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.

Monday, September 28, 2015

Curiosity May Kill the Cat, But it can Bring Alive Personal Relationships

Every once and a while, I veer off my tax and money mandate and provide you, my readers, with pearls of wisdom related to life. My pearl for today: be curious!

After reading my post, some of you may consider today’s pearl to be a salt-water cultured pearl of the highest quality, while others may consider my advice more like a pearl from costume jewelry. I hope more of you go with the former than latter, as it will enhance your personal and business relationships.

Suggesting you be curious may seem like an odd recommendation. Yet, by being curious you often find out amazing information about people and learn incredible stories. In some cases you may find your 6 degrees of separation with the person you are speaking to is closer than you imagined. You also create an opportunity for dialogue which strengthens your relationship.

I realized the importance of curiosity in a roundabout manner. Several years ago, a business acquaintance of mine recommended I read the book, Your Client’s Story by Scott West and Mitch Anthony to enhance my client relationships. While the book was written for financial advisors, I quickly realized the basic premise of the book held true for both business and personal relationships. The premise being: the more curiosity you have about people and the greater interest you show in them, the more you learn and enhance your relationships.

The authors of this book make an interesting point. They state for us to be truly curious, we must avoid letting our egos and insecurities "pull every conversation into orbit around ourselves". Think about that comment for a minute. How often do we center conversations on ourselves? It’s human nature as we are, for the most part, self-interested.

By being curious, you also let go of prejudices you may have inadvertently developed in who and why you talk to people. A perfect example of this is how we sometimes dismiss talking to older people, because they are, well old, and we have nothing in common with them.

The authors share two interesting stories involving being curious about “older people”. The first story relates to an investment advisor who was invited to a cocktail party at an old age home. As you can imagine, he was less than keen to attend. The advisor started talking to some of the senior citizens and as it happens, one had been a member of Senator Joe McCarthy’s staff during the period of communist paranoia (“McCarthyism”) in the U.S. As the advisor moved about the room, he met another senior who ended up being the school superintendent when the color line was broken in Arkansas. Can you imagine how interesting these two people’s stories would be to hear?

The second story was about Mitch's brother Mark, who while in college, was a John F. Kennedy (“JFK”) fanatic. Mark found a book in the college library written by Evelyn Lincoln, JFK’s secretary. The book had not been checked out for 15 years. After reading the book, Mark wrote to Mrs. Lincoln telling her how much he had enjoyed the book. She was surprised to know that anyone was still reading her book and invited Mark for a visit with her and her husband (who happened to be an aide to Bobby Kennedy). The dinner proved to be one of the most intriguing of Mark’s life.

After reading West and Anthony's book, I wanted to be more curious. So I asked a client, who I thought to be a capitalist through and through, how he got started in his business. He told me he had gone Berkley University in California in the late 60’s and early 70’s, where he was a bit of radical. As I am fascinated by that period of time, I asked many questions just about what life was like back then as he re-lived the era for me. We finally got back to speaking about how he ended up in his current business 20 minutes later. Not only did I learn about my client, but I think he appreciated that I took an interest in his past history.

I have done this numerous times since, and have been amazed at the stories, the confluence of events and even sometimes, the blind luck that have led successful people to where they are today. In almost all cases it has been compelling

How does Curiosity apply in the Business World?


From a business perspective, curiosity is vitally important. When you are curious, you are getting to know and understand your client through questioning them about common interests and backgrounds (or non-common backgrounds). By questioning you create engagement by taking the time to truly listen to your client’s actual issues, needs and concerns. This knowledge can then empower you to meet the needs of your client.

The authors have multiple questions in the book to ask your client to help you get to know and understand them. Here are 3 of the key questions:

  • what is your first memory of money?
  • what was your first job?
  • how did you start in your business?
So there you have it, my pearl of wisdom for today: be curious. If you are curious, you will often find your six degrees of separation with people whether they are personal or business relationships, draw out some interesting stories about their past, have a far greater appreciation for how they act, and strengthen your relationships.

