Miller Bernstein http://millerbernstein.com Mon, 20 Nov 2017 21:30:10 +0000 en-CA hourly 1 https://wordpress.org/?v=4.9 Death of a Taxpayer in Canada: Not an Inheritance Tax but an Income Tax http://millerbernstein.com/inheritance-tax-canada/ http://millerbernstein.com/inheritance-tax-canada/#respond Mon, 13 Nov 2017 21:22:15 +0000 http://millerbernstein.com/?p=1772 Canada’s Alternative to the Inheritance Tax There is no inheritance tax or estate tax in Canada per se. With the exception of property passing to surviving spouses (or possibly dependents) upon death at tax cost, there is a notional or deemed disposition of capital property owned by the deceased immediately prior to death. A deceased’s […]

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Canada’s Alternative to the Inheritance Tax

There is no inheritance tax or estate tax in Canada per se. With the exception of property passing to surviving spouses (or possibly dependents) upon death at tax cost, there is a notional or deemed disposition of capital property owned by the deceased immediately prior to death.

A deceased’s final tax return includes their income from normal sources as well as the taxable capital gains from deemed dispositions, and amounts in registered accounts (described in more detail below).

Tax obligations in the deceased’s final return are normally settled from the estate assets. The executors of the estate are responsible for filing the deceased’s final tax return and administering the payment of the deceased’s final tax liability, so the deceased’s tax liabilities are normally settled with the CRA before distributions of estate assets to beneficiaries under the will.

Although there is no actual inheritance tax, if requested by the executor of the estate, the CRA will issue a clearance certificate that confirms the deceased’s taxes payable so the residual assets of the estate can be distributed to its beneficiaries without potential exposure of additional tax reassessment liability to the executor.

Taxation of Registered Assets

Canada designates certain retirement accounts as registered, which means they accumulate value on a tax-deferred basis. Registered accounts include:

  • Registered Retirement Savings Plans (RRSP) and Registered Retirement Income Funds
  • Locked-In Retirement Account
  • Tax-Free Savings Account (TFSA)
  • Registered Education Savings Plan

Where there is no eligible beneficiary, as explained below, all except the TFSA create a tax liability for the account owner at death. The fair market value of such accounts are included in the deceased’s final year’s income.

The income is taxed incrementally at different tax rates. The highest marginal tax rate in 2017 for residents of Ontario on income over $220,000 is 53.53%.

The deceased may have designated one or more eligible beneficiaries to receive the registered accounts. Eligible beneficiaries include:

  • Spouse
  • Common-law partner
  • Financially dependent child/grandchild under age 18
  • Financially dependent infirm child/grandchild of any age
  • A trust for any of the above

Taxes on registered investment assets inherited by eligible beneficiaries are deferred until the eligible beneficiary either sells the investments or dies, at which point the registered assets are taxed as ordinary income in the beneficiary’s hands.

Absent planning for this tax, some or all of the registered accounts may need to be liquidated in order to pay the terminal taxes (which are similar in nature to an inheritance tax in other countries). Planning may include an investment in a life insurance policy in an amount that is estimated to be equal to the expected tax balance arising upon death.

It is noteworthy that a registered account with a designated beneficiary transfers outside of the will. This could create unanticipated complexities because the tax liability of the terminal return applies to the estate whereas the asset flows at full value to the designated beneficiary. This can result in a beneficiary receiving assets, but the tax obligation related to those assets still being an obligation of the estate. This circumstance can be mitigated with proper financial advice and planning.

Taxation of Non-Registered Assets and Other Capital Property

Non-registered accounts include brokerage investments, or directly held investments in such as shares and mutual funds. Other capital property includes assets held to earn income such as investment in rental property and personal use assets.

For tax purposes, non-registered assets and other capital property are deemed disposed of (and reacquired) at fair market value upon the death of the asset holder and result in capital gains.

Capital gains arising on the notional disposition of such assets are generally calculated as the fair market value of the asset arising on the deemed disposition less its original cost. Fifty percent of the capital gains are subject to tax at the incremental tax rates mentioned earlier.

Certain assets might be able to be sheltered from the tax arising on deemed capital gains. For example, shares of qualifying Canadian controlled private corporations that carry on active business may qualify for the lifetime capital gains exemption of $835,714. In addition, the capital gain arising on a deemed disposition of a principal residence may also be sheltered from taxation by the principal residence exemption.

Tax on assets that are passed upon death to surviving spouses, common-law partners or trusts are deferred until the earlier of the death of the survivor spouse or sale of assets. The Income Tax Act allows for a tax-free rollover to the surviving spouse common law partner or spouse at their tax cost. The assets can include real estate, business assets, non-registered investment assets, cars and other personal belongings.

There are elections available to trigger gains on assets passing to surviving spouses if such planning makes sense to take advantage of the incremental tax brackets of the deceased.

Rights and Things Return

There is an election available to report certain income that is accrued but unpaid on a separate income tax return in the year of death. Examples of such income includes unclipped coupons or declared but unpaid dividends. This election is often beneficial as it permits the executor to take advantage of another set of incremental tax rates and certain non-refundable credits.

