TAXATION Additional Tax Savings through the TFSA

MONEYSAVER Debit Card Fraud

TECHNOLOGY Recording Travel for Business

MANAGEMENT When Cash is Short

Taxation

Additional Tax Savings through the TFSA

A Tax Free Savings Account (TFSA) can be used together with your RRSP or RRIF to shelter more investment income from tax.

As you prepare to file your 2010 personal income tax, you may ask: Is there another means of reducing tax on income other than the RRSP?

TFSAs and RRSPs

The answer, of course, is a resounding “YES.” It is the Tax Free Savings Account (TFSA). When you contribute to an RRSP you get a deduction that relates to your “earned income” in the preceding year and a tax reduction based on the applicable tax rate. If you start withdrawing RRSP funds, however, they are taxed at your tax rate in the year of withdrawal. Contributions to the TFSA, on the other hand, are not tax deductible and do not, therefore, create an instant tax savings as does the RRSP contribution. The TFSA does, however, offer the opportunity to those who have already contributed their annual limit to their RRSP to set aside an additional amount and shelter any investment income (capital gains, interest and dividends) earned on those funds. Withdrawals are tax free. As with RRSPs, losses in a TFSA are not tax deductible. No capital gains tax is paid at the death of the account holder. Unlike RRSPs, the property in a TFSA can be used to secure a loan.

Unused contribution room can be carried forward indefinitely.

Any resident over the age of 18 can contribute up to $5,000 per year. (This limit may be indexed based on a formula that relates to the increase in the Consumer Price Index and so is intended to grow with inflation. However, the potential increase is rounded to the nearest $500 and may therefore be nil.) If you cease to be a Canadian resident, you may continue to hold the TFSA but cannot add to it. Unused TFSA room is carried forward indefinitely. Withdrawals from a TFSA in a year are added to TFSA room in the next year. Excess contributions are subject to a penalty of 1% per month.

It is important to note that the income attribution rules do not apply if a person provides funds to enable his or her spouse or common-law partner to contribute to a TFSA.

Different Ways to Contribute

There are three types of TFSAs: deposit, annuity contract and arrangement in trust. TFSAs can be issued by banks, insurance companies, credit unions and trust companies. The eligible types of investment are generally the same as for an RRSP: cash, mutual funds, securities listed on a recognized stock exchange, guaranteed investment certificates (GICs), bonds and certain shares of small business corporations. Foreign funds can be contributed but their value in Canadian dollars cannot exceed the $5,000 limit. The TFSA can be managed by an institution or self-directed in the same way as an RRSP.

Recent Problems

The TFSA was introduced effective January 1, 2009. Some contributors were reassessed for 2009 as a result of confusion on two main issues: the transfer of a TFSA from one institution to another institution, and how the TFSA worked with respect to withdrawals and recontributions.

With regard to the first issue, some taxpayers were initially penalized by the Canada Revenue Agency (CRA) for taking funds out of one institution by cash or cheque then opening an account at another institution. The CRA considered the transfer and deposit to be opening a new TFSA account. The CRA considered this to be a separate contribution subject to the $5,000 yearly limit and thus an overcontribution. The CRA applied the 1%-per-month penalty on the amount over the $5,000 personal contribution limit.

The TFSA is not like an investment account.

The second issue arose because taxpayers believed the TFSA was like an investment account to which they could deposit up to $5,000, remove funds then redeposit them provided the amount in the account never exceeded $5,000, at any time. Unfortunately, the CRA considered this activity to be overcontributing based on the following logic.

Suppose the taxpayer deposits $5,000 on May 2 and on September 30 withdraws $3,000 to leave a balance of $2,000. If, however, on October 25 the taxpayer deposits $3,000 to top the account back up to the $5,000 limit, the CRA will consider this deposit to be a $3,000 overcontribution and levy the 1% monthly penalty.

As indicated above, funds withdrawn may be redeposited only in the following year after the contribution room has been increased. CRA will remind you each year as to the accumulated room available for contribution.

Using a TFSA in Conjunction with a RRIF

There is no cut-off age for contributions to a TFSA as there is for the RRSP. You cannot make an RRSP contribution after December 31 of the year in which you turn 71. Thus a taxpayer over 71 can transfer the mature RRSP into a Registered Retirement Income Fund (RRIF) and from there into a TFSA at the eligible contribution amount then applicable. The amounts withdrawn from the RRIF will be taxable but the investment income earned in the TFSA and any withdrawals will not be. The funds invested in the TFSA can continue to grow without tax consequences as they did in the RRSP and RRIF.

No Dividend Tax Credit

The dividend tax credit was designed to overcome the problem of taxing income first in the hands of the corporation that earned it, then again in the hands of the shareholder. As with dividends received in an RRSP or RRIF, dividends from qualified Canadian corporations received in a TFSA cannot make use of the dividend tax credit since they are already tax sheltered. On the other hand, if a TFSA held a GIC, the interest income would be tax free whereas if held outside of a TFSA the interest would be taxable. If you have investments both inside and outside your TFSA, it may therefore be better to hold dividend yielding investments outside and interest bearing investments inside.

Is the TFSA Right for You?

Determining whether to place your 2011 investment within an RRSP or a TFSA is a decision that should be discussed with your Chartered Accountant to determine whether there are significant benefits of choosing one vehicle over the other. The end game is to increase financial security with investment strategies that reduce the taxes paid. ~

Moneysaver

Debit Card Fraud

Debit card fraud grew by 132% in Canada between 2004 and 2009.

According to RCMP statistics, debit card fraud in Canada grew from $60 million in 2004 to $142 million in 2009. Between 2008 and 2009 alone it grew by 36.2%. And debit card use is rising. The Nilson Report, a U.S. publication for the payment systems industry, says debit card use grew from 47.7% of plastic-based purchases in 2003 to 48.9% in 2008 and is expected to grow to 67% by 2013.

Business use of debit cards is expected to grow in line with this trend. As a result, more fraud in business bank accounts and lines of credit will follow as will identity theft. The cost will be enormous not just in the actual lost money but in the lost time and redirected energy of managers to find the source of the loss and determine the cause. Bank accounts will have to be closed and others opened, new cards, new cheques, and new passwords issued. Customers and suppliers using electronic-funds transfer services will have to be notified and other arrangements made for payments. In addition, there will be “insufficient funds” charges on cheques and automatic withdrawals will be returned to suppliers.

Chip Cards by 2011

Cards with chips built in for security will be standard in the near future. These chips will be harder for thieves to read than the current magnetic strips, but your business will not be protected if the card is stolen and the PIN discovered. Furthermore, anyone in possession of the card can read the three-digit Card Verification Code (CVC) on the back of the card to make fraudulent online purchases.

How to Protect Yourself

Protecting business from debit card fraud should combine common sense with an awareness of the need for security.

First and Foremost
Never give your card and PIN to an employee. Such carelessness is even worse than signing a blank cheque because it enables the dishonest employee to see the actual amounts in the accounts. No financial institution will reimburse you for stolen funds when you have provided the electronic signature (PIN).

Do not use initials, birth dates, addresses or names as PINs.

The PIN and account numbers taken together are supposed to provide a unique identifier as distinctive as your signature. Unfortunately, the PIN is often compromised because the card owners create the number using predictable combinations such as their initials, birth dates, addresses or names of family members or pets. These PINs may be easily cracked if the thief has time to try various combinations from data found in a stolen wallet or purse.

Because using an ATM is so convenient and commonplace, it is easy to forget they still present a security problem both for the institution and for the customer. ATMs can be compromised with substituted card readers and hidden cameras that record each user’s key strokes. Such improperly obtained information can be transferred to an illegally made card and used at an ATM within hours.

How to Protect Company Assets

1. Limit your company’s exposure by not linking all accounts to the debit card.
2. Reduce the withdrawal limit and the upper credit-card limit to avoid large withdrawals or purchases.
3. Change the PIN number on a regular basis. Most financial institutions allow changes over the Internet or at an ATM. Since the communication protocol is extremely secure, the probability of compromise is minimal.
4. Know the account passwords. Many owner/managers leave all online banking to a trusted employee. (If receipt and payment responsibilities are not segregated, even a trusted employee must be monitored regularly.) If you still do not know how to use your company’s passwords to access your own online accounts, learn now. Failure to do so means you cannot monitor your own employees’ access to company funds. Redirection of funds to phoney suppliers or simple theft could leave your company with sudden and unexpected working capital problems. You can always take legal action against the employee, of course, but what good is that if the employee cannot repay the spent money and you are in a cash-flow crisis?
5. Attach debit card purchase slips to the original invoice. You can thus distinguish between legitimate and fraudulent purchases and withdrawals in the event the debit card is stolen.
6. Store all transaction slips produced by an ATM or a Point of Sale (POS) terminal; do not leave them in the ATM — do not throw them into the trash. The printed balances indicate to the fraudster just how much remains in the account, which may be an indicator of the business’s financial health.
7. Use online banking services to review your accounts daily. A good time to review your accounts is Monday morning or after a long weekend since many frauds are committed when key financial people are away or businesses are closed. If transactions are unusual and cannot be accounted for, contact the financial institution at once.
8. Never respond to email messages claiming to be from your financial institution. As a matter of policy financial institutions do not ask for account information or any other personal information by email.

Password Security

Most individuals would never consider carrying a PIN in a wallet, purse or briefcase next to a debit card because the account could be compromised in the event of loss. The increased requirement of passwords for access to accounts for everything from airlines to the Canada Revenue Agency has created a need to record this easily forgettable information in one readily accessible location.

Many business owners use applications such as Outlook to store important information. The ability to co-ordinate cell desktops and laptops with a cell phone or smart phone carried in a briefcase, jacket or purse creates a potential for not only debit card abuse but also identity theft. Owner/managers should be sure that all laptops, desktops and smart devices are secured to avoid unauthorized access. All devices and application software containing sensitive information should be password protected. In addition, all devices should shut down within a limited time when not in use. Since your smart phone may be the very means of notifying a financial institution of a lost or misappropriated debit card or other identification, these gadgets should be carried on your person at all times.

Identity Theft Protection

Many financial institutions now provide a service marketed as identity theft protection. For a fee they will contact all credit card and debit card carriers of a business or individual as soon as they receive notification that a card may have been compromised. Another means of protection is to maintain a list of numbers to call in the event documents are lost or stolen. This information should be stored on a secure online office server or a service provider that can be contacted from a cell phone.

An Ounce of Prevention . . .

Electronic information carried on laptops, smart phones, electronic organizers or on stand-alone office computers provides access to information that, if used by a criminal, can cripple an organization overnight. Careful password protection combined with vigilance when conducting transactions will limit losses to your business. ~

Technology

Recording Travel for Business

Keeping track of business travel expenses is often difficult, time consuming, and imprecise.

But failure to maintain accurate records to support cost claims in your submission to the Canada Revenue Agency (CRA) can result in embarrassing audits.

Now there are devices available that can help solve this problem. A Canadian company offers a product called Odotrack that records your mileage and produces a variety of reports for management and tax purposes. A particular bonus feature of this software is its ability to distinguish between business and personal driving time.

Compliance with CRA Rules

Compliance with tax rules regarding motor vehicles owned by employees but used for business can be a complex matter for both the employee and the employer. According to the Canada Revenue Agency, motor vehicle expenses are deductible if the employee meets all of the following conditions:

• The employee normally works away from the employer’s place of business or in different locations.
• The contract of employment requires the employee to pay his or her own motor vehicle expenses.
• The employee does not receive a non-taxable allowance for motor vehicle expenses. An allowance is usually non-taxable when it is based solely on a reasonable per-kilometre rate.
• The employee has a copy of Form T2200, Declaration of Conditions of Employment, completed and signed by the employer.

The number of kilometres travelled for business purposes is important to record since it is a key part of the formula used to calculate the deductible amount. (The rest of the formula includes operating expenses, capital cost allowance and an interest cost related to the amount borrowed to purchase the vehicle.) But getting employees to keep a record of distances travelled can sometimes be difficult, even when the record is needed for filing personal income taxes or reimbursement from the employer for business travel.

Time Really Is Money

The dollar cost to employers and employees alike can be quite significant if travel expenses are not billed and reimbursed. There is not only potential for lost business revenue by not being able to cost out the travel component of a contract correctly, but also potential lost deductions to the contractor as a taxpayer.

Failure to record and report mileage can be very costly.

Consider this: If five employees working for an owner/manager each failed to record 5,000 kilometres in a year, a total of 25,000 kilometres worth of cost recovery could go down the drain. At a modest $0.46 per kilometre, the employer has lost $11,500. In addition, if one assumes (a) that the 25,000 kilometres is recoverable travel time, and (b) that 100 kilometres per hour is the average speed, a total of 250 billable hours has been lost.

The Solution

Odotrack users can simply and easily track travel distance with separate buttons for personal and business travel. (This feature is especially useful since the CRA permits a deduction only for the percentage of expenses related to earning income.) Through the use of the Global Positioning System (GPS) and the cellular data network, the device records your starting and finishing positions and automatically updates a log on a centralized server wirelessly. (A similar product called Mileage Logger is available in the U.S. Microsoft and other software manufacturers offer templates for manually recording travel data.)

