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, April 17, 2017

Realized Capital Gain/Loss Reports – Rely on Them at Your Own Risk

Back in the day, when I was young and energetic, during tax season I would write a series called Confessions of a Tax Accountant, in which I would highlight contentious and/or interesting issues that arose in my practice.

On a few occasions (especially in the middle of tax season when I am most cranky), I wrote about the inaccurate capital gain/loss reporting by some financial institutions. These reports can be flawed in three ways:

1. Incomplete cost base information for U.S. stock holdings
2. Failure to reduce the adjusted cost base ("ACB") on the sale of flow-through shares.
3. Phantom or inaccurate information on the disposition of stocks and mutual funds.

U.S. Stock Holdings


Many financial institutions provide you capital gains summaries in $U.S. based on your U.S. purchase price and U.S. sale price. If you then multiply that gain by say the average foreign exchange rate for 2016 your capital gain/loss is wrong since you need to translate the purchase and sales price for each stock sold at the F/X rate on the day of purchase and sale. I wrote about this issue in this blog post and will only add; that I have seen this again several times this year and you should inform your advisor you want this report in $Cdn based on the conversion rates when you purchased and sold any stock.

Flow-Through Shares


I discussed this matter in this 2014 blog post. The issue was, and still is, that the capital gain or loss reported by financial institutions on their realized gain/loss report is almost always incorrect. Why? This is because the initial ACB of your flow-through share should be reduced by the resource tax deductions claimed in prior years and these reports typically ignore this cost base reduction and reflect the original purchase price, not the reduced ACB.

I have been told that from a liability perspective, the financial institutions do not want to get into making tax cost base determinations, especially in respect of flow-throughs (although, I have seen some of the better investment advisors and investment management firms adjust this on their own) and thus, they put general disclaimers on the report that the institution is not responsible for the accuracy of the capital gain/loss statement. While I can understand this position, I cannot understand why the financial institutions do not put an asterisk beside these calculations with a comment that the ACB may have been reduced by prior tax deductions claimed to at least highlight this issue.

Phantom Gains and Losses


This year, in addition to the above issues, I have already twice noted very significant errors in the general realized capital gains/losses reports that the financial institutions send to their clients. I think because I am involved with wealth advisory services that I am more finally attuned to these issues, but in one case there was a massive phantom gain that made no sense since the fund was an income preservation type account and in the other, the report reflected a huge loss in a conservative balanced stock fund that seemed unlikely given the recent strength of the markets.

In the first case, I spoke directly to the advisor for the financial institution. They investigated and reported back that I had identified an error (a complicated transaction had taken place and had not been accounted for correctly) and they would amend my clients report and further, that they would have to amend all their other clients’ reports.

In the second case, I asked the client to call his advisor to double check. He was told the error had been caught and an amended report was on its way.


To be fair, with people moving from institution to institution, cost base numbers can easily get “messed up” and there are some very complex transactions that also cause ACBs to be reallocated.

So the lesson you should take from today is: when you receive a realized gain/loss report from your advisor, take a quick scan through it to see if something seems out of whack, on either the gain or loss side.

Note: I am sorry, but I do not answer questions in April due to my workload, so the comments option has been turned off. Thus, you cannot comment on this post and past comments on other blog posts will not appear until I turn the comment function back on. 

This is my last post for a couple weeks, so see you in May.

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, April 10, 2017

Lifestyle Expansion - The Plague of Boomers, Millennials and Everyone in Between


Over the years, on more than one occasion, I have had to read the riot act to clients who make high six-figure incomes about their spending habits. The discussion is almost always in context of their retirement planning and how if they continue their current spending, they will either not have enough to retire on, or will have to sell their house and/or cottage very early in their retirement to fund their future needs.

This issue is not isolated to high-net worth people and those near retirement; it is the same problem for someone who makes $80-$120,000 as for someone who makes $600,000 and the same issue for millennials (although more in context of saving for a home than retirement). If you continually expand your lifestyle to fit your increasing income or current income level, the reality of your retirement or your future living situation, may be far different than you envision it. That being said, obviously if you make $600,000, you have more leeway to catch-up, even if it seems incomprehensible you even have such an issue in the first place. 

The term “lifestyle creep” is often used to reflect this worrisome spending issue. Investorpedia defines lifestyle creep as “a situation where people's lifestyle or standard of living improves as their discretionary income rises either through an increase in income or decrease in costs. As lifestyle creep occurs, and more money is spent on lifestyle, former luxuries are now considered necessities”.

If you are in your late 40's or early 50's, the insidious part of lifestyle creep is that your current earnings support whatever you wish to do and thus you carry on without a care in the world. It is only when I force someone to face the reality that once the gravy train (salary or business) stops, their income requirements are so massive, that their current and retirement assets will be insufficient to fund their needs (even if they significantly reduce their costs in retirement) that I get their attention. 

From a psychological aspect, some people find it very important to maintain a certain image or lifestyle and/or keep up with the Joneses. However, the Joneses may have way more money than you and it is only your current income that allows you to keep up. The reality is you may be swept aside by the Joneses in retirement, as they may only hang out with those "friends" who can spend with them and who have the capital to continue spending at excessive levels.

For some people, all they need is that sobering meeting and they immediately start getting their act in gear. For others, their spending habits are so entrenched and/or so financed; they need to engage a financial planner or money coach. Most discouragingly, some people just pull an Ostrich and put their head in the sand.

