The B.C. Harmonized Tax – BC HST Will Raise New Home Price
Please comment on this blog post regarding your opinion and thoughts on how the new BC HST will influence the British Columbia and Greater Vancouver real estate home prices next year. Announced in August 2009, the BC HST will come into effect July 1st, 2010. The BC Harmonized Tax is simply the combination of the two current sales taxes: the 7% provincial BC sales tax and the 5% federal goods and services tax. The BC HST is 12% (twelve per cent) and will be added to the purchase price of new BC homes and Greater Vancouver real estate. In addition to applying 12% on new home prices, the BC HST will also be applicable to real estate closing costs and fees, which will in turn increase the price of any new home in British Columbia and throughout the Greater Vancouver property market. Currently, new homes in BC and Greater Vancouver are only subject to the 5% GST federal tax (and not the 7% provincial sales tax) Some analysts say that as the BC real estate markets start their long recovery from the global economic crisis and housing bubble of 2008-2009, the introduction of the BC HST 12% tax on new homes in Vancouver and the province of BC will halt first time homebuyers from making the largest purchases of the life.
In addition, the 12% HST will also affect Greater Vancouver housing affordability, which is already the highest of any city in Canada. Overall, BC housing affordability is also the highest in Canada, which means that British Columbians and Vancouverites spend the most after tax dollars on their homes and real estate purchases. The introduction of the BC HST on new Vancouver homes for July 1st, 2010 will likely damper the sales volume of new real estate in the city in addition to making property more unaffordable for first time homebuyers while making it that much more expensive for current homeowners looking to upsize into larger new Vancouver homes. The other thing to keep in mind is that many retirees are getting to retirement age, and the addition of the 12% BC HST will likely influence what these empty nesters can afford to purchase if they are looking for a new home in BC or Greater Vancouver real estate markets.
Overall, the combination of the PST and GST into the British Columbia HST new Harmonized Sales Tax will ultimately affect the majority of the BC population looking to purchase new homes and real estate property, including those Vancouver condo home buyers. On average, a consumer looking for new BC property will end up spending 7% more because of the difference between the 12% HST harmonized sales tax versus the current 5% GST goods and services tax that are applied to new property.
British Columbia already has the award for the most expensive real estate in Canada. The Okanagan region, Victoria and Greater Vancouver also all fit within the top ten most priciest property markets in the country.
The integration of the new provincial BC HST of 12% on new real estate will further increase and bump up the price for new homes in the province, thereby decreasing affordability throughout the region.
Some BC Real Estate HST Numbers and How It Affects You
Scenario 1: Based on a purchase price of $600,000 for a new BC or Vancouver home, the homebuyer would pay a total of $72,000 in BC HST taxes (12% on $600,000). With the homebuyer HST rebate for purchases above $600,000, the homebuyer would receive the $20,000, thus reducing their purchase cost to $52,000 in taxes for a total of $652,000. Currently, the 5% GST applicable to the same home would cost only $30,000 (a difference of $22,000). *This does not include the HST applicable to closing fees.
Scenario 2: If a BC homebuyer wanted to purchase a new Vancouver home costing $800,000, the total 12% HST hit would be $96,000. The partial HST rebate of $20,000 (maximum allowed) will reduce this to $76,000, making the final purchase price at $876,000 plus property transfer taxes and other closing costs. Before July 1, 2010, a new home would be subject to only 5% GST which is $40,000 on a $800,000 property. With the new BC harmonized sales tax, a BC homebuyer would pay $36,000 more for the same home after implementation of the HST tax. *This also does not include the HST applicable to closing costs.
For more information please see: Vancouver Real Estate Page
Wednesday, November 18, 2009
Coffee Shops for sale in Kelowna
Here are two links to local shops that are for sale:
Kelowna Coffee Shop #1
Kelowna Coffee Shop #2
Will Conley Contributing Writer to EHOW shares tips on how to run an effective coffee shop:
Step 1 Open your coffee shop in the right location. Target a local customer base. Get to know the neighborhood and what types of people live there. In most cases, you will be able to choose the atmosphere of your coffee shop, since every locale contains many subsets of demographics. Just make sure there are enough people in the area to patronizer your business.
Step 2 Scope out the competition. If another local coffee shop attracts a funky, young customer base, either opt for a more austere atmosphere and target a different customer base, or plan to out-funk the other place and steal some of their loyal patrons. Learn how much the competition charges for a coffee, a mocha, a triple latte, a slice of pie. You can charge more or less for your coffee products, but the overall experience should reflect the price-point value of your product.
Step 3 Get free wireless Internet for your coffee shop. These days every successful coffee shop needs to offer free WiFi. This gets people in the door and gives them a reason to stay.
Step 4 Make your coffee shop as comfortable as possible. The more inviting the atmosphere is, the longer customers will stay, and the more loyal they will become. Include plenty of seating, but don't cramp the space. Sofas and booths help as well. Plenty of traditional table seating is also necessary.
Step 5 Offer food. This keeps customers in your coffee shop for longer periods of time.
Step 6 Use "Buy Ten, Get One Free" stamp cards to give customers incentive to buy often. Each time a customer buys a drink or food item, stamp the card. When it fills up, they can turn it in for a free drink of any size. This is a classic marketing tactic for successful coffee shops.
Step 7 Play the right music. If you find that customers come to your coffee shop to study, keep the volume down to a dull roar. Keep an eye on your demographics. Play the right music for the right crowd. Experiment with music tastes and listen to feedback. Once you find a style of music your customers like, try and stick with it. Just don't play the same CD over and over. Your best bet is to pump in some customized satellite radio.
Step 8 Keep everything clean, neat, orderly and self-apparent. For example, if you are set up to have customers bus their own dishes, place the busing containers in plain sight. Fix any broken or rocking tables as they develop problems. Keep the sugar and condiment station fully stocked. Make sure nothing is sticky for longer than a few minutes. Situate the order, pick-up and payment counters in plain view.
Step 9 Set employee schedules clearly, and hold employees to their commitments. Overlap schedules so that there is always someone available to fulfill customer orders. There is nothing more annoying to a customer than having to wait 10 minutes for a cup of coffee when no one else is in line.
Step 10 Keep supplies well stocked at all times. Do not stop serving anything just because it is an hour to closing time. If it's on the menu and your doors are still open, you must serve whatever is ordered.
