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.

Friday, February 25, 2011

Confessions of a Tax Accountant & The Donation of Services to a Charity

I have pre-written many of my March and April blogs, as my life as a tax chartered accounant will get crazy shortly. Between preparing trust and estate returns which are due March 31st, personal income tax returns due April 30th, and the onslaught of December corporate year-ends, I will be kept very busy. In addition, I always seem to have a client either selling or purchasing a business during tax season, god forbid this should happen in the other ten months of the year.

To add content to my blog and to keep it fresh, I intend to start a weekly blog posting called Confessions of a Tax Accountant. This is not intended to be a whining session by an overworked tax accountant, but hopefully an update on income tax and filing issues that arise as tax season moves forward.

I am not sure where this will go exactly and whether it will work or be interesting, but I will give it a shot. An  issue that arose this week is discussed below.

Donation of Services

I had a client telephone me this week (actually the third client this year) excited that they were going to be issued a large donation receipt for the services that they provided gratis to a charity. Being an accountant, I did my duty and poked a hole in their balloon of inflated donation hopes.

Unfortunately, a charity cannot issue a receipt for services and they should not be leading my clients into thinking they can. The CRA says in regard to the gift of services  “at law, a gift is a voluntary transfer of property without consideration. Contributions of services (for example, time, skills, and effort) are not property. Therefore, they do not qualify as gifts for the purpose of issuing official donation receipts."

My clients cannot fathom the CRA’s position. They tell me their clients/customers would have paid significant sums for these services that they have provided for free. In a way I understand their frustrations, however, the valuation of services is such a nefarious concept that if you look at this objectively, it would create a valuation nightmare for the CRA to allow such; that is why the CRA requires valuable property such as cash or goods (although the donation of goods has its own valuation issues) before a donation receipt can be issued. As an aside, even if the CRA provided for issuing recipts for services, they would then consider the provider of those services to have earned notional income for those services resulting in a net of zero.

Where a charity pays a service provider and the service provider then chooses to donate the money back, the charity can issue a receipt for the monetary donation. However this also results in a net of zero to the service provider, ie: income reported equal to a donation credit.

[Blogers Note: In my Confessions of a Tax Accountant blogs, I will discuss real income tax issues that arise, however, I may embellish or slightly change the facts to protect the innocent as the saying goes.]

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, February 22, 2011

Personal Income Tax Filing Delays-Late and Amended T-slips

As an accountant on the personal income tax firing line, I have seen an enormous shift in the timing of when personal income tax returns are filed in Canada. In the "good old days", the timing of the filing of income tax returns was determined by personality type. People who were early birds and wanted to file their returns to get their refunds as soon as possible or to fulfil their compliance requirement came in early. Many others provided their returns between the second week of March and the first two weeks of April and finally, individuals with the personality type that are Christmas shopping on the 24th, brought their returns to us in mid to late April. In the past, this was great for accountants as these groups split the returns down the middle or were 60/40 such that the workload was spread out over March and April. Clients got better service since accountants and their staffs were not overwhelmed and there was time to properly review the returns and provide planning advice.

However, over the last ten to fifteen years, as Canadians have become more sophisticated and started purchasing mutual funds, flow-through investments and certain other investments, the filing landscape has changed drastically. Since T3 forms for mutual funds and the T5013 forms for limited partnerships do not generally have to be issued until the end of March, many clients, even the early birds, cannot file their returns early. This problem is exacerbated as the penalty for missing the filing deadlines are relatively minor and not a deterrent to the filing corporations, trusts or partnerships. Also there are no penalties for filing amended T3s, T5013s etc. The CRA appears to condone the multiple amending of returns and forms by these trusts and partnerships which are often amended in the last week or two of April.

Whether you engage an accountant or not, this issue still affects you. You may have all your slips ready to file March 1st, but you must wait for that one final slip possibly until the end of March or even later, delaying your refund. If you are waiting for one slip or even two and the quantum is not large, you may consider filing early and then filing a T1 Adjustment when you receive the slips, but most people do not want the hassle of doing such.

In addition, many T3 trust returns, for family trusts often have a March 31st filing due date (the return is due within 90 days of the taxation year often December 31st). Since the deadline for most T3 and T5013 forms is also March 31st and many of these slips have not yet been received, the filing of these returns can be problematic. Thus, accountants are forced to file returns using the information on hand at March 31st and then amend the returns when the tax slips are eventually received.

