MacKay Winter Newsletter

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mackay.news A publication of MacKay LLP Chartered Accountants and Business Advisors WINTER 2012 Kelowna | Vancouver | Surrey | Edmonton | Calgary | Whitehorse | Yellowknife Message from the CEO It has been a little over a year since I took on the role of CEO! Time really does fly when you are having fun. The role provides me the opportunity to travel from office to office and it has reinforced how unique we are as a firm. However, even though each office has its own unique client base and culture, the one thing that is clear in all offices is the desire to continually service clients in the most effective and efficient manner possible. In that regard we have various initiatives under way to assist. Over the next year we continue to look for ways to brand the firm including capitalizing on our unique culture. Our vision, as always, is to be a Western Canadian Firm, and to that end we are looking for opportunities to expand into Saskatchewan and Manitoba as well as having a presence on Vancouver Island. As a firm, we continue to invest in our people to help them grow professionally and to allow us to serve our clients at the highest possible level. We continue to review our international affiliations to ensure we meet international needs. Recently, I was told of a survey taken by a large firm in the USA whereby five years ago 15% of their clients were doing work internationally and today that percentage is 44%. Although this may not hold completely true for Canada, the trend for needing global services is on the rise. Thanks for following us through our journey and being such loyal clients and referral sources. Happy Holidays and all the best in the New Year! Chartered Accountants and Business Advisors IN THIS ISSUE Year End Planning ................... 2 Missed Opportunities Mean Extra Taxes ...................................... 2 Changes to Canada Pension Plan that Came in Last Year ............. 3 MacKay LLP Has Launched Two New Websites ......................... 3 Tips to Increase the Value of a Business ................................. 4 Announcements ...................... 4 Vancouver (604) 687-4511 Yellowknife (867) 920-4404 Surrey (604) 591-6181 Edmonton (780) 420-0626 Kelowna (250) 763-5021 Calgary (403) 294-9292 Whitehorse (867) 667-7651

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Transcript of MacKay Winter Newsletter

Page 1: MacKay Winter Newsletter

mackay.newsA publication of MacKay LLP Chartered Accountants and Business AdvisorsW

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Kelowna | Vancouver | Surrey | Edmonton | Calgary | Whitehorse | Yellowknife

Message from the CEO

It has been a little over a year since I took on the role of CEO! Time really does fly when you are having fun. The role provides me the opportunity to travel from office to office and it has reinforced how unique we are as a firm. However, even though each office has its own unique client base and culture, the one thing that is clear in all offices is the desire to continually service clients in the most effective and efficient manner possible. In that regard we have various initiatives under way to assist.

Over the next year we continue to look for ways to brand the firm including capitalizing on our unique culture. Our vision, as always, is to be a Western Canadian Firm, and to that end we are looking for opportunities to expand into Saskatchewan and Manitoba as well as having a presence on Vancouver Island.

As a firm, we continue to invest in our people to help them grow professionally and to allow us to serve our clients at the highest possible level.

We continue to review our international affiliations to ensure we meet international needs. Recently, I was told of a survey taken by a large firm in the USA whereby five years ago 15% of their clients were doing work internationally and today that percentage is 44%. Although this may not hold completely true for Canada, the trend for needing global services is on the rise.

Thanks for following us through our journey and being such loyal clients and referral sources.

Happy Holidays and all the best in the New Year!

Chartered Accountants and Business Advisors

IN THIS ISSUE

Year End Planning ................... 2

Missed Opportunities Mean Extra Taxes ...................................... 2

Changes to Canada Pension Plan that Came in Last Year ............. 3

MacKay LLP Has Launched Two New Websites ......................... 3

Tips to Increase the Value of a Business ................................. 4

Announcements ...................... 4

Vancouver (604) 687-4511

Yellowknife (867) 920-4404

Surrey (604) 591-6181

Edmonton (780) 420-0626

Kelowna (250) 763-5021

Calgary (403) 294-9292

Whitehorse (867) 667-7651

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InvestmentsIf you have realized capital gains in the current year, consider realizing any unrealized capital losses before year end. This strategy will reduce your tax bill as capital losses can be offset against capital gains.

RRSPsMake your RRSP contributions by March 1, 2013. Spousal and regular contributions may be made up to March 1, 2013. If you must repay a portion of your Home Buyers’ Plan or your Lifelong Learning Plan, payments must be made by March 1, 2013. Tax savings are more significant for individuals with more than $42,700 of taxable income. If you are starting to withdraw funds from your RRSP, consider using your RRSPs to purchase an annuity that will be eligible for the pension credit and income splitting.

Family TrustEnsure distributions from a family trust are made to and from the Trust by December 28, 2012. If distributions are planned, ensure appropriate dividends are paid from a private company in advance. Payments by cheques deposited and distributed before the end of the year are required, unless detailed steps are completed.