Lifestyle creep is not only an “older person” issue. I observe many millennial's spending their entire salaries on bottle service at restaurants, expensive vacations, cars and costly bachelor and bachelorette parties to exotic locales for their friends.

Fixes and Suggestions


So if you have that sobering moment and come to the realization your lifestyle has expanded to your salary or business income, what can you do? Here are a couple basic solutions:

Spending Review


The first step to tackle this issue is to undertake a detailed review of your spending. Track you’re spending for 2-3 months and add on your large one-time expenses not included in the tracking period. Then analyze the results of your spending review and note your excesses. If you are a reader of this blog, you know I am not frugal and have written many times that in my opinion, it is important to enjoy your life and “knock off” some of your Bucket List items while you can. However, there is a huge difference between enjoying your life and spending excessively. All of us can easily cut-back, especially those of us who spend like there is no tomorrow. The obvious areas are always: restaurants, travel, clothes, cars, nanny’s and cleaning ladies (not saying don’t hire them, you may just not need them as often as you currently pay them for), dog walkers etc. 

Auto Savings


Once you undertake your review and decide to reduce your expenses, force yourself to do so by having automatic transfers from your bank account into your retirement or investment accounts, or if you are in debt, increase your monthly repayments (I am astonished at how many people who make $500,000 to $1,000,000 are in debt).

Work Longer


As noted in my recent blog post The Victory Lap, working longer or part-time in retirement is not only healthier and keeps you physically and mentally sharp, but it is a way to save you from having to encroach on your retirement capital. For some of us, it may be the only way to fund our retirements.

Financial Planner or Money Coach


As mentioned above, engaging a blunt accountant, financial planner or money coach is a vital step for many “free spenders”, since it provides discipline and structure in getting their finances in better shape.

Other Articles


Here are a few links to articles on this topic for high earners close to retirement, entrepreneurs or millennial's.


Millennials - Are You Showing the Signs of Lifestyle Creep?

Fighting Lifestyle Creep and Saving Money as an Entrepreneur

Lifestyle creep is sinister, as you often do not realize it is an issue until it has already become part of your financial fabric. If you are starting to creep, stop it now. If you are already caught in the spending web, take the steps noted above to get your spending under control.

Note: I am sorry, but I do not answer questions in April due to my workload, so the comments option has been turned off. Thus, you cannot comment on this post and past comments on other blog posts will not appear until I turn the comment function back on.

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, April 3, 2017

T1135 - Some Guidance on Common Issues

I have written multiple blog posts over the last few years on the T1135 Foreign Reporting Income Verification Statement. I have no interest in writing one more time on how to complete the form, but I thought I would provide you some guidance on some common questions I receive.

U.S. Bank Accounts and other Foreign Accounts

Cash situated, deposited or held outside of Canada even if in Canadian dollars is considered specified foreign property and subject to reporting on the T1135.

So, if you hold a $U.S. denominated bank account with a Canadian Financial Institution, you do not need to include the account on your form T1135. However, if you have a bank account with a U.S. or foreign bank you must include that account on your T1135.

Mutual Funds & ETFS

Mutual funds that are resident in Canada do not need to be reported, even if they hold foreign stock. However, any mutual funds not resident in Canada must be reported.

To the best of my knowledge, the CRA has not definitively answered how to treat ETFs. What they have said is that for the purposes of country reporting, the residency of the mutual fund or exchange traded fund itself is the country of the investment. Thus, one can seemingly infer that ETFs that are resident in Canada would be excluded from reporting. That may be easier said than done and some people make that determination based solely on whether there is a Canadian tax slip issued (inferring the ETF is thus Canadian resident). How is that for an opaque answer? 

Canadian Stocks denominated in $U.S. 

A Canadian stock denominated in $U.S. held at a Canadian brokerage does not need to be reported on the T1135. It is residence of the issuer that is the determinative issue, not the denomination.

Joint Ownership

Jointly owned investments must be split for purposes of the T1135. Thus, if you and your spouse jointly own U.S. stocks with a cost of $160,000 Cdn, you are each considered to own $80,000 of U.S. stocks. Each spouse must then independently calculate whether they have other foreign assets that would cause them to exceed the $100k threshold (i.e. you have more than $20k in other foreign assets).

Personal Use Property

If you own a personal use property outside of Canada, it is excluded from reporting. This will include a U.S. Condo, European Villa, time share or similar property. If there is incidental income, that income does not disqualify the property, as long as the primary use is personal use. This can be very subjective, so be careful.

New Immigrants and Returning Residents

An individual does not have to file Form T1135 for the tax year in which he or she first become resident in Canada. However, if you were formerly a Canadian resident and are returning, the exemption does not hold and you must file a T1135 from the entire year.

Gross Income for Rental Properties

The T1135 form asks you to report your income for real property. One would think that means you are required to report the net rental income (gross rental income less rental expenses), however, you are supposed to report just the gross rental income on the form and ignore the related expenses.

The above guidance is based on various CRA comments and CRA documents I have read. The CRA is not bound by any of the above, so I take no responsibility for the accuracy of the above guidelines.

Note: I am sorry, but I do not answer questions in April due to my workload, so the comments option has been turned off. Thus, you cannot comment on this post and past comments on other blog posts will not appear until I turn the comment function back on.

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.