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. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, April 30, 2012

Duck Quackers and Binge Writing

With the latest A&E reality show about a family of duck call manufacturers in the bayou, it is not beyond comprehension that A&E’s next series will be a bloggers intervention series. Assuming the series is made and the first episode profiles me; I am sure during my intervention, I will scream out, “yes, I am a binge writer”. You see, I often write 4-5 blogs at a single writing and 8-10 over a few days, then write absolutely nothing for a couple weeks.

This year while off for the Christmas holidays, with the knowledge that tax season was fast approaching and that I also had some managing partner issues to deal with, I super-binged and wrote essentially all my blogs for January to April (save my confessions of a tax accountant and budget blog posts). 

I still have a few posts remaining, but my blog post inventory is fairly depleted. In addition, post tax season, my inventory of energy is also much depleted. Thus, whether you care or not, I felt compelled to inform you that I will be posting less frequently (typically only once a week with occasional weeks off) until the end of the summer, at which point I hope to be re-energized to write more often.

See you next week when I blog about 'A Family Vacation-A Memory Worth not Dying for".

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, April 25, 2012

Taxing the Rich in Ontario

I had neither the energy nor the intention to write another blog post this week. However, I cannot resist piping in on the Ontario Liberals imposing a 2% surtax on those in Ontario earning more than $500,000. I mean, the Liberals only want to "pay down the deficit faster", while it is the evil NDP that want to tax the rich.

It is always smart politics to tax the rich. However, in my opinion, the “rich” in Canada are already highly taxed. In Ontario the highest marginal income tax rate of 46.41% starts at only $132,406. Does a yearly income in Ontario of $132k make you rich? Tack on the HST and tax freedom day will soon be October 31st.

A tax on the rich is pure tax revenue to the government unless it causes a change in behaviour. Where an income tax increase changes behaviour, it becomes dangerous and despite what Andrea Horwath of the NDP thinks, her constituency requires job creation by the "rich" and fat-cat corporations to be employed.

As someone who deals with many so called "rich people", this is my take on the situation:


High earning employees such as investment bankers, lawyers, the occasional accountant, are client driven and their behaviour is typically not changed by an increase in taxes as client work must be done. Thus, in the employee's case, it is usually a grin and bear it attitude.


As an accountant, you don’t know how many times I hear it is not worth the time and effort to get more business or pick up new clients as “I am only keeping half of what I make anyways”.

The self-employed group typically has direct control over whether it is willing to incur more income tax and continue growing their businesses. This group can impact tax revenue and job growth and in my opinion, every increase in income tax is a huge disincentive to the growth of their business, since many already feel over-taxed.

Included in this group maybe some medical professionals (mostly specialists). I would suggest that for this group which is capped in earnings already (although to a lesser extent than it used to be) any increase in tax creates another disincentive to take on new patients, but that is a separate battle the Liberals are taking on. 


Although there is always a new generation of entrepreneurs arriving on the scene, I have learned over the years that successful entrepreneurs are often repeat entrepreneurs – they may fail once or twice, but have huge successes multiple times. Does income tax drive their decisions? Often yes, but sometimes no. For some it is just the challenge and their genetic make-up.

This is the group that probably matters the most (ignoring big corporations). They create companies and create jobs. For this group, I think there is just an invisible tipping point where income tax becomes so high it becomes a disincentive. I don’t think this new surtax is the tipping point, however, I would suggest as we edge ever closer to 50%, the closer the government comes to hitting the magical disincentive button.

Income Tax Reality

Many self-employed people and entrepreneurs utilize corporations and family trusts that will allow them to somewhat mitigate this issue. What this surtax will do is probably cause many people to push the income splitting envelope.

In conclusion, I think the Liberals walk away essentially Scott-free from this 2% surtax increase. However, if they try and tack on another income tax increase in the near future, I would suggest they would be approaching the tipping point where taxpayer's behaviour may change.