Step 11 Maintain transparent accounting. Run cash-outs at the end of every cashier shift to maintain accountability. Never keep more than a couple hundred dollars of petty cash in the safe.
Step 12 Run promotions from time to time, and advertise whenever fiscally possible.
Kelowna Coffee Shop #1
Kelowna Coffee Shop #2
Will Conley Contributing Writer to EHOW shares tips on how to run an effective coffee shop:
Step 1 Open your coffee shop in the right location. Target a local customer base. Get to know the neighborhood and what types of people live there. In most cases, you will be able to choose the atmosphere of your coffee shop, since every locale contains many subsets of demographics. Just make sure there are enough people in the area to patronizer your business.
Step 2 Scope out the competition. If another local coffee shop attracts a funky, young customer base, either opt for a more austere atmosphere and target a different customer base, or plan to out-funk the other place and steal some of their loyal patrons. Learn how much the competition charges for a coffee, a mocha, a triple latte, a slice of pie. You can charge more or less for your coffee products, but the overall experience should reflect the price-point value of your product.
Step 3 Get free wireless Internet for your coffee shop. These days every successful coffee shop needs to offer free WiFi. This gets people in the door and gives them a reason to stay.
Step 4 Make your coffee shop as comfortable as possible. The more inviting the atmosphere is, the longer customers will stay, and the more loyal they will become. Include plenty of seating, but don't cramp the space. Sofas and booths help as well. Plenty of traditional table seating is also necessary.
Step 5 Offer food. This keeps customers in your coffee shop for longer periods of time.
Step 6 Use "Buy Ten, Get One Free" stamp cards to give customers incentive to buy often. Each time a customer buys a drink or food item, stamp the card. When it fills up, they can turn it in for a free drink of any size. This is a classic marketing tactic for successful coffee shops.
Step 7 Play the right music. If you find that customers come to your coffee shop to study, keep the volume down to a dull roar. Keep an eye on your demographics. Play the right music for the right crowd. Experiment with music tastes and listen to feedback. Once you find a style of music your customers like, try and stick with it. Just don't play the same CD over and over. Your best bet is to pump in some customized satellite radio.
Step 8 Keep everything clean, neat, orderly and self-apparent. For example, if you are set up to have customers bus their own dishes, place the busing containers in plain sight. Fix any broken or rocking tables as they develop problems. Keep the sugar and condiment station fully stocked. Make sure nothing is sticky for longer than a few minutes. Situate the order, pick-up and payment counters in plain view.
Step 9 Set employee schedules clearly, and hold employees to their commitments. Overlap schedules so that there is always someone available to fulfill customer orders. There is nothing more annoying to a customer than having to wait 10 minutes for a cup of coffee when no one else is in line.
Step 10 Keep supplies well stocked at all times. Do not stop serving anything just because it is an hour to closing time. If it's on the menu and your doors are still open, you must serve whatever is ordered.
Step 11 Maintain transparent accounting. Run cash-outs at the end of every cashier shift to maintain accountability. Never keep more than a couple hundred dollars of petty cash in the safe.
Step 12 Run promotions from time to time, and advertise whenever fiscally possible.
Kelowna Real Estate Statistics - October 2009
Central Okanagan Real Estate Summary
Year = 2009 Month = October
8 Condo/Apt -- Sales 73
9 Condo/Apt -- New Listings 195
10 Condo/Apt -- Current Inventory 1083
11 Condo/Apt -- Sell/Inv. Ratio 6.74%
12 Condo/Apt -- Days to Sell 81
13 Condo/Townhouse -- Sales 56
14 Condo/Townhouse -- New Listings 78
15 Condo/Townhouse -- Current Inventory 448
16 Condo/Townhouse -- Sell/Inv. Ratio 12.50%
17 Condo/Townhouse -- Days to Sell 79
18 Lots -- Sales 16
19 Lots -- New Listings 68
20 Lots -- Current Inventory 839
21 Lots -- Sell/Inv. Ratio 1.91%
22 Lots -- Days to Sell 177
23 Residential -- Sales 215
24 Residential -- New Listings 330
25 Residential -- Current Inventory 1378
26 Residential -- Sell/Inv. Ratio 15.60%
27 Residential -- Days to Sell 87
28 Average House Price $475,910.43
29 Median House Price $440,000.
Full OMREB report Click Here
Year = 2009 Month = October
8 Condo/Apt -- Sales 73
9 Condo/Apt -- New Listings 195
10 Condo/Apt -- Current Inventory 1083
11 Condo/Apt -- Sell/Inv. Ratio 6.74%
12 Condo/Apt -- Days to Sell 81
13 Condo/Townhouse -- Sales 56
14 Condo/Townhouse -- New Listings 78
15 Condo/Townhouse -- Current Inventory 448
16 Condo/Townhouse -- Sell/Inv. Ratio 12.50%
17 Condo/Townhouse -- Days to Sell 79
18 Lots -- Sales 16
19 Lots -- New Listings 68
20 Lots -- Current Inventory 839
21 Lots -- Sell/Inv. Ratio 1.91%
22 Lots -- Days to Sell 177
23 Residential -- Sales 215
24 Residential -- New Listings 330
25 Residential -- Current Inventory 1378
26 Residential -- Sell/Inv. Ratio 15.60%
27 Residential -- Days to Sell 87
28 Average House Price $475,910.43
29 Median House Price $440,000.
Full OMREB report Click Here
Friday, November 13, 2009
Kelowna online business owners
Just a quick blog entry today for the business owners of Kelowna. I came across the Alexa website today. It shows the most viewed webpages on the net. Have a look:
ALEXA
Dustin Serviss
Financial Advisor
Kelowna BC
ALEXA
Dustin Serviss
Financial Advisor
Kelowna BC
Wednesday, November 4, 2009
Planning Considerations For Students - Kelowna
Information provided by: Advocis - CLU Institute - Comment Newsletter Sept/Oct 2009
Every year, parents across the country send their
children off to university and college in search of higher
education. Sometimes the student will be far away
from home, sometimes the student may be close to
home but living separately and sometimes the student
will live at home while attending school locally.
Whenever a student heads off to school, there is a
wide range of things to consider. The following is
a checklist of some of the more common financial
concerns impacting post-secondary students:
☑ Property and Casualty Insurance
Does your home insurance coverage extend to
your child’s school residence or other housing
arrangement? Does your home insurance cover
the student’s possessions as well as damage to
a neighbour’s property caused by negligence
or perhaps an inadvertent mishap? Have you
discussed this with your insurance broker or
insurance company with details specific to your set
of circumstances?