Shareholder LoansIf you have a shareholder loan that has been outstanding since the December 31, 2011 year end, ensure it is repaid by December 28, 2012 (the last banking day of the year). Consult your MacKay LLP advisor on methods of payment such as dividend or net wage compensation.

Equipment PurchasesIf you were planning on purchasing equipment early next year, consider purchasing it before December 28, 2012 or before your corporate year end.

Spousal LoansIf you have spousal loans, ensure the interest is paid by January 30, 2013 by a “documented” method such as a deposited cheque.

Salary to Family MembersIf you pay salaries to family members, make sure payment of net compensation is reasonable and is paid before December 28, 2012. Again, deposited cheques are an appropriate method of documentation. Payment of withholdings by January 15, 2013 or the appropriate payment date if it is advanced is also necessary.

Charitable or Political DonationsIf you are planning to give money to a charity or political party make sure the gift is made before December 28, 2012 to ensure you can claim the tax credit on your 2012 return. There is a possibility of this being extended but the application may only be for future years.

RESPSMake any contributions to an RESP before December 28, 2012 to qualify for any 2012 grants you may be eligible for.

Year End Planning

Thousands of Canadians pay extra income tax. In fact, they pay more than they should. By not taking full advantage of deductions, you may be one of these generous Canadians without even knowing it. Are you taking advantage of every deduction available to you? Do you file your return on time? Do you pay instalments quarterly to avoid interest charges?

Here is a subjective look at some of the common missed opportunities that could be contributing to your tax bill.

MISSED TAX DEDUCTIONS

Childcare ExpensesSubject to certain limitations, childcare expenses can be deducted from income by the lower income spouse. These expenses include day-care, babysitting, boarding school and day camps. You will have to provide their Social Insurance Number if you paid an individual in order to get the deduction a copy of this form is frequently requested by CRA. The key is to keep the receipts.

Missed Opportunities Mean Extra TaxesEmployment ExpensesEmployees using their own automobile for work (other than to and from the work place) without reimbursement by their employer can deduct the business portion of their automotive expenses. If you are reimbursed and the amount is not “reasonable,” you can still claim a deduction for the non-reimbursed portion. Your employer will have to complete form T2200 in order for you to get the deduction.

Charitable DonationsCharitable donations made by you or your spouse during the year should normally be added together and claimed on the income tax return of one spouse. A higher credit is available for donations over $200, so it makes more sense to aggregate the credits and use the low rate only once. If donations total less than $200 they can be claimed on either return, either separately or jointly. The key is to keep the receipts.

Medical ExpensesYou may claim medical expenses for yourself, your spouse and dependent children. Either spouse can make the claim. You are

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not restricted to claiming on a calendar-year basis; you can claim medical expenses for any 12-month period that ends in the year. The most commonly missed expenses are dental bills, eyeglasses, private medical insurance, including travel medical insurance, but not Provincial Medical Fees. For certain seniors, some or all of the payments to a nursing home qualify as a medical expense. The key is to keep the receipts.

Carrying Charges and Deductible InterestLoans must be incurred to purchase an investment (with the intent to earn income) in order to have the interest deductible. Proper documentation on the loans will ensure that the interest is eligible. Deduction is dependent on the actual direct use of funds borrowed. Carrying charges may also include investment counsel fees, accounting fees and safety deposit box charges.

Moving ExpensesMoving costs, real estate commissions on the sale of your former home, property purchase tax on your new home, and legal fees qualify as moving expenses (with certain restrictions). If you are a student, it is possible to claim the moving expenses to start a job (including your summer job) or to start a business. Either way, you must earn income at the new location from a new job or a business and have moved in order to be at least 40 kilometres closer to your present position. The key is to keep the receipts.

Child Fitness CreditsChildren’s Fitness and Arts Amount Tax Credits

If your children participate in fitness or arts activities, you can claim a tax credit. Tax credits reduce your taxes by 15% therefore your tax savings can be up to $150 ($75 for each credit – fitness and arts). Each child must be under the age of 16 at the beginning of the year (or 18 if qualifying for the disability amount) to be eligible. For both credits the programs must be ongoing (eight consecutive weeks or five consecutive days), supervised, and suitable for children.

Programs qualifying for the arts tax credits must either be an artistic or cultural activity, focus on wilderness and the natural environment, develop and use particular intellectual or interpersonal skill, or provides enrichment of tutoring in academic subjects. Some programs may qualifying for both the fitness and arts tax credits, but may only be used for one of them. If you are unsure whether a program qualifies, include the receipt with your other tax documents and your accountant can help decide. The key to this deduction is (surprise), to keep the receipts.

InstalmentsFailure to pay quarterly instalments results in interