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.

Tuesday, December 21, 2010

Comments and Best Wishes

The Blogger stats for this site reflect a significant increase in readership as of late. I appreciate that people other than my mom are now reading the blog. For those reading, it is not very clear, but there is a comments button at the bottom of each blog entry, beside the little panel with Twitter, Facebook, etc. Please feel free to leave your comments, I would be happy to answer a question or engage you in debate.

This is my last blog entry for this year. I have what I consider some interesting blog topics for January, but the readers will be the judge of that.

I wish you all a Merry Christmas/ Happy Holiday Season and all the best in the new year.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Tuesday, December 14, 2010

One Big Happy Family - Until We Discuss the Will

What I want to discuss in today’s blog is the issue of whether parents should discuss their will with their children.

When there is a “black sheep” child in the family, or a child who is not treated equally in the will, I expect that a family meeting would likely be a disaster. But what about a meeting in situations when the children are treated somewhat equally? There is no right or wrong answer, but I think a family meeting is wise. Any meeting of this type can turn ugly because of money issues, but more likely, any ugliness will be the result of historical family jealousies or resentment over some prior issue or treatment. Nevertheless, if you feel you can navigate the minefields noted above, the family meeting can be very effective and useful.

The family meeting could be used to deal or clarify several different types of issues. For example:

  1. Possible perceived inequalities: The meeting could be used to explain why you have left your Picasso to your daughter instead of your son so that he doesn’t feel slighted when the will is read. This discussion could involve explaining that since your daughter studied Art History at university, you feel she would appreciate the Picasso; however, since it is worth $500,000, you have left your son $500,000 of stock to equalize (or you have not tried to equalize, you can explain why face to face). Also, where you have left more money to one child (perhaps they make less money than the other children), you can use the meeting to explain why and explain that it has nothing to do with loving that child more, you are just helping them since they have not been as fortunate as the other siblings.
  2. Determine wants and needs of the beneficiaries: Many families have second properties such as cottages or ski chalets. Some children may have attachments to these properties while others might not, or maybe you are not sure whether any child would want to take over the property when you pass. A meeting provides the opportunity to raise the issue for your children to decide among themselves if they will want to sell the property, share the use, or have one child inherit the property. This issue may be best discussed prior to a will being finalized.
  3. Deciding on an executor: Most children have no idea of the responsibilities and the burden of being named an executor of the will. You can broach this topic at the meeting to explain the duties of the executor and determine if the children or child you wish to be an executor(s) are/is willing to undertake the position. (Click here to view an article regarding the duties of the executor).
  4. Full disclosure: Finally, depending how open you wish the meeting to be, you can provide a current list of assets to your children so they know what assets you own and where they are held. You should also provide such a list to your accountant or lawyer, or put such a list in your safety deposit box, but you must ensure such a document exists and someone knows where it is.
The decision to have a family meeting to explain your estate planning while alive and in good mental and physical health is a complex decision based on past family history and relationships. However, if you feel the meeting can be held without creating a “civil war,” it gives you a great chance to explain your estate planning and to get everyone onside.

The Dentist’s Wallpaper

There is not much to do while you are in the dentist’s chair, especially if you are not lucky enough to have nitrous oxide administered. Personally, I look for anything to take my mind off that damn drill.

One day while having a cavity filled I started reading my dentist’s wallpaper. Before you say “I think you really did have nitrous oxide administered and maybe too much,” you must understand my dentist’s wallpaper actually has “life quotes” all over it. One of the quotes was “Life is Hard by the Yard, But by the Inch Life’s a Cinch.”

I don’t want to get all philosophical here, but I just found the quote so interesting; it actually took my mind of the drill. Such a simple adage that says so much.