☑ Health & Dental Coverage
Does your group benefit plan at work cover your
child? Do you have to contact your human resource
area to update or inform them that you have an
over-age dependant who is attending school on a
full-time basis? If you have coverage, does your
child want to opt out of the school plan? If you have
coverage and the student also takes coverage under
a school plan, there is the ability to co-ordinate
benefits under the two plans – have you provided
the student with the information needed when
visiting the dentist and/or pharmacist?
☑ Car Insurance
If your child drives a car while at school, has his
or her risk changed? Should you have a discussion
with your broker to ensure that you have complete
and full disclosure of the student’s situation?
☑ Moving Expenses
Will your student’s moving expenses be tax
deductible? If so, take the time to gather the
receipts now so that you will be able to find them
at tax filing time.
☑ Tuition, Education and Textbook Tax Credits
Students may be eligible to claim the tuition,
education and textbook tax credits. These amounts
can be claimed by the student in the year of study and
unclaimed amounts may be carried over to another
year or transferred to a parent or grandparent.
Ensure your child knows about these credits and sets
aside the appropriate documentation for tax time.
☑ Access to Cash
Does your child have sufficient cash reserves to carry
him or her through the full school year? Parents
often feel a tap on the shoulder for additional money
throughout the year. An option that can make it easy
to assist the student financially is a joint bank account
with one or both of the parents. A parent might have
sufficient rating at the bank such that when he or
she makes a deposit into the joint account, the bank
will not impose any holds on the funds. This can
allow the student to access the funds without delay
and without incurring extra charges.
☑ Establishing a Credit History
Does your child have a credit card? If not, it can
be wise for the child to apply for a student credit
card as it will start the process of building a credit
history. With a credit card in hand, responsibility for
making the regular payments becomes important
to maintaining a good credit rating. Do you need to
monitor that the bill gets paid on time, at least until
you are confident that this task is well in hand? It
is important to ensure that your child’s bills are
paid on time because of the potential interest and
late charges as well as the detrimental effect on the
student’s credit record.
The bottom line is that the eligible dividend system
will remain in a state of flux and that regular
adjustments are needed to meet the purpose of the
gross-up and dividend tax credit mechanism.
☑ Financial Responsibility
Will your child be liable for utilities at his or her
place of residence? Similar to a credit card, you
need to determine if monitoring the necessary
payments may be helpful initially to ensure good
financial responsibility.
Some, or all, of the above list may apply to your
student’s situation and it is important to determine
which of the issues you feel needs to be addressed.
Once you have considered the issues and your
priorities, it is relatively easy to help get your
student off on a good financial footing and aid in
their financial education.
Every year, parents across the country send their
children off to university and college in search of higher
education. Sometimes the student will be far away
from home, sometimes the student may be close to
home but living separately and sometimes the student
will live at home while attending school locally.
Whenever a student heads off to school, there is a
wide range of things to consider. The following is
a checklist of some of the more common financial
concerns impacting post-secondary students:
☑ Property and Casualty Insurance
Does your home insurance coverage extend to
your child’s school residence or other housing
arrangement? Does your home insurance cover
the student’s possessions as well as damage to
a neighbour’s property caused by negligence
or perhaps an inadvertent mishap? Have you
discussed this with your insurance broker or
insurance company with details specific to your set
of circumstances?
☑ Health & Dental Coverage
Does your group benefit plan at work cover your
child? Do you have to contact your human resource
area to update or inform them that you have an
over-age dependant who is attending school on a
full-time basis? If you have coverage, does your
child want to opt out of the school plan? If you have
coverage and the student also takes coverage under
a school plan, there is the ability to co-ordinate
benefits under the two plans – have you provided
the student with the information needed when
visiting the dentist and/or pharmacist?
☑ Car Insurance
If your child drives a car while at school, has his
or her risk changed? Should you have a discussion
with your broker to ensure that you have complete
and full disclosure of the student’s situation?
☑ Moving Expenses
Will your student’s moving expenses be tax
deductible? If so, take the time to gather the
receipts now so that you will be able to find them
at tax filing time.
☑ Tuition, Education and Textbook Tax Credits
Students may be eligible to claim the tuition,
education and textbook tax credits. These amounts
can be claimed by the student in the year of study and
unclaimed amounts may be carried over to another
year or transferred to a parent or grandparent.
Ensure your child knows about these credits and sets
aside the appropriate documentation for tax time.
☑ Access to Cash
Does your child have sufficient cash reserves to carry
him or her through the full school year? Parents
often feel a tap on the shoulder for additional money
throughout the year. An option that can make it easy
to assist the student financially is a joint bank account
with one or both of the parents. A parent might have
sufficient rating at the bank such that when he or
she makes a deposit into the joint account, the bank
will not impose any holds on the funds. This can
allow the student to access the funds without delay
and without incurring extra charges.
☑ Establishing a Credit History
Does your child have a credit card? If not, it can
be wise for the child to apply for a student credit
card as it will start the process of building a credit
history. With a credit card in hand, responsibility for
making the regular payments becomes important
to maintaining a good credit rating. Do you need to
monitor that the bill gets paid on time, at least until
you are confident that this task is well in hand? It
is important to ensure that your child’s bills are
paid on time because of the potential interest and
late charges as well as the detrimental effect on the
student’s credit record.
The bottom line is that the eligible dividend system
will remain in a state of flux and that regular
adjustments are needed to meet the purpose of the
gross-up and dividend tax credit mechanism.
☑ Financial Responsibility
Will your child be liable for utilities at his or her
place of residence? Similar to a credit card, you
need to determine if monitoring the necessary
payments may be helpful initially to ensure good
financial responsibility.
Some, or all, of the above list may apply to your
student’s situation and it is important to determine
which of the issues you feel needs to be addressed.
Once you have considered the issues and your
priorities, it is relatively easy to help get your
student off on a good financial footing and aid in
their financial education.
Wednesday, September 23, 2009
Fun inexpensive activities for the family in the Okanagan
Kelowna you have a number of inexpensive fun activities to do with the family. You just have to be creative. Here is a list our family came up with:
1) Hiking, biking or exploring. Look around at the number of parks and trails within the city or pick up the Kelowna Map Book and Guide.