With clients often waiting for several tax slips, the filing ratio in my practice has changed such that now approximately 1/3 of returns are filed in March and 2/3 are filed in April. From an accountant’s perspective, the last two weeks of April are insane and not conducive to preparing tax returns. In addition, we end up filing many T1 Adjustment forms for the late or amended slips and the CRA wastes resources administering all these amendments. It is interesting to note that the CRA is aware of this issue and actually addressed it in the 2007 Federal Budget saying; it would review and streamline the T3 slip process, but nothing seems to have changed.

In my opinion, the CRA should consider one of the following changes:

  1. A February 15th deadline for T5s and a March 15th deadline for T3s and T5013s etc.
  2. February 28th deadline for trusts and partnerships that don’t have significant investment income (say 5% or less). Any investment income would be accrued where it was less then 5% of the total revenue.
  3. A March 15th deadline for T3s & T5013s where the units are held by investors (ie: income trusts, flow through partnerships, mutual funds etc.) and a March 31st deadline for family trusts.
  4. Or probably, most practically, significant penalties to deter the late filing of forms or penalties where amended forms and returns are done on a consistent basis.
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.

Retire Happy Blog-"Big Brother (Canada Revenue Agency) is Watching"

Thanks to Jim Yih of the Retire Happy Blog for publishing my guest blog “Big Brother (Canada Revenue Agency) is Watching” on how George Orwell would even be shocked at how much information the world's taxation authorities are requesting from us. 

Jim is a well known professional financial speaker, best selling author, syndicated columnist and financial expert. However, what has drawn me to his blogs is that he offers sound practical advice. His comments and suggestions can be translated into the everyday lives of his readers.

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.

Monday, February 21, 2011

The Blunt Bean Counter noted in The Globe & Mail - Staggered Deadlines for Tax Slips

Thanks to Dianne Nice for referencing me today in her column in the Globe and Mail's Globe Investor section, on how the February 28th and March 31st staggered deadlines for tax slips can cause havoc for filing returns.

Dianne, who is the personal finance web editor, writes an insightful weekly tips column on various personal finance issues, which are broken down into actionable tips. She is also one of the contributors to Home Cents which provides expert tips on how to make and save money.

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.

Sunday, February 20, 2011

The Blunt Bean Counter- He Shoots, he …..????

As I noted a couple weeks ago in my blog, I was one of the Prize B winners of the Mr. Sub Shootout . The Prize B package entitled me to take to the ice at the Air Canada Centre and to take two penalty shots on either of Grant Fuhr, Sami Jo Small, Curtis Joseph or Billy Smith.

As this is the first year I have not played hockey since I was around six years old, I tuned up in my garage last week; not exactly simulated conditions shooting at your summer tires, although once I hit the Air Canada surface, my skating was surprisingly strong considering the layoff.


This week I received an email that I would be shooting at noon on Sunday. I was allowed two guests, so I brought along my daughter and my good buddy Dave who is a hockey fanatic. Upon arrival, you have an autograph session and pictures, then get a tour of the Raptors locker room.

I took to the ice in my Bobby Orr throwback jersey (the best hockey player ever) and took a few practice laps around the Air Canada Centre (unfortunately, I did not feel the presence of Leaf greats of the past; I think they have been hanging out at Maple Leaf Gardens for 44 years), but I digress.

I was told that I would be shooting on Billy Smith. I had already decided on my first attempt I would go with a wrist shot or basic deke and leave my fancy between my legs deke for the second shot.

I think Billy missed the memo to take it easy, as his competitive nature took over, as he stopped the first 8 or so shooters and poked checked many, including the little kids. His stick is so quick even after all these years.

On my first shot I started at centre, built up speed and decided to go for a deke, I went right, left and back right and out came Billy’s quick stick to poke away my first attempt. Okay, so my plan was working, I had Billy thinking I did not have many moves in my tool box, little did he know what was to come.

