividend planning is intertwined with the future passive income rules). 

Last week in Part one of this two part series on Life Insurance, Doug Leyland and Jordan Matters two Chartered Professional Accountants who deal full-time in insurance solutions for Leyland Insurance Solutions Inc, discussed the basics of Term and Permanent insurance and in which situations you would typically utilize these two types of insurance.

Today, Doug and Jordan move from your insurance needs to possible insurance strategies for Permanent Insurance. I thank Doug and Jordan for their insightful posts.

As noted last week, please keep in mind that these two posts are Doug and Jordan's opinion and there may be insurance advisors and accountants who may have differing opinions on whole life insurance.

The “Hole” in Whole Life Insurance

By Doug Leyland and Jordan Matters

Last week we left off just after we explored some of  the various needs for permanent insurance. Today, we conclude with planning for the appropriate strategy and product, once your needs have been determined.

When illustrated and presented, Par permanent insurance strategies definitely look attractive. However, in our opinion, a deeper dive into the workings of a Par policy exposes some often-aggressive assumptions that will most likely lead to actual outcomes being materially lower than illustrated. Where the strategy’s goal is to solve a specific need, or maximize an estate, a fully guaranteed UL contract provides a better option in our opinion.

We can spend a lot of time reviewing the inner workings of Par policies, but that’s for another day (if Mark invites us back). In short, the performance of a Par policy is highly dependent on the dividend scale applied by the insurer. Dividend scales for insurers across the board have been on a steady decline because of the low interest rate environment.

If we were to present historical charts for the various insurers, they would reflect a declining trend of dividend scale being paid to their own Par policies. In the early nineties, dividend scales were over 10% and today they are around 6%, depending on the insurer. We believe that this downward trend will continue and this belief is backed-up by literature published by various insurers.

The uncertainty of future dividends creates a problem when trying to position a Par contract into a life insurance strategy designed to solve a specific need.

When considering a Par policy, it is essential to illustrate the projected values at the current dividend scale, current -1%, and current -2% in order to understand the variability associated with the policy.

Typically, you already have enough risk in your traditional investments and business interests – why add risk to your insurance contract?

We strongly recommend the use of minimum funded UL contracts in strategies that require the guaranteed outcome that UL insurance provides, including funding a future tax liability, estate maximization, estate equalization, or share redemption.

When structured properly, UL insurance contracts pass all investment risk to the insurance carrier and can be illustrated on a guaranteed worst-case scenario basis.

From a Cost Perspective


In almost every scenario we have considered, premiums for Par are more expensive than guaranteed UL when comparing the same guaranteed death benefit and funding time horizon. Therefore, you can fund a specific estate need at the lowest cost through UL. The savings in premiums can be invested in your existing portfolio at your direction.

Whether you are a successful business owner or individual, you have worked extremely hard to accumulate and preserve your wealth and it is likely that you would like this wealth to benefit future generations. It’s no secret that the two guarantees in life are death and taxes, because the government will always want their pound of flesh. Upon passing, wealth is allocated among three beneficiaries: 1) Your heirs, 2) Charity, 3) Canada Revenue Agency. A properly structured permanent life insurance strategy can minimize the amount of your wealth allocated to the CRA in favour of your heirs and those organizations you care about.

We always advise clients to consider the permanent life insurance policy in concert with their overall asset mix as an estate bound investment, whether it is UL or Par. As with any investment, it is essential to fully understand the associated risks. Mark comment: I have been told by some very astute investors, that they consider "investment" money they put into a life insurance policy as a fixed income component of their portfolio. i.e. They don't worry about the insurance cost of the policy as long as the return after policy costs/funding is superior to that in which they can receive on other fixed income products.

Doug Leyland CPA, CA, MBA & Jordan Matters CPA, CA work together at Leyland Insurance Solutions Inc. in Burlington, Ontario. They assist their clients with insurance based tax and estate planning strategies. If you would like to get in touch with Doug or Jordan, their emails are dleyland@leylandinsurance.com and jmatters@leylandinsurance.com or you can call them at 905-331-2885.

The above blog post is for general information purposes only and does not constitute legal, insurance or estate planning or other professional advice of any kind. Readers are advised to seek specific legal, insurance or estate planning advice regarding any specific issues.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Monday, December 11, 2017

The “Hole” in Whole Life Insurance

One issue that confounds most accountants and their clients alike is life insurance. The products can be complex and you are always concerned whether you are being sold something you don't need or something more than you need.

Today and next week, I have guest posts by Doug Leyland and Jordan Matters two Chartered Professional Accountants who deal full-time in insurance solutions for Leyland Insurance Solutions Inc. I am hoping you find their posts help demystify term life insurance and permanent insurance (whole life and universal life insurance) for you, or at least clarify what you should be looking for in an "investment" insurance policy for you personally or your corporation. I thank Doug and Jordan for their efforts.