2) The EECO centre in Mission creek park. Your children will learn about everything from fish spauning to bear droppings.
3) Kelowna Art Gallery or Hambleton Galleries on Ellis.
4) Alley surfing. If you are a project type family or you are looking for that old motorcycle/car to rebuild with your son... this could be where to start. You would be surprised by the number of people that would be glad to sell you that old VW Van under the tarp in their back yard.
5) Okanagan Regional Library
6) A pet store is always good for killing an hour
7)The Airport - if you go to the North side of the grounds you get a perfect view of the run-way and the planes will fly right over your head, not to mention the Helicopter pad is at that end as well.
8) A play gorund at an elementary school.
9) A Fire Hall - most will have times when tours are available as well as Station 2 is usually a hall one could walk by and have look inside without an appointment.
10) Tolko Mill or Gorman Brothers Mill
11) The Landfill - If you have a trailer and you want to teach your teenager how to back it up, this is the perfect place to practice and give them a safe environment to learn.
12) Ride a double decker bus or ride a city bus for one full loop. You may some parts of town you have never seen before.
13) Find a construction site that has large machinery. Explain what they are doing and how they work to the best of your knowledge.
1) Hiking, biking or exploring. Look around at the number of parks and trails within the city or pick up the Kelowna Map Book and Guide.
2) The EECO centre in Mission creek park. Your children will learn about everything from fish spauning to bear droppings.
3) Kelowna Art Gallery or Hambleton Galleries on Ellis.
4) Alley surfing. If you are a project type family or you are looking for that old motorcycle/car to rebuild with your son... this could be where to start. You would be surprised by the number of people that would be glad to sell you that old VW Van under the tarp in their back yard.
5) Okanagan Regional Library
6) A pet store is always good for killing an hour
7)The Airport - if you go to the North side of the grounds you get a perfect view of the run-way and the planes will fly right over your head, not to mention the Helicopter pad is at that end as well.
8) A play gorund at an elementary school.
9) A Fire Hall - most will have times when tours are available as well as Station 2 is usually a hall one could walk by and have look inside without an appointment.
10) Tolko Mill or Gorman Brothers Mill
11) The Landfill - If you have a trailer and you want to teach your teenager how to back it up, this is the perfect place to practice and give them a safe environment to learn.
12) Ride a double decker bus or ride a city bus for one full loop. You may some parts of town you have never seen before.
13) Find a construction site that has large machinery. Explain what they are doing and how they work to the best of your knowledge.
Ponzi Scheme Explained to Kelowna
I wrote this article for the financial community of Kelowna. I wanted to explain how the scheme works and how people lost so much money from what looked like a good idea.
See a youtube video on how it works.
The Benefit: A promise that the investment will achieve an above normal rate of return. The rate of return is often specified. The promised rate of return has to be high enough to be worthwhile to the investor but not so high as to be unbelievable.
The Setup: A relatively plausible explanation of how the investment can achieve these above normal rates of return. One often-used explanation is that the investor is skilled and/or has some inside information. Another possible explanation is that the investor has access to an investment opportunity not otherwise available to the general public.
Initial Credibility: The person running the scheme needs to be believable enough to convince the initial investors to leave their money with him.
Initial Investors Paid Off: For at least a few periods the investors need to make at least the promised rate of return - if not better.
Communicated Successes: Other investors need to hear about the payoffs, such that their numbers grow exponentially. At the very least more money needs to be coming in than is being paid back to investors.
Steps in the Ponzi Scheme
Ponzi Schemes are quite basic but can be extraordinarily powerful. The steps are as follows:
Convince a few investors to place money into the investment.
After the specified time return the investment money to the investors plus the specified interest rate or return.
Pointing to the historical success of the investment, convince more investors to place their money into the system. Typically the vast majority of the earlier investors will return. Why would they not? The system has been providing them with great benefits.
Repeat steps 1 through 3 a number of times. During step 2 at one of the cycles, break the pattern. Instead of returning the investment money and paying the promised return, escape with the money and start a new life.
How Big Can Ponzi Schemes Get?
Into the billions of dollars. In 2008 we saw the fall of arguably the largest Ponzi scheme in history - Bernard L. Madoff Investment Securities LLC. The scheme had all the ingredients of a classic Ponzi scheme, including a founder, Bernard L. Madoff, that had a great deal of credibility as he had been in the investment business since 1960. Madoff had also been the chairman of the board of directors of NASDAQ, an American stock exchange. The estimated losses from the Ponzi scheme are in between 34 and 50 billion U.S. dollars. The Madoff scheme collapsed; Madoff had told his sons that "clients had requested approximately $7 billion in redemptions, that he was struggling to obtain the liquidity necessary to meet those obligations." (Source).
See a youtube video on how it works.
The Benefit: A promise that the investment will achieve an above normal rate of return. The rate of return is often specified. The promised rate of return has to be high enough to be worthwhile to the investor but not so high as to be unbelievable.
The Setup: A relatively plausible explanation of how the investment can achieve these above normal rates of return. One often-used explanation is that the investor is skilled and/or has some inside information. Another possible explanation is that the investor has access to an investment opportunity not otherwise available to the general public.
Initial Credibility: The person running the scheme needs to be believable enough to convince the initial investors to leave their money with him.
Initial Investors Paid Off: For at least a few periods the investors need to make at least the promised rate of return - if not better.
Communicated Successes: Other investors need to hear about the payoffs, such that their numbers grow exponentially. At the very least more money needs to be coming in than is being paid back to investors.
Steps in the Ponzi Scheme
Ponzi Schemes are quite basic but can be extraordinarily powerful. The steps are as follows:
Convince a few investors to place money into the investment.
After the specified time return the investment money to the investors plus the specified interest rate or return.
Pointing to the historical success of the investment, convince more investors to place their money into the system. Typically the vast majority of the earlier investors will return. Why would they not? The system has been providing them with great benefits.
Repeat steps 1 through 3 a number of times. During step 2 at one of the cycles, break the pattern. Instead of returning the investment money and paying the promised return, escape with the money and start a new life.
How Big Can Ponzi Schemes Get?