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, September 21, 2015

Recent Changes in Legislation Make Reviewing Your Will A Must

Tax changes that will become effective January 1, 2016, may have a harsh and surprising effect on your will and estate planning. To explain these new changes, I have a guest poster, Howard Kazdan, a tax expert with BDO Canada LLP.

Below, Howard highlights some of the more significant changes in the legislation.

Recent Changes in Legislation Make Reviewing Your Will A Must

By Howard Kazdan

 

The interaction of life’s two certainties – death and taxes – is about to get more complicated effective January 1, 2016, due to legislative changes to the taxation of trusts and estates that have been enacted. You may wish to review your will after considering the information discussed in today's post.

Change in tax rates for estates and testamentary trusts, except for Graduated Rate Estates ("GRE")

 

Currently, estates and testamentary trusts (i.e. trusts that are created by will upon death) are subject to tax at graduated tax rates. Under these old rules, you could set-up multiple trusts (generally for each child to control their inheritances) to be taxed at the lower graduated income tax rates.

Effective January 1, 2016 only a GRE will be eligible for graduated tax rates. The lower tax rates may only be available during the first thirty-six months of the estate if that period is required to settle the estate. All of the income in other estates and testamentary trusts will be taxed at the highest personal tax rate. Under the new rules, if you had set-up say 3 separate trusts for each of your children, all of them will be subject to the highest tax rate, as they will not be considered GRE’s (however, there may be non-tax reason for still creating multiple trusts, such as to protect against spendthrift children, protect assets for family law purposes and asset protection).

The administration of these new rules may also become challenging where you have multiple wills (some provinces allow for two wills, one for personal assets and one for assets that are not required to be probated) and have different executors, since all of the wills may make up one estate. If one component of the estate no longer qualifies as a GRE, the entire estate may no longer qualify, and therefore all income will be taxed at the highest marginal tax rate.

Finally, the availability of tax elections for income to be taxed in a trust at graduated rates, even if such income was paid or payable to a beneficiary will now be extremely limited.

To qualify as a GRE certain conditions must be met, which include: 

 

  • The estate must arise as a consequence of death
  • The determination time is within the first thirty-six months of the estate
  • The executor must designate the estate as a GRE
  • No other estate can be designated as a GRE

Other benefits that will only be available to a GRE also include:

  • ability to maintain an off-calendar year end
  • ability to avoid capital gains on taxation of donated securities
  • no requirement to make tax installments
  • ability to carry losses back to terminal return
  • more flexibility for claiming tax credits in respect of donations made by will/bequests

Due to the significant benefits of qualifying as a GRE, it will be necessary to plan accordingly.

Change in taxation of Life Interest Trusts

 

These trusts are often used to provide an income stream to a surviving spouse during their lifetime with the residual assets being distributed to other beneficiaries after that individual dies.

For example, spousal trusts are common in a blended family where husband and wife were previously married and each has children from a previous marriage. The husband may have established a spousal trust in his will whereby his wife was to receive income during her lifetime, but his children from previous marriage will receive the capital of the trust after she dies, and her children from a previous marriage are the beneficiaries of her estate after she dies.

Currently, when the wife dies, there will be a deemed disposition of the assets of the trust at fair market value and any income arising from the deemed disposition will be taxed in the trust.

The new rules will shift the reporting of income arising in the final year before death of the wife, including income on the deemed disposition of the assets, to her final income tax return. Since the beneficiaries of her estate and the spousal trust are different, this will lead to inequitable results (estate beneficiaries will owe tax, but the trust beneficiaries will own the assets). If the Canada Revenue Agency is unable to collect this tax from the estate, then it will have the ability to demand payment of the tax from the trust beneficiaries.

Planning for Disabled Persons

 

The new rules provide for a Qualified Disability Trust (“QDT”) which can be established for a beneficiary that qualifies for the disability tax credit. A QDT will allow for the taxation of income at marginal tax rates during that beneficiary’s lifetime, provided all of the required conditions are met.

As the conditions are very complicated and potentially require elections, it is imperative to review any wills that have provisions for a disabled person in context of the new rules with your lawyer and accountant.