I said a little prayer hoping my brain and body would work as one this one last time and started in on net. About the faceoff circle I let the puck drop between my skates and I then kicked it with the inside of my right skate to the outside of my left skate. I was relieved to see I had actually accomplished my task, until I looked up and saw Billy charging out of the net at me. I somehow squirmed away to the right and put the puck in the open net. As I was skating by, Billy whispered that if I tried that in a real game, he would have knocked me flat when I kicked the puck up to my stick. He was pretty easygoing about everything, considering I still don't think he likes to be scored on.

Following the shoot out we each got two shifts in a shinny game and I had a break away on Sami Jo Small who stopped me. As the puck went up ice, I told her with a wink she was lucky my mind and hands did not quite work like they once did, she smiled and smirked (the smirk meaning I would have still not scored on her in my prime).

Anyways, lots of fun for all, name on the scoreboard and a memorable experience.

Pictures and video will follow in a week or so for those who want to see The Blunt Bean Counter in action.

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.

Thursday, February 17, 2011

Creditor Proofing Corporate Funds and Do You Eat to Live or Live to Eat?

Creditor Proofing Corporate Funds

Most owner-managers of private corporations are concerned about creditors potentially gaining access to their corporation’s cash and investments through real or frivolous lawsuits. The simplest method to protect surplus corporate funds is through the use of a holding company. 

The Income Tax Act permits an owner-manager to transfer the shares of their operating company (“Opco”) to a new holding company (“Holdco”) without incurring any tax.  Following this type of transfer, the owner-manager would own the shares of Holdco, which, in turn, would own the shares of Opco.  With that type of ownership structure in place, Opco and Holdco would be what is known as connected corporations. 

When corporations are connected, they can typically pay their retained earnings (excess cash and other assets net of liabilities) of the corporation , as a dividend from Opco to Holdco on a tax-free basis.  This has the effect of removing excess cash and other assets from Opco so that it would no longer be susceptible to future creditors’ claims. This can be repeated in the future as Opco accumulates additional retained earnings.

If Opco requires ongoing cash and working capital, the funds received by Holdco could be loaned back to Opco on a secured basis provided a General Security Agreement (“GSA”) is registered by a lawyer. It is important to note the dividend first paid by Opco must be physically paid by way of a cash or other asset transfer and then physically loaned back to Opco by Holdco to ensure that the GSA is valid. 

Opco’s banker should always be advised in advance that Opco is undertaking a creditor proofing transaction.  Where a bank loan or other debt is present, the GSA will secure the loan but Holdco generally would still rank behind the bank or other secured creditors as far as payment is concerned.

The structure noted above is simple and effective. However, where the owner-manager or other family members have access to the $750,000 capital gains exemption and may potentially sell shares of the company in the future, this type of creditor proofing transaction may not be appropriate and some variation may be required. Depending upon your family and personal financial situation, it may be possible to creditor proof Opco, maintain potential access to the capital gains exemption and provide a means to income split with family members in one fell swoop by utilizing a “freeze” transaction.

This “freeze” transaction will be discussed in my blog in two weeks.


Do You Eat to Live or Live to Eat 

I love good restaurants, but I also love burger shacks, Middle Eastern shawarma and falafel restaurants and sausages from street vendors.

I list among my favorite things to eat steaks, corned beef and hot dogs in the meat area, shrimp, crab, sushi and lobster in the fish area, fries and potato chips in the fried area and ice cream and crème brulee in the dessert arena.

The above is a who’s who of the worst foods to eat cholesterol-wise (some say shellfish are not that bad for cholesterol) so in retrospect, I guess I shouldn’t have been surprised when my latest medical revealed my cholesterol had gone up. Poor food choices in conjunction with a lack of exercise due to a couple of back to back hockey injuries, finally took its toll. My wife, a very healthy eater promptly brought me into the fold and suddenly things I never heard of, or conceived of eating, like bran buds, flax seed and quiona, replaced donuts and fries. I now realize how much I am a live-to-eat person.

On the positive side, I have discovered that I actually like some foods that I would not normally look at, but in general my current diet is by no means a culinary delight. Hopefully I can get my cholesterol down and I can go back to a more balanced diet while eating smarter, but boy do I miss my bad foods.

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, February 15, 2011

CRA Audit- Will I Be Selected?

I am often asked how the Canada Revenue Agency (“CRA”) selects its audit victims; oops, I meant to say taxpayers subject to audit. Through experience I know certain taxpayers, certain claims and certain industries seem to trigger audits. With that in mind, I will list below what I have seen and how I believe the CRA selects certain individuals and businesses for audit.