Into the billions of dollars. In 2008 we saw the fall of arguably the largest Ponzi scheme in history - Bernard L. Madoff Investment Securities LLC. The scheme had all the ingredients of a classic Ponzi scheme, including a founder, Bernard L. Madoff, that had a great deal of credibility as he had been in the investment business since 1960. Madoff had also been the chairman of the board of directors of NASDAQ, an American stock exchange. The estimated losses from the Ponzi scheme are in between 34 and 50 billion U.S. dollars. The Madoff scheme collapsed; Madoff had told his sons that "clients had requested approximately $7 billion in redemptions, that he was struggling to obtain the liquidity necessary to meet those obligations." (Source).
Wednesday, August 26, 2009
Tax and Family Business Succession Planning — What's New
Please thank David Louis for this month's article, David is a tax partner with Minden Gross LLP, a member of MERITAS law firms worldwide. David's practices focus on tax and estate planning for entrepreneurs and their corporations.
This article is an excerpt from CCH's Wealth Management Times issue No. 54 dated June 2009.
In general, recent reductions in corporate tax rates, along with the eligible dividend rules, have resulted in a greater bias to retain profits at the corporate level rather than distributing them as salaries/bonuses, thus militating in favour of freezes.Note 2 In the last few years, this trend has continued. Changes stemming from the November 2007 federal announcements will result in decreasing corporate tax rates, until federal rates reach a mere 15% in 2012.Note 3 This year's Ontario Budget also removed barriers to retaining income at the corporate level.Note 4 In that province, the general corporate business rate in 2014 will be less than 53% of the applicable rate where income is bonused out.
Hardly a Week Goes By…
It is hard to remember a week that has gone by without a new development pertaining to the book. In the week before publication of this article, there were at least four relevant developments that I have come across (so far!). The Federal Court of Appeal released its decision on Copthorne;Note 5 to no one's surprise, the Court (which usually sides in favour of the CRA) upheld the lower Court's verdict that the paid-up capital inflation plan in question contravened GAAR. But the Court also strengthened the series of transactions anti-avoidance concept which is key to many planning manoeuvres, by pouring cold water on the notion that there must be a "strong nexus" between the series of transactions itself and transactions in contemplation of the series, instead looking to a "motivating factor" test.
An article by Richard Wise in the latest issue of Canadian Tax Highlights speaks to the value of an interest in a discretionary trust.Note 6 Another article in the same issueNotes 7 indicates that the 2009 federal Budget provisions to remedy the result in La SurvivanceNote 8 (which, for example, could play havoc with the capital gains exemption on a share sale to a public company or non-resident) has deficiencies when CCPC status of a target corporation is to be claimed on a "sign-and-close" transaction.Note 9 Propep Inc. v. The Queen,Note 10 a civil law case, seems to support a narrow interpretation of "beneficiary" e.g., for the purposes of the look through association rules in subsection 256(1.2).Note 11
Going further back in time, in the Frye case,Note 12 the Ontario Court of Appeal held that a specific bequest of shares "trumped" restrictions on ownership in a shareholders' agreement. Some other recent developments we will mention include CRA restrictions pertaining to stock dividend freezes,Note 13 technical interpretations pertaining to assets used in an active business for the purposes of the capital gains exemption, and developments in respect of distributions from trusts to non-resident beneficiaries.
APFF Stuff
Some of the most interesting new developments come from the Association de Planification Fiscal et Financière (APFF) Round Tables. In the APFF 2007 Round Table, there were a series of questions on the effect of freeze structures involving family trusts on the tax consequences of various situations pertaining to an operating business. The questions focused on the deductibility of bonuses, the tax treatment of a bad loan from a freezor to a frozen corporation, the deductibility of interest on a freezor's borrowings to make an interest-free loan to a frozen corporation, etc.Note 14 Another question, from the 2008 APFF Round Table, elaborates on an earlier technical interpretationNote 15 specifying that, for the purposes of the association rules, trustees are considered to own shares held by a trust.Note 16 Other recent APFF questions give an update on the CRA's views in respect of the attributes of estate freeze preferred shares,Note 17 and canvass the advisability of adding restrictions on the assignability of interests in certain trusts.Note 18
If you read this newsletter regularly, you will know that, in recent months, the "control premium" issue has surfaced—that is, whether there is a premium attributable to voting control in isolation (e.g., as would be the case for so-called "thin-voting" shares).Note 19 Originally, this seemed to be a local (west coast) issue; but more recent CRA statements—that a willing buyer will pay "some amount" for a control premium positionNote 20 —has put practitioners on notice that, in theory at least, this is a Canada-wide issue. At time of writing, the reaction of practitioners in dealing with this issue is still unfolding; and based on discussions with leading valuators, we think that the premium in a freeze structure—that is, where a freezor has access to only limited dividends—is modest, notwithstanding the CRA's apparent position.Note 21
While this issue is now well known, what might not be is that some of the methodology that might be used to counter a control premium gives rise to other technical issues. In particular, when shares pass in and out of an estate, there is presumably an acquisition of control, with the loss-streaming rules, etc., being potentially applicable. Happily, though, there are certain "saving rules" in subsection 256(7) that usually alleviate the acquisition of control issues in these situations. However, particularly where voting rights are designed to drop off on death, we think that there are some imperfections in these "saving rules".
Other Stuff
Another area that we intend to discuss in more detail is trusts and the association rules. For example, one specific rule deems shares held in a discretionary trust to be owned by each discretionary beneficiary;Note 22 another rule—also typically applicable to freezes using a family trust—deems common shares having more than 50% of the fair market value of all of the issued common shares to be a control block.Note 23 While these rules have been around for quite a while, there is a growing realization that, as the freeze "matures", association issues can sometimes become acute. Consider, for example, a situation where a freeze is done in favour of a discretionary trust with teenagers as beneficiaries. The prospect of their kids becoming successful business owners is probably the last thing that most freezors have on their minds. However, what with high-tech opportunities and the like, it is often not too long before the kids become successful in their own right. Of course, this may give rise to association issues if one or more of them controls his or her own company, including having to share the small business deduction and the potential loss of SR&ED credits. In the third edition, we will expand the discussion of strategies that can be used to deal with this issue.
In addition to a discussion of the capital gains exemption, including crystallization methodology, we intend to add a discussion of purification strategies that can result in the multiplication of the capital gains exemption, by being able to maintain the corporation as a qualifying small business corporation. Also added will be new materials pertaining to testamentary trust status, expanded discussion of family business shareholders' agreements, and many other features.