Ontario Estate Administration Tax

Ontario levies a tax similar to an inheritance tax on certain types of assets such as real property, bank and investment accounts. This tax is levied in connection with the probate process that involves the court affirming the legitimacy of the will. This Ontario tax currently does not exceed 1.5% of the fair market value of assets subject to probate. Certain types of assets are not subject to probate tax in and of themselves such as shares and debts of private corporations. However, if the estate assets are co-mingled with other assets subject to probate, then the entire estate becomes taxable. Appropriate planning can avoid the administration of this inheritance tax.

Tax Strategies

Where an individual is an investor in a private corporation, there are planning strategies available to avoid double tax. The first level of tax occurs with the deemed disposition arising on death being included in their income as described above. The second level of tax occurs if and when the corporation is wound up; the recipients of the corporation’s assets will at that time recognize a taxable dividend to the extent the amount distributed exceeds the stated capital of the shares. As a result, the increase in the value in the corporation’s assets will be taxed twice, once on the deceased’s deemed disposition, and again when assets are distributed. Strategies may be available to mitigate this double-tax exposure and their implementation is time sensitive. A qualified advisor should be consulted when planning these tax strategies.

Although Canada does not have an official inheritance tax or estate tax, there is a tax liability that typically arises upon the death of a taxpayer or the second to die of spouses and common law partners. During their lifetime, Canadians can actively plan their tax strategies to reduce taxes arising on death. These estate-planning strategies may include gifting, implementing estate freezes using private company shares or using intervivos trusts. A qualified advisor should be consulted when planning tax strategies.

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Government Stepping Back from Limiting the Lifetime Capital Gains Exemption and Other Private Corporation Measures http://millerbernstein.com/government-stepping-back-limiting-lifetime-capital-gains-exemption-private-corporation-measures/ Mon, 23 Oct 2017 13:17:57 +0000 http://millerbernstein.com/?p=1761 In response to pushback arising from the proposals, the government responded by reducing small business rates and backing down from two significant controversial ideas that would impact many small businesses with unintended results.

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The government’s July 18th tax reform proposals could reasonably be described as unanticipated and overly complex, issued in the middle of the summer with a relatively short consultation period that caught even the government’s caucus off guard.

In response to pushback arising from the proposals, and to align with celebrating “Small Business Week”, the government responded by reducing small business rates and backing down from two significant controversial ideas that would impact many small businesses with unintended results, namely:

  • limiting the availability of the lifetime capital gains exemption to family members where shares were held in trusts and where family members were subject to split income, and
  • converting non- arm’s length transfers of shares and property that would otherwise give rise to capital gains into dividends.

In addition, they provided further information with respect to their intention to create an additional tax on corporate passive income that is derived from after-tax retained earnings that was subject only to the active business tax rate. (Passive income is generally considered to be income that is not generated from an active business such as income from interest, rent and royalties, unless there are more than five employees to produce such income.)

The first announcement on October 16th was reflected on the Department of Finance’s website as follows:

“Based on what it heard, the Government announced yesterday its intention to lower the small business tax rate to 10 per cent, effective January 1, 2018, and to nine per cent, effective January 1, 2019” [Harper government scheduled rate reductions repealed by the Trudeau government in its first budget]. To support this change, the Government also announced its intention to make changes to the tax system that will ensure that Canadian-controlled private corporation (CCPC) status is not used to reduce personal income tax obligations for high-income earners rather than to support small businesses to invest and grow.

Yesterday, Minister Morneau also announced the Government’s intention to simplify the proposal to limit the ability of owners of private corporations to lower their personal income taxes by sprinkling their income to family members. The vast majority of private corporations, including corporations with family members who meaningfully contribute to the business, will not be impacted by the proposed income sprinkling measures. In addition, the Government announced yesterday it will not be moving forward with proposed measures to limit access to the Lifetime Capital Gains Exemption.”

The second announcement, on October 18, 2017 was reflected on the Department of Finance’s website as follows:

“Minister Morneau outlined today the Government’s intention to move forward with measures to limit the tax deferral opportunities related to passive investments, while providing business owners with more flexibility to build a cushion of savings for business purposes – for example to deal with a possible downturn or finance a future expansion – as well as to deal with personal circumstances, such as for parental leave, sick days or retirement. The intent of the new rules will be to target high-income individuals who can benefit under current rules from an unlimited, personal, tax-preferred savings account via their corporation, far beyond the pension, RRSP and TFSA limits available to other Canadians. This is inherently unfair, and the Government is committed to fixing it, while it reflects on the feedback received from Canadians during the consultation period.

In further developing these measures, the Government will ensure that:

All past investments and the income earned from those investments will be protected;

Businesses can continue to save for contingencies or future investments in growth;

A $50,000 threshold on passive income in a year (equivalent to $1 million in savings, based on a nominal 5-per-cent rate of return) – an amount that is exceeded by only about 3 per cent of corporations – is available to provide more flexibility for business owners to hold savings for multiple purposes, including savings that can later be used for personal benefits such as sick-leave, maternity or parental leave, or retirement; and

Incentives are in place so that Canada’s venture capital and angel investors can continue to invest in the next generation of Canadian innovation. “

The pertinent part of the third announcement on October 19, 2017 was reflected on the Department of Finance’s website as follows:

“Minister Morneau announced today that the Government will not be moving forward with measures relating to the conversion of income into capital gains. During the consultation period, the Government heard from business owners, including many farmers and fishers that the measures could result in several unintended consequences, such as in respect of taxation upon death and potential challenges with intergenerational transfers of businesses. The Government will work with family businesses, including farming and fishing businesses, to make it more efficient, or less difficult, to hand down their businesses to the next generation.