Reasons for Individuals and Corporations

I would suggest there is nothing worse than a scorned lover, a business partner you have had a falling out with or a dismissed employee to trigger a CRA audit. These individuals know your little secrets; a cash deal here, an offshore account there and a conference you expensed that was really a vacation. These people are also vindictive and in some cases, they make statements and claims that are not factual in nature; however, the claims are enough to bring the CRA to your door.

CRA also loves net worth audits. These are audits undertaken because you live in a 3,000 square foot home, have a Porsche and kids in private school, and yet show minimal income on your tax return.  Typically CRA either stumbles upon these situations, or information from one of the individuals noted in the preceding paragraph provides a lead.

Reasons Specific to Individuals

We see far more desk audits (information requests in regard to certain deductions claimed) than full blown audits for individuals. You can expect an inquiry if you claim any of the following:
  • a significant interest expense,
  • an allowable business investment loss (usually if you held shares in a bankrupt private Canadian company),
  • tuition from a university outside Canada (typically the child and parent are tied together as most children transfer $5,000 of their tuition claim to their parents),
  • a child care claim for a nanny; even if you have filed a T4 for the nanny with CRA. Why CRA cannot crosscheck their records is baffling and befuddling.
In all the above cases you are just providing back-up information, these are not audits.

In past years individuals who purchased any tax shelter other than an oil & gas or mineral flow through have been audited. However, in most cases the CRA is auditing the tax shelter itself and the individual investors just get reassessed personally.

Full blown audits seem to occur with regularity in regard to individuals who earn commission income or self employment income and claim expenses against that income. In those cases, CRA gravitates to auto expense claims, requesting logs books they know one in 100 people actually keep, and advertising and promotion expenses they consider personal in nature.

Reasons Specific to Corporations

Corporations seem to be selected for three distinct reasons.

They carry on a business that is CRA’s flavour of the year; some prior flavours have been pharmacies, contractors and the real estate industry and any other industry CRA feels is a “cash is king” industry.

Corporations file General Indexed Financial Information known as GIFI. This information provides a comparative year to year summary of income and expenses. It is suspected by many accountants that CRA uses this information to review year to year expense and income variances of the filing corporation and to also compare corporations within a similar industry sector to identify those outside the standard ratios, but we don't know that for certain.

The final reason is that it is just your turn. I have no knowledge of this, but it seems like CRA just runs down a list and if you don’t get caught in regard to #1 or #2, your turn just eventually comes up.

In all cases it is imperative you keep your source documents to provide to the auditor; CRA more then ever wants source documents. It is also vitally important if you and not your accountant are meeting with the auditor, that you try and keep your cool. In the end, the auditor is just doing his or her job and if you treat them badly, you are not doing yourself any favours.

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.

Saturday, February 12, 2011

The Blunt Bean Counter Profiled in The Globe & Mail- Me and My Money


Thanks to Larry MacDonald http://blog.canadianbusiness.com/category/larry-macdonald/ for profiling me in today’s Globe and Mail - Me and My Money column

I am sure no one will confuse me with Warren Buffet or Peter Lynch. My investment style has taken me up and down like a toilet seat and has increased the sales of Pepto Bismol in Canada. But I am no worse for wear. I went for the fences a couple times, with my eyes wide open and willingly accepted the consequences of doing such.

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.

Thursday, February 10, 2011

How Long Do I Have To Keep My Income Tax Records

A common question I receive from my clients is “How long do I have to keep my income tax records?” For anyone actually interested, the CRA (“Canada Revenue Agency “) created guide RC4409 called “Keeping Records” that details everything you want to know about your record keeping and more. This guide is most applicable to individuals that carry on a business and corporations.

Now I know you are waiting with bated breath for the answer, but you will have to humour me while I provide some background details.

Firstly, CRA recognizes records were traditionally kept in paper format and that today many kinds of electronic records are kept by computer systems. CRA says electronic records may be stored on a computer, network, CD, DVD, tape or cartridge.

Notwithstanding the format of the records, supporting documents are required. The supporting documents can be kept in any of the above formats.

Finally, you are required to keep your source documents which include sales invoices, purchase receipts, contracts, bank deposit slips and cancelled cheques. They also include cash register receipts, credit card receipts and purchase orders amongst others to name a few.

