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, September 19, 2016

Canadians Don't Have the Will

Over the last few years, I have often referenced a 2012 survey by LawPRO reflecting that 56% of Canadians do not have a Will. I have used this startling statistic to urge you to have a Will drafted (or updated) and to suggest you also put in place powers of attorney for property (financial decisions) and personal care (health decisions). The fact that Prince did not leave a will (which I find incomprehensible, given the number of advisors he would have had) has brought further attention to this issue.

Shockingly, in a new Google Consumer Survey conducted by Legalwills.ca, the number of Canadians without Wills has increased to 62%. The survey also notes that 12% of Canadians have an outdated Will (most never updated their Wills once they married and/or had children), which means that 74% of Canadians do not have an up-to-date Last Will and Testament.

In general, I consider this behaviour selfish and I cannot understand how anyone that is part of a functional family unit would ever want to leave their family the chaotic mess that follows when there is no Will in place.

Here are some facts from the Legalwills.ca survey, which can be found here.

Some Startling Numbers


The survey showed a correlation between age group and the probability of having a Will:

Age 18-24: 87% do not have a Will, 5% have an out-of-date Will, and 8% have an up-to-date Will.
Age 25-34: 77% do not have a Will, 10.5% have an out-of-date Will, and 12.5% have an up-to-date Will.
Age 35-44: 68% do not have a Will, 8% have an out-of-date Will, and 24% have an up-to-date Will.
Age 45-54: 53% do not have a Will, 13% have an out-of-date Will, and 34% have an up-to-date Will.
Age 55-64: 32% do not have a Will, 19% have an out-of-date Will, and 49% have an up-to-date Will.
Age 65+: 28% do not have a Will, 21% have an out-of-date Will, and 51% have an up-to-date Will.

As the survey notes, even when discounting younger adults, 48.5% of Canadians aged 35 and older responded to not having a Will and 13.5% responded to having a Will that is out-of-date, leaving only 38% with a Will that reflects their current financial and personal situation.

Unexpected Income Correlation


The survey found a surprising inverse relationship between income levels and the probability of having an up-to-date will.

“The group least likely to have up-to-date Wills was in the $100,000+ annual income range; respondents in this group were also three times more likely to have an out-of-date Will than those with lower incomes. The group most likely to have up-to-date Wills was in the lowest annual income range of $0-$24,999. As annual income increased, the proportion of respondents with an up-to-date Will decreased”.

Legalwills.ca suggests “The cause of this is likely because those with higher incomes can more easily afford to use a lawyer to write their Will; making modifications to a Will with a lawyer requires setting a meeting, and costs hundreds of dollars. To the contrary, those with lower incomes are usually inclined to use more affordable alternatives, such as online services, where the testator can make modifications to his or her Will at any time without extra costs”. (It should be noted that Legalwills.ca provides online services to custom-make Wills, Power of Attorney and Living Wills for Canadians and thus, they have a bias to online services).

Observations from the Survey


Legalwills.ca make some interesting observations from the data, a few of these include:

1. The system for creating and updating Wills is broken – their opinion is the current system is not working for most people.

2. People wait for the perfect time to have their Wills prepared – I agree with this comment. The issue here is; our life circumstances are constantly changing. Consequently, our Will is really a living document that requires various updates throughout our life.

3. Legalwills.ca references a quote from Forbes Magazine by the rapper Snoop Dogg, saying essentially: who cares about his Will, he will be dead. This is not an unusual comment. Legalwills.ca says “unfortunately, what Mr. Dogg doesn’t realize is that writing a Will was never about you. It’s about taking care of your loved ones – the people that you care for through your life, I’m not sure that many people would deliberately inflict trauma on their own family at a time when they can least handle it, but not writing a Will is setting your family up for heartache and emotional turmoil. It all too often leads to acrimonious fallouts between family members who seemed to get along just fine until they
had to work together to administer an estate without a Will”.