In the coming year, the Government will continue its outreach to farmers, fishers and other business owners to develop proposals to better accommodate intergenerational transfers of businesses while protecting the fairness of the tax system.”

In summary, it appears the government:

  • will not be proceeding with proposed measures to limit access to the Lifetime Capital Gains exemption.
  • intends to proceed with, but simplify, the proposal to limit the ability of owners of private corporations to split income with family members.
  • will reduce the small business corporate tax rate to 10%, effective January 1, 2018.
  • will reduce the small business corporate tax rate to 9%, effective January 1, 2019.
  • will not be proceeding currently with proposed measures that convert capital gains to dividends on non-arm’s length transfers of property.
  • Intends to proceed with passive income proposals with appropriate transitional rules to shelter income derived from pre-existing assets, as well as to provide a threshold of $50,000 of passive income above which these provisions may apply. Further information will be known when the provisions are drafted.

The July 18, 2017 tax proposals were poorly planned, communicated and executed. Although they purportedly targeted abuse by “the wealthy”, their impact was significantly broader. Given the level of controversy generated by the proposals, more definitive communications would have been desirable. The government’s response to the groundswell of objections to their proposals appears to be politically motivated, rather than a measured response to points raised in consultations.

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Insights Into the Proposed Changes to the Lifetime Capital Gains Exemption http://millerbernstein.com/insights-proposed-changes-lifetime-capital-gains-exemption/ http://millerbernstein.com/insights-proposed-changes-lifetime-capital-gains-exemption/#comments Mon, 16 Oct 2017 15:06:43 +0000 http://millerbernstein.com/?p=1747 A discussion of the proposed changes to limit the use of the lifetime capital gains exemption by family members and the implications of these changes on tax planning strategies.

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The July 18, 2017 proposed income tax provisions targeting tax planning using private corporations. It included measures to “constrain multiplication of claims to the lifetime capital gains exemption” (LCGE). The LCGE is available to individuals who realize capital gains arising on the disposition of qualifying shares of Canadian controlled private corporations and on farming and fishing properties. The discussion below focuses on shares.

What is the lifetime capital gains exemption?

Where capital gains are realized on shares of a qualified small-business-corporation (QSBC), the LCGE allows for a cumulative lifetime deduction of roughly $836,000 (indexed to inflation). To qualify as a QSBC share, generally the share must be of a Canadian controlled private corporation (CCPC) that carries on an active business primarily in Canada and at the time of sale, all or substantially all (90%) of the fair market value of the corporation’s assets must be attributable to assets that are used in that active business. For 24 months prior to the date of sale, more than 50% of the fair market value of the corporation’s assets must be attributable to assets that are used in that active business. In addition, shares of a company that own assets that are leased to a related QSBC can qualify. Shares in a holding company that owns shares and debt of other QSBC’s can also qualify if they meet certain ownership tests either directly or within a related group.

Half of the amount of capital gains is subject to income tax. Tax savings from accessing the full $836,000 capital gains deduction capital gains exemption could be as much as $224,000 (rounded) at the highest 2017 Ontario personal income tax rates for each vendor of QSBC shares. To take advantage of this generous tax provision, many owners of private Canadian active corporations have adopted corporate structures that allow multiple family members to access the LCGE on a third-party sale, either as beneficiaries of a family trust that owned the corporate shares, or by family members owning such shares directly.

How do the proposed rules change the application of the lifetime capital gains exemption?

The Liberal government has determined that the LCGE was not intended to benefit minors or family shareholders who have not “contributed” (labour, investment, risk etc.) to the family business.

Other than

  1. a special one-time 2018 election available to adults only, described further below and,
  2. an exception for an actual third party 2018 disposition in favour of a minor,

the following changes are proposed to limit the use of the LCGE for post 2017 dispositions:

  • Any capital gains that are realized or accrue before the taxation year in which a person turns 18 will no longer be eligible for the LCGE.
  • For example:
    • At the time of disposition, a 30-year-old, owns shares in a private company controlled by his father with a cost of $1 and a fair market value of $500,000;
    • The corporate assets consisted of qualifying active business assets of a business carried on in Canada (and otherwise met the 50% qualification test over 24 months preceding the sale and 90% immediately before the sale).
    • The individual has been very active in the business for years;
    • The shares had a fair market value of $300,000 when he turned 18.
    • The gain that accrued from the time the individual turned 18 is $200,000 ($500,000- $300,000).
      • Of the total gain in the amount of $499,999, the amount eligible for capital gains exemption is only $200,000.
    • The Tax on Split Income rules (TOSI) rules will be tied to the LCGE regime. To the extent that the TOSI rules would apply to a notional dividend paid equal to the capital gain on the share disposed of, the LCGE on the gain will be denied. As described in detail in our previous post on TOSI, a dividend would be subject to TOSI to the extent that is unreasonable. (The recipient’s contribution to the business through labour, investment, or assumption of risk is compared to what a similar business would pay.)
    • For most trusts, capital gains that arise from a disposition of shares held in a trust will no longer be eligible for the LCGE when allocated to beneficiaries.
  • Capital gains will no longer be eligible for the LCGE where the gain accrued while a trust held shares that were subsequently distributed to a beneficiary. Only gains accruing after the distribution may qualify for LCGE.
  • An exception will continue to permit LCGE of spousal/common-law partner trusts, alter ego trusts or certain employee share ownership trusts.