We all can get overwhelmed when we look at all the tasks and requirements of our daily lives, but if you break those tasks down into bite-sized pieces, the totality of all the tasks is less overwhelming. Although this is easier said than done, I do try and remember this quote when I feel overwhelmed.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Wednesday, December 8, 2010

The Blunt Bean Counter Mentioned in Weekly Blog Roundup

Thanks to Larry MacDonald, author and contributing columnist to the Globe and Mail, for mentioning my blog in his Weekly Roundup of Blogs. Larry’s blog covers various investment topics.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Capital Loss Strategies

The newspapers are filled with the typical year-end tax planning and investment strategies. It seems the number one strategy in almost all of these articles is to trigger any unrealized capital losses in your portfolio to use them against any capital gains you realized in 2010.
Well, what if you don’t have capital gains or you have capital losses galore from some prior investment mishap? Or, how about the case where you have gains and your spouse has losses, or vice versa? I will examine a couple strategies for 2011 to take advantage of these lonely unutilized losses.
Flow-Through Shares
The first strategy you may wish to consider is the purchase of a Flow-Through Tax Shelter (“Flow-Through”). Please see my September blog entitled Are You a Flow-Through Junkie for a discussion of Flow-Through’s. As noted in the Flow-Through blog, flow-through’s generate a capital gain upon disposition.
So following the $10,000 example in the September blog, you purchase a Flow-Through tax shelter in 2011 for $10,000 which results in income tax savings of approximately $4,600 in filing your 2011 income tax return and leaves you out of pocket $5,400 ($10,000-4,600). It should be noted that the adjusted cost base of your flow-through is now nil.
Typically the Flow-Through funds roll into a mutual fund 24 months following their purchase. If you sell the mutual fund 24 months later for the same $10,000 you purchased the fund for, and apply $10,000 of your unused capital losses, you would end up ahead by $4,600 on the investment ($10,000 cost -$4,600 in tax savings - $10,000 proceeds of sale). You also have downside protection. In the example above, where you utilize your capital losses, the value of the investment could fall to $5,400 and you would still break even.
Of course you and your investment advisor must evaluate the investment risk and consider that commodity prices may drop, or the market for junior resource stocks may deteriorate.
Transferring Capital Losses to a Spouse
Many couples trade independently and even if they trade together, one spouse may have realized capital gains while the other spouse has unrealized capital losses. Because the Income Tax Act does not permit transferring losses directly to a spouse, the typical strategy of selling stocks with unrealized losses to net against realized capital gains is not applicable. However, you are not out of luck.
The Income Tax Act prevents taxpayers from triggering a loss by selling a property to an affiliated person such as a spouse thorough the superficial loss rules. However, using proper tax planning, spouses can utilize the superficial loss rules of the Income Tax Act to allow one spouse to offset their gains against the losses of the other spouse.
Say June bought Glowing Gold Mines for $20,000 and the shares are now worth only $5,000 while her husband Ward is a sharp trader and has numerous gains. In order to transfer June’s capital loss to Ward, she sells her stock on the open market. Ward then immediately buys Glowing Gold Mines on the open market for $5,000. June’s losses are denied under the superficial loss rules because Ward, an affiliated person, has purchased the same security within 30 days of June selling.
But in an ironic twist of income tax fate, June’s loss of $15,000 is denied, but it is added to the cost base of Ward’s shares. His Glowing Gold Mine shares now have a cost base of $20,000 and if he sells them for $5,000 at least 31 days after purchasing them, Ward will have a $15,000 loss to claim against his capital gains even though he only purchased the shares for $5,000.  
Radar Traps
I think we can all agree, police radar traps are a necessary evil in school areas and on neighbourhood streets and certain other areas where speed could result in a fatality. However, it is another story when radar is set up as an apparent money grab in what we perceive to be non-risk areas. Of course, you know where I am going with this.
On the weekend I was driving on the 401 Highway in Toronto which has a posted speed limit of 100, but of course everyone drives between 110 and 120 km per hour. I was driving to an appointment around
Black Creek Drive , an area that I am not very familiar with.
The cut-off to Black Creek appeared to be a continuation of Highway 401. I was not going much faster than the speed of traffic and, in the middle lane, was not aware or even considering that the limit could have dropped. However, to my consternation, as I was flagged down, I learned that the speed limit for this cut-off was 80 km per hour.
The police officer was very fair to me under the circumstances, and I have no issue with him, my issue is the placement of the radar in this area. I told the police officer that having radar in this area is “like shooting fish in a barrel” and he did not disagree. This is one of those “it is what it is” issues, however, that does not mean I cannot publicly vent – one of the benefits of this blog.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.