Features That Will Pay Off

1. Password protection for each employee but universal access for an administrator to pull reports.
2. Ability to track specific vehicles by date and time to record the trip starting point, distance travelled, duration of the trip, and whether it was for business or pleasure.
3. Every client visit recorded at the push of a button. The employee is only required to enter the client’s name. The employee or designated administrator can retrieve all information for any period in question.
4. The centralized archive function allows the preparation of year-end reports for various tax forms with ease, much as payroll software can summarize T-4 information.
5. An expense report template can be used to record expenses incurred by the employee and categorize the payment method – cash or credit card. This feature encourages the user to attach the actual invoices to ensure reimbursement.
6. Data can be recorded even in areas without wireless coverage. Upon return to the office, the data can be uploaded to the central server.
7. The system can track vehicles in real time and show whether they are moving or standing still.
8. The product hardware is handheld, has a built in rechargeable battery, and can plug into a vehicle electrical outlet to maintain its charge.
9. Purchasers are provided with reference to every pertinent income tax report required by the Federal and Quebec income tax authorities and can, with the click of a mouse, transfer the data to the appropriate form whether it is a TP-80 (Quebec), Income and Expenses Relating to a Business or Profession, or the federal T-777 Statement of Employment Expenses.

Definitely Worth the Investment

For about $300 per unit and a monthly fee just under $25, the service will undoubtedly pay for itself by providing more accurate billing and employee accountability.

Whether your company needs to track employee vehicle use, recover costs, extract more timely and accurate expense reports, or simply to comply with tax requirements, a travel-logging tool may fit your needs. ~

Management

When Cash is Short

Times are tough, cash is tight.

This is not the time to cut costs in an effort to reach short-term goals. You may inadvertently create unforeseen difficulties that may surprise you later.

The following list outlines what NOT to do when cash is short:

DO NOT:

Sign Your Life Away
Prudent debt management suggests that debt incurred for business purposes should be the only debt at risk when operating your business. When times get tough and small businesses need operating capital, financial institutions often ask for personal guarantees from the owner/manager. When one signs as an agent on behalf of a corporation, only the company assets are at risk in the event of bankruptcy; if, however, the owner/manager signs a personal guarantee for the corporate debt, he or she may be subject to unlimited liability.

Postpone Paying Government Withholding Taxes
All personal income tax withheld from employees for remittance to the government, Canada Pension Plan, Employment Insurance, as well as the GST or HST collected from customers are collected in trust for the government. With the current HST rate at 13% (in British Columbia, Ontario, New Brunswick, Newfoundland and Labrador but 15% in Nova Scotia) the amount collected can grow quickly. Using the GST or HST collected or employee deductions to augment current cash flow between collection and the remittance deadline is undoubtedly a widespread practice. Be aware, however, that failure to remit by the deadlines set by the various regulatory bodies will result in stiff penalties regardless of the unremitted dollar amount. Penalties increase with each missed deadline. In addition, if your business declares bankruptcy, corporate officers and directors could be held accountable and required to repay the delinquent amounts out of their own pockets.

Delay Opening the Mail
Many owner/managers have had times when cash flow was so tight and reminders in the mail so numerous that the mail was ignored. Failure to open the mail to at least find out what has to be dealt with can create additional problems even more onerous than owing money. Consider this: your insurance company may cancel its coverage; the Canada Revenue Agency and other regulatory authorities may freeze your bank accounts; regulatory authorities or creditors may notify your business that a sheriff will lock the doors and seize all assets. Now you have even worse time-consuming and expensive problems that must be dealt with by your lawyer and Chartered Accountant.

Cash Personal RRSPs to Fund the Business
Using your RRSP to keep your business afloat may be available as a last resort but, before you take that step, realize the initial cost in personal-tax liability is high. If, for example, you need an additional $30,000 for the business, current legislation requires you to withdraw about $37,500. Assuming you paid yourself taxable income of $39,000 for the year, the additional $37,500 would push you into such a high tax bracket that cash-flow problems could be exacerbated later when you have to withdraw more capital to pay your higher income taxes. You may now be in the unenviable position of not only losing the capital gains and investment income that could have been generated from the withdrawn funds, your future annual allowable contribution levels may not permit you to make up the losses.

Review advertising effectiveness before cutting advertising expenditures.

Cut All Promotion
Advertising and promotion are often seen as expenses that can be slashed out of operating costs. Indeed, you should ensure that frivolous advertising is eliminated. No advertising or promotion, however, removes your voice from the market place. You also need to keep existing clients informed of any changes that might affect the products they buy. This may be an opportunity to review the effectiveness of your advertising expenditures and see where it is most and least effective.

Cut Insurance Coverage
Reducing insurance coverage is another road to short-term savings. Before taking this route, however, consider the consequences. Do any loan covenants require a specific level of coverage for the assets securing the loan? If vehicles are leased, are they subject to any insurance conditions? Failure to maintain adequate insurance may be a breach of contract that forces loans to be called or vehicle leases to be cancelled.

Stop Paying Premiums
Eliminating expensive life insurance premiums on key personnel, especially on you, the owner/manager, is another short-term solution that could become a long-term problem. Before taking this tactic, you should consider how stressful times can create health problems. If you are unable to continue working, you could be placing your business, your shareholders (partners), and your family in jeopardy, particularly if buyout insurance becomes inadequate as a result of a short-sighted cutback in the premiums. If you try to renew the insurance, medical examinations and/or higher costs may prevent you from reinstating the policy at its former level.

Reduce Your Take-Home Pay
Reducing your own remuneration is certainly one more method of maintaining cash flow. But keep in mind that a certain level of remuneration is required for day-to-day living. Often reduced remuneration is offset by increased draws by owner/managers. At some time in the future the owner/manager must record these draws as personal taxable income with the risk of moving into a higher tax category. Perhaps personal and family income requirements should be reviewed to consider whether hiring family members would provide the necessary family income without raising your personal tax rate.

DO:

Seek Advice
Maintaining control over business costs is essential in any business. The secret to controlling costs without creating higher future costs is to carefully analyze the specifics of cost cutting and determine with the assistance of your Chartered Accountant whether your current plans will be detrimental to your business in the long run. ~

Disclaimer:

BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

BUSINESS MATTERS is prepared bimonthly by The Canadian Institute of Chartered Accountants for the clients of its members.

Richard Fulcher, CA – Author; Patricia Adamson, M.A., M.I.St. – CICA Editor.

TAXATION In-House Benefits

MONEYSAVER It’s Just Good Business

TECHNOLOGY Zombies in Your Office

MANAGEMENT Preparing to Sell Your Business

Taxation

In-House Benefits

Employers wishing to reward employees for a “job well done” should check first with their Chartered Accountant to make sure the reward is not taxable to the employee.

Image courtesy of Kongsky - FreeDigitalPhotos.net

Generous, well-intentioned employers are often surprised to discover the value of many rewards is reduced because the reward is taxable to the employee. Employees, on the other hand, are often disappointed and discount the value of the benefit received because, in their minds, anything taxable is not a real benefit. Indeed, employees may perceive the “reward” as a means by which the employer can avoid giving pay increases.

Unfortunately, in truth, employers have very little leeway to provide incentives that are not taxable to employees. The following list, though not all-inclusive, provides an idea of the administrative position of the Canada Revenue Agency (CRA).

• Gifts of cash or near-cash (such as gift certificates) are taxable.
• Gifts that are neither cash nor near-cash, but have an annual value greater than $500 will have tax applied to the amount in excess of the $500 limit.
• Gifts to recognize service are not taxable as long as they are not given more than once every five years. In the event the service-reward amount is given in the same year as cash or near-cash gifts, the two amounts are treated as separate items, thereby avoiding the $500-per-annum threshold.

Even the Shirt off Your Back?

One would think an achievement or service award bearing a company logo but of immaterial value such as a coffee cup
or a T-shirt would not attract income tax; however, the CRA leaves the door open for possible taxation by indicating that the
concept of immaterial value is subjective. The CRA takes the position that such awards should be valued at an amount the
employee could get for the item if sold immediately after receipt. For instance, an outstanding employee of the Canadian Football League rewarded with a team jersey signed by all the players of a Grey Cup championship team could have received an item with a value far in excess of the immaterial cost of the jersey.

The Grinch Who Taxes Christmas?

The next time your employer holds a picnic or holiday party take pity on the planner who may be under pressure to keep the cost per employee under $100 because CRA administrative practice stipulates that a cost below $100 is not a taxable benefit. However, if the expenditure exceeds $100 per employee, the entire amount may become taxable to the employees. For those generous employers wishing to include spouses and children, the $100 ceiling is not hard to break.

Club Memberships

Club memberships and fees are taxable in the hands of the employee member if the club is primarily used for personal wining, dining and sports activities. On the other hand, if the employer receives the primary benefit and the employee does not participate sufficiently to be considered to have received a benefit then there may be no taxable benefit to the employee. If, by way of example, a business owns a club membership and an employee uses it to entertain company clients or management meets there to discuss business issues, then no individual employee would be deemed to have received a taxable benefit. Good management would suggest that use of the facilities for corporate functions be documented to establish the corporation as the primary user and to prove that employees are not receiving benefits.

Flying High

Frequent-flyer points were a contentious issue between employees/employers and CRA until an understanding was reached in 2009. Before 2009 employees who used their own credit cards to gain points while on company business were considered to be earning a taxable benefit. In 2009 the CRA conceded that the use of personal credit cards to pay for company business would not be considered a taxable benefit as long as:

• the employee did not receive cash for the points
• management did not provide the card as an alternative to remuneration
• there was n0 intention to avoid taxes.

Employees and employers should be aware, however, that if the employer owns the credit card and distributes the accumulated points as a reward to employees, the value of the reward will be perceived as a taxable benefit to the employee.

Withholding Taxes

Benefits taxable in the hands of the employee are subject to deductions at source. The general guideline is as follows:

If the gift is taxable, both income tax and the Canada Pension Plan contribution must be calculated, deducted and remitted. Should the employee receive cash, income tax, CPP and Employment Insurance must be calculated, deducted and remitted. (Naturally, the employer must remit its share of CPP and EI). Gift certificates (near-cash benefits) are not considered cash
for purpose of the EI caiculation and thus only income tax and CPP are calculated, deducted and remitted.

Employer Responsibility

The end of the calendar year is close: Employers should review gifts and incentives provided during the year to determine
whether employee remuneration must be adjusted for benefits taxable to the employee. If it was the employer’s intention to
provide gifts in the last month of the year, now is the time to consider how best to structure the gifts to say “thank you” to employees without impacting their pay cheques. Employers should also remember that February 28, 2011, is the last day for
sending out T-4s to employees.

For employers needing guidance determining which benefits are taxable, your Chartered Accountant might just be your new BFF. ~

Moneysaver

It’s Just Good Business

Successful collection of receivables can often be a matter of knowing how to manage client behaviour.

Has your business had to:

• inform clients that there are no discounts for cash payment
• negotiate with clients who belittle your product to obtain a reduced invoice
• wait 90 days for payment after you paid the 13% HST on the amount invoiced
• point out that post-dated cheques for an invoice due 30 days after receipt is not acceptable
• learn that a client has gone into receivership soon after your last shipment?

Nothing is more frustrating to owner/managers than doing the work and not recdving payment for a job completed.

The majority of owner/managers act on good faith and a handshake. They believe that once the j0b is completed the customer will be happy to pay quickly. When cheques are not received owner/managers may rationalize the non-payment by saying they are too busy to follow up or that the client always pays.

Reluctance to bill on a timely basis or go after overdue payments is an administrative weakness that plagues most owner/managers as they move on to the next job. In a world of 13% HST, rising costs and stagnant sales, owner/managers should make billing and collecting number one on the “To-Do List” each day.

Minimize Misunderstandings

To reduce potential misunderstandings never commence a job until the contract is signed. The contract should include the method and schedule of payments. Asking a client for a deposit is a sure-fire way to measure the client’s sincerity. Consider asking for a deposit at least equal to the HST on the final invoice. If the client does not pay the invoice within 30 days, your busihess will at least be able to use the client’s cash to pay the HST you are required to remit.

Enhance Collection Procedures

Collection starts once the contract, job or sercice is finished; invoices should: be submitted immediately upon completion; stipulate the terms of payment; and state that failure to pay the invoice will result in interest charges. Send the invoice by email. Although the interest rate that can be charged is only limited by the usury laws, good business practice suggests a reasonable rate. Remember: if you are reluctant to charge interest, you must accept that a delinquent client reduces your cash flow. As a result, it will be you who must borrow operational funds and pay the interest, not the client.

Telephone customers for all receivables uncollected by day 20 after invoice presentation. The client can discuss any outstanding issues and still has time to prepare payment. Document your discussion.

If you have not received payment within 10 days after the 30-day term, call the customer. Find out why payment has not been made and negotiate a date when you can expect to receive the cheque. Document your discussion.