Okay, now that I have kept you in suspense, here is he answer. The CRA says “As a general rule, you must keep all of the records and supporting documents that are required to determine your tax obligations and entitlements for a period of six years from the end of the last tax year to which they relate. The six-year retention period under the Income Tax Act begins at the end of the tax year to which the records relate.” Thus, in many cases you are actually keeping your records almost seven years.

The fact that you must maintain your records for at least six years does not mean you will be audited for 6 years at a time. Typically you are barred from being reassessed by CRA three years from the mailing date of your Notice of Assessment assuming there is no tax evasion and loss years are not still open.

A word of caution, ensure you keep your source documents, they are a key to satisfying many an auditor.

Where you are an individual and do not carry on a business, CRA says on their website you still are subject to the six year retention period. They have also said the following in respect of electronic tax return filings:

"Canadians who file their income tax and benefit returns electronically, or who do not file information slips and receipts with their paper-filed returns, should keep their tax records on hand in case they are contacted by the Canada Revenue Agency (CRA).

After returns are filed, the CRA verifies the income reported, as well as the credits and deductions claimed. For the 2008 tax year, about 2.4 million individual returns were reviewed.

Some of the first reviews of deductions and credits are done when the returns are filed, and before taxpayers receive their notices of assessment. However, most reviews take place later in the year, as the CRA works to verify the information on an individual's return and compares it with the information provided by other parties, such as employers, spouses, or common-law partners.

During this review process, the CRA may contact taxpayers to ask for more information on income sources or dependants. We may also request copies of receipts or information slips to support claims related to:
  • medical expenses;
  • charitable donations;
  • child care expenses;
  • spousal or child support payments;
  • moving expenses;
  • the home renovation tax credit; or
  • registered retirement savings plan contributions.
In addition, the CRA may ask you to support your claim by providing proof of payment in the form of cancelled cheques, bank statements, or other documentation. Keeping your records on hand makes it easier to respond to these requests. It will also help you explain your tax and benefit situation to the CRA if you do not agree with your assessment or reassessment."

The Family Meeting- Watch Out for the Outlaws

In the last few weeks, many people have opined on my blogs, One Big Happy Family-Until We Discuss the Will and Intergenerational Communication Gap. They have stated that they think it is a great idea to discuss the will and to open family communications about money in some circumstances. However, I have been told  that one thing I failed to consider was the interference factor by the “out-laws” or in-laws to some. I have been told that even where a family can have a civil meeting, the in-laws can then interfere by getting involved with their child and then ultimately the son or daughter of the parents that held the meeting become involved at the urging of their spouse via the in-laws and the whole thing unravels. Interesting observation.

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, February 9, 2011

The Blunt Bean Counter- One on One with Cujo, Fuhr, Smith or Small

Two months or so ago, I went to our local Mr. Sub with my daughter and was given a contest form for a Mr. Sub Shootout . I asked the Mr. Sub owner what the contest was for and he was not sure. Anyway, I filled out the form and forgot about it. Yesterday I got an email from Mr. Sub because I was one of the 390 winners of the Prize B package.

The Prize B package entitles me to take to the ice at the Air Canada Centre on February 20th and to put my best moves on one of either Grant Fuhr, Sami Jo Small, Curtis Joseph or Billy Smith.

Pretty cool, plus in addition, the shootout will be videotaped, which could be embarrassing. After playing hockey every year of my life, I stopped playing this year due to some injuries I incurred last year. I have not skated or played since last April, so I will be pretty rusty.

However, even as my skating speed has slowed down substantially, I still have the moves (at least in my brain, which may or may not transmit to my hands) and I have a great move already thought out (the old drop the puck through my skates, kick it with the inside of my right skate to the outside of my left skate and go top shelf). Of course I will probably trip over the puck trying this, but we shall see.

I will update my success or failure in a future 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.

Tuesday, February 8, 2011

Lessons Learned by an Investing Dummy

In life, one makes numerous mistakes; some costly from a personal relationship perspective and some costly from a financial perspective. A friend of mine was recently complaining about a dumb move he made in the stock market and it got me to thinking of some of the less than intelligent moves I have made investing.