Special one-time 2018 election

The proposed new rules limiting access to the LCGE do not come into effect until 2018. However, an adult individual or trust can elect (at any time in 2018) a deemed disposition and reacquisition of QSBC shares owned. The election filing due date is the due date of the tax return that includes the elective disposition date. The resulting capital gain could be offset using the shareholder’s available unused LCGE, allowing a step up in the cost base of the shares.

The election may be amended or revoked prior to 2021. The election may be late filed before 2021, with penalties.

The increased cost base will reduce capital gains on subsequent third-party sales (or otherwise on the deemed disposition arising on death).

As mentioned above, to qualify for the LCGE, there are certain active asset-holding requirements that must be met over a 24-month period prior to claiming the LCGE. For purposes of this special 2018 election, the requirements must only be met during the 12-month period prior to the elected disposition time. The 90% active asset test referred to above must still be met at the elected disposition time.

What are the implications of this change?

For families that have included the LCGE as part of their existing tax planning structures, the implication of these changes could be significant.

  • If qualifying shares are owned by a family trust, a decision will be required to either cause the trust to elect on the accrued capital gain, or accept that it cannot ever be claimed with respect to the gain that accrued while the shares were held by the trust. This is the case even if the property is subsequently distributed by a trust.
  • A decision to crystallize is likely easier where there is an investment in only one family business that is either to be sold, or to be held in the family, for the foreseeable future. However, for taxpayers owning multiple businesses, the decision might be more complicated. Which one will most likely be sold?
  • Electing to trigger a capital gain on a particular share may prove to be regrettable. For example:
    • A decision is made to elect the LCGE on the qualifying shares of a corporation, held by a family trust, that are expected to be retained for the long term. If not for the 2018 election, under the proposed new rules, the gains accrued while owned by the trust will not be eligible in the future for LCGE. If the shares are distributed from the family trust, there remains a concern that the shares may not sufficiently increase in value, to apply the LCGE on future growth.
    • A child who elected to trigger the LCGE in 2018 as a beneficiary of the trust subsequently invests in a qualifying business that is ultimately sold.
    • The result is not ideal – a realized gain for which a LCGE may not be accessible because it has already been utilized as part of a previous election on another property; the elected shares have a stepped-up cost base that may result in a reduced gain upon death, presumably many years in the future.
  • Therefore, factors to consider in deciding upon triggering the election include weighing the likelihood of other eligible future investments, timing and likelihood of sale, expected future growth of currently owned shares if distribution from a trust is an option to consider, and the possibility that the LCGE may at some point be repealed.
  • Similar reasoning would apply to an individual that owns shares with accrued gains on shares that would be considered as subject to TOSI. Other than this 2018 election, such gains will not qualify for LCGE under the new regime.
  • Another consideration is the impact of Alternative Minimum tax, a temporary tax that may arise in the year of the election. It typically would be refundable in the following year or two, but should be evaluated.
  • Where shares are held on behalf of beneficiaries of a recently established trust, a tax professional should be consulted to determine if a transfer of at least some of the shares to the beneficiaries would be suitable, sufficient to accumulate future growth to utilize the LCGE. Professional advice should be sought to review implications of family law and shareholder agreement requirements.

Conclusion

The proposed changes have broader implications than the issue the Department of Finance is purportedly trying to solve – preventing multiplication of LCGE to minors or family members that are not involved in the business. Why could they not have achieved this objective within the structure of shares owned by trusts? It is not clear. The result is an attack on trusts as if they exist solely for LCGE multiplication.

Trust planning allows for flexibility in transferring future growth of the company to heirs without transferring ownership to a particular beneficiary today, while maintaining control over trust property. There are, and will continue to be, legitimate estate, matrimonial and creditor concerns that make holding assets through trusts prudent financial planning.

Shareholders of corporations carrying on active businesses in Canada should contact their advisors to discuss a review of their corporate structure. They should consider the viability of an election to crystallize the LCGE. To ensure that they meet the 50% active business test on a 12-month look back basis, such taxpayers have a small window of time to qualify for the 2018 election. It is hoped that the Department of Finance will extend the election period to provide more time. If that does not happen, the 50% active business test must be met by January 1, 2018.

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Insights on Proposed Changes to Income Splitting Rules http://millerbernstein.com/insights-on-proposed-changes-to-income-splitting-rules/ http://millerbernstein.com/insights-on-proposed-changes-to-income-splitting-rules/#comments Wed, 04 Oct 2017 20:25:26 +0000 http://millerbernstein.com/?p=1724 A review of the proposed changes to income splitting rules that are scheduled to be enacted in 2018 by the Liberal government.

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For decades, Canadian corporate business owners have been able to distribute a portion of corporate income by way of dividends to family members in lower marginal tax brackets, realizing substantial tax savings.

The Canada Revenue Agency tried to challenge these sorts of dividend sprinkling arrangements in the 1990s using existing provisions of the Income Tax Act, but were ultimately unsuccessful at the Supreme Court.