Cut Your Losses

If payment has not been received and the client has not provided an alternative payment plan, consider the following:

1. Do not take on any additional work from this client on credit.
2. Write the first pre-collection letter to put the debtor on notice that legal proceedings may follow if payment is not received.
3. If the amount is sufficient to justify the costs, you may wish to turn to paralegals or lawyers to determine whether liens can be placed against property or, if the receivable was a service, whether it is possible to attach the debtor’s customers.
4. Many provincial Small Claims Courts have award limits high enough to encourage legal action against debtors.

Check Client Payment History

A positive payment history may mean nothing for the future if a client falls on hard times. A client’s payment history should be studied and compared to recent behaviour. If necessary, run a credit check or ask competitors about their payment experience with the client. If payments are falling behind, address the issue with the client. Provide the opportunity to explain difficulties and, if possible, offer alternative payment options and a credit limit.

Is it Worth Going to Court?

Image courtesy of Renjit Krishnan of FreeDigitalPhotos.net

Legal proceedings are a last resort. They are time-consuming and expensive and in the end you may not receive your funds. You will certainly lose the client. Remember: only sue someone who can pay.

Incentives May Reduce Losses

It is almost impossible to avoid some losses in the course of doing business. Losses can, however, be reduced by providing incentives for prompt payment. Consider offering:

• a percentage discount for payment within 10 days
• debit-card payment at the time of presentation to reduce the paper work and time required to process cheque payment
• credit-card payment that will build the client’s reward points.

Managing client payment behaviour is a critical component of every business. Constant review and follow-up provides a predictable flow of cash from receivables and decreases the cost associated with bad debts, legal proceedings and interest charges. ~

Technology

Zombies in Your Office

Zombie viruses do, in fact, act like the living dead of B-movies and rise from their graves to destroy your computer.

What do Zombies do?

When a virus infects your computer; you can usually blame a hacker’s malicious program. Your Own computer, however, can pick up the virus by visiting a compromised website, opening an infected e-mail or attachment over a computer network, or get it from removable media, for example a USB flash memory.

How do Zombies Behave?

To be characterised as a zombie, the virus must infect your computer, then remain dormant until certain conditions are met, such as reaching the 11^th hour of the 11^th day ofthe 11^th month of the 11^th year at which time the virus “awakes” and performs the function for which it has been programmed: information gathering or fraud, for instance.

What is a Botnet?

If the hacker has determined your computer will be used to launch an attack on other computers in the global Internet community, you may unwittingly have become part of a botnet, i.e. a network of unrelated computers linked by the hacker to work together to infect or gather information from other computers. (Experts indicate that as many as 100,000 computers could take part in a single botnet). The hackers like to use linked computers because the source of the virus or worm is then difficult to trace.

How are Botnets Used?

Botnets are used to start denial-of-service attacks, send spam, capture information about bank accounts, log-in IDs and other sensitive information. They can also be used to divert income from pay-per-click advertisers by redirecting funds to a fraudulent recipient and away from the webmasters who provide the
platform for the advertising.

What Happens to Victims?

If your computers have become part of a broad network of attack points, not only might your own data have been compromised but your company could also be investigated as authorities search for the culprits. Perhaps you will n0t b e attacked; nevertheless, when you consider that upwards of 65 percent of all spam is written in English and our close neighbour to the south generates 44 percent of the world’s spam, it suddenly becomes something to think about. Another scary statistic: 50-80 percent of the world’s spam was sent by zombie computers. The reasons for this are twofold: many computers are capable of sending much more spam at much lower cost to the spammers, and this makes it more difficult for authorities to determine the originating source.

Zombie Repellent

The best way to keep your computer from hosting a zombie is to take preventive measures to avoid coming into contact with potential sources of zombie attacks.

• Install antivirus software on your computer and keep it up to date. Purchase antivirus software from a company that specializes in providing software security rather than buy shareware or once-a-year retail software that does not update the program.
• Use 0nly licensed operating systems and software. Unlicensed or illegally copied versions of operating systems and software may save a couple of hundred dollars on purchase but may be more susceptible to infection, since unlicensed software often cannot be updated.
• Do not use more than one antivirus product. If you think using two anitivirus products will double your protection, think again. In some cases, the two programs may interfere with each other causing your computer to become slow or even unbootable!
• Install spyware scanners. These will search for malicious spyware and provide a record of your Internet habits necessary to establish the appropriate security. Many antivirus products now include the ability to scan for spyware.
• Protect your network with a firewall. Check your antivirus software to determine whether a software firewall is included. Most network routers, including integrated cable modem routers, are considered a hardware-based firewall. Make sure yours includes the ability to encrypt your traffic, particularly over Wi-Fi, and has a strong password set to reduce the possibility of drive-by hacking (also known as war driving).
• Use alphanumeric passwords, that include symbols. Despite constant warnings not to use passwords that are easy to decipher such as birthdates, many passwords remain all too easy to crack. A combination of letters, numbers and special characters is best, especially if no part spells a whole word or is personally identifiable. Your first name combined with your year of birth would be an example of a weak password.

Keeping the Zombie in His Grave

The hardware and software employed to prevent infection must be used in combination with good common sense. Educate yourself and your employees on the following:

• Do not open electronic messages, regardless of the medium, unless you are 100 per cent confident of the source.
• Use a virus scanner to scan the data, even if you are confident in the source and regardless of the medium; before downloading to the hard drive.
• Do not permit anyone to download personal data, programs or software onto any company computer. That computer may become the source of infection for the network or unlinked computers through USB 0r other data transfer.
• Establish a policy t0 limit personal use of office computers. Access to selected sites can be limited by whitelisting or blacklisting.
• Do not click on dubious ads enticing users with offers of free prizes.
• Use your h0me-office c0mputer only for business-related work. Have another computer for your partner, children and friends.

Working with Your Employees

Human nature is hard to police. Regardless of the policies in place, there is always the thought that “it won’t happen this time”. If, as an employer, you feel employees need access to the Internet for personal use, dedicate a separate computer with a separate URL address. You should definitely install the aforementioned controls on all your computers. This action not only backs up your commitment to policies regarding personal use of company computers, but also reduces risk with little cost to your business.

Never Let Your Guard Down

Regardless of the software purchased to defend against hackers, the serious game of attempting to beat the system goes on 24 hours a day from all over the world. Precaution is the word of the decade. ~

Management

Preparing to Sell Your Business

Getting out of a business requires as much planning as getting into it.

Whether you are an owner/manager, considering “getting out of the business” because you are reaching retirement age or because you are interested in trying another endeavour, selling a business should not be a spur-of-the-moment decision. Such a big move should be a staged process that ensures optimization of sale price to provide additional funds for retirement or entry into a new business venture. Professionals involved in buying and selling businesses agree that, unless a fire sale is essential, the process of selling should be planned two to three years in advance and should include the following strategies.

Obtain a Valuation

Make sure the selling price is realistic. You obviously want to receive the highest price possible for the business while the buyer wishes to purchase your business for as little as possible. Once you decide to sell the business, get it evaluated. This process can be a sobering but realistic starting point. Outside assistance is required. There are many meth0ds of business valuation, some more suited to one type of business and some more suited to another. Here are two of the most common:

Capitalized Past Earnings
This method examines the company’s history of earnings before interest, taxes, depreciation and amortization (EBITDA) then calculates the operating cash flow that needs ro be generated each year normalized for unusual swings in revenue or expenses. The cash flow figure is capitalized by a multiple that reflects a reasonable rate of return given the risk profile of the business.

Discounted Cash Flow
This method discounts to present value the expected future streams of revenues and expenses. The applicable discount rate will reflect the risk anticipated in generating those revenues and expenses: the greater the risk, the higher the discount rate and the lower the value of the company.

Both methods establish sufficient cash flow as a major risk component for valuation. A business valuation provides a range of possible selling prices. Should the valuation be lower than your expectations, work to reduce the perceived risk by improving both the financial and physical image of the company.

First Appearances

The financial statements are not the only things looked at by a potential buyer. The physical look of the business has an enormous impact on how your business is perceived and valued. Refurbish the physical surroundings: paint buildings inside and out, reseal or replace asphalt driveways, fix fences and spruce up the entrance way with new signs or gates to create a good first impression.

Moveable assets must be clean and in good working order. Fix mechauical defects and have service logs and safety certifications ready for inspection.

Get rid of obsolete inventory. Old inventory presents a disposal cost for the new buyer and suggests your business is out of touch with the market and uncertain of client needs.

Supplier and Customer Contracts

Vet your customers and suppliers. Consider locking in quality suppliers and customers with long-term contracts. The contracted suppliers will provide security of supply and the contracted customers will provide an assured revenue stream to the purchaser. Supplier and customer lists with up-to-date business addresses, contact names, email addresses, telephone and other numbers provide confidence to the purchaser.

Key Employees

Stability is crucial to all businesses. Purchasers need to know that key employees are not going to leave because of new management. Employment contracts with sales reps, purchasing agents, mechanics, technicians, or finance staff help the purchaser understand costs and obligations while providing assurance to the employees that they have a future with the new venture.

Regulatory

Whatever your business, staff must be constantly aware that regulatory compliance is an essential part of day-to-day operations: safety certificates, environmental approval, municipal permits, licensing, corporate tax filings, or cross-border papers must always be up to date. This awareness reduces last-minute surprises such as back taxes, or liens and holds on property for failure to comply with municipal, provincial or federal regulations such as obtaining final approval to build an addition or install new electrical wiring. Such unresolved issues could delay the sale. Giving the potential purchaser confidence that you are a good corporate steward removes the worry that unnecessary time, energy and funds might have to be expended to clear up lingering regulatory matters in the future.

Financial

Because purchasers want a company with a positive cash flow and a reasonable return on investment, you should methodically review, the financial statements and supporting data for the last three years. By building on your historical strengths and fixing the weaknesses you can enhance performance over the next three years and thereby improve the selling price. Concentrate on the following:

Revenue Stream: Analyse sales by profit line or customer. Use the information to find areas that need improvement in order to increase revenue.

Expenditure Trends within the Cost of Goods: Product-line return analysis is a good place to start. Understanding the gross margin by product or service line allows a company to determine those product lines that need to be dropped or perhaps given a price increase.

Statement of Cash Flow: Cash flow is a major concern to the prospective investor because it indicates the amount of equity to be raised not only to purchase the business but also to provide working capital after the buyout. From your point of view as a seller, analysing month-to-month cash flow will highlight slack collection procedures, direct you to revamp payable strategies and refine the timing of inventory purchases or capital asset acquisitions. The better this information looks to you, as seller, the better it looks to the purchaser.

Administrative Costs: Even though administrative costs on their own are usually a small part of overall operating costs, most owner remuneration is included in this sector. Break out the amounts paid to yourself as owner/manager, your spouse and any other family members on staff, since purchasers want
to know not only what funds they can expect to receive, but also whether the manner of payment to the current owners and immediate family are designed to minimize personal income tax payments. This information enables purchasers to determine whether the company makes sufficient profit to pay the new owner and hire new non-family employees.

Plan Ahead and Take Your Time

Selling a business is as much about preparation and anticipation of the buyer’s needs as it is about the price you want for your business. Getting your business ready for sale should take place over a two-to-three year period. This time frame enables the seller to show the business at its best while providing the purchaser with the confidence to offer a price that is fair to both parties. ~

Image courtesy of Pixomar - FreeDigitalPhotos.net

Cash is at the center of all Agribusiness activity. You need cash to start and expand the business, cash to run the business, and you need to generate cash from business activity. The Agribusiness is successful if the excess of the cash it generates over the cash it consumes is a significant reward for the efforts and risks you take in running the business.

Effective cash management can help you!

• Measure and monitor
• Manage
• Achieve cost savings
• Ensure financial stability
• Anticipate problems
• Maximize results

Better cash management means more successful operations. More successful operations mean a higher standard of living to the owners.

Banks and Bankers

The bank is usually a major player in a business’s financial supply chain. Products and services flow from suppliers, through to producers, to customers. Cash flows in the opposite direction. The concept of the supply chain reminds us that information flows in both directions and of the importance of that information flow.

You can deal effectively with your bank by thinking of it as another supplier, albeit an important one. As is the case with any service provider, you want to be proactive and try to understand things from their perspective.

Your bank may actually play several different roles:

• Services in connection with bank accounts, routine processing, and other related services
• Sources of credit
• Sources of investment of excess funds

Optimizing Cash

An important aspect of cash management is to maximize the amount of cash available by
operating efficiently and by effectively managing working capital as well as other assets and liabilities.

What is efficiency?

It is doing things- not wishing you could do them, or dreaming about doing them, or wondering if you can do them. As inventory occupies a central place in the agribusiness, errors in accounting for production costs can have pervasive and unexpected affects. Errors in inventory result in a variety of cash costs ranging from direct revenue losses to excess costs paid and to costs to rectify the problems.

You need a way to track the costs of your production. Costing is important because if you want to control something and make it more efficient, you must first measure it.

For your agribusiness to be successful, you want it to be both efficient and effective. Efficiency refers to maximizing the level of output given a particular level of input. In other words: doing things right. Effectiveness refers to doing the right things, based on your strategy and objectives, doing things that will help achieve your goals.