As discussed above, recent developments are putting more and more emphasis on a detailed knowledge of tax issues—especially pertaining to the taxation of private corporations. My personal belief is that the area of family business succession planning is steadily moving further into this realm.
Notes
1. For example, since the second edition was published, the Ontario Bar Association has presented two all-day sessions on the subject: "Taxation of Trusts and Estates: A Practical Approach", March 3, 2008 and "Tax For Succession Planning, Trusts and Estates Practitioners", March 3, 2009.
2. I.e., because of the increased death tax exposure attributable to retained earnings buildups.
3. As I have pointed out previously, dropping corporate tax rates have resulted in higher tax on eligible dividends, such that there will be very little difference between the federal taxation of eligible and ineligible dividends when the changes to corporate federal rates are fully phased-in by 2012.
4. Notably, the elimination of the "clawback"— a corporate tax in excess of 4%, applicable to corporate income between $500,000 and $1.5 million. The tax is sufficiently high to call into question the advisability of retaining profits at the corporate level, at least within this income range—obviously relevant to a great many Ontario businesses. Once the clawback is eliminated in July 2010, Ontario corporations will have a greater incentive to retain profits at the corporate level, especially since the general provincial corporate rate will be reduced from the current 14% rate to 10% by 2014, bringing the combined federal–provincial rate in Ontario to 25%. For further discussion, reference should be made to "Corporate Deferral Strategies, Dalton McGuinty and Joe the Plumber", by the author and Michael Goldberg, The Estate Planner No. 172, May 2009.
5. Copthorne Holdings Limited v. The Queen, 2009 FCA 163.
6. "Trust Interest Valuation", page 9. The author concludes: "In a discretionary trust, there is no definite economic interest in either an income or a capital interest unless the vendor happens to be the sole beneficiary in the trust income or capital; in any event, FMV is speculative at best."
7. "Part-Time CCPCs Again", Joel Nitikman and Michelle Moriartey, page 6.
8. La Survivance v. The Queen, 2007 DTC 5096, (FCA).
9. Because the deemed year-end at the commencement of the day of control change does not affect CCPC (and SBC) status, the target would not be a CCPC throughout the year in which control is acquired— i.e., because for these purposes, the change of status (if applicable) would occur later in the day.
10. 2007-1882(IT)G.
11. Essentially the case held that a "second ranking" beneficiary under the Civil Code of Quebec whose interest was conditional on the winding up of a corporation which was a "first ranking" beneficiary was not a beneficiary for the purpose of subparagraph 256(1.2)(f)(ii), indicating that "if a beneficiary's right is subject to a condition, the condition must be realized in order for the beneficiary to be able to exercise the right" (paragraph 41).
12. Frye v. Frye Estate, 2008 ONCA 606.
13. Doc. No. 2003-0004125, April 1, 2003—French only.
14. 2007 APFF Round Table, Question 14.
15. Doc. No. 2005-0111731E5, July 4, 2006.
16. Doc. No. 2008-0285021C6; 2008 APFF Round Table, Question 10.
17. Doc. No. 2008-0285241C6, 2008 APFF Round Table, Question 23.
18. Doc. No. 2008-0285071C6, 2008 APFF Round Table, Question 14.
19. See "Valuation and Family-Business Share Structures—Some Musings", by the author (The Wealth Management Times No. 50, October 2008).
20. See Income Tax Technical News No. 38, September 22, 2008.
21. However, exclusionary dividend structures may be another story—e.g., common-type shares on which open-ended dividends can be paid on one class to the exclusion of other classes—I believe that this feature, coupled with voting control, could potentially result in a considerably more significant premium. This may be problematic, for example, where non-voting exclusionary dividend shares are used in an attempt to multiply the capital gains exemption.
22. Subparagraph 256(1.2)(f)(ii).
23. Subparagraph 256(1.2)(c)(ii). Similarly, by virtue of subparagraph 256(1.2)(c)(i), there will be deemed control in respect of shares of any class having more than 50% of the fair market value of all of the issued shares.
This article is an excerpt from CCH's Wealth Management Times issue No. 54 dated June 2009.
In general, recent reductions in corporate tax rates, along with the eligible dividend rules, have resulted in a greater bias to retain profits at the corporate level rather than distributing them as salaries/bonuses, thus militating in favour of freezes.Note 2 In the last few years, this trend has continued. Changes stemming from the November 2007 federal announcements will result in decreasing corporate tax rates, until federal rates reach a mere 15% in 2012.Note 3 This year's Ontario Budget also removed barriers to retaining income at the corporate level.Note 4 In that province, the general corporate business rate in 2014 will be less than 53% of the applicable rate where income is bonused out.
Hardly a Week Goes By…
It is hard to remember a week that has gone by without a new development pertaining to the book. In the week before publication of this article, there were at least four relevant developments that I have come across (so far!). The Federal Court of Appeal released its decision on Copthorne;Note 5 to no one's surprise, the Court (which usually sides in favour of the CRA) upheld the lower Court's verdict that the paid-up capital inflation plan in question contravened GAAR. But the Court also strengthened the series of transactions anti-avoidance concept which is key to many planning manoeuvres, by pouring cold water on the notion that there must be a "strong nexus" between the series of transactions itself and transactions in contemplation of the series, instead looking to a "motivating factor" test.
An article by Richard Wise in the latest issue of Canadian Tax Highlights speaks to the value of an interest in a discretionary trust.Note 6 Another article in the same issueNotes 7 indicates that the 2009 federal Budget provisions to remedy the result in La SurvivanceNote 8 (which, for example, could play havoc with the capital gains exemption on a share sale to a public company or non-resident) has deficiencies when CCPC status of a target corporation is to be claimed on a "sign-and-close" transaction.Note 9 Propep Inc. v. The Queen,Note 10 a civil law case, seems to support a narrow interpretation of "beneficiary" e.g., for the purposes of the look through association rules in subsection 256(1.2).Note 11
Going further back in time, in the Frye case,Note 12 the Ontario Court of Appeal held that a specific bequest of shares "trumped" restrictions on ownership in a shareholders' agreement. Some other recent developments we will mention include CRA restrictions pertaining to stock dividend freezes,Note 13 technical interpretations pertaining to assets used in an active business for the purposes of the capital gains exemption, and developments in respect of distributions from trusts to non-resident beneficiaries.