Charitable Bequests On Death


Currently, on death, donations in the will are included in the final tax return of the individual or in the prior year, not in the estate return. Under the new rules, the donation will be deemed to be made from the estate which may result in additional flexibility in claiming the donation tax credit if the estate qualifies as a GRE.

The new rules are very complex and it would be prudent for your accountant and/or lawyer to review your will and any current estates, testamentary trusts or other life interest trusts that you may be connected with as a trustee, executor or beneficiary because planning strategies previously anticipated may no longer be effective. Where it is possible to amend such documents, it may be advisable to do so. Where it is no longer possible to amend such documents then additional planning may be required to determine next steps.

Here is a link to an excellent BDO tax memo which you may also wish to read if you want more detail.

Howard Kazdan is a Senior Tax Manager with BDO Canada LLP. He can be reached at 905-946-5459 or by email at hkazdan@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.

Monday, September 14, 2015

He Shoots, He Blogs, He Scores!

In June, a Tax Court of Canada case, Berger v. The Queen (2015) was published. The case revolved around sports, income tax, and blogging. Now that’s my type of case and a topic I have to write about. There is a further “kicker” in this case for me. I grew up with Howard Berger, the appellant, a well-known sports reporter and journalist at the FAN 590 in Toronto.

Howard was a sports fanatic from the get-go with an encyclopedia-like mind for dates, events, statistics, and he used to take me to Toronto Toro games. For those of you too young to remember, the Toro’s were part of the World Hockey Association from 1973-1976 and included such luminaries as Gilles Gratton and his Tiger Mask, Shotgun Tom Simpson and even Frank Mahovlich. 

The Case


The case deals with whether Howard could claim business losses from operating his hockey-based sports blog, carried on under the name Berger Bytes. Running and setting up the blog (which was created shortly after Howard was laid off from his job at the FAN 590) resulted in start-up losses of $26,540 and $37,866 respectively on his 2011 and 2012 tax returns. The CRA felt these losses should be denied because the personal element of following around the Toronto Maple Leafs and writing about the Leafs and hockey was for Howard's personal enjoyment as opposed to conducting a business activity for a profit.

 

The Facts


Most of the facts below are taken directly from the judgement issued by The Honourable Justice Campbell J. Miller and are noted in quotes.

1. “In 1992, the FAN 590 became an all sports station and Mr. Berger, though initially covering all sports, became by 1994 a hockey, and specifically a Maple Leafs, reporter. He had a regular twice a day slot reporting on FAN 590 and developed a sports fan following for his insights into hockey and the Maple Leafs. Part of his job as an employed sports reporter was to follow the team at both games and practices, including attending their away games. He developed significant contacts with media relations personnel on teams across the National Hockey League.”

2. Howard became concerned about his prospects with the FAN 590 following the 2008 economic downturn and a change in management.

3. “Since 2006 part of his job with FAN 590 had been to write 3 or 4 blogs a week for the FAN 590 website: indeed, he described this as becoming an important part of his job. Given his ongoing concern about his future with FAN 590 he devised a plan that, if he lost his job, he would continue to write a hockey sports blog and make a living doing so. His plan was simple: he would write a quality hockey blog that would attract sufficient readership that sponsors would want to advertise on his site”.

4. “On June 1, 2011 when Mr. Berger was indeed let go by FAN 590. He started his first blog that same month and has been blogging ever since.”

5. He established Bergerbytes.ca in September, 2011.

6. In 2011, Howard reported $26,540 of expenses (approximately $24,000 that related to travel following the Toronto Maple Leafs for flights, car rentals and hotel), these expenses were denied by the CRA on the basis the expenses were personal in nature and not incurred in the course of a commercial activity or business.

7. In 2012, Howard reported $37,866 of expenses (approximately $35,000 that related to travel following the Toronto Maple Leafs for flights, car rentals and hotel). In 2012, he received $7,500 in advertising revenue from a lawyer. These expenses were denied by the CRA on the basis the expenses were personal in nature and not incurred in the course of a commercial activity or business.

 

Business vs Personal Expenses

 

For all intents and purposes, the sole issue at law in this case was whether Howard was operating a business for profit or was this truly a personal hobby and pursuit?