There is no point doing the wrong thing efficiently! It would be better to not do it in the first place. Effectiveness is the map; efficiency is picking the best route. In the realm of expenses we need to be concerned with both efficiency and effectiveness. Effectiveness tells us to incur the lowest amount of the expense necessary to achieve the objective.

Before getting into the detail of controlling expenses, you need to consider these “big picture issues”:

• Is this activity needed at all? Why?
• Could this activity be performed cheaper, better, or faster by an outside service provider? Why?
• Is there an activity being performed by an outside service provider that your Agribusiness should bring in house? Why?

Agribusinesses are often not concerned about managing disbursements, after all. they are in the driver’s seat and can control if and when to send payment. However, there are several aspects to managing the payables process that affect cash management:

• Controlling payables turnover can have a significant effect on cash
• Maintaining good supplier relationships may improve service
• Negotiating discounts on other terms may improve cash flow
• Good processes reduce likelihood of error in the disbursement process
• The use of credit cards reduces accounts payable administration, but at the risk of impairing control

The Future

As we are all well aware, Agribusiness has changed significantly in the past ten to twenty years and will continue to change. Risk Management is something that was not spoken of a few years ago but is now a very important part of any operation.

Looking at the beef industry as an example you can see why Risk Management has become so important. The shift in the beef dollar has happened as follows:

We at Bruce Martin & Associates feel we can play an important part in making your operations more profitable through an improvement in the financial management of your Agribusiness. Please give us a call to see where we can be of assistance.

Following is a list of questions that the successful producers can answer. Strive to be part of this club. Also following is an interesting article on who is gaining from the increase in efficiency in the food production.

Is Your Business “Bankable”?

• Do you know your cost of production?
• Do you conduct enterprise analysis?
• Do you complete and utilize accrual adjusted income statements?
• Do you have accurate up-to-date balance sheets?
• Do you utilize key financial ratios in your business planning?
• Do you have a three prong risk management program?
• Do you meet key metrics, ratios, & credit scores?
• Do you utilize a business plan?

Survival of the Fattest
Article from January 2011 Report on Business
Written by Eric Reguly

Big Agribusiness is supposed to be the farmer’s and the consumer’s best friend. It provides seeds, fertilizers and biotechnology to farmers, and the logistics and processing that get bananas, beans, coffee and rice to a supermarket near you. Consumers benefit from economies of scale—the bigger the agribusiness, the lower the farm-to-fork costs. Yes, food prices have gone up recently. But if you look at food spending as a percentage of disposable income, it’s still a bargain for Europeans and North Americans, which helps to explain why so many of them look like asteroids.

That rosy view of corporate agriculture is the conventional wisdom. But it could be that the opposite is true: As agribusiness
muscles into food-supply chains, neither the farmer nor the consumer will reap the benefits from enhanced efficiency. Several food economists think the rise of agribusiness brings as many problems as solutions, but they’re being quiet about it. Their silence is not hard to explain. The various United Nations food agencies, including the Food and Agriculture Organization, are financed largely by wealthy countries where corporate agribusiness giants—Monsanto, Dupont, Syngenta, Bayer, BASF, Dow AgroSciences among them—are national champions and big employers. Germany’s HASP and Bayer have more than 100,000 employees apiece, and come equipped with lobbying and PR departments the size of small cities. They are almost immune from official criticism, especially at the UN.

The World Bank has been a bit braver. Three pages buried in its 2008 world development report dealt with the rising power of Big Agribusiness, and highlighted some potentially alarming trends.

The market share of the biggies is on the rise, leading to questions about the potential abuse of economic power. In 2004, the top four suppliers of agrochemicals had a 60% share of their market, up from 47% in 1997. In the seed market, the four biggest players had a 33% share in 2004, up from 23%. In some specialized sectors, concentration is much higher. Monsanto’s worldwide shareof the market for transgenic soybean seeds, which are easy to protect against weeds, was 91% in 2004.

That section of the report, written by World Bank senior economist Shiva Makki, has not been updated. But it’s safe to assume the market share figures are no lower than they were in 2004, and might well be higher in some product lines, given the enormous reach of the top companies and their relentless expansion into the developing world.

Is the concentration harming or helping farmers? Makki’s research suggests that farmers are getting ripped off. As sales and
prices rise, agribusiness giants are capturing a disproportionate share of the profits. Take coffee. The proportion of the retail price received by the main coffee-producing countries (Brazil, Colombia, Indonesia and Vietnam) declined from one-third in the early 1990s to a mere 10% a decade later. Could this be because the top four coffee traders and roasters had 40% or more of the market? Producers of cocoa, tea and bananas are also getting relatively smaller financial hauls as agribusiness clout increases.

Makki’s conclusion is obvious: “The market power of international trading companies” is widening the spreads between what consumers pay for food and what farmers receive for their product. If he’s right, the theory that rising food prices—which
are back near the peaks reached during the global food crisis of 2008—will boost the incomes of small farmers, who will then
deploy the bounty to produce more food, doesn’t ring true.

The effect of agribusiness’s market power on the consumer is harder to judge. Generally speaking, antitrust regulators get their shorts in a knot when an industry starts to look like an oligopoly, wherein a few big companies control big chunks of the market. In software, Microsoft comes to mind. In Canada, Rogers, Bell and Telus have 95% of wireless subscribers. To eliminate the potential for price gouging, the oligopoly companies are usually tightly regulated or, in extreme cases, forced to shed businesses.

Economists generally believe that competitiveness begins to decline when the top four players in an industry control 40% or
more of the market. In agrochemicals, tea, transgenic soybeans, cocoa grinding and many other segments of the food business, the four biggest players control much more than 40%. True, even Makki admits that it’s hard to determine the exact impact of this situation on supermarket prices. But if those market concentrations continue to increase, certainly the potential for price gouging will rise with them. In the United States, Monsanto has been the target of several antitrust investigations.

The worst-case scenario is that food prices for consumers will climb while the proportion of the price that flows back to the
farmer will fall. This double squeeze would make agribusiness even fatter than it already is. The next global food crisis could
well be the result of excessive corporate concentration, not lack of calories. ~

TAXATION Tuition Tutorial 101

TECHNOLOGY Print This

MANAGEMENT Will You Be My Executor?

MONEYSAVER Travel Safely

Taxation

Tuition Tutorial 101

The cost of educational upgrading to increase future earnings comes with a price.

Modest relief is available, however, to those students attending Canadian universities or government-certified trade schools, who make an effort to satisfy tax authorities.

Why You Should File a Tax Return

Students may decide (ERRONEOUSLY) that because they have no taxable income it is not necessary to file. Notwithstanding the legal requirement, there are significant financial reasons to file your tax return:

1. Filing triggers other tax deductions and refunds and thereby provides eligibility for HST rebates and provincial credits.
2. Recorded “earned income” becomes eligible for RRSP and other deductions. Filing income now creates a build-up of RRSP contribution room that will permit reduction of future taxable income when earnings are higher.
3. Financial institutions may require proof of personal income and stability in the event additional funds are required. Most financial institutions request copies of a taxpayer’s last Notice of Assessment to confirm income.
4. Failure to file could result in Canada Revenue Agency applying an estimated assessment of earned income. If tax is owed, penalties and interest will be charged.
5. The income students earn is often not large enough to create taxable income. The student may, therefore, be eligible for a refund of taxes withheld at source otherwise unavailable if a tax return has not been filed.
6. Because student earned income is often so low, the tuition and education credits are not needed to offset taxes payable. Filing tax returns creates unused credits that may be carried forward to reduce future taxes.
7. Credits unused by the student may be used by a parent, spouse, common-law partner, or grandparent to reduce taxes in the year of expenditure. If the student has not filed but has given permission for the credits to be transferred, these credits will not be available for others to claim.
8. Students who borrow funds under the Canada Student Financial Assistance Act are allowed a federal 15 percent tax credit on the interest cost of borrowing funds provided the interest is paid. In the event the student cannot use the interest credit, it can be carried forward for five years. You cannot get the credit if you do not file. (The credit is not transferable.)
9. Earned income may produce Canada Pension Plan contributions that will contribute to your retirement fund.

General Guidelines

The following general guidelines recognize that the provinces and territories have differing tax credits. Student taxpayers and their supporting parents, common-law partners, spouses and grandparents should review the following points with their Chartered Accountants to see how they apply in their jurisdictions.

Tuition credits approximate 15 percent of the eligible tuition fee, provided the fees exceed $100. Other eligible tuition fees include: admission and academic, laboratory, examinations, athletic and health services.

A Canadian student enrolled full time in a degree program at a foreign university may claim the tuition paid for each 13-consecutive-week course leading to the degree. In order to claim the tuition, the student must have been physically present on campus or virtually present for distance learning and be able to prove attendance. Students who meet these requirements should ask the institution to complete Form TL11A.

Canadian students living near the Canada-US border who commute regularly to attend a post-secondary educational institution in the US can claim tuition fees and textbook costs even if the individual courses do not last 13 consecutive weeks and do not lead to a degree. The fees must be in excess of $100. To make this claim, you must have the institution complete Form TL11C.

Canadian students studying at a Canadian post-secondary institution who qualify for the education amount are automatically allowed a federal textbook deduction of $65 per month for full-time students and $20 a month for part-time students for each month the student qualifies for the education amount, i.e. for each month of enrollment.

Additional Deductions

Deductions that may reduce tax or taxable income include the following:

1. Payment for off-campus rental accommodations usually provides a tax credit. If you are sharing rental costs with other students, consider asking the landlord to provide separate receipts for each student or maintain a copy of the lease agreement showing the actual amount of rental required per month.
2. If you are paying someone else part of the shared rent and your name is not on the lease, obtain either a receipt if you pay cash to your roommate or write a cheque to the individual to ensure adequate documentation establishing your rent payment. A written agreement between yourself and the other roomies indicating how much rent each is required to pay is added insurance in the event of an audit. If utilities are not included in the rental amount, they are not considered rent.
3. If you live off campus and board is included in your monthly payment, segregate the rent and food portions of the payment since food is not a deductible expense.
4. Moving expenses are deductible by a student against certain types of income. If you have taxable income and have incurred costs to move from your place of work to attend school and/or to move from your school to your place of work to earn tuition, keep these receipts and record the details of the distance moved and the mode of transportation.
5. Taxation rules permit tax credits for public-transit expenses.

Check with your CA to ensure maximum use of all available deductions and/or credits.

Questions for your Chartered Accountant

Given that provincial or territorial jurisdictions may provide differing deductions or tax credits, you may wish to check with your local Chartered Accountant to ensure maximum use of all available deductions and/or credits.

1. Can I deduct the cost of my books and supplies?
2. Am I allowed to deduct the cost of a residence on campus?
3. Can I deduct the cost of meals at the campus cafeteria?
4. What about student union or association fees?
5. Is transportation cost an educational deduction?
6. Is a computer, Internet time, a calculator and software to complete my assignments an educational deduction?
7. What if I need a PDA to keep in touch with professors and to update my schedule?
8. Are my car expenses an allowable deduction if I need my car to get to school?
9. Is parking to attend class a deductible expense?

Documentation of income, expenses or other deductions is necessary to support your tax return. Records that should be retained for at least five years include:

• Details of all sources of income regardless of whether the income is from commissions, self-employment, gratuities earned or shown on an issued T4, T4A, T4A(P), T5
• Details of all expenses incurred to earn income especially if the taxpayer is self-employed or earned commission income
• Tuition fee receipts
• Charitable donation receipts
• Medical receipts for prescription drugs, glasses or medical insurance costs
• Moving receipts
• Receipts for public transit
• Rental receipts for accommodation
• Lease or rental contracts
• Loan agreements with financial institutions
• Statements from financial institutions indicating the interest cost on any student loan.

Tuition Assistance

Whether scholarships, fellowships or bursaries are taxable or tax exempt in full or in part, depends on the type of funding and the student’s financial situation. The issuer of these funds must advise the taxpayer to allow appropriate allocation of funds for tax filing. Box 28 of the T4A will provide the tax filer with the data required to determine whether amounts received are fully or partially exempt in the income calculation.

December 31^st Deadline

As the end of the taxation year approaches, reducing personal taxes payable or the taxes of supporting family members should be the goal of every student. Providing records required by CRA to your Chartered Accountant will reduce the tax expense and provide additional working capital for those paying the bills.

Technology

Print This

Despite attempts to create a paperless office, the need for printed documents and data is as relevant as ever. Laser printers can be one of the most inexpensive pieces of office equipment. Most manufacturers offer entry-level colour printers starting in the $200 – $300 price range; a monochrome laser printer can sell for less than a pair of jeans.

Printer manufacturers seem willing to virtually give away the hardware knowing they will make their profit selling ink cartridges and toner drums. The capital cost of printers is no longer significant; managing the cost of using them is a different matter. Ideally the cost of monochrome printing should not exceed one cent per page; colour printing more than four cents per page is pricey.

Things to Consider Before Purchasing

Same Brand and Model

If your business needs multiple printers, consider purchasing the same brand and model. Having the same model allows bulk toner purchases, replacement is easier, and the need to support multiple printer drivers on your network is eliminated.