Bloggers note: I should not post 5 days before the end of tax season when I can't think straight. I was remiss in not noting the following--There is an Ontario surtax of 56% levied on ON428 tax form, lines 50 and 51.  As the 2% surtax will be levied before the 56% surtax, the 2% surtax is really a 3.12% tax increase (2%  plus 2% x.56%).

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, April 23, 2012

You put it off Long Enough- Time for your Annual Financial Check-up

Hopefully, most readers of this blog go to their doctor for an annual check-up; although unfortunately for many guys, annual seems to mean once every five to ten years. However, I digress from the topic at hand.

Another check-up many people tend to avoid like the plague is their financial check-up. Below I provide a simple checklist of financial items, that is intended to make your financial check-up relatively painless.
  1. Is your will up-to-date
  2. Do you have a second will if you have shares in a private corporation? (a second will in certain provinces may reduce probate taxes) 
  3. Does your will integrate into your income tax and estate planning, or are they in conflict?
  4. If you have re-married and have a second family, does your will address the potential complications?
  5. Are your executors still the correct people to administer your will? Have you informed them/asked them about this appointment? 
  6. Do you have an up-to-date power of attorney for health? 
  7. Do you have an up-to-date power of attorney for finances? 
  8. Where is your safety deposit key, and does anyone else know where it is? 
  9. Have you prepared an information checklist for your executor(s)/spouse?  
  10. Do you have a net worth statement? You should prepare an updated statement every December 31st for comparative purposes (so get cracking on December 31, 2011, which I assume was not done).
  11. Do you have a financial plan? If not, consider engaging an advisor to prepare one. If you have a plan, it should be updated every few years or at least reviewed for any significant life changes or changes in assumptions. 
  12. If you are over fifty, you should at minimum determine your expected yearly cash requirements in retirement and compare that with your expected income inflows.
  13. Can you accelerate the repayment of your debt? 
  14. Can you convert any non-deductible debt into deductible debt?
  15. Can you consolidate any credit card debt?
  16. If you are single or widowed, or god forbid you and your spouse died in a car crash tomorrow, do you have enough liquid assets and insurance to cover your anticipated income tax liability? 
  17. Who is/are the beneficiary(ies) of your RRSP and insurance policies? Are they the correct people (ie: not your ex-spouse).
  18. Do you own US real estate or stocks? If so, have you considered your US estate exposure if the US estate tax rates return to the higher rates of prior years? 
  19. If you are a shareholder of a private Canadian company, have you undertaken planning to access the $750,000 Qualifying Small Business Corporation ("QSBC") exemption?
  20. If you have a corporation, have you considered a family trust to income split and possibly  multiply the QSBC exemption? 
  21. If you own a corporation, do you have a succession plan?
  22. Do you have life insurance? Is it sufficient given changes in your life such as the birth of a child or a recent marriage?
  23. Is your level of insurance too high given your life situation (ie: children are now in the work force)? 
  24. Do you have disability insurance at work or personally? 
  25. Do you have critical illness insurance or have you considered such?
  26. If you have excess investable assets, have you considered a Universal insurance policy? 
  27. How many different investment accounts do you have? Is it time to consolidate your accounts and/or investment advisors if you have more than one? 
  28. If you have children do you have an RESP? 
  29. Have you discussed with your high-school aged children your expectations of them in helping fund their education?
  30. Have you opened a TFSA?
  31. Have you considered how your citizenship may affect your income tax and pension situation? For example, if you are a US citizen, have you been filing US 1040 tax returns? For citizens of other countries who will receive a pension, have you researched the income tax treaty implications of receiving such pensions in Canada?
  32. Where you have an investment advisor, do you have any idea of your investment returns for the last year, five years or ten years? If not, how do you evaluate their performance?
  33. Does your current portfolio reflect your appropriate risk profile?
  34. If you or your spouse has capital losses, have you considered any planning to ensure they are utilized?
  35. Would the purchase of a flow-through share be beneficial from a tax perspective, assuming it fits your investment criteria?
  36. If you have charitable intentions, do you have a plan in place for achieving those goals?
  37. Have you set-up a filing system to ensure you capture all your income tax receipts?
  38. If you can deduct employment expenses, have you created an Excel file to track expenses?
  39. Do you have an emergency cash fund in case of sickness or job loss?
  40. Do you have a family budget?
The above list, although long in length, is far from exhaustive, but should provide a nice kick-start to your financial check-up. More importantly, unlike the doctor, this check-up does not require gloves.

If you want to review a blog post with less detail, but a broader perspective, check out this post by the Million Dollar Journey on giving Yourself a Financial Checkup

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, April 17, 2012

Confessions of a Tax Accountant- Week 6 - What’s up Doc?

For my last edition of Confessions of a Tax Accountant for 2012, you get a potpourri of my thoughts based on my preparation of tax returns over the last couple weeks. This post has been mercilessly edited by one of my partners, since when I write during tax season, my filters are non-existent. Unfortunately, one very interesting topic was chopped, but I understand why when I step back. So here goes.

Late T-Slips

This year was not as bad as 2010 for late issued T-slips. I think in part, because many Income Trusts became corporations and thus issued T5’s instead of T3’s. 

Notwithstanding the conversion of many income trusts, several clients still did not receive their T-slips, especially their T5013’s until the week of April 9th. Thus, between clients using the Easter long weekend to put their income tax information together and clients waiting for their final T-slips, we received a substantial portion of our firm's income tax returns last week. Our tax season for all intents and purposes is therefore condensed into three weeks. The CRA needs to look at the T-slip deadlines and move them all up two weeks IMHO.


I have been surprised by the number of my clients who still have not made TFSA contributions. We have advised them to make TFSA contributions since Day 1, but many have still been slow to make contributions. This is very surprising considering most of my clients would have little trouble catching-up in one fell swoop. I think many people still feel TFSA’s are small potatoes and not worth the hassle in a low interest rate environment. 

RRSP Over-Contributions

For some reason I have seen several RRSP over-contributions this year. Over-contributions in excess of $2,000 are subject to a 1% a month penalty. I am slightly baffled by these over-contributions.  If you have an accountant, they provide you with your contribution limit in the covering letter that accompanies your income tax return. Whether you have an accountant or not, you receive your RRSP contribution limit on your income tax assessment and if you have misplaced your assessment or don’t remember your limit, you can go onto your personal CRA account and find out your limit. There is really no excuse to over contribute. 

Investment Advisors- The Good and Bad

Many of my clients use private investment managers or the private client arms of the major Canadian institutions for their stock investments. I assume when determining the fees for these accounts, the decision makers include a cost for not only the investment management aspect, but also a cost component for the administrative functions associated with the account, such as providing a realized capital gain/loss report at year-end.

The administrative function becomes an interesting issue where my clients have individual investment advisors apart from the private client programs. In these cases, my clients typically only receive a yearly trading summary from the institution and no realized capital gain/loss report. 

As many of my clients have significant funds with individual advisors, it is amazing the variance in assistance I receive from these advisors. Some fall all over themselves providing information, including realized gains and loss summaries for which in theory they have not been paid. We even had one advisor this year that kept track of all of his client’s income trusts, month after month adjusting the adjusted cost base of each trust fund for the return of capital component.

On the other hand and definitely in the minority, I sometimes receive a very cold shoulder from some advisors when I request adjusted cost base information, like it is not their responsibility. Well I can tell you, it is certainly not my job to maintain my clients ACB’s, it is my job to report the gains/losses unless I am paid during the year to write up their investments and track the ACB of their investments.

What is especially galling to me is; where the advisor has sold my client several flow through tax shelters (in some cases for well in excess of $100,000) and yet they provide no assistance in trying to track the complex history of the original purchase, the conversion of the flow through units into a mutual fund and the related ACB adjustments. Suffice to say, it is probably not in the advisors best interest to alienate a client’s accountant.

So what is your expectation of assistance if you have say $300,000 to $500,000 or more with an investment advisor? For the advisors reading, am I being too harsh on the advisors for not providing assistance when they are not paid management fees?

Tax Software

Question: who tests the professional tax software programs before they are released and why can’t the flaws be fixed in season? [This is a rhetorical question, I will not comment on it]

Tax Riddle

What happened to last year’s dividend? Frank Gorshin did not steal it :).

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, April 10, 2012

Confessions of a Tax Accountant -2012- Week 5 - The Top Ten Accountant Pet Peeves about Personal Income Tax Season

In honour of David Letterman, today I present the top ten pet peeves accountants have during personal income tax season. Of course these peeves relate to experiences I had prior to arriving at my current firm and from what other accountants have told me, since my clients sign a blood pact to do none of these things.

Top Ten

10. Clients who in the past year have had a change of address, got married or had children and expect their accountant to reflect such on their tax returns by telepathy. 

9. Clients that provide a shoe box with every receipt they received during the year from tax forms such as T4's & T5's to receipts for his and hers waxing's (I outlawed shoe boxes ages ago). 

8. Clients who sell inherited shares and think we should know the adjusted cost base of the Bell Canada shares they inherited from their great grandfather in 1973, that have split six times since. 

7. Clients who do not track their auto or employment expense and say “just use last year's”. The problem being they have said just use last years seven years in a row and you have no clue if the expenses claimed on their tax return, have any resemblance to their actual expenses.

6. Clients and friends who call you up to tell you about their golf score and what a beautiful day it was, while you work on your 30th tax return of the day on your 30th consecutive day of overtime.

5. Clients who bring their income tax information in on the Monday of the third week of April and call on Wednesday to see if it’s done yet.

4. Clients who bring in all their tax forms in the original envelopes, unopened; and insist on opening each envelope one by one in front of you (with my limited patience threshold, suffice to say I have none of these types clients).

3. Clients that buy a Turnip farm limited partnership for $100,000 without consulting you, but then argue over $100 on their tax return invoice.

2. Clients who insist on emailing or faxing each individual tax slip as they arrive.

1(a). Clients that call you up complaining that their refund was not large enough.

1(b). Clients that insist on meeting with you and reviewing each item to be used in their personal tax return, as if you have never prepared a tax return before, or wouldn’t know what to do with their professional dues or interest expense.

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, April 2, 2012

Stock Pickers-The Industry Knowledge Trap

The Great Debate

Last month, Larry Swedroe, the Principal and Director of Research for Buckingham Asset Management, LLC, a well-known author, blogger and proponent of passive investing wrote an article titled “Buy what you know” is a bad strategy. In a nutshell, Larry said that a recent Norwegian study  has shown that individuals investing in "professionally close" stocks (meaning stocks of companies in fields related to their profession) did not outperform the benchmark indices. In addition, Larry references a book by Gary Belsky and Thomas Gilovich titled “Why Smart People Make Big Money Mistakes that rejects the "buy what you know" mantra of famed mutual fund manager Peter Lynch.

I found this article very ironic. You will understand why when you read my blog post below. Mark from the blog My Own Advisor then posted a blog titled I disagree with an expert buying what you know makes sense in which he challenged some of Larry’s assertions and stated he thinks buying what you know can be an excellent strategy, in particular, buying a diversified set of what you know over time.

After Mark’s blog stirred some debate, including some comments by Larry on Mark’s blog, The Canadian Couch Potato a well-respected Canadian author and blogger and passive investing proponent jumped into the fray, with a blog post titled When “Buy What You Know” Makes Sense stating that it struck him that Larry and Mark were arguing two very different points.

The three articles/posts make fascinating reading for both passive investors and stock pickers alike. So, why am I rehashing this debate weeks later? Well I had written a blog in October or November that I had not yet posted on how my clients following Peter Lynch’s advice, have used professional and industry knowledge to do very well in the market. I assumed professionally close investing would result in above average returns. My concern and reason for writing my blog post (see below) was that I felt that these clients appeared to be suffering from a false sense of stock market picking confidence outside of their professional or industry expertise, because of their better than average returns on their professionally close stock picks.