In 2000, the Liberal government enacted the tax on split income (TOSI), also known as the “kiddie tax”. This tax essentially ended the practice of income splitting with minor children because dividends they received from family-owned companies would be taxed at the highest marginal rate, regardless of the child’s income level. Over the years, the TOSI regime was broadened to include other types of income allocated to minors through a trust or partnership if derived from a family source business. The following will focus on income from dividends.

On July 18, 2017, the current Liberal government proposed the elimination of tax advantages that can be gained through income splitting. In response to public comments, Prime Minister Justin Trudeau has reiterated his party’s position on the matter, contending they would straighten out perceived unfair tax advantages which are inherent in the system.

Proposed Changes to Income Splitting

The proposed changes seek to expand the TOSI regime to include amounts paid to adults in numerous circumstances where a dividend paid from a family company exceeds an amount determined by applying a subjective “reasonableness” test.

Generally, the criteria for evaluating whether a dividend paid to a family member is “reasonable”, include the family member’s contribution to the business of their:

  • Labour – What would be paid to an employee in a similar business performing similar functions?
  • Capital – What funds has the individual invested in the business?
  • Assumed risk – Has the individual guaranteed debts of the corporation, and what would be reasonable compensation for providing the security?
  • Historical payments made – What is the pattern of compensation over time?

In short, reasonableness is to be predicated on compensation that would be paid to an unrelated party in similar circumstances.

The test will be even stricter in the case of adults under age 25. In order for dividends to escape TOSI, the recipients will have to be considered as actively engaged in the business “on a regular, continuous and substantial basis”, and all capital contributions will be subject to a prescribed maximum allowable return on assets at the rates set under the Income Tax Act Regulations (currently 1%).

Further adding to complexity, if an individual under age 25 earns income on property that was acquired using income that was subject to TOSI, the income earned on that property would also be subject to TOSI. For example, if a 22-year-old individual received a dividend that was subject to TOSI, and the funds from the dividend were invested in a term deposit, the interest earned on that term deposit would be subject to TOSI.

The Impact of the Proposed Changes

As explained below, the proposed “reasonableness” test is anything but reasonable.

  • Contribution in the form of labour to a particular business can only be considered in the context of a business that earns primarily (generally >50%) “active” income. There are rules in the Income Tax Act that deem income from property to be income from an inactive business, unless a corporation employs more than five full-time employees. A corporation that does not employ more than 5 individuals, and that earns most of its income from holding a portfolio of rental properties or securities, is an example of a business that generally is deemed to earn income that is not active business income. Dividends paid to shareholders could be subject to TOSI if the individual shareholder did not make a financial contribution, or assume risk.
  • It is not uncommon for founders of businesses to retire and allow their children to succeed them as operator. Dividends paid on shares owned by the parents could be subject to TOSI if not justified by the founders’ current risks assumed or capital invested. As drafted, the proposed provisions imply that past performance would not be counted in the determination of reasonableness.
  • Capital gains realized by individuals on disposals of their shares of a private corporation could be subject to TOSI to the extent that notional dividends received on those shares in the year in an amount equal to the gain would have been subject to TOSI. This in turn can affect eligibility for the capital gains exemption.
    • For example, assume
      • An individual owns shares of a private corporation;
      • The shares have appreciated in value over time;
      • The shares are sold to an unrelated party in a fair market value transaction;
      • The individual was not actively involved in the operation of the corporation’s business, has never made a financial investment in the business, and has never assumed any risk in connection with the business.
    • Had the individual received notional dividends on his shares in an amount equal to the gain, the dividends would have been considered as split income in the year and subject to TOSI.
      • The individual’s taxable capital gain arising on the sale of shares would be split income and therefore subject to TOSI.
      • The amount of capital gains exemption the individual could claim would be reduced to the extent that the capital gain on the shares was split income.
    • In addition, if a capital gain arises from a transfer to a non-arm’s length person such as a family member, it would be converted to a taxable dividend either under the TOSI rules or through another proposed income tax provision. This may discourage intergenerational transfers and is not sound economic policy.

The proposed rules are unduly complex and leave taxpayers with uncertainty and onerous compliance obligations; the onus will be on corporate owners to substantiate reasonableness for dividends paid to adult family members. The implications of these changes may not be immediately obvious, and could ultimately require significant interpretation by the courts.

Although the government consultation period on these changes ended October 2, 2017, the draft rules are intended to apply effective 2018.

Hopefully, the Ministry of Finance will consider simplifying the provisions in response to consultations and public outcry. The rules could be easily simplified by permitting spousal dividend sprinkling and applying the existing TOSI rules to family members up to age 24 or even higher.

The Ministry of Finance should consider levelling the playing field in the taxation of the family unit for all taxpayers in all circumstances.

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The Pitfalls of a Part-Time Business http://millerbernstein.com/pitfalls-part-time-business/ Thu, 06 Jul 2017 14:51:21 +0000 http://millerbernstein.com/?p=1711 This blog post will help you take a realistic look at the possibility of a part-time business, taking into consideration what some of those roadblocks might be.

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Perhaps you have a secure career but have always wanted to pursue your passion for something altogether different. Or maybe you are between jobs but need to generate some extra income. You might have young children at home and you do not want to be committed to a full-time work obligation.

In all of these cases, a part-time business may seem like the perfect compromise; and indeed, it can offer some benefits. But what often gets overlooked are the pitfalls of running a business part-time and the unanticipated ways you will become sidelined.