4. Legalwills.ca suggests that not having a Will is a huge missed opportunity. They suggest you can do wonderful things in a Will, for example:

  • Leave a few thousand dollars to a charity
  • Give your favourite niece some funds to travel the World
  • Set up an event in your memory
  • Create a scholarship fund
  • Organize and pay for some social events for your best friends
  • Leave a cherished item to somebody who will really appreciate it
  • Make sure your digital accounts are all taken care of appropriately
  • Make sure that your pets are taken care of

Whether you have a complex estate and need a lawyer to draft or update your Will, or have a simple estate for which you can use an online service, as Nike says “Just Do It” and get your Will and powers of attorney in place. You will have peace of mind and your family will be appreciative that you made their financial lives simpler at a time of grieving.

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 12, 2016

Steve Stamkos, Olympic Medals and Income Taxes

As a sports enthusiast, I am always interested in stories that combine sports and income tax. Today, I want to discuss a couple of these stories:

1. Steve Stamkos resigning with the Tampa Bay Lightning in June and the income tax considerations he would have had to ponder (if he ever truly considered the Toronto Maple Leafs as a final destination).

2. The income tax that Canadian Olympic gold, silver and bronze medalists have to pay on the bonuses they earned in winning their medals.

Steve Stamkos Signing


If you are a hockey fan, you were well aware that Steve Stamkos ("Stamkos") was a free agent this spring and that there were rumours negotiations were not going well with his current team, the Tampa Bay Lightning. As result, many Toronto Maple Leafs fans were hopeful Stamkos would sign with the Leafs, his hometown team (some fans felt that spending money on Stamkos at this time would
impact the current Leafs rebuild and thought such a move would be a year or two early - but I digress).

In the end, Stamkos resigned with Tampa Bay for a reported contract of $68,000,000 over eight years (or, an average $8.5 million a year), paid as $9.5 million in each of the next five years, followed by $7.5 million, $6.5 million and $6.5 million in the final three years. It was also reported that Stamkos' base salary will sit at $1 million each year, with the rest being paid as a signing bonus.

While Stamkos was deciding where to sign, there were various discussions on whether he would provide Toronto with a hometown discount to offset the preferential U.S. tax system. With the possibility that one of the NHL’s top players would potentially be moving teams, sports writers quickly had to get up to speed with economic and income tax issues.

I asked a friend last June (who prepares U.S. tax returns) to run some numbers comparing Stamkos’s average $8.5 million salary for a Florida resident to an Ontario resident assuming there was no foreign exchange issue (I did this to solely isolate the income tax consequences and to avoid the complications of dealing with fluctuating F/X rates and the purchasing power of the $U.S. – but yes, this would be a large factor in any decision). BTW: I understand that all NHL players are all paid in $U.S.

My friend ran some tax numbers based on a U.S. resident with single filing status using 2015 tax rates/brackets, and assumed no itemized deductions to keep things simple. He determined the income tax on an $8,500,000 salary would be around $3,320,000, or about 39.06%. Given the top U.S. federal marginal rate for 2015 and 2016 is 39.6%, this rate is in the ballpark as the top bracket for a single taxpayer is reached at $413,201 for 2015 ($415,051 for 2016).

A huge factor in calculating the income tax variance between the U.S. and Canada is there is no state personal tax in Florida. However, hockey players are taxable in the various U.S. states/cities where they play away games (which would likely push the average tax rate into the low 40s).

If Stamkos had decided to play for the Leafs in 2016 (again, assuming a neutral exchange rate for purposes of this discussion), his tax payable would have been approximately $4,510,000 and his average tax rate at 53.10% and his marginal rate at 53.53% (accounting for the increase in tax rates implemented by the Liberals). Thus, if Stamkos had decided to play for the Leafs, he would have owed approximately $1,190,000 more in income tax than in the U.S. and his average tax rate would have been 10-13% higher depending upon all the facts.