Since the study and book Larry referenced in his article seem to shoot down my personal experience, I debated whether to post this blog or not, but finally decided I will post my blog as initially written and append it with some comments based on the three above articles/blogs.

The following is the blog post I wrote before reading the aforementioned articles.

The Blog Post

In the first blog I ever wrote, Why Didn’t You Buy Apple for $25 I noted that famed money manager Peter Lynch in his book Beating the Street, suggested that average investors can beat Wall Street professionals by using information they encounter in their everyday lives. In the book, Lynch tells the story of how he invested in Hanes pantyhose because his wife told him how popular L'eggs pantyhose were amongst her girlfriends. In my blog, I discussed how anyone who observed the popularity of the iPod could have purchased Apple shares and made a substantial profit.

But, let’s say you are oblivious to trends. Don’t many of us have specialized industry knowledge we can take advantage of to purchase individual stocks on occasion? I would suggest that in many cases, the answer to this question is yes, and your special knowledge comes from where you work each and every day. Think about it, don’t you have a very strong knowledge of your industry, its trends, competitors and whether or not it is a growth industry?

As an accountant, I have seen many clients trade very successfully in their specific area of expertise, be it a technology or a manufacturing niche. However, although I have observed many people taking advantage of knowledge they have obtained in their employment capacity (obviously I am not talking about insider knowledge, but just knowledge of an industry and its trends) they often mistake a specific knowledge for stock market expertise. I have not observed any correlation between individuals making a profit on a company in an industry they know well and success in picking stocks outside their area of expertise, other than a reverse correlation.

I suggest that occasional stock pickers stick to their area of expertise and use index investing or professional management for the rest of their portfolio. If you spot a trend, you may consider allocating some of the more speculative part of your portfolio to chasing that trend.

Upon Reflection

If you are still reading at this point, I think you will now realize why I found Larry’s article ironic. I have always been a disciple of Peter Lynch’s philosophy that you should buy what you know or observe around you. In addition, contrary to the study, it has been my professional experience that those investing in “professionally close stocks” have actually beaten the benchmarks by a substantial margin; it is once they go outside their expertise, that the market extracts its revenge.

So the question arises as to why I have observed positive results for professionally close individuals as opposed to the Norwegian study. I would suggest two reasons: (1) Norwegian professionals are not as proficient as North American professionals and (2) My clients are very intelligent. 

For those that do not have a feel for my sense of humour, of course I am joking about #1 above. So why is my observation so different than the Norwegian study? I can only suggest that my client sample size is statistically insignificant and is thus skewed; and if I tracked a larger sample size over a longer period my results would reflect the poor professionally close results of the Norwegian study. In all honesty, I am still a little dubious of the study results; however, I am in no position to present a counter argument to a properly executed study.

However, I am not willing to totally dismiss Peter Lynch’s assertion that by using information we encounter in our everyday lives (this information can be information other than professionally close information), investors can beat Wall Street professionals.

To be clear, I do agree with the view that almost all investors and most professionals over the long-term will not beat the indexes; but I do believe that there will be say two to five stock market opportunities in our lives, either professionally close or just observational, that if we are paying attention will be there for the taking.

The most recent example being Apple. In retrospect, how could any of us not have seen the affect the iPod was going to have on society, as young person after young person purchased iPod’s, blared their music at us and yet many of us failed to realize this would cause Apple's stock price to explode, let alone allow Apple to change the music industry with iTunes. One could also argue the Internet was another significant opportunity if we paid attention. Yes, there was a bubble, but there were multiple  opportunities to make money before the crash if one had paid attention to the explosion of the Internet.

I ended up posting this blog for two reasons. The first reason was to highlight the excellent articles/blogs and related research studies posted by Larry Swedroe, My Own Advisor and The Canadian Couch Potato and the subsequent debate. The second reason was reflect how personal observation and a small sample size of my client's professionally close advantage results, could result in a misleading conclusion.

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.