Prior to the Supreme Court case of Stewart v Canada (2002) there was a “reasonable expectation of profit” test the CRA would often apply. However, following Stewart, the key test has become whether the business carried on was commercial. Thus, there is no need to determine whether there was a reasonable expectation of profit or to review a taxpayer’s business decisions or planning or forecasts where a commercial business is carried on.

Yet, where there is a personal component to the supposed business activity, there must be evidence to support that you carried on that business for profit. Justice Miller noted, “The Supreme Court of Canada points out that even where there is a personal pursuit, if it is undertaken in a sufficiently commercial manner, the venture will be considered a source of income. The court stipulated in this analysis that “this requires the taxpayer to establish that his or her predominant intention is to make a profit from the activity and that the activity has been carried out in accordance with objective standards of business-like behaviour”.”

The Supreme Court in Stewart cited the below factors to be considered in whether an operation was carried on for business. These factors and the related comments by Justice Miller are noted below:

1. The profit and loss experience in past years:

Justice Miller noted “that for a sports fan like Mr. Berger to be traveling to New York City, for example, to watch the Maple Leafs play the Rangers, does have a personal element, as does the blogging itself. Indeed, while presented with no evidence in this regard, common sense suggests “blogging” is by its nature as much a recreational pastime as possibly a commercial practice. I conclude that there is a personal element to Mr. Berger’s activities: they are not clearly commercial as that concept is defined by the reasoning in Stewart.”

2. The taxpayer’s training:

Justice Miller stated “In commercial terms, Mr. Berger was in a start-up phase and the nature of the activity was such that immediate profits in this media-type business would be unlikely. Like a struggling artist (singer, dancer, writer…) in the early stages of a career, some businesses inherently take time.

Mr. Berger has taken a commercial activity, sports writing, for which he got paid for 20 years and used that experience to attempt to continue to get paid. As indicated earlier, this is not just a sports enthusiast having a crack at making money from his passion. Mr. Berger has some impressive credentials to suggest his approach.”

3. The taxpayer’s intended course of action:

Justice Miller said “I find Mr. Berger did intend to pursue profit and did take, in those 18 months, commercial steps to do so. There will come a time, however, where continuing on this course without any sponsors knocking on his door can only lead to a conclusion that a commercial expectation has been overtaken by personal dreams. I do not have years after 2012 in front of me.”

4. The capability of the venture to show a profit:

Justice Miller stated “I conclude the lack of evidence on this aspect, while not helpful to Mr. Berger, is also not fatal. I simply have not been convinced one way or the other that this venture is capable of showing a profit.”

Verdict


Justice Miller concluded that “Mr. Berger had a predominant intention to make a profit, and in the first 18 months behaved in a reasonable business-like manner to pursue that end. As I hope I have made clear to Mr. Berger, my view is limited to the short term start-up phase of his venture.”

As such, all the expenses were allowed as business expenses, save some small meal expenses.

This case is a very interesting example of the considerations the courts will have where there is a personal element in a business venture. The case also reflects that were possible, you should ensure there is no personal element to your business, so that the CRA is precluded from looking for a profit motive.

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.


Sunday, September 13, 2015

Let's Get Blunt About Your Financial Affairs - Book Giveaway


Wow, I cannot believe how many entries I had for my book giveaway. I am assuming it is because you are excited about reading my book and not that everyone likes a freebie :).

So without further ado, the winners are:

1. Bryan O
2. Nancy L
3. Valerie N
4. Cash Instinct
5. Richard H

You will be contacted by email for your mailing details.

Thanks for all the entries and if you wish to purchase the book or kindle version, here is the link to Amazon U.S. which provides a preview of the book (if you click the book image) and the kindle version.

Amazon Canada has no books in stock, but here is the link to the kindle version from Amazon Canada. I must say I am very confused on how Amazon deals with books. The Canadian site appears just to be re-sellers of the book and the U.S. site seems to be where the actual inventory is sold. I can't really get a clear story from Amazon. I guess this is my first lesson of being a new author.

We still have a couple spots open if you wish to attend my book launch in the Richmond Hill/Markham area on September 24th, if interested, please register here.