This blog post will help you take a realistic look at the possibility of a part-time business, taking into consideration what some of those roadblocks might be.

Part-time is never part-time

Customers do not stop having needs and expectations at the half way mark. Especially with a business venture, it is very challenging to draw lines indicating where the business starts and ends, from a time management point of view in particular. More than likely (and especially if the business is successful), your business will occupy much more time than you expected. If you are juggling competing obligations (like parenthood or another salaried job), this can become quite challenging.

Success requires focus

If you are trying to get a successful business off the ground, it will take quite a bit of time and effort. Rarely does a business take off from a half-hearted approach. And a part time effort, by definition, is largely half-hearted. To drive success, you need to be giving your new business your undivided attention.

Be honest with yourself about your goals and objectives. How will you feel, even after devoting part of your time to this business, if it fails? Will that be good enough? Or would you rather focus full time on this initiative to be sure you are doing what is necessary to drive successful results?

Note that if your business already has a track record of success, and you are rather interested in scaling back, this is less of an issue.

Desperation can create a sense of urgency

If you have decided to pursue your business part-time because you have a steady job and you are ambivalent about giving that up, you should ask yourself if this is in the best interest of your business. That steady pay check, while it is putting food on the table, may be serving as a disincentive to double down and take your business to new heights. Not having that pay check, on the other hand, can create a palpable sense of urgency that will push you in ways you would not have felt otherwise. It is a scary proposition, but often one that is necessary.

Be prepared to pass up opportunities

There are inevitable limitations to what you can achieve part time. You should expect that in due course, you will have to pass up on opportunities because of those constraints.

While this may not be in the best interest of your business, you probably won’t have much choice. You should acknowledge this upfront because it can be very tricky to take on those opportunities, only to find that you cannot deliver.

Are you thinking of launching a part-time business? Or perhaps you have a full-time business that you are seeking to scale back? In either case, we can help you navigate the potential pitfalls so that you are set up for success. Contact us today for your free consultation.

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Why Job Titles Matter – How to Use Them to Hire Great Talent http://millerbernstein.com/job-titles-matter-use-hire-great-talent/ Mon, 19 Jun 2017 20:05:41 +0000 http://millerbernstein.com/?p=1702 This blog post will explore why job titles do in fact matter, and how you can use them to hire great talent.

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In the start-up world, you’ll often come across organizations with employees that have no job titles – or at least not the formal, conventional titles you might normally see in the corporate arena. Titles like “Growth Hacker” or “Chief Evangelist” or even “Executive Sensei” are becoming more and more common. Is this because titles don’t matter anymore? Or is there a more important underlying trend moving companies to re-invent roles, and their corresponding titles, in a more creative manner?

This blog post will explore why job titles do in fact matter, and how you can use them to hire great talent.

External vs. Internal

There are two critical considerations when determining a job title –

  1. What is the internal perception of this role? Does it matter? How do you want to position the person assuming this role within the broader organizational hierarchy? To the extent that this person will be taking on important responsibilities, and will need to command a sense of authority, it might make sense to provide them with a title along these lines. VP or Director immediately implies that the person has experience and skills commensurate with a senior title. This title can send a message to direct reports and can help to build respect right out of the gate, especially for new candidates.
  2. What external impressions are you trying to drive? Will this person be representing the company in a public facing manner? Is this role one that will interface with senior leadership from other organizations? These are things you should consider when designating a title and you will want to make sure that the title you provide is one that will boost the company’s reputation and credibility externally.

Employee engagement and promotion protocols

Beyond internal and external impressions, a title has an impact on the person on whom it is bestowed.

A title can be a measure of influence within the organization; it is a way to gauge career advancement and ambitious employees will naturally want to have their titles evolve to reflect their growth.

The right job title can also help to attract experienced candidates. A creative title (like the ones mentioned above) suggest a more open-minded work environment where skill is valued over tenure. It tells candidates something about your corporate culture – are you looking for ‘go-getters’ or more established experts, for instance. The right title can set expectations with a new hire and frame responsibilities and seniority to attract experience.

That said, a title should not be the principal measure (or reflection) of leadership. Leadership happens in the trenches – and today, there is a lesser distinction between decision makers and team players, when it comes to ‘whose job is it’. Even senior leaders roll up their sleeves and dig into mundane tasks if it makes sense to do so. Having a certain title should not run contrary to this notion.

Organizational hierarchy does have its purpose and can help your employees benchmark their performance against their peers. You will want to strike a balance between establishing titles that speak directly to the organizational hierarchy and offer opportunity for promotion and growth, and a culture that nurtures leadership skills regardless of title.

Don’t stifle innovation

Along these lines, you should be mindful of the negative impact that hierarchical structure can have on innovation and creativity within your organization, this being a fundamental imperative in today’s fast-changing world.

To the extent you want to disrupt your market and encourage innovative activity from your team, you will want to be looser in your organizational structure. This is why start-ups (in which innovation is their primary mandate) typically balk at conventional job titles. A flatter organization, with less rigid titles, tends to be more supportive of innovative, out-of-the-box thinking.

If the imperative of innovation is an important message to send to potential hires, it can be reflected in the right job title. A VP of Innovation is going to attract a different profile than a VP of Product, for instance – even if the job description is essentially the same for both titles.