For anyone who is a reader of my blog, my Resverlolgix investment is definitely the number one costly mistake. For those who have not read the blog, it is a November 2010 blog called “Resverlogix, A Cautionary Tale” and it is one of my better ones (blogs and investment mistakes) if I do say so myself.

Notwithstanding that disaster, I have also made two errors in regard to playing cute with the bid and ask price on both the sale of a stock and the purchase of a stock. About ten years ago I purchased a stock involved with the debit machines at grocery stores and alike. It was actually a great call on technology which I will discuss further below, but the company was bleeding and I decided to sell. The stock was $2.10 to $2.12 and I was so upset with the stock that I decided I was not going to lose any more money and put my shares up for sale at $2.12. My order did not get filled and the next day the company came out with bad financial news. When everything settled, the stock was worth 40 cents and I had lost another $1.70 per share over two cents.

What do they say about it being okay to make an error once, but if you make the same mistake twice then you’re an idiot? Well, hello. This year I decided to purchase a stock that was trading around $3.90 to $4.10. It was in that trading range for weeks, so I put in a bid for $3.90. I got a partial fill at $3.90, but it hovered around $3.95 to $4.00 for days. Of course, a week later it announced some good news and went to $4.40 and I decided I would not chase it, which is a good rule in general. The only problem is two weeks later they announced a significant licensing agreement and the stock went to $8. At least I had a small fill, but still, I lost out on a $4 gain by trying to buy for ten cents less.

So, lesson number one: once you decide to buy or sell, just do it if the bid and ask is within a reasonable range.

As noted above, I had made a good call on the debit card technology; however, I was too early to the game. Stocks in companies promoting disruptive technologies have unbelievable upside, however, the more disruptive the technology, the longer to market and the more financing problems the company is likely to have.

Thus, lesson number two: stay away from a stock involved in a disruptive technology unless you are willing to put it in the speculative portion of your portfolio and to leave it there for up to ten years, if it survives.

Lesson number three: stick to your guns.

I had a couple of stocks that I held for years during which they barely moved from the initial purchase price. I lost patience and sold and saw both the stocks triple within one year of my selling.

This lesson can also be called the “Ask Mark what he has recently sold and then buy it” lesson.  

The above is pretty tongue-in-cheek, but it is really important to establish personal guidelines in regard to buying, selling and holding stocks and similar investments.

R.I.D.E. Rant

I have a guest rant today on the Toronto R.I.D.E. ("Ride") Program from a friend of mine. The rant hit home with me, as I had the same experience with Ride, except I  was casitigated for chewing gum and was  told that if I dropped the wrapper that contained the plastic piece to blow into the breathalyzer, I would be  fined $100 for littering. Not to give away the ending, but I also blew the same number as my friend. 


Some Sobering Thoughts about the Toronto R.I.D.E. Program

I have always been an advocate of conceding some of my individual rights for the good of society as a whole – including the random testing of potentially drunk drivers.  I thought that if I ever was stopped by such a program, I would gladly participate if such programs can keep drunk drivers off of our roads.

While I still am onside with such a premise, I believe that the ‘decision-tree’ used by the Toronto Ride program is somewhat flawed – based on my first hand experience last night.  Please note that this is not a criticism of any policeman who follows procedure but rather a criticism of the instructions that policemen receive to execute this program.

Last night I was out with my wife and a few friends.  We had a dinner reservation at 7:45pm which was to be followed by a late movie at 9:50pm.  We ordered one bottle of wine for the 5 of us – and I partook in about 1 glass of that bottle – mostly consumed before 8:30pm.  I did not consume anymore alcohol of any kind that night.

After watching the movie, we went to our car, pulled out of the parking lot and then started to head home just after midnight.  I approached an intersection and started to turn right – towards what at first look like police cars attending to an accident – but eventually recognized that it was a Ride testing program – where the police were stopping cars in both directions.   My wife and I briefly thought of pulling a U-turn to avoid the spot check but felt that would be inappropriate as I had no reason to flee (as I was certain I was under the 0.05 blood alcohol limit).

As we approached the spot check, I rolled down my window – and was asked by a policeman if I had had a drink tonight.  I responded that I had one glass of wine about 4 hours earlier with dinner – and had subsequently seen a movie (to provide him some timelines).  I did not have any alcohol on my breath nor was I in any way incoherent nor slurring my speech.  The policeman asked me to pull over and park in the middle of the street.