I am back to my regular posting tomorrow, with He Shoots, He Blogs, He Scores.

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, September 7, 2015

Let's Get Blunt About Your Financial Affairs - Book Giveaway & Book Launch

By playing golf at Pebble Beach in 2011 and by going on safari to Botswana and Africa this year, I have been lucky enough to check off two items on my bucket list. One of the remaining items on my list was to write a book.

A year or so ago, I realized I had the material for a book, if I could compile the posts I’ve previously written on my blog. As I flipped through my posts, it became clear to me that the chapters had already essentially written themselves. All I needed to do was to categorize and organize my various blog posts, which was done with the significant assistance of Lynda Kremer, the marketing manager at my old firm, Cunningham LLP.

As I started putting the chapters together, I was pleasantly surprised that the book had a natural flow I had not foreseen. I must say, I am very happy with the end result and finally months after starting this process, I have a book titled not surprisingly, Let's Get Blunt About Your Financial Affairs. The book has just gone up on Amazon and the kindle version is in process. If you are really keen to buy the book, here is the link to Amazon U.S. which provides a "flip version" of the book to preview and a link to the typical bare bones (no flip version to preview etc.) Amazon Canadian version. As an aside, you set the book price in $U.S. and I tried to end up with a $15cdn price; yet somehow the price is now $15.83cdn - sigh ):

The book chapters are as follows:

1. The Lighter Side of Accounting
2. Executors - A Thankless Job (except for the fees)
3. Inheritances, Wills and Estates - Love, Money and Greed
4. The Psychology of Money - Is it Everything?
5. Audits and Being Audited - Minimizing the Damage
6. Tax Topics - All You Ever Wanted to Know but Were Afraid to Ask
7. RRIFs and RRSPs - The Retirement Acronyms
8. Family Assets - Dividing, Sharing and Taxing
9. Retirement - How to Avoid Eating Alpo
10. Estate Freezes - A Cool Way to Tax Plan
11. The Family Cottage - How to Deal with It
12. Proprietorships, Corporations, Holding Companies and Family Trusts - The Technical Stuff

I am under no illusions this book will sell 100,000 copies; although I do think it is better than much of the crap that passes for financial books these days. It’s a practical guide that’s easy to follow. At worst, the book will become a marketing tool for me professionally.

Today I am going to raffle off 5 copies. If you are interested in a copy, please email me at bluntbeancounter@gmail.com and I will announce the 5 winners next Sunday.

In addition, my current National firm is sponsoring a book launch on September 24th in the Richmond Hill/Markham
area. If you would like to join me for the launch and meet me in person (unfortunately I am far more interesting on my blog than in real life) I am keeping a few spots open for my loyal readers. To attend the book launch and hear the gospel according to the BBC, register here.

I would like to thank Rob Carrick, Ellen Roseman and Preet Banerjee for providing testimonials on the back cover and for being very supportive of my blog since its inception. In addition, Roma Luciw & Dianne Nice of the Globe and Mail and Adam Mayers of the Toronto Star have been very kind to me and my blog.

I would also like to thank the numerous financial bloggers, many who have become personal friends, who have supported the blog by noting it in Friday round-ups or by direct mention over the years. This list includes; Jim Yih, Robb Engen, Michael James, The Big Cajun Man, Mark Seed,  Frugal Trader, Rona Birenbaum, Canadian Capitalist, Tom Drake, Canadian Investor and Larry Macdonald, to name just a few.

To my "legion" of readers, many who have been with me since my inception (5 years as of September 20th) I’d like to thank you for reading my blog and your comments and feedback over the years.

In addition, I would like to thank Lynda for all her help in not in only editing, but navigating the self-publishing process, as well as Leah Vlemmiks for her illustrations, Rob Campbell for his technical assistance and Deniz Ayman for her various editing and citing assistance.

Finally I’d like to thank my wife Lori, for her editing assistance, teaching me to write in "sort of plain English" and putting up with the project and me.

So if you are interested in a free book and/or attending the book launch, please email me at bluntbeancounter@gmail.com for the book and register here for the book launch.

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.