Alternatively, if your company is more conservative, and you want your team to adhere to standards and set expectations, boxing them in with predictable titles can help to that end.

Take time to think about what a job title says about the opportunity, your organizational culture, your hiring needs and the skills and expertise of the person assuming the role. You might be surprised with how much more interest you can inspire for a particular role, just by tweaking the associated title. For more information on how to build employee engagement and roll out hiring best practices, contact Miller Bernstein today.

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A Small Business Guide to Insurance – What You Need http://millerbernstein.com/small-business-guide-insurance-need/ Tue, 06 Jun 2017 14:44:03 +0000 http://millerbernstein.com/?p=1697 Your business may have many assets: vehicles, office space and equipment, inventory, an indispensable employee or partner and, most importantly, yourself. To protect these assets and to protect your business from potential risks, you should consider getting insurance.

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A Small Business Guide to Insurance Infographic

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The Five Steps to Running Payroll in Canada http://millerbernstein.com/five-steps-running-payroll-canada/ Thu, 18 May 2017 20:19:10 +0000 http://millerbernstein.com/?p=1690 This blog post will walk you through the five most important steps to build payroll success.

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As your business continues to grow, introducing reliable payroll practices can become a tricky but critical exercise. The bigger your company, the greater the complexities; however, no matter the size, there are certain basic principles you should embrace to ensure you are running payroll appropriately. This blog post will walk you through the five most important steps to build payroll success.

Step 1: Set the stage

Before you can start writing cheques to your employees, you will want to make sure that you have received a valid Business Number from the CRA (Canada Revenue Agency). Without a Business Number, you cannot remit the statutory payroll deductions, such as CPP, income tax and employment insurance. When you register for your Business Number, you will also want to request a Payroll Account. If you already have a Business Number, you can contact the CRA to request the addition of a payroll account.

You will also want to make sure that you register with the Ontario Workplace and Safety Board. In fact, within ten days of hiring your first employee, you are expected to complete this registration. Depending on the nature of your work environment or industry, the premiums you pay will vary, but being registered, and in good standing, is a pre-requisite.

Lastly, you will need to register with the Ontario Ministry of Finance to be able to remit the Employer Heath Tax. You should expect to pay anywhere from .98% to 1.98% of payroll, depending on the total size of your payroll budget.

Step 2: Determine the frequency

You will need to decide how frequently you want to pay your employees. Once you have made the decision, you will stick to the schedule consistently, so be sure you are keeping your cash-flow considerations in mind. The most common cadence is bi-weekly (every two weeks), but some organizations opt for weekly, semi-monthly or monthly pay. There are advantages and disadvantages to all options. Weekly works well for smaller businesses with many short-term or hourly-wage workers. Bi-weekly is the most common, as it is easy to administer in all cases. Semi-monthly works seamlessly in environments where all employees are salaried, but it can be cumbersome for hourly workers. Monthly is a rare model, but is a good option for companies with a workforce that is largely commission-based.

Step 3: Gather data

Before you can process your payroll, you will need access to information. You should consult with your accountant to ensure you are collecting the right data from your employees, but generally, you will need to ask for:

  • Name
  • Address
  • Phone number
  • Social Insurance Number
  • Hire date
  • Birth date
  • Deductions
  • Amounts to be paid
  • Pay type (salary, hourly)

You may also need to gather information about RRSP deductions, banking information (for direct deposit), vacation accrual or reduction of tax at source.

Step 4: Process pay

You can process your payroll in house, by hiring the right internal resources and making sure they are appropriately trained. Or, you can outsource to a third party. If you choose the former, make sure you keep the right records to produce year-end tax documents and Records of Employment. Alternatively, you can outsource to a company like ADP or Ceridian. You are responsible to provide them with the information they need to execute the processing, but in turn, you benefit from their expertise and guidance. They will also provide you with journals, T4s and year-end-reports as needed. Costs vary, depending on the size and complexity of your payroll.

Step 5: Assess

You should always be evaluating your payroll process and determining how you can streamline. As you grow, your payroll needs will evolve, and what worked at one time may no longer be adequate.

At Miller Bernstein, we can help you determine if your payroll practices make sense, and where there may be gaps and opportunities for improvement. Contact us today for your free consultation.

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The Unique Challenges of Female Entrepreneurs and How to Overcome Them http://millerbernstein.com/unique-challenges-female-entrepreneurs-overcome/ Thu, 18 May 2017 20:17:33 +0000 http://millerbernstein.com/?p=1687 This blog post will specifically examine how women address the unique challenges they encounter, particularly as entrepreneurs, and what they are doing to overcome them.

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The last fifty years have fuelled significant positive change in the domain of equal rights for men and women, but inequities persist nonetheless. Only 21 of the top 1000 public companies are run by female CEOs. In Canada, only 27% of elected Parliament members are women. Perhaps most alarming is that the gender pay gap in Canada is among the worst in the OECD nations. Canadian men are typically paid 20% more than women in the same role.

Why is this? What challenges continue to fuel this bias, and what can we do about it?

These are very complicated questions with many layers and considerations. This blog post will specifically examine how women address the unique challenges they encounter, particularly as entrepreneurs, and what they are doing to overcome them.