APFF Stuff
Some of the most interesting new developments come from the Association de Planification Fiscal et Financière (APFF) Round Tables. In the APFF 2007 Round Table, there were a series of questions on the effect of freeze structures involving family trusts on the tax consequences of various situations pertaining to an operating business. The questions focused on the deductibility of bonuses, the tax treatment of a bad loan from a freezor to a frozen corporation, the deductibility of interest on a freezor's borrowings to make an interest-free loan to a frozen corporation, etc.Note 14 Another question, from the 2008 APFF Round Table, elaborates on an earlier technical interpretationNote 15 specifying that, for the purposes of the association rules, trustees are considered to own shares held by a trust.Note 16 Other recent APFF questions give an update on the CRA's views in respect of the attributes of estate freeze preferred shares,Note 17 and canvass the advisability of adding restrictions on the assignability of interests in certain trusts.Note 18
If you read this newsletter regularly, you will know that, in recent months, the "control premium" issue has surfaced—that is, whether there is a premium attributable to voting control in isolation (e.g., as would be the case for so-called "thin-voting" shares).Note 19 Originally, this seemed to be a local (west coast) issue; but more recent CRA statements—that a willing buyer will pay "some amount" for a control premium positionNote 20 —has put practitioners on notice that, in theory at least, this is a Canada-wide issue. At time of writing, the reaction of practitioners in dealing with this issue is still unfolding; and based on discussions with leading valuators, we think that the premium in a freeze structure—that is, where a freezor has access to only limited dividends—is modest, notwithstanding the CRA's apparent position.Note 21
While this issue is now well known, what might not be is that some of the methodology that might be used to counter a control premium gives rise to other technical issues. In particular, when shares pass in and out of an estate, there is presumably an acquisition of control, with the loss-streaming rules, etc., being potentially applicable. Happily, though, there are certain "saving rules" in subsection 256(7) that usually alleviate the acquisition of control issues in these situations. However, particularly where voting rights are designed to drop off on death, we think that there are some imperfections in these "saving rules".
Other Stuff
Another area that we intend to discuss in more detail is trusts and the association rules. For example, one specific rule deems shares held in a discretionary trust to be owned by each discretionary beneficiary;Note 22 another rule—also typically applicable to freezes using a family trust—deems common shares having more than 50% of the fair market value of all of the issued common shares to be a control block.Note 23 While these rules have been around for quite a while, there is a growing realization that, as the freeze "matures", association issues can sometimes become acute. Consider, for example, a situation where a freeze is done in favour of a discretionary trust with teenagers as beneficiaries. The prospect of their kids becoming successful business owners is probably the last thing that most freezors have on their minds. However, what with high-tech opportunities and the like, it is often not too long before the kids become successful in their own right. Of course, this may give rise to association issues if one or more of them controls his or her own company, including having to share the small business deduction and the potential loss of SR&ED credits. In the third edition, we will expand the discussion of strategies that can be used to deal with this issue.
In addition to a discussion of the capital gains exemption, including crystallization methodology, we intend to add a discussion of purification strategies that can result in the multiplication of the capital gains exemption, by being able to maintain the corporation as a qualifying small business corporation. Also added will be new materials pertaining to testamentary trust status, expanded discussion of family business shareholders' agreements, and many other features.
As discussed above, recent developments are putting more and more emphasis on a detailed knowledge of tax issues—especially pertaining to the taxation of private corporations. My personal belief is that the area of family business succession planning is steadily moving further into this realm.
Notes
1. For example, since the second edition was published, the Ontario Bar Association has presented two all-day sessions on the subject: "Taxation of Trusts and Estates: A Practical Approach", March 3, 2008 and "Tax For Succession Planning, Trusts and Estates Practitioners", March 3, 2009.
2. I.e., because of the increased death tax exposure attributable to retained earnings buildups.
3. As I have pointed out previously, dropping corporate tax rates have resulted in higher tax on eligible dividends, such that there will be very little difference between the federal taxation of eligible and ineligible dividends when the changes to corporate federal rates are fully phased-in by 2012.
4. Notably, the elimination of the "clawback"— a corporate tax in excess of 4%, applicable to corporate income between $500,000 and $1.5 million. The tax is sufficiently high to call into question the advisability of retaining profits at the corporate level, at least within this income range—obviously relevant to a great many Ontario businesses. Once the clawback is eliminated in July 2010, Ontario corporations will have a greater incentive to retain profits at the corporate level, especially since the general provincial corporate rate will be reduced from the current 14% rate to 10% by 2014, bringing the combined federal–provincial rate in Ontario to 25%. For further discussion, reference should be made to "Corporate Deferral Strategies, Dalton McGuinty and Joe the Plumber", by the author and Michael Goldberg, The Estate Planner No. 172, May 2009.
5. Copthorne Holdings Limited v. The Queen, 2009 FCA 163.
6. "Trust Interest Valuation", page 9. The author concludes: "In a discretionary trust, there is no definite economic interest in either an income or a capital interest unless the vendor happens to be the sole beneficiary in the trust income or capital; in any event, FMV is speculative at best."
7. "Part-Time CCPCs Again", Joel Nitikman and Michelle Moriartey, page 6.
8. La Survivance v. The Queen, 2007 DTC 5096, (FCA).
9. Because the deemed year-end at the commencement of the day of control change does not affect CCPC (and SBC) status, the target would not be a CCPC throughout the year in which control is acquired— i.e., because for these purposes, the change of status (if applicable) would occur later in the day.
10. 2007-1882(IT)G.
11. Essentially the case held that a "second ranking" beneficiary under the Civil Code of Quebec whose interest was conditional on the winding up of a corporation which was a "first ranking" beneficiary was not a beneficiary for the purpose of subparagraph 256(1.2)(f)(ii), indicating that "if a beneficiary's right is subject to a condition, the condition must be realized in order for the beneficiary to be able to exercise the right" (paragraph 41).
12. Frye v. Frye Estate, 2008 ONCA 606.
13. Doc. No. 2003-0004125, April 1, 2003—French only.
14. 2007 APFF Round Table, Question 14.