It is interesting to note that if the U.S./Canada exchange rate was $1.30 for his entire contract, Stamkos would have been neutral, from a purely cash flow perspective, in signing with Toronto.Yet, per this article, totally speculative and without confirmation, Stamkos supposedly wanted $14million to come to Toronto.

After reviewing the above, you now know why Stamkos and many other players must take into account the income tax considerations when deciding on which team and country to play.

Olympic Gold – Not Tax-Free


During the Olympics, The Globe and Mail ran a story written by Alicia Siekierska titled “It’s gold – for the taxman. In this article she noted that the Canadian Olympic Committee awards Olympic athletes with bonuses (wow, I never knew this. How un-Canadian to incentivize winning for our athletes :)  if they make the podium: $20,000 for a gold medal, $15,000 for a silver medal and $10,000 for a bronze medal).

The article discussed that the Income Tax Act paragraph 56(1)(n) considers only certain prescribed prizes as tax exempt. As noted in Income Tax Folio S1-F2-C3, “Section 7700 of the Regulations defines a prescribed prize as any prize that is recognized by the general public and that is awarded for meritorious achievement in the arts, the sciences or service to the public. It is a question of fact whether a prize is considered to have been recognized by the general public for purposes of section 7700 of the Regulations. In making such a determination, one should consider whether there is evidence suggesting a high level of public awareness of the prize and the extent to which the announcement or receipt of the prize is widely publicized by the media. For example, a Nobel Prize given to a scientist or the Governor General's Literary Award given to a professional writer would qualify”.

The article noted that the Olympics are not considered a public service and thus, the medal bonuses paid to athletes such as Penny Oleksiak and Andre De Grasse will be taxable.

The article quotes William Innes, a tax litigator with Reuters LLP. Mr. Innes states the CRA’s position on taxing Olympians prize money is “outrageous”. He feels winning an Olympic medal should fall under the service to the public section noted above. He goes on to say “I would think that the average man or woman on the street would hold that somebody getting an Olympic medal is providing a service to the public”.

For the Penny Oleksiak’s and Andre De Grasse’s of the world, this is probably a bit of a mute issue, as they will receive significant endorsement opportunities dwarfing the bonus money. But for the typical less high profile medal winners who do not have significant funding, it seems unfair they are taxed on their Olympic bonuses. You would think there would be some co-ordination in policy between the Olympic Committee and the CRA.

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 5, 2016

Blogger Blues


This summer, my intention was to play some golf, spend some time with my family and write a few blog posts. As they say, the best-laid plans of mice and men often go awry.

Unfortunately, injuries waylaid my golfing. First I got shoulder tendinitis. (Household tip: If you have a pot light that will not come out and you get frustrated, do not, I repeat, do not, pull as hard as you can downwards and ruin your shoulder). In addition, I had a strained groin (Golf tip: when your feet are in an awkward position due to an awkward lie and the grass is wet, do not swing as hard as possible). I did however eventually recover from both my injuries by late July and got in some golf including a 74 after 17 holes in my club championship that became an 82 after I choked with an 8 on the final hole (2nd golf tip: If you have been using your 5 iron to drive since your driver was inconsistent, do not switch back to your driver on the last hole).

Switching gears, I was much busier with client matters than I anticipated this summer and was unable to find the time I hoped to write some of my blog posts for the fall. In addition, after six years of writing this blog, I had a bit of a writer’s block, that seemed to break in late August.

In any event, I realized that I’m unable to continue to commit the energy and time required to write this blog on a weekly basis. I will be shooting for two to three posts a month, including guest blogs, which will likely increase in number.

This fall, some of the themes I will be writing about include:

1. Tax planning for those with disabilities. I will have a couple guest posts on that topic.

2. “The Taboo of Money”

3. Canada/ U.S. tax issues

4. I will also continue my “What Small Business Owners Need to Know” series.

So, in summary. I will be writing less this year and in all honesty, I am unsure whether I am staggering to the end or I will get a second wind and will be good for a few more years. See you next week.