Balancing work and family

While men certainly assume responsibilities relative to their families, the practical reality is that women continue to bear the brunt. Women have to juggle pregnancy, recovery, breastfeeding, and caring for the children. In fact, according to a recent survey by the American Board of Labor, for every hour of childcare provided by the mother, the father spent 26 minutes on similar tasks.

To nurture a sense of balance between work and family, women must make sure they prioritize their time thoughtfully. A skipped bath, or perfectly prepared dinner does not matter as much as quality time spent with the people you love. Similarly, at work, make sure most of your time is being spent on strategic priorities, and don’t waste time on the more mundane tasks that don’t necessarily contribute to results.

Finding mentors

A sound mentoring relationship promotes career success. But for women, it is difficult to find female mentors who have successfully managed similar challenges, because, quite simply, they are underrepresented. 48% of female founders report that a lack of professional advisors and mentors limited their professional growth.

Women should seek out mentors assertively, sometimes in unexpected places. Take advantage of LinkedIn groups and local MeetUps to find a mentor. And don’t necessarily rule out a male mentor. The right person, irrespective of gender, can help you blaze a trail in your career.

Fearing failure

There is a significant body of research that demonstrates women are far more fearful of failure than men, particularly in professional circumstances. One study shows that for female business owners, it is one of the more crippling challenges they face. There are many explanations for why this is the case, but the more important consideration is how to overcome it. Being able to embrace failure as an opportunity to learn, grow, and ultimately succeed is critical. All entrepreneurs fail, at some point. But successful entrepreneurs understand that overcoming failure (not fearing it) is what distinguishes them from those who struggle.

Get comfortable with failure. Let yourself experience it, and walk through the steps necessary to get through it. Talk to others who have weathered similar failures. And once you are on the other side, take stock of everything you have learned.

Owning your success

Men are much more inclined to take credit for their achievements. Women tend to hedge – and credit others. This may be, in part, because when women take credit, it is often perceived as vain. It is important for women to take ownership of their success, be proud of it, and articulate it to key decision makers and influencers.

Being able to herald your success is important. It helps drive corporate growth, inspire a sense of confidence in your employees and more firmly establish your position as an effective leader. Practice talking in these terms and get comfortable owning your success.

If you are a female entrepreneur, and you are seeking guidance on how to grow your business, contact Miller Bernstein today for your free consultation.

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5 Ways to Land Hard-to-Get Meetings http://millerbernstein.com/5-ways-land-hard-get-meetings/ Sat, 22 Apr 2017 03:55:35 +0000 http://millerbernstein.com/?p=1661 This blog post will explore the next steps you can undertake to land hard-to-get meetings when it matters most.

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Sometimes, the future of your business can depend entirely on getting in front of the right person at the right time. Whether it is a critical sales opportunity, an investor meeting or perhaps a discussion with a strategic partner, landing a hard-to-get meeting can change the course of your business and take it to a new level. But these types of meetings can be tricky to secure. This blog post will explore the next steps you can undertake to land hard-to-get meetings when it matters most.

  1. Leverage your connections

The best way to get an introduction is through someone you know. People are much more inclined to make time for you if someone they know and trust has introduced you. LinkedIn reveals common connections to help you identify those potential sources of introduction. Take advantage of those relationships to help open the doors and secure meetings. If you are uncomfortable asking your colleagues for an introduction, you can still take advantage of the shared connection by mentioning the name in your outreach to the prospect. Call out the six (or two) degrees of separation and that will make your outreach seem much more personal and credible.

  1. Befriend the Executive Assistant

A good EA is also a fairly committed gatekeeper. If you are seeking to meet with someone who has a high profile, chances are, they are inundated with meeting requests. They likely defer to their executive assistant to keep their schedules clear of unnecessary meetings. An effective EA is going to take time to ensure that your proposition is meaningful and relevant to their boss. And they may make that determination in a matter of seconds, based only on first impressions. But if you persist, get to know the EA, ask the right questions, and slowly nurture a relationship, you can convince the gatekeeper that you deserve a spot on the calendar.

  1. Consider reciprocity

The meeting you are pursuing may be game changing for you, but what is in it for the person with whom you are meeting? Think about it from their point of view – how will this be time well spent for their purposes? Of course – you may think you are bringing them the opportunity of a lifetime, but that alone will not twist their arm. What can you bring to the table?

  1. Use social media

While it’s not a good idea to reach out to a stranger on Twitter or LinkedIn and stalk them for a meeting, social media is a great way to find out what someone cares about. Do they golf? Do they enjoy cooking? Perhaps they went to the same university as you? Follow them on social media, and listen for at least a few weeks. You can like their posts and even comment and jump into the conversation. Familiarize yourself with their priorities. And then, when the time comes to ask for the meeting, reference some of the things you have learned. “I’d love to get some time on your calendar to talk about the fabulous product I am selling” is not nearly as effective as “I see from LinkedIn you are passionate about energy conservation, and I’d love to get your feedback on a new product we just brought to market.”

  1. Go the traditional route

People are so inundated with cold calls and emails that often, everything seems to blur together. Consider sending mail the traditional way, and rather than sending a letter in an envelope, consider something unexpected – perhaps macaroons, or a great book, or even an orchid. Include your meeting request with the delivery, and you are almost guaranteed to be noticed.

Once you have secured the meeting, you have already won half the battle. If you now need help to plan for your critical meeting, and would like to solicit advice on how best to advance your business strategy, contact Miller Bernstein today.

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