Please keep in mind that these two posts are Doug and Jordan's beliefs and there are insurance advisors and accountants who may not necessarily agree with their opinions.

The “Hole” in Whole Life Insurance

By Doug Leyland and Jordan Matters

What is your opinion on life insurance? Chances are it is good, bad, or ugly with no middle ground. Is this opinion based on personal experience or what you have heard from friends and colleagues? There is a vast array of life insurance strategies and products available and this can make the landscape appear to be somewhat complex. Some people base their opinions on a limited understanding of the various applications and benefits that life insurance can offer, especially for business owners. The goal of this post is to provide insight on this and simplify things for you.

The need for insurance and the related tax-free proceeds a policy can provide arises from the undesirable economic consequences of either a premature death or an estate liquidity need (i.e. your estate needs to sell real estate in a down market to raise funds to pay income tax for the estate of the deceased person).

Typically, a term insurance policy is used to cover a premature death, while an estate need is most often satisfied by permanent insurance, either Participating Whole Life ("Par") or Universal Life ("UL"). All types of life insurance are simply a promise to pay by a third party in the event of death.

In the next couple paragraphs we will provide some background on these various insurance options.

Term Life Insurance


Term coverage represents insurance in its most traditional and simple form – transferring risks that are too high for you to accept to an insurance company in exchange for a fee.

If the insured does not die during the term, there is no residual benefit other than the ability to convert the contract to either Par or UL without a medical or to renew the term coverage at contractually specified amounts. In many cases, these polices are left to lapse and are not renewed in any form.

Let us ask you this simple question. What might the financial implications be if you were to die prematurely?

This question leads to a needs analysis that considers the following important issues:
  • How do you replace the decline in a business’ value (Goodwill or Key Person insurance)?
  • How do you ensure there are funds available to buy out the shares of a deceased business partner?
  • Do you wish to have insurance to pay off a mortgage or other debts?
  • Do you wish to ensure there is funding for your children/grandchildren education?
  • Do you want to replace your lost income and provide spousal support, if applicable, to avoid having your spouse needing to find employment?
If your objectives are listed above, a term life insurance policy is likely the most appropriate for you.

Permanent Life Insurance


There are significant differences between Par and UL contracts. Understanding the differences is essential because they will have a profound impact on the premiums required to fund the contracts and the likelihood that your estate financial objectives will be achieved. The key take away here is to understand which party to an insurance contract assumes the investment risk of turning premium dollars into a paid promise.

With a Par policy, the risk is shared by the policy owner and insurance company (this represents the “hole” in whole life). With certain forms of UL, the risk falls entirely to the insurance company (i.e. minimum funded Level Cost of Insurance (COI) and Limited Pay UL contracts).

Where the goal is to fund an estimated estate liquidity need, in our opinion, this risk should be third partied entirely via a minimum funded UL contract.

Once again, please consider the following question. What are the liquidity implications for my estate or spouses estate, when I, and/or my spouse, die near life expectancy?

This question about your liquidity requirements causes you to consider some of the common estate needs detailed below:

1. How do I fund capital gains taxes?
2. How do I ensure Estate Equalization (For example, when some heirs are in the business while others are not)?
3. How can I use insurance to assist with my succession planning (Transfer assets to the next generation tax free)?

Other economically beneficial strategies using permanent life insurance include:

1. Life Insurance as an Investment – Estate Anchor & Maximization
2. Charitable Giving
3. Retirement Income

Now that we have explored some of  the various needs for insurance, next week in Part 2 we will discuss some of the appropriate strategies.

Doug Leyland CPA, CA, MBA & Jordan Matters CPA, CA work together at Leyland Insurance Solutions Inc. in Burlington, Ontario. They assist their clients with insurance based tax and estate planning strategies. If you would like to get in touch with Doug or Jordan, their emails are dleyland@leylandinsurance.com and jmatters@leylandinsurance.com or you can call them at 905-331-2885.

The above blog post is for general information purposes only and does not constitute legal, insurance or estate planning or other professional advice of any kind. Readers are advised to seek specific legal, insurance or estate planning advice regarding any specific issues.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Monday, December 4, 2017

Let Me Tell You! Marriage Tips From a 30 Year Expert

As I noted in October, I am planning to write occasional blog posts under the title “Let Me Tell You” that delve into topics that may a bit more philosophical or life lessons as opposed to the usual tax and financial fare. Today I share some great marriage tips from a friend.

This summer my buddies and I hosted a dinner at my house to celebrate the engagement of our friend's daughter. We had a great time and some of us gave toasts to the future couple. One of my friends, Monty Warsh, a well-known leasing lawyer for Aird & Berlis, came equipped with multiple que cards for his toast (hey he is a lawyer after-all).