Process Error #1

If I had answered that I had not had a drink, I would not have been asked to pull over as they had no other reason to interrogate me.  I answered truthfully – and was penalized for doing so.  As my business partner often tells me – desperate people do desperate things – if someone might be concerned about being over the limit, they might have either made the U-turn that I decided not to make to avoid this ‘trap’ (by the way, with no consequence as I observed others doing it afterwards), or answered ‘no’ to the policeman’s question and potentially avoided my current predicament.  My honesty was the key to their decision to pull me over.  This process is flawed by reflecting on the Liar’s Paradox – much akin to reflecting on the merit of someone stating: ‘this sentence is false’.

But I had nothing to hide – so I played by the rules.  Rather than asking me to ‘blow’ right away,  the policeman asked me for my driver’s licence, my insurance certificate and my ownership certificate – and then went away to analyze same.  I thought this was a random spot check for drunk driving – not an assessment of whether all my paperwork was in order – which, by the way, it was.

Process Error #2

If the primary objective of this random trap is to test for elevated blood alcohol levels, why did the pre-test process take in excess of 10 minutes prior to finally being asked to ‘blow’ – as, if my blood alcohol level had been border-line, this could have given me time to sober up.  They could always have done the paperwork afterwards – but the process order seemed odd to me – and contrary to their primary purpose.

I was then asked to walk to the patrol car for a breathalyzer test – ie to ‘blow’.  While walking to his car, I realized that, due to the fact that my car was in one of two ‘stop’ zones in the middle of the street, and that the other spot was similarly occupied, the spot check program was put on temporary hold – as cars were now being waived through without their drivers even being asked the question I was.  This program seemed to entail at least 4 police cars and at least 8 policemen – which was now all on hold as they interrogated me and one other person.

Process Error #3

           This program had effectively ‘trapped’ me – for all the wrong reasons noted above.  But, as a result of trapping me, this very expensive program (ie based on manpower and vehicle power tied up while testing me), was potentially missing out on catching those who were much more likely violators of our drinking and driving laws. 

As I walked to the patrol car – I started to get a bit nervous – as, while I knew that I should easily pass this test based on my extremely limited consumption of alcohol that night, what if my blood system worked differently from others and I was not able to process the alcohol in my blood as quickly as everybody else – or what if the equipment did not work correctly and displayed a false positive. 

After the policeman demonstrated how to properly ‘blow’ into the machine, my heart started to race a bit.   I blew into the machine – and somehow had blown incorrectly and need to do it again – creating more stress and concern by me.  Finally, I was able to ‘blow’ correctly - and recorded a blood alcohol level of 0.00!

Final Thoughts

While I still agree with the concept of the spot check program, the decision-tree process seems deeply flawed and needs rework.  If it is truly random, then stop random cars and test all stopped drivers – rather than relying on a process that itself gets captured within the Liars Paradox- especially if there is no alcohol on the driver’s breath or slurred speech… Finally, if someone is to be tested, it should be done without delay to maximize the effect of alcohol currently in their system.    

This program can work for all of us – but, to be more effective, the process decision-tree needs some work first.

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.

Thursday, February 3, 2011

Should I Stay or Should I Go?

The recent press controversy surrounding the income tax hit related to Registered Retirement Income Funds (“RRIF”) seems to keep oozing issues. This week the Financial Post talked about severing your residency ties with Canada so that the income tax bite would be a one time only 25% withholding tax on your RRIF, as opposed to a 46% hit on each withdrawal (assuming you are a high rate taxpayer).

At the mid-market accounting firm where I am a tax partner, the majority of our corporate clients have substantial net worth and have the wherewithal and income tax incentive to leave Canada should they wish. Over the years we have had multiple discussions with people who are unhappy about their income tax bills and whom out of frustration ask about becoming non-residents. The same issue arises when we have discussions about Retirement Compensation Arrangements (“RCA”). Under a RCA, you essentially pay income tax at 46% upfront, but if you become a non-resident you only pay a 25% withholding tax, resulting in a net refund of 21%.