Cost Per Page

Compare the per-page cost of consumable toner cartridges with their printed-page rating. For example, one may contain enough toner for 2,000 pages while the other may print 5,000 pages. What is the cost per page of the differently priced toner cartridges? Some manufacturers offer multiple cartridge models that have different capacities.

Drum Unit

The most expensive replacement part in a printer is the drum unit, which transfers the electrostatically charged toner onto the page. The cost of replacement drums can be more than the original printer. Before purchasing a printer determine the range of copies that can be produced and the cost of a replacement drum. Some manufacturers combine the toner and drum into a single cartridge, a fact to be taken into consideration when determining the total cost of ownership.

Draft Print Mode

Most printers support a draft-printing mode, which uses less toner. Some printer models also include a duplexer function allowing you to print on both the front and back of the page to save paper.

OEM Cartridges

Third parties may sell compatible or refilled cartridges for less, but these may not perform as well as an OEM cartridge (original equipment manufacturer, i.e. the company that manufactured the printer; any other cartridge manufacturer would be considered a third party), and may void the printer’s warranty.

Colour printers require four cartridges rather than just one.

Colour or Monochrome

Unless colour is essential for your business, monochrome is still the most economical printer to provide to your employees. Colour printers typically require four cartridges rather than just one, and they tend to have a higher cost than simple black cartridges for monochrome printers.

Buying Used

If your business does a large volume of printing it may be beneficial to approach office-supply companies that refurbish high-volume equipment received in trade for newer models. Reliable vendors may be able to provide equipment originally costing between $10,000 to $14,000 for $3,000 or $4,000 dollars. High-end printers may offer features such as overlay printing, duplexing, sorting, multiple page size, reducing or enlarging features, faxing, scanning, document storage, wireless communication and client counters. It may be worth considering a service contract.

Due Vigilance

Some network printers can now be programmed to determine who is printing what and how many copies are being printed. Not only does this provide an opportunity to pass on reproduction cost to the client but it also allows management to monitor usage by user to determine whether certain individuals may be using the office printer for excessive personal usage.

E-Waste

Companies that are sincere about “going green” should consider the environmental impact of less expensive printers. Inexpensive printers may have relatively higher consumable costs. Consumers may be tempted to purchase a new printer when the toner or drum wears out, despite the current one still being functional, thus creating toxic “e-waste.” This temptation is, of course, a fallacy, because new printers usually include demonstration consumables, with far less capacity than the refills.

The Bottom Line: Overall Operating Cost

Initial capital cost may no longer be a consideration when purchasing printers but the low buy-in price suggests that management review the overall operating cost to determine whether these “good buys” will in the long term be a more expensive option that does not necessarily fit with the environmental goals of the business.

Management

Will You Be My Executor?

Friends, family or a client may one day ask you to take care of their affairs after death.

This is the role of the executor. Being asked is a compliment since it demonstrates trust in your integrity.

To prepare you for that “yes,” you should understand the tasks an executor may be required to perform.

First Things First

First locate the will. Review it for matters of immediate concern such as dependent family members, pets and special funeral instructions. If the will has not been specific, the executor may have to seek consensus for the memorial service, burial or cremation.

No unauthorized person has access to any property of the deceased. Its disposal according to the wishes of the deceased is your responsibility. If you must change locks, change them.

Remember, you are bound by the terms of the will to carry out the wishes of the deceased. Work without bias or favour.

Many individuals associated with the deceased will have differing viewpoints as to how to deal with the will, the assets, liabilities and distribution to family, friends or charities. As executor, you cannot be swayed by friendship or emotion.

Accountability

As an executor you are accountable. To avoid, at the least, hard feelings and misunderstandings with the survivors and, at the worst, legal action against you, maintain detailed documentation of all financial transactions.

Expertise

It may be necessary to hire an independent third party to assist in making sound decisions you may lack the skills to deal with, for example, selling the house, filing taxes, distributing assets or paying bills. Retaining the services of experts does not diminish your capacity or responsibility but simply provides greater insight into the options available.

Time

Dealing with third-party issues after a death can be emotionally and financially stressful. The executor will be under pressure to provide financial solutions to immediate family in a timely fashion so they may continue with their lives; at the same time, however, other beneficiaries, creditors, and tax authorities must be satisfied. Expectations of a quick settlement of the estate are unreasonable; a complex estate settlement can take one or two years.

Value the Assets as Soon as Possible

Prepare a list of assets to determine their value. Use a digital camera to take pictures of all assets in the home, vacation property and business location.  Pictures will assist in identifying tangible assets for distribution. If assets must be moved before property is sold, or because the premises are rented, the list and pictures will help account for the assets. Listing all of the assets in a residence can be a daunting task. (You can hire someone to do this work.)

Determine financial assets that may be at various financial institutions, insurance companies or work locations. You will need to find the documentation to locate: RRSPs or RSP accounts, bank accounts, insurance policies, safety deposit boxes, employer pension plans, and investments.

Usually the surviving spouse will be able to provide the initial contacts for employers as well as banks and insurance companies. It may be necessary to search through the personal papers of the deceased to find other investments.

If the deceased owned his or her own business, the executor needs to involve the other shareholders or employees to determine whether the business is to continue or be sold. A business valuation may be necessary to satisfy estate issues, not to mention corporate and/or personal taxation.

Cancel the deceased’s credit cards to prevent unauthorized use.

Settling the Deceased’s Debts

You may be required to settle outstanding financial obligations. Cancel all credit cards to prevent unauthorized use and pay outstanding balances from the deceased’s assets.

Filing Tax Returns

If the deceased had a Chartered Accountant, seek advice as to the best means of minimizing tax for both the estate and the beneficiaries. As the deceased’s tax advisor the Chartered Accountant will undoubtedly be able to provide additional insight into sources of investment income, RRSPs and other tax information. The CA may be able to offer advice regarding the timing of asset sales that may trigger taxable capital gains or taxable income.

Locate Named Beneficiaries

The executor must locate any named beneficiaries. This may not be a problem if the beneficiaries are close family members and are within the local vicinity, but could become problematic if the individual has moved out of the area or out of the country.

Once all the assets have been found, the liabilities assessed, the bequest determined and the overall estate valued, you must then distribute the assets.

The deceased while alive relied on certain individuals or companies to look after insurance, investment, banking, legal, accounting and taxation issues. An executor should look to those the decease trusted to assist with advice and direction. Such an approach should provide sufficient input to allow the executor to make informed decisions and thereby avoid the sting of criticism from those who might feel distribution was not fair.

Signing Off

As an executor your accountability, independence and responsibilities are paramount to ensuring that you cannot be faulted for actions that may be perceived as incorrect. When an executor has finally finished, a full accounting for all the assets, liabilities, expenses and distribution of assets should be completed. A release form should be signed by all parties approving the transactions report and releasing you from further responsibility.

MoneySaver

Travel Safely

When you travel abroad for business or pleasure, be careful.

All foreign environments are not hostile but bad things can happen to nice people even in good places.

Read Ahead

Before going anywhere, check your destination country on the “Travel Reports & Warnings” page of the Department of Foreign Affairs and International Trade Canada for any travel advisories.

This site tells you about current issues of which you should be aware, including street crime and dangerous areas o£ the country. Make sure you also read the FAQs page.

Women should read the Department’s online booklet, Her Own Way: A Woman’s Guide to Safe and Successful Travel.

Get Your Paperwork in Order

Most countries require the expiry date of your passport be more than six months from your arrival date. Renew your passport if the expiry date is anywhere near the six months.

Get any required visas or permits well before your departure date. Many small countries have only an embassy in Ottawa empowered to issue visas; if you live far from Ottawa, the issuing process can sometimes be lengthy. If you are staying for a long time in a country for school or work, you may be required to register with the local police upon arrival; get this permit renewed in plenty of time if you need to stay beyond the permitted period.

Get the address, telephone and fax numbers and email address of the Canadian embassy in your destination country. (The Foreign Affairs website also has numbers for after-hours contact in an emergency.) The embassy is located in the capital. Not all other cities may have Canadian consular representatives.

Leave expensive jewelery and luggage at home.

Do Not Stand Out from the Crowd

Do not stand out as a wealthy mark for thieves. Leave expensive jewelery and luggage  at home. Dress appropriately. Forego designer labels.

Different Customs – Literally

Many countries are not as tolerant as Canada in such areas as dress codes, physical interaction, alcohol consumption, picture taking and freedom to travel. Since picture taking is sometimes considered a violation of security, be careful where you point your camera.

Passport Safety

Do not carry your passport in a purse or briefcase; they can be too easily grabbed, especially by thieves working in teams to distract your attention. Keep all bags closed and never take your hands off them.

Always carry your passport on your person; never leave it or other identification in your hotel room. Carrying your passport, travel insurance information and credit card in a nylon neck wallet under your shirt or blouse keeps it away from pickpockets. (Only have walking-around money in your pocket or purse.) In these days of international terrorism, a Canadian passport has substantial black-market value. Carry a photocopy of pages 2 and 3 of your passport in the event yours is lost or stolen. Page 2 carries your essential identifying information and page 3 has your signature. A photocopy may not be as good as the real thing, but at least you have starting point for identification.

Be Careful

Your Hotel Room

Place your passport and other valuables in the room safe when you are in your room. Do not leave money or valuables lying around.

New Friends

Be cautious whom you befriend. Twenty years ago providing someone with your name and telephone number “in case you’re ever in Grande Prairie” was not an issue. Now, however, given the speed of Internet communication, the fact that you are not at home or at the office makes your personal and business assets vulnerable to theft while you are away.

Minimize Information on Your Computer

Load your laptop only with the information necessary for the trip. Loss of your office/personal computer with all its private and business information could be disastrous.

Prescription Drugs

Not all customs officials understand that your drugs have been prescribed by your doctor and are necessary for your health. Keep the prescription with the drugs in case customs or police start to ask questions. Ensure that all inoculations are up to date and that your International Certificate of Vaccination says so.

Travel Insurance and Vehicle Rentals

Do Not Leave Home without Travel and Medical Insurance

Never withhold information about known health problems when applying for coverage. Most policies have a clause that allows insurers to investigate your medical records to determine whether your immediate health concern existed before you bought the policy. Understand the provisions of your policy and follow them to the letter. Failure to contact your insurer in the event of a medical emergency may void the coverage. Always keep your health and travel insurance on your person.

Think Twice before Renting a Vehicle

Foreign jurisdictions have differing laws governing at-fault accidents. If you are involved in an accident, even one that clearly is not your fault, it is possible you could face jail time or be prohibited from leaving the country until the issue is cleared up. This can take weeks or even months to resolve. If vehicle rental is necessary, buy the most insurance available. It only seems expensive until you need it.

Spending Money

Take Two Credit Cards

Before your go, find out which credit cards are accepted in the destination country. Consider taking two cards, one for your travel-itinerary expenses and the other, with a much higher limit, for absolute emergencies such as a car accident for which you may have to pay expenses or restitution before you can leave the country. Contact your credit-card supplier before your trip and ask them to flag your cards with respect to your travel destination and expenditures.

The Country’s Currency

Determine the currency most easily converted in the countries to be visited. If you are staying in one country for most of your time, buy that country’s currency before you go. For example, if going to Europe buy Euros before you leave Canada. For most other countries, US dollars are the preferred foreign currency.

Common Sense Makes a Good Travel Companion

Minimizing risk to personal safety and financial loss should be a consideration every time you leave for the airport. Combine common sense with the above recommendations and your next trip should see you home safely. ~

Dear Clients,

First of all, we would like to take this opportunity to wish you and your families a Merry Christmas and a healthy, happy, prosperous New Year.

As we gear up for the New Year, we at Bruce Martin & Associates (BMA) are focusing on our 2011 Marketing Plan.  We have found that over the years the majority of our new business client as referred to us by word of mouth from either our existing clients or other sources.  We are very appreciative of these referrals and have thought of a way to give back to our clients.  For every new business client you send our way we will discount your next invoice by as much as 5 to 10%.

Our goal is always to provide excellent service to our existing and new clients.  Our website includes our Mission Statement which outlines our commitment to excellence.  If you would like to learn more about the business services Bruce Martin & Associates provides please go to our website.

For more details about our new discount plan, please contact Bruce Martin at 250-374-5908 or through e-mail at ac.nitramecurbnull@nitramecurb.  We look forward to hearing from you.

Sincerely,

Bruce D. Martin, CA

Bruce Martin & Associates

Businesses

1. All B.C. government ministries and crown corporations that currently do not pay GST will pay HST.

2. Elimination of Hotel Room Tax, as HST will apply to short term accommodations.  The  additional 2% Hotel Room Tax where applicable will continue to be applied.

3. Any payment after May 1, 2010 for goods and services after July 1, 2010, HST applies.

4. HST applies to a supply of goods or services by way of sale to the extent that the goods or services are delivered and ownership of the goods is transferred to the recipient of the supply on or after July 1, 2010.

5. For consideration due or paid on or after May 1, 2010 and before July, 2010, the supplier will account for the BC component of the HST in the reporting period of the supplier that includes July 1.  The recipient will claim ITCs in the reporting period that includes July 1.