Monty who has been married 31 years to his lovely bride, presented a David Letterman like top ten tips to keep your marriage strong. I was not expecting much (sorry Mont) but was so impressed with his list that I asked for a copy to post on my blog.

Top Ten Tips for a Successful Marriage


Without further ado, here are Monty's top ten tips for a happy and enduring marriage:

10) Maintain Your Independence - Don’t give up who you were and some of the activities and pursuits you had before marriage. Continue to pursue those hobbies and friendships that make you happy.

9) Compromise - You are not always right and neither is your spouse. Find a middle ground that both of you can live with.

 8) Do Not Cross Enemy Lines - Do not make a practice of confronting the in-laws with issues, but rather go through your spouse to communicate the message. Blood relatives are more easily forgiven.

7) The Unexpected Celebration - Celebrating birthdays, anniversaries and Valentines day is nice, but very commercial. Bring home flowers or gifts on non-holidays and for no special occasion.

6) Vacation - Put some money away for a holiday or there will always be somewhere else to deploy your money. It is important to get away and relax and re-energize.

5) Sense of Humor - Laughing releases the tension…..and we all like to be around happy positive people and laughing is contagious.


4) Don’t go to Bed Angry - Things can fester and blow out of proportion if you do.

3) Communication - No one is a mind reader….let your other half know what you are thinking. Don’t be afraid to show vulnerability if it means being transparent.

2) Date Night - Preserve the passion and avoid the trap of slipping into regular and sometimes boring routines.

1) Yes Dear - Guys, sometimes you just have to do it.

There you have it, 30 years of wisdom and common sense. As someone who just celebrated his 30th anniversary, I think Monty has provided some great advice and marriage tips.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

Monday, November 27, 2017

The Results Are In From The Financial Survey!


Earlier this year, I wrote about a survey BDO Canada LLP was conducting to assess the impact of financial and wealth trends. Many of you took part in this study – thank you very much for your tremendous participation and input. Some of you received a free copy of my book Let’s Get Blunt About Your Financial Affairs for participating. I hope you enjoyed the book and found some useful financial tidbits.

The survey results are now in and they provide exactly the type of perspective I had hoped to glean. Almost 1000 Canadians contributed to provide a trove of valuable insights on how we deal with family, finances and retirement planning. Very interestingly, a significant number of the survey respondents were small business owners. As such, BDO decided to create two reports:
  • one for small business owners, which was just released on November 21st titled "From Plan to Retirement: How Business Owners Manage Their Wealth, Lives and Legacies
  • a second report, for non-business owners which will be released in early 2018.
The current report, which is very timely given the recent Liberal tax proposals for private business owners, focuses on the challenges they face in managing their wealth. If you are a business owner, I suggest you download the report which can be found here.

While this report centers on business owners, it delivers some great tips and strategies for all Canadians. Jonathan Townsend, the National Wealth Advisory Services leader for BDO Canada LLP provides a synopsis of the report in his guest post below. 

From Plan to Retirement: How Business Owners Manage Their Wealth, Lives and Legacies  By Jonathan Townsend


Business owners occupy a unique space in Canadian society. On the one hand, they share concerns with most hard-working Canadians who receive a paycheque from their employer. They strive to get ahead. They balance current-day spending with future financial needs. They worry about their family. Sometimes they worry about their health.

But business owners are also a tribe to themselves, lacking workplace standards like employer-sponsored pension plans and paid vacation allotments. The entrepreneurial tendencies that initially called them to business ownership only deepen when faced with the reality of “eating what they kill.” As their business moves through the business life cycle, their independent experience affects all aspects of their lives.

This is where this new report by BDO Canada excels: in contrasting business owners with non-business owners. Using survey results provided by almost 1000 Canadians of both groups, the report analyzes key points along the retirement/wealth management journey for business owners, from speed bumps to roadblocks to open roads under clear skies.

Among the key findings from our study:

  • Preparedness - Business owners plan more for retirement than non-business owners but feel less on track
  • Work in retirement - Almost one-third of business owners plan to work part-time after retirement — compared to 12 percent of the general population
  • On succession - More than one in three business owners in our study plans to retire in the next five years. Without the right succession planning, these businesses are at risk of adversely affecting the owners, their families, employees and the wider Canadian economy
  • On family - Financial support for children was more common among the business owners we surveyed than among non-business owners
These results — and strategies highlighted in the report — provide takeaways to fold into your own successful planning. I invite you to download the report here.

Jonathan Townsend is the National Wealth Advisory Leader at BDO Canada LLP. If you have any questions, please contact him at 519-432-5534 or jtownsend@bdo.ca

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the material is time sensitive and subject to changes in legislation or law.