Out of all the discussions we have had about the non-residency issue, I cannot recall one client who has decided to leave the country so that they would only pay 25% on their RRIF or RCA. The reality in my opinion, which may be off base, is most Canadians value their family, health plan and lifestyle more then the do the almighty dollar, and the income tax tail does not wag the lifestyle dog.

When I was at Price Waterhouse and the net worth of many clients was extremely high, I did see some clients take up residency offshore for income tax reasons, and we have all read articles about those individuals over the years. To each his own, but those people remind me of athletes that have it all in their current city with adulation and comfort, and yet they bolt to another city for $14,000,000 a year instead of $11,000,000. When is enough, enough? But I guess that is a philosophical blog for another day.


SHOEBOX TAX CLIENTS

I have been at many a cocktail party where some smart alec regales me with his/her story about their shoe box of records and how they torment their accountant every year. I usually shut them down by asking what kind of shoe box they have. They usually look at me quizzically and then I explain that unless they have a Berluti shoe box if they are male, or a Christian Louboutin shoebox if they are female, they probably cannot afford for me to prepare their tax returns.

Now you are probably wondering if I really say that, I can’t tell you, but I am The Blunt Bean Counter. Anyway, in all seriousness, I have been amazed over the years by how many people actually find it amusing that they torment their accountants by bringing in a shoe box at the last moment. I will not knowingly take on shoebox clients since I am doing a disservice to them and myself.

If you are one of those dreaded shoe box clients, I can only tell you that you are hurting yourself. The more disorganized you are, the better chance you have missed or misplaced you tax receipts/tax deductions, and the last thing accountants running around like chickens with their heads cut off in April want is a bunch of receipts to sort and add up. I would suggest your accountant, instead of using their energy to help you tax plan for future years based on your current return, will use their energy sorting receipts and have little or no energy left for the more important planning element.

Remember, if the shoe fits, wear it (check out the origin of this expression).

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, February 1, 2011

Where Are The Assets

If you died tomorrow, would your family and advisors know where your assets are and what assets you owned?

I would suggest the answer in 50% or more cases would be a resounding no.

If you have answered no, take this one step further; consider the havoc you will cause your family and executors. They will be distressed having to deal with your passing, now you are compounding their stress by forcing them to deal with an estate when they have no clue what assets you own, what debts you have outstanding or where the assets are held. Most likely they will not have a duplicate safety deposit key or even know where your safety deposit box(es) is/are.

Whether you are just negligent or lazy, your actions are selfish and you should immediately take steps to rectify the situation.

All this can be averted very simply. Take a weekend and complete a personal information checklist and then put a reminder in your blackberry, iPhone or Outlook calendar to review this checklist each year to ensure there are no changes.

Once completed, make at least three copies of your checklist and provide a copy to your spouse and one to either your accountant, lawyer or trusted third party. Then put the final copy in your safety deposit box and ensure either your spouse of another person is aware of the location of the safety deposit box and the key.

Here is a link to a basic personal information checklist from my firms (Cunningham LLP) website; this checklist should kick start your organizing and asset recording efforts.


Fore Means Golfer Beware


Most golfers have either been hit or nearly hit by an errant golf shot. One gets especially perturbed when the person who almost hit you does not yell “fore”! In fact one of my friends was hit in the ankle this year by another friend who did not yell fore and I thought his ankle was broken for sure.

I have often wondered what happens if you hit someone on a golf course and whether or not you are liable if you break a window on a house alongside a golf course.

While there seems to be various answers to the latter question, the former question was recently answered in a New York courtroom; the answer being that if you are hit without warning by a 'shanked' shot while searching for your ball, you are assuming  a commonly appreciated risk of golf and the ‘shanker’ is not liable.
The case involved Dr. Anoop Kapoor and Dr. Azad Anand. Dr. Anand was hit in the head while looking for his ball on a fairway blinding him in one eye. The seven judges on the State Court of Appeals, siding with lower courts, said Kapoor's failure to yell in advance of his errant shot from the rough did not amount to intentional or reckless conduct.

The court cited a judge's finding that although Anand was not in the foreseeable zone of danger, as a golfer, he consented to the inherent risks of the sport.

As a golfer I am not sure I agree with this judgement. I am probably okay with the line of reasoning if a player yells “fore,” however, when a player does not yell “fore” I would personally hold them liable.

Either way, don't forget to buy your golf helmet with visor this winter in preparation for next years season.

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.