6. For consideration due or paid after October 14, 2009 and before May 2010, businesses and public service bodies may be required to self assess the BC component of the HST for goods delivered or ownership transferred after July 1, 2010.  The exception is subscriptions to newspapers or magazine

7. HST does not apply to arrangements for prepaid funeral and cemetery services paid prior to July 1, 2010.

8. Freight or passenger transportation services, HST would not apply for the part of the service that is performed after July 1.  If the service begins before July 1.

9. HST would not apply for a supply of property by way of lease, license or similar arrangements if the lease interval begins before July 1 and ends before July 31, any payment after July 1 is subject to HST

10. HST will generally apply to the supply of real property (other than residential housing) if both ownership and possession of the property are transferred after July 1.

11. If property or services are supplied under an equal payment billing plan (i.e., hydro) and the reconciliation of payments occurs before July 2011, the supplier will be required to make an adjustment to account for any differences.

12. Combined supplies, if a good is supplied prior to July 1 and a service associated with the good is supplied after July 1 (i.e., installation of dishwasher) HST will apply to the service.

13. In the case of written contracts to construct real property, any consideration on such a contract that has not been paid or becomes due on or before July 31, 2010 would be deemed to have been payable on July 31, 2010  and any portion of such payment attributable to construction after July 1 will be subject of HST.

14. A PST rebate would be available to provide relief in respect of the PST embedded in construction material used in residential real property contracts that are subject to HST.  This rebate would be available for the PST paid on construction materials that are purchased for the contractor’s own use held in inventory at June 30, and used in a residential real property contract to which the HST would apply.

15. Returns and Exchanges for purchases prior to July 1 and returns before November 2010.

• If the property is returned and a full refund given, the PST would be refunded.
• If an exchange where there is neither a refund nor an additional payment, there is no PST refund or HST payable.
• If an exchange results in a partial refund, the purchaser would recover the PST on the partial refund.
• If an exchange results in an additional payment, the HST applies to the additional payment.  If the PST did not apply to property purchased before July 1 and is exchanged for property which is subject to HST, the B.C. portion of the HST must be charged (i.e. bikes)

16.   A point-of-sale rebate of the B.C. component of the HST on motor fuels, books, children’s clothing, footwear, car seats and diapers and feminine hygiene products.

Generally, purchasers would not be required to take any steps in order to take advantage of these point-of-sale rebates.  Where a person purchases a designated item at a retail establishment, the retailer would automatically provide the purchaser with the point-of-sale rebate, crediting the B.C. component of the HST and only collecting the five per cent federal component of the HST on that item.  Crediting purchasers in this manner would not affect a retailer’s ability to claim input tax credits on its business inputs.  Also, there would be no requirement for the retailer to indicate the point-of-sale rebate on its invoices or to indicate the point-of-sale rebate amounts credited to the purchaser in the its GST/HST return.  In the event that a purchaser does pay the B.C. component of the purchase of a designated item (i.e., the retailer did not credit the B.C. component of the HST to the purchaser), the purchaser would be entitled to apply to the Canada Revenue Agency (CRA), within four years of the day that the tax became payable, for a rebate of the B.C. component of the HST paid.

The point-of-sale rebate of the B.C. component of the HST would not only be available to purchasers at retail establishments located in B.C.  The point-of-sale rebate would also be available on Internet purchases of designated items and on supplies of designated items made at any point in the distribution chain, including supplies made by producers, wholesalers and distributors.  In other words, the point-of-sale rebate of the B.C. component of the HST would be available on any supply of a designated item where the B.C. component of the HST applies.

17. During the initial period of the HST, a large business will be required to repay or recapture ITCs attributable to the provincial component of HST.  A large business is a corporation or associated corporations making taxable supplies worth more than $10 million annually and certain financial institutions.

18. Low income individuals and families will receive an annual B.C. HST credit of $230.00 for individuals with income up to $20,000.00 and $230.00 per family member for families with incomes up to $25,000.00 paid quarterly with the GST credit.

19. A point-of-sale rebate for residential energy will ensure the HST will not increase consumer costs for heating and hydro.

20. Residential Housing

The new housing rebate on new homes is a rebate of 71.43 per cent of the provincial component of the HST paid up to a maximum of $26,250.00.  New houses on leased land will have a new housing rebate of 4.47 per cent of the price attributed to the building up to a maximum of $26, 250.00

For owner-built homes, when the provincial component of HST is paid on the land, then the new housing rebate is 71.43 per cent of provincial component of HST up to $26,250.00.  If no provincial component of GST is paid on the land, then the new housing rebate of 71.43 per cent is on the qualifying construction expenses (not including land) up to a maximum rebate of $17,588.00.

Sales of newly constructed or substantially renovated homes would be subject to HST where both ownership and possession transfer is after June 30.

For written agreements prior to November 18, 2009 and ownership is after July 1, 2010, then only federal portion of HST applies.

For grandparent sales of single-unit homes, the builder will be required to pay a transitional tax adjustment where the home is completed in full or in part after June 30.

For residential condominiums the transitional tax adjustment would be calculated at 2 per cent of the value of consideration for the condo as established for GST purposes.

PST Transitional New Housing Rebate – Individuals purchasing these new homes would have the option of obtaining the PST transitional new housing rebate through the builders or directly with the CRA.  On condos and apartments, the PST transitional new housing rebate would be available to the builder rather than the purchaser.

Eligible applicants would be permitted to calculate the estimated embedded PST by choosing one of two methods:

• Estimated PST content calculated at a prescribed amount of $60.00 per square metre of floor space in the home (“floor space method”) or
• Estimated PST content based on the selling price of fair market value of the home, calculated at two per cent of the total value of consideration or fair market value, as the case maybe, established for GST purposes (“selling price method”).

The rebate would be calculated as follows:

Eligibility for the PST transitional new housing rebate would not affect the purchaser’s or builder’s ability to claim the new housing rebate or new rental housing rebate, as applicable.  Persons who are builders (i.e., who make taxable sales of newly constructed or substantially renovated residential housing) generally would not be eligible for the Transitional Inventory Rebate for Residential Real Property Contracts, since the inventory rebate applies only to contracts to repair or improve land and items permanently attached to land and not to contracts for the sale of new housing.

The PST transitional new housing rebate would be administered by the CRA.  As a condition for obtaining the rebate, the builder would be required to obtain a clearance certificate from the province and attach it to the first PST transitional new housing rebate application submitted to the CRA.

Generally, a clearance certificate would be provided where the builder has no outstanding provincial tax debts.

Builder Disclosure Requirements for Transitional Period

If a written agreement of purchase and sale for a newly constructed or substantially renovated home is entered into after November 18, 2009 and before July 1, 2010, the builder would be required to disclose in the written agreement whether the provincial component of the HST would apply to the sale and, if so, whether the stated price in the agreement includes the applicable provincial component of the HST, net of the B.C. new housing rebate and PST transitional new housing rebate, if applicable.

If the transaction would be subject to the provincial component of the HST and the builder did not make a disclosure as outlined above, the stated price in the written agreement would be deemed under the transitional rules to include the provincial component of the HST.  In such a case, the purchaser would not be required to pay the provincial component of the HST in addition to the stated price in the agreement.

For any additional information or clarification on HST, contact our office.

TAXATION But I’m Single!

MANAGEMENT Director by Default

TECHNOLOGY Memories Are Made of This

MONEYSAVER The Stock Market

Taxation

But I’m Single!

Living together as single people may be great but be careful. The CRA may see you as a married couple.

One of the most important contentious issues faced by tax preparer when completing clients’ personal income tax returns is whether a couple is simply living together – or living in a manner treated by the Canada Revenue Agency (CRA) as “married”. This delicate area of personal beliefs can generate legal and income tax problems with a long-term impact on the individuals in the relationship.

The source of the problems is usually the belief by the parties in the relationship that they cannot be treated as married if they do not have a signed marriage certificate. In Canada, it is true that there is no such thing as common-law marriage; no relationship matures into marriage merely by the passage of time, as some people believe. In Ontario, a couple must have “cohabited” for three years, which means they must satisfy certain conditions other than merely living together before they are classified as common-law spouses; periods in other provinces vary between two and three years. Cohabitation is defined by the following seven factors established in Moldowich v Penttinen:

1. Shelter: Was accommodation shared by the unmarried couple?
2. Sexual and Personal Behaviour: Was the relationship intimate and perceived to be so by others?
3. Services: Did the couple share the traditional functions of a family?
4. Social: Did partners present themselves as a couple to the outside world?
5. Societal: How was the couple treated by their community?
6. Economic Support: Were the unmarried parties economically interdependent?
7. Children: Did the couple see children as part of their home and interact as parents with each others’ children?

How the CRA Sees It
Couples who have cohabited for more than 12 months but less than the statutory period that would establish them as common-law spouses in their province of residence are often surprised to find the CRA has categorized them as “common-law partners” and thus treats them as “married” for tax purposes. The CRA’s website defines common-law partners as follows:

A common-law partner applies to a person who is not your spouse with whom you are living in a conjugal relationship, and to whom at least one of the following situations applies. He or she:

1. has been living with you in a conjugal relationship for at least 12 consecutive months;
2. is the parent of your child by birth or adoption; or
3. has custody of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support.

This is essentially a summary of the definition found in the Income Tax Act.

Individuals living together and wishing to establish that they are not married or living common law must establish that they are not living in a conjugal, i.e., sexual, relationship. If such a relationship has continued for 12 consecutive months (not necessarily beginning in the particular year), the CRA recognizes it as a common-law relationship. Individuals who live together for financial, physical or emotional reasons, especially if points (2) and (3) are in play but do not want to be categorized as common law for tax purposes should be aware that if the relationship becomes conjugal it would become a common-law relationship in the eyes of the CRA.

Common Law Changes Tax Status
The significance of retaining “single” taxpayer status should not be dismissed lightly. Putting aside other legal issues, consider the following tax issues, both positive and negative, regarding common-law relationships for tax purposes:

• A single parent can claim child care expenses. In a common-law relationship the person with the lower income must claim child care expenses.
• A single parent can claim equivalent to spouse for their child. In a common-law relationship this is not possible.
• A common-law couple can only have one principal residence or family unit Thus, if each individual owns a residence before union, one of the principal residences could incur tax on capital gains when one of the properties is sold.
• RRSP contributions may be made by one person for the benefit of another in a common-law relationship; the contributor is allowed the tax deduction. The same would not be true for individuals not in a common law relationship contributing to each other’s RRSP.
• When an individual within a common-law relationship dies, for the most part investments and RRSP amounts transfer to the survivor without immediate
  tax consequences. When an individual dies without a common law survivor, the estate of the deceased is taxable on the value of the RRSP at death.
• Medical expense receipts and charitable donations are creditable to the individual who incurs them. In many instances the expenses and/or donations do
  not aggregate to a total that is useable by the single taxpayer. Within a common-law relationship such expenditures are transferable from one taxpayer to
  the other to allow some income tax relief.
• An individual who earns income from investments, whether interest or dividends, must claim 100% of the amount for tax purposes. Assuming that a common-law couple shares the investments, the total income earned could be split between the investors if proper arrangements are made.
• Similarly with capital gains or losses, both taxpayers within a common-law relationship should be able to use the gains or losses to mutual benefit depending, of course, upon other investment gains or losses within their individual portfolios. Individuals within a common-law relationship must be aware that superficial loss rules apply to them as a couple in the same manner as the loss rules apply to an individual. That is, if an investment is sold at a loss to apply against gains but the other spouse repurchases the stock within 30 days ofthe original sale, the loss would not be permitted.
• If one partner dies while employed, an employer may allocate a $10,000 death benefit to the common-law partner. This amount would be tax free in the hands of the recipient. A tax free benefit is not allowed to others unless the recipient is a child of the deceased.
• In addition to the specific areas covered above there are manyother related income tax, goods and services tax, and tax-credit issues (both federally and
  provincially) that change when individuals decide to live common law.

Consider:

• The universal child care benefit transfers as taxable income to the spouse with the lowest income.
• The Canada Child Tax Benefit paid to eligible families for children under 18 will transfer to the individual that is primarily responsible for maintaining care of the child. Thus, individuals with a child who earn less than $40,726 will receive $100 of non-taxable income. Live common law and have a combined income in excess of $40,726 and the non-taxable benefit will be reduced by 2% for one child and 4%for two or more children for net family income exceeding the $40,726.
• Individuals who receive the GST amount because they fall below an earnings threshold may find the amount starts to diminish when their combined family income is greater than the individual threshold.
• Similarly the National Child Benefit supplement payable will start to erode as the combined family net income starts to exceed the current threshold of $23,710. By way of explanation:
  If each single parent earned $23,710 income individually, they would receive $278 per month on the NCB program. Should the relationship become common law the combined income earned would double to $47,420 and the supplement would drop to $93 per month. (It should be noted that the Province of Alberta provides child benefit supplements that differ from the National program).

An Audit May Change Your Status
There are undoubtedly taxpayers who are living in a conjugal relationship but still file as individuals. Many will receive benefits and tax credits they would not be permitted if their relationship were classified as common law. Taxpayers should be aware that should an audit determine they are living common-law, the taxpayers will undoubtedly be required to repay the taxable benefits received because they filed as single. Should the taxpayer decide to object to the audit findings it will be up to the taxpayer(s) to prove that they were not in a common-law relationship.