15. Doc. No. 2005-0111731E5, July 4, 2006.
16. Doc. No. 2008-0285021C6; 2008 APFF Round Table, Question 10.
17. Doc. No. 2008-0285241C6, 2008 APFF Round Table, Question 23.
18. Doc. No. 2008-0285071C6, 2008 APFF Round Table, Question 14.
19. See "Valuation and Family-Business Share Structures—Some Musings", by the author (The Wealth Management Times No. 50, October 2008).
20. See Income Tax Technical News No. 38, September 22, 2008.
21. However, exclusionary dividend structures may be another story—e.g., common-type shares on which open-ended dividends can be paid on one class to the exclusion of other classes—I believe that this feature, coupled with voting control, could potentially result in a considerably more significant premium. This may be problematic, for example, where non-voting exclusionary dividend shares are used in an attempt to multiply the capital gains exemption.
22. Subparagraph 256(1.2)(f)(ii).
23. Subparagraph 256(1.2)(c)(ii). Similarly, by virtue of subparagraph 256(1.2)(c)(i), there will be deemed control in respect of shares of any class having more than 50% of the fair market value of all of the issued shares.
For Kelowna Lawyers and Legal Businesses
Hello all!
I came across this article in a newsletter I subscribe to and I thought I would share it...
Internet Browsing for the Legally Minded
The Internet can be a researcher's dream, or a researcher’s nightmare. There are millions of pages of information on the World Wide Web today. There are however many obstacles researchers encounter whenever he/she goes the Internet to conduct a search.
Obstacles faced include: how does one effectively and efficiently access the vast amount of information available; how does one deal with the challenge of finding relevant information; how does one ensure that the sources he or she is using are in fact reliable resources. For the “legally minded” researcher who wants to ensure accuracy in content, finding information on the Internet can definitely be a challenge
To help the “legally minded” researcher overcome the Internet legal research challenge, the Legal and Business Markets Training Group at CCH Canadian Limited has complied a list of links to internet sites containing some valuable information for legal researchers. Please take a few minutes to review the sites noted below. If any of are of benefit to you, please add them to your favorites and visit them again as you need to.
http://www.canlii.org
http://worldlii.org/
http://www.legalresearch.org/
http://www.law-lib.utoronto.ca/resguide/toc.html
http://library.law.wisc.edu/services/find/guides/subject/canadianlaw.html
http://news.lp.findlaw.com/
www.slaw.ca
www.lawstudents.ca
http://canadalawstudent.blogspot.com
www.lifeofalawstudent.com
www.bar-ex.com
http://www.abovethelaw.com
It is my goal that these sites provide you with a starting point for obtaining legal research on the World Wide Web.
I came across this article in a newsletter I subscribe to and I thought I would share it...
Internet Browsing for the Legally Minded
The Internet can be a researcher's dream, or a researcher’s nightmare. There are millions of pages of information on the World Wide Web today. There are however many obstacles researchers encounter whenever he/she goes the Internet to conduct a search.
Obstacles faced include: how does one effectively and efficiently access the vast amount of information available; how does one deal with the challenge of finding relevant information; how does one ensure that the sources he or she is using are in fact reliable resources. For the “legally minded” researcher who wants to ensure accuracy in content, finding information on the Internet can definitely be a challenge
To help the “legally minded” researcher overcome the Internet legal research challenge, the Legal and Business Markets Training Group at CCH Canadian Limited has complied a list of links to internet sites containing some valuable information for legal researchers. Please take a few minutes to review the sites noted below. If any of are of benefit to you, please add them to your favorites and visit them again as you need to.
http://www.canlii.org
http://worldlii.org/
http://www.legalresearch.org/
http://www.law-lib.utoronto.ca/resguide/toc.html
http://library.law.wisc.edu/services/find/guides/subject/canadianlaw.html
http://news.lp.findlaw.com/
www.slaw.ca
www.lawstudents.ca
http://canadalawstudent.blogspot.com
www.lifeofalawstudent.com
www.bar-ex.com
http://www.abovethelaw.com
It is my goal that these sites provide you with a starting point for obtaining legal research on the World Wide Web.
Monday, August 10, 2009
How to... Financial Advising. What do you want to know?
Hello my friend,
1) Think about that one Financial "thing" you have always wondered. The thing you wondered about last time you were at a cocktail party and overheard another conversation or the conversation you overheard a wealthy friend speaking about...
No matter how detailed or vague your question, I will have a financial opportunity spin on it!
I will post your questions and our answers on my blog for everyone to view. Remember, I am on Facebook 8am - 4pm Monday - Friday so if you are online, feel free to ask using the chat feature in the bottom right of the screen.
2) Pandosy Books (Kelowna) - If you are a book reader I must share with you the most amazing used bookstore. I checked it out a couple weeks ago and walked out with a number of mint condition books for the cost of one new Chapters book. It is located beside Bulk Foods on Spall Rd, across from Trinity Baptist Church. The owners name is Frank and he is very knowledgeable about all types of books.
3) The Peacock Sheridan M.A.P.P. approach. We have recently introduced a system that seamlessly walks you through designing a financial plan and I am extremely excited to share it with you. Check it out on the main page of: www.serviss.ca
I will connect in the future to get your thoughts on a full financial plan.
Enjoy the rest of summer and as always if you, your co-workers, friends or family have any insurance or wealth management questions I am never too busy to share my solutions.
Take care
1) Think about that one Financial "thing" you have always wondered. The thing you wondered about last time you were at a cocktail party and overheard another conversation or the conversation you overheard a wealthy friend speaking about...
No matter how detailed or vague your question, I will have a financial opportunity spin on it!
I will post your questions and our answers on my blog for everyone to view. Remember, I am on Facebook 8am - 4pm Monday - Friday so if you are online, feel free to ask using the chat feature in the bottom right of the screen.
2) Pandosy Books (Kelowna) - If you are a book reader I must share with you the most amazing used bookstore. I checked it out a couple weeks ago and walked out with a number of mint condition books for the cost of one new Chapters book. It is located beside Bulk Foods on Spall Rd, across from Trinity Baptist Church. The owners name is Frank and he is very knowledgeable about all types of books.
3) The Peacock Sheridan M.A.P.P. approach. We have recently introduced a system that seamlessly walks you through designing a financial plan and I am extremely excited to share it with you. Check it out on the main page of: www.serviss.ca
I will connect in the future to get your thoughts on a full financial plan.
Enjoy the rest of summer and as always if you, your co-workers, friends or family have any insurance or wealth management questions I am never too busy to share my solutions.
Take care
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