Know Where You Stand
There are many tax issues associated with living common law versus living separately. There are equally as many legal issues, and most are more expensive than the tax benefits or losses resulting from going from single to common-law status with CRA. Thus, regardless of personal convictions, taxpayers contemplating living together either as a common-law couple or as a support mechanism for each other would be well advised to seek both tax and legal advice as to the best means of avoiding future conflict with each other and with the CRA. ~

Management

Director by Default

A director’s lot is not always a happy one but a lot of care plus some insurance can protect against the worst.

If you are an owner/manager of an incorporated business, you are almost certainly also a director. As a director you should be aware ofyour legal responsibilities and liabilities, which may not always be as obvious as you might think.

The Incorporation Process
There are three methods of business incorporation in Canada. Nova Scotia retains the registration system, Quebec and Prince Edward Island incorporate through letters patent, and the rest of the provinces and the federal government use the articles of incorporation method.No matter what the jurisdiction of incorporation, all corporations are required to have at least one director. The board of directors occupies the middle ground between the stockholders and the corporation and has a responsibility to both. To be a director, one must have reached the age of majority, be of sound mind, have never been a bankrupt or (in some jurisdictions) have ever been convicted of a crime involving fraud. Except for British Columbia, which has removed the requirement, foreign subsidiaries are required to have a portion of their directors resident in Canada.

Director’s Duties
A director’s common-law duty to be careful used to be minimal and only became an issue where gross carelessness was involved. Today a director is expected to
exercise the care, diligence, and skill of a “reasonably prudent person.” In law a reasonably prudent person is not an average person but one who has the knowledge and capacity to foresee the risk inherent in his or her actions, calculate its magnitude and likelihood of occurrence, and recognize any alternative less risky actions, if any. Such a duty of care can expose directors to significant liability for negligence.

Directors also have a fiduciary duty. The Supreme Court of Canada clarified this responsibility in Peoples Department Stores Inc. (Trustee of) v. Wise when it wrote: “At all times, they [the directors] owe their fiduciary obligations to the corporation, and the corporations’ interests are not to be confused with the interests of the creditors or those of any other stakeholder.” In other words, although the directors are elected by the shareholders to look after shareholder interests in the direction of the company, the primary fiduciary duty of the directors is to the corporation itself.

Fiduciary duty requires directors to avoid conflicts of interest and act honestly and ingood faith toward the corporation. Thus, if a director were to lend corporate funds to a relative for reasons that were not in the best interest of the company, the director could be liable for any losses to the Company resulting from the failure to act in the best interest of the company.

If you are a director of a corporation care must be taken to ensure that:

1. You do not take advantage of your position as director and receive benefits not normally available to other employees, officers or customers of the corporation;
2. your personal interest does not conflict with the best interest and goals of the company. (For example, if your relative is one of the bidders in a contract to provide goods or services to the company.);
3. you indicate the conflict of interest and refrain from participating in discussions concerning the project and definitely refrain from voting;
4. you maintain corporate confidentiality on all aspects of business;
5. all decisions are made in the best interest of the company and its shareholders.

Informed Decisions

To ensure the standards of care, diligence and skill are met the director has a duty to be informed before making decisions. This may mean refusing to make a decision until sufficient informationconcerning proposals and their (potential) impact on the company are received and analyzed to the director’s satisfaction. Such advice maybe required incomplicated legal, accounting or technical areas outside the director’s expertise. In these circumstances the director must ensure that the chosen professionals have the required expertise and experience and that both the professionals and the project or issue they are evaluating are independent from board members. Directors cannot ignore their own knowledge of the facts or fail to exercise responsible judgment. In the end, directors’ decisions can be supported by professional advice, but the decision itself cannot be delegated to these same professionals.

Supervisory Role
The directors’ role is one of overall supervision ensuring that the executives performtheir duties in the best interest of the company.

All companies have officers, presidents, vice presidents, treasurers and secretaries hired by the board of directors. That being said, the directors cannot shirk their overall responsibilities to manage a company by irresponsibly delegating management to the officers. Ultimately, the directors are responsible for the actions
of the appointed officers.

Directors’ Liability
When directors act in good faith and within the boundaries of their authority it is difficult to be held liable for decisions or actions that may have precipitated from those decisions.

If however, it is established that the directors’ decisions were designed to intentionally harm a third party, the directors could be held liable by the plaintiff for tortious acts. Similarly directors could find themselves in trouble if they are negligent in performing their duties and cause harm to a third party.

If, for example, directors have complied with prevailing safety legislation by reviewing all health and safety requirements of their business, it is unlikely they would be held liable if a worker were injured on the job. On the other hand if a worker was injured on the job and it was established that the directors had ignored legislation, failed to consider available accident reports or advice from officers or employees, there is a high probability the directors could be held personally and jointly liable.

Avoiding Liability
There are three ways directors can reduce the risk of liability—due diligence, disclosure of personal interests and self defense.

Due Diligence
Directors could ward off negligence lawsuits by keeping records that show they obtained the required information, examined and understood it (and/or sought
professional expertise), and made an informed decision. Cautious directors may wish to maintain personal records of all decisions in which they participated as
well as copies of all minutes.

Disclosure of Personal Interests
Failure to disclose conflict of interest can result in voided contracts if the conflicted director is present during the vote or if it was determined that the director
was part of the quorum that authorized the agreement. Further, the director may be required to make restitution for any profits made from the non-arms length project.

Self Defense
By mere attendance at the directors’ meeting a director may be deemed to have consented to the resolutions passed even without actually voting. This could be
disastrous to a conflicted director long after the directors’ meeting if legal action is taken against the company and its directors. To ensure the conflicted director is exonerated from any participation the director should exercise these self-defense strategies:

• If present at the meeting, request that an abstention or dissent be entered in the minutes.
• Send written dissent to the secretary of the meeting before the meeting adjourns.
• Send a registered letter to the corporate registered office immediately after the meeting indicating dissent.
• Be able to prove there was no consent on her/his behalf regarding the resolution.

Directors who vote for or consent to a resolution are not entitled to dissent. Thus, ifa director disagrees with the other Board members, abstention does not
clear potential responsibility. If you disagree, vote “no” and make sure the vote is recorded.

Insure Your Directors
Because directors can be sued, companies should ensure indemnification of all legal expenses, including amounts paid to settle actions or satisfy judgements. The company should purchase and maintain liability insurance for the directors.

Obviously, the coverage would hold only if the director acted honestly and in good faith in the best interests of the company. If the case against the director is criminal or administrative the coverage would only hold if the director(s) had reasonable grounds for believing that conduct was not unlawful.

Review Your Position
Owner/managers should review corporate documents with their company lawyer to determine who are the directors of record, and with their lawyers and accountants, those areas where they may be held personally liable if they fail in their compliance with legal and regulatory requirements. If the potential risk to personal assets is greater than the owner/manager wishes to assume, it may be possible to restructurethe organization to lessen or eliminate the personal impact. It may also be possible to shelter personal assets from future contingent liability by reviewing ownership of personal holdings.

If restructuring is not possible then a full understanding of corporate areas that may transfer personal risk will permit the owner/manager the ability to institute appropriate protocols and procedures to limit personal exposure. ~

Technology

Memories Are Made of This

Carelessly manages data storage can cause some very big headaches.

Carelessly managed data storage can cause some very big headaches. Regardless of the size and type of your business, chances are you are constantly gathering and storing data. Whether it is simply names and addresses or more detailed personal information such as social insurance numbers, drivers’ licence numbers, medical history or family names and birthdates, such information must be protected in accordance with the provisions of the Privacy Act. Unfortunately, news headlines about lost customer data can generate negative publicity for your company, which could potentially cost you business. To avoid such problems, ensure your company has policies governing data use, storage and disposal. Data that may no longer be needed may still be quite useful to criminals.

In the Old Days…
When hardcopy was king, and files had been in storage long enough to meet statutory retention requirements, businesses simply called up the shredding company and watched as documents were safely destroyed. Digital data has not only different disposal problems, but also can be transmitted almost anywhere.

Storage Today
Today a wide variety of digital devices can become storage media for confidential data. For instance, PDAs or smartphones of staff and management may easily
contain contact names, addresses, birthdates and photographs. USB flash drives and hard drives can store significant amounts of information, and could potentially contain data about your company, clients, engineering plans, budgets, passwords, addresses, or payroll, just to use a few examples.

Whether it’s Mini SD, micro SD, or Compact Flash, they all store data. These memory cards increase a device’s basic storage capacity to the extent they can store
sufficient personal and business data to create serious breach-of-confidence issues if used by unauthorized individuals. Many of these cards are interchangeable
between devices; for example, the card on the corporate camera may contain data that was on a laptop or PDA.

Digital cameras used to create visual records of client assets (trailers, trucks, backhoes, etc.), office and plant layouts are harmless when used for insurance
purposes, for example. Such data in the wrong hands, however, could provide details on assets location, alarm systems, and floor or yard plans that could be
used to commit a crime.

Many newer photocopiers have hard drives that support copy, print, scan and fax functions. Some copiers can also support user-based access to thousands of
stored documents.

Old laptops and desktops rendered obsolete by changes in operating programs often remain loaded with information transferred to newer technology. This
data is easily accessible and could be a goldmine of information for the unscrupulous if thrown away. Let us not forget the storage devices that existed before
flash memory such as tapes backups, ZIP drives and floppy diskettes. Much of their information has been transferred to new technologies but kept on the
old computers. CD+/-R or DVD+/-R discs can store roughly 700MB or up to 8.5GB of data, respectively. There are probably hundreds of discs in your office
containing backup data that is accessible to anyone with an optical drive on their computer.

Ensure Proper Disposal of Data
Protecting and properly destroying old but still accessible information requires management to re-establish control.

Take Inventory

1. Inventory all old floppies, ZIPs, tape drives, computers, removed hard drives as well as equipment currently in operation.
2. Document the type, locationand users of all media.
3. Determine whether the data and/or equipment need to be retained.
4. Determine whether the data was simply archival.
5. Find out whether the data has been migrated to newer equipment.
6. Establish the age of the data.
7. Is older equipment required to read the data?

Once all this has been determined you can decide whether the older data and equipment can safely be destroyed.

Understand the Flow of Information

• What information is being collected?
• What information should be considered confidential?
• Where and on what media is the information stored?
• Is the information on paper?
• Is the information on a centralized server?
• Is the information on individual standalones, laptops, or a combination of all of the above?

This knowledge will tell you where critical information is located and will assist in determining what needs to be destroyed.

Manage Data and Its Carrier
Once all the information has been located, you need to determine the possibilityof limiting the media using and storing the data. For example, if data is stored on
a main server, how frequently is it backed up, what medium is used and where is it stored? Laptops, flash drives and other data storage media supplied to staff should be accounted for at all times. Any missing backup disks should be investigated immediately, especially if they contain sensitive information. All changes to equipment such as hard drive upgrades must be accounted for. Retired equipment should be inventoried and stored in a secure location until a decision is made to purge the data and destroy the medium.

Defining the medium recording the original data source and limiting the number of backups to a predetermined protocol will also make it easier to determine where the data resides when the time comes to destroy it. For example, ifthe original data is on a server and operational procedures require daily saving onto a hard drive and weekly saving onto a DVD or CD securely stored to record disc number, date deposited, date removed and by whom, there should be little need for additional backup. Should it become necessary to retrieve older data the records will be available.

Disposal
Hard Drives
Hard drives store information magnetically; deletion does not actually remove the data, it simply marks it as “deleted” to be overwritten later. A determined individual could recover the deleted data. Prior to disposing of hard drives, consider wiping the drive with a utility that will overwrite each bit with null data, thus making data recovery that much more difficult.

CDs and DVDs
Rewritable and reusable CDs or DVDs should be reformatted before being reused. Discs that cannot be reused should be shredded.

Memory Cards
If memory cards can be removed from PDAs, cell phones, cameras, etc., remove and reformat them for future use. Resident memory in portable devices should
be reformatted and, as a final security, crushed to ensure that the memory cards are no longer useable.

Establish and Police Policies
Staff policies should ensure that all equipment and memory devices are accounted for. Downloading sensitive data to home-office computers or personal
laptops should be prohibited without management’s permission.

Follow-up procedures should ensure data is erased from personal laptops once the job is completed and the office files are updated. Sensitive data files should be encrypted and password-protected to make unauthorized access more difficult. This will help prevent unauthorized distribution of company data and ensure all data can be destroyed in an appropriate manner.

The proliferation of electronic devices allowing storage of confidential data within an organization is overwhelming. Implementing and adhering to controls on
how data is accessed, stored and ultimately destroyed can reduce the risk of unauthorized access to and distribution of sensitive information. ~

Moneysaver

The Stock Market

Don’t underestimate the dangers or the benefits.

Investment Criteria
Saving for retirement or for your children’s education can often involve some investing in the stock market, a notoriously treacherous place for the experienced and inexperienced alike. Since the autumn of 2008 we have seen a dramatic decline and recovery of world markets that has left many portfolios in tatters. Nevertheless, historical experience has shown that, despite such reversals, the long-run market trend is upward to reflect the growing wealth of the global economy.

Successful investing requires self-discipline and criteria for buying or selling. Software that takes the emotion out of buy/sell decisions is now available to screen
stocks to meet the investor’s own risk profile. These criteria will determine tolerable risk given your age, net worth, rate of return required to meet your objectives and the time frame for achieving them.

Some of the fundamentals can be summarized as follows:

Understand the Various Market Sectors
The stock market and the indices that measure its performance are broken into sectors such as energy, real estate or technology. Sectoral indexing describes the relative trends in the values investors are prepared to pay for various industries as measured by their willingness to own stock in the major companies that make up the industry.

Fundamental Analysis
Understanding the sector in which you wish to place your future is of paramount significance. Study of the companies in any sector is, of course, fundamental to
any investment decision and can even be a lot of fun. Reading annual reports available for free at the companies’ web sites enables youto understand a company’s
financial strengths, weaknesses, and performance. Reading analysts’ reports (often available for nominal cost from the online brokers) is also important because
the analysts follow events in the sector closely and their opinions reflect what the market is currently expecting from the companies by way of earnings projections.

The Price/Earnings Ratio
The price earnings ratio (or simply P/E) is calculated by dividing a company’s projected annual earnings per share by its current price per share. If, for example, the market price of the stock is $50 per share and earnings for the next year are projected to be $2.00 per share, the P/E ratio for the stock would be 25 ($50/$2.00).

A high P/E implies that investors are looking towards high percentage gain in earnings whilea lower P/E says investors are expecting slower growth. The
question always is whether the earnings projection on which the current P/E is based is itself justified. That is determined by the earning power of the company
in the current economic environment. Any company’s P/E should be compared with those of other companies in the same industry and even with those in other
industries to see what investors are prepared to pay for different values.

Investments should never be made based upon one financial result, however. Balance sheets, cash-flow positions and income statements are essential components of measuring a company for stability, liquidity and future promise.

Using historical records to evaluate a company for investment potential is just a starting point. A balance sheet with strong assets and low liabilities implies good prospects for the future. On the other hand, losses on the income statement must be judged as a one-time event or the beginning of longer-term problems. The balance sheet must be taken together with the cash flow statement for the past year to determine whether the company is generating the cash to meet current and future payments. Even if revenue and profits are good, a deteriorating cash position could mean the company’s inability to pay bills in the future.

Dividend Income
Earnings growth means not just capital gains from an increasing stock price, but it can also mean a rising stream of dividends. A company’s dividend policy can
be very important to anyone needing dividend income for living. As part of the investment criteria investors may wish to review the number of times dividends
are paid throughout the year and the amount of the dividends paid. This will provide an idea of the return on investment. If the current stock price is $25 and
the company pays out $0.35 per share per quarter in dividends, the yield is 5.6%. A review of other companies may indicate that they never pay dividends
and thus as an investor you would be relying on share value increase to buildyour portfolio. This may not be acceptable if income is a stated criterion for investment.

Use the Tools Available
Whether you handle your own investments or use a broker your must monitor the results on a regular basis to ensure that your financial goals are being met
and that your investment criteria continue to provide the required results. There are powerful online tools available to assist. In addition to the company financial statements and analysts’ reports mentioned above, screened results by P/E ratio, dividend yield, and numerous other criteria from reputable sources such as Standard & Poor are also available online for a fee.

Charts are another important way to see the history of a stock’s performance. The Toronto Stock Exchange (http://www.tmx.com/) provides free charts of the market as a whole and for individual listed stocks for frequencies of one day, one month or one year. Online brokers sometimes provide charting for longer periods. Overlay charting can show trading volumes, dividend payments, stock splits, company comparisons and the relationship of individual stock performances to the overall market indices. Other charts can show changes in balance sheet and income statement ratios as well as cash flow.

Risks and Rewards
The stock market is a difficult place and not for the squeamish. No doubt about that. Nevertheless, the need for asset growth to offset inflation and the need
for dividend income to supplement pensions should not be minimized. Knowledge, discipline and the use of the new online tools, however, are the foundation of
portfolio management. ~

The future of the entrepreneurial spirit in Canada is secure but the detours on the road to success often cause delays that ruin expectations.  Budding entrepreneurs can avoid these detours if they consider the advice of those who have driven before them.

Here are some important things to think about if you are planning to turn that great idea into a business:

1. Incorporate in order to avoid the unlimited liability of sole proprietorships and partnerships.
2. Never underestimate the working capital required to start and maintain a business.
3. Successful businesses must always be prepared to adapt to the changing environment as well as do solid research into location, product line, and customer needs.
4. Obtaining funds to start a business may take three months.  Paying off credit cards, lines of credit, or bank loans takes years.
5. Hire an experienced bookkeeper who understands business accounting, regulatory compliance such as GST, payroll, WSIB and Employer Health Tax (EHT) as well as the importance of financial data.  Without a proper foundation of historical financial data, decisions may be faulty and cost real dollars.
6. Hire a chartered accountant to provide guidance on business transaction as well as corporate and personal taxation issues.
7. Don’t purchase expensive vehicles to impress.
8. Comply in a timely fashion with all government requirements and filings.
9. Do not ignore requests from regulatory authorities for information.
10. Ensure your business is adequately insured.
11. Forget about 9 to 5 and consider 8 to 6 the norm.
12. Customers may not always be right – but they provide the revenue that pays your bills.
13. Do not compromise your personal integrity.
14. Learn to listen.
15. Be prepared to compromise.
16. Always have a succession plan.  Train more than one individual to perform tasks important to the continuing operations in the event staff is ill, terminated, or retires.
17. Always make payroll on time.
18. Develop mentor relationships with people more experienced than yourself.
19. Make time for those people important in your life.
20. Separate work from play.  When the work day is done it is done.  Don’t take it home or on holidays.
21. Learn to not answer your phone.
22. Learn to understand your financial statements.
23. Maintain financial data on a daily basis.  Know what is in the bank, what is owed to the company and what is owing to third parties.
24. Before making major decisions regarding loans, capital purchases or leases, call your chartered accountant.
25. Consider taking a regular salary rather than draws.
26. Understand the terms and covenants of all agreements and know that you can meet them before you sign.
27. Have a shareholders’ agreement and ensure understanding of the terms and conditions before signing.
28. Live your life and operate your business within your means.
29. Understand all areas of human resources such as:  hiring and dismissal, workers’ safely legislation, harassment, maternity leave vacation requirements, statutory holidays, and labour law.
30. Prepare cash forecasts and worry about them every single day.
31. Find a good bank manager interested in helping your business – not just getting your business.
32. Maintain your company image with personal appearances at trade shows, and local events such as Little League sponsorships or community endeavours such as fundraising.
33. Ensure all contracts and agreements are in the company name.
34. Provide personal guarantees only as a last resort.
35. Provide excellent product or service at a reasonable price.
36. Imbed a code of conduct and behaviour in company policy and ensure that everyone, including owner/managers, follows it.
37. Respect those who work with you because without them your business will not survive.
38. Maintain a working cash reserve that will allow continued operations for at least two months.
39. Collect your receivables as soon as you can.
40. Always have a contingency plan.
41. Always make calculated decisions not unsupported gambles based on hunches.
42. When times are good pay down debt, build a cash reserve or reinvest in the business rather than taking on a mountain of new debt.
43. When times are good establish loan limits with your financial institutions because, when times are bad, no one wants to lend money.
44. Establish internal controls over all facets of the business such as cash, accounts receivable, capital assets, payables, and inventory.
45. Prepare operating and capital budgets and review them at least once every six months.
46. Two weeks of holidays are less expensive than a divorce.
47. Take control of operational routine within your business.  For instance, schedule meetings for 10 a.m., approve and sign cheques on Friday, and respond to telephone calls twice a day.
48. Establish a relationship with a lawyer familiar with corporate issues to ensure a full understanding of all ageements and corporate issues that may arise.
49. Know your limitations and hire people smarter than yourself.
50. Believe that you will succeed. ~

Article from Business Matters, February 2010.

• Total world meat consumption 2005:

China                            24%
NAFTA                          15%
Europe                          13%
Balance                         48%

• Global meat demand is pulled by:
  • Population growth
  • Economic growth
  • Urbanization

• Poultry and pork will be the big winners from long term global demand growth but most of the trade growth will be in red meat.

• Global weakening demand for beef due to economic slow-down:
  • Global decrease in prices
  • Decrease in production except China
  • Slight decrease in beef trade except for a slight increase in US, Canada and Argentina
  • Global productions and consumption down by 400,000 tonne
  • Trading down in meat quality, price and quantity ie: from steak to hamburger

• Currency Volatility has a huge bearing on competitive advantage, now less in favour of Brazil as it was in past years.

• Long term energy security will be back on the agenda in the years to come.

• Feed prices have plummeted without the expected long term upward price trend.

• Total world beef production dropped by 1.4% – 08/07 and 0.7% – 09/08.

• Reduction of cattle herds .04% – 08/07 and 0.1% – 09/08.

• Reduction in beef consumption 1.5% -08/07 and 0.8% – 09/08.

• BSE and other animal diseases have caused huge disruptions and extra costs are a continued influence. Meat industry needs to be very well organized:
  • To aniticipate and prevent
  • To control and eradicate
  • To communicate

• EU/US Agreement to settle hormone conflict. Major issue for Canada to resolve with apparent opportunities.

• World market,especially EU, becoming concerned over North American system of feedlots and fat.

• 2009 US beef prices are weaker due to less demand in both domestic and export markets.

• Brazil has taken a stand of “take or leave it”, which has lead to significant export drops due to hormone issue and rain forest burning. Brazil’s booming cattle industry is the largest source of deforestation in the world and also brazil’s major source of CO2 emissions. green Peace aims to stop Amazon deforestation by 2015 and globally 2020.

• China – beef market is domestically focused with low levels of trade. High prices have reduced demand. US/Canada still banned, Australia therefore has the best market access and volumes.

• On a global basis, US farms have traditionally been the biggest operators but they tend to have a US domestic market mindest and commodity by-product exports.

• The Brazilians have “Charged” onto the world stage, armed with Brazil’s cost advantage, new capital and ambition.

• US cowherd continues to drop year after year, beyond the typical cycle. Reasons – drought, opportunity costs, and demographics. high feed costs was one of the key divers on US cattle developments in 2008.

• US meat industry is highly integreated, vertical and horzontal, driven by scale and they are continuing to internationalizing.

• Global meat industry issues effecting all producers regadless of which country the producer lives in:
  • Extent , timing, location and type pf global meat demand growth
  • Scale benefits – production, marketing and risk management.
  • Regulatory issues – barriers to trade, environmental, food safety, ethics and sustainability.
  • Risk and the management of risk -disease, trade barriers, prices, labour shortages, capital availability.
  • Overcapacity
  • Vertical intergration.
  • Margin distribution and retail relationships.
  • Ownership, profitability and capital availability issues.

DESPITE HAVING A LOT on his plate, life on the tropical island of St.Kitts is decidedly tranquil for LeGrand Elebash, who moved here from the U.S.
14 months ago with his wife and two young children. “St.Kitts is all about beautiful weather and beautiful scenery. Even though we are working hard, there is serenity here,” says Elebash “When you are done with the workday, there are so many activities to do as a family – scuba diving, snorkeling, playing on the beach,sailing. We do things here we wouldn’t likely have done at home.”

Such is life here, and a big reason why the Federation of Saint Kitts and Nevis-the smallest sovereign nation in the Americas-has become a popular retreat favoured by the wealthy.

But why would Canadians look here instead of next door in the U.S.? Real estate guru Don Campbell offers answers. “American laws introduced on September 30 now deem non-U.S. citizens who own American real estate a ‘person of the U.S.,’ which means you must file a U.S.tax return. And if you don’t , the fines are horrible,” he says.

If that’s not enough to dampen what might otherwise look like a steal of a deal in Florida or another sunny U.S.state, Campbell says if you plan to rent your U.S. property, 40% of the rental income must now go directly to the IRS. And, should you sell the property, the gross proceeds also go to the IRS first.

For these and ohter reasons, Campbell favous Canada for people seeking to make money on real estate. But unless you adore long winters, there are, of course, good reasons to keep a second home in a sunnier climate too. And if you can afford to, then why not?

This is where Elebash can help. He is overseeing development of Christophe Harbour, a 2,500-acre, master-planned resort community on St.Kitts’s southeast peninsula. The resort will include luxury residential real estate, several five-star hotels, a mega-yacht harbour and marina village,private club and more.

Overlooking Sandy Bank bay, Elebash stops the care so we can take in the view of the protected harbour, lush terrain and nearby beaches. It’s breathtaking.

Below, utilities, roads, landscaping and other infrastructure are taking shape. Atop Priddies plateau, a Tom Fazio golf course is progressing.”We are fully committed,”says Elebash surveying the activity, and nothing construction of the Sandy Bank Bay Beach Club and marina are expected to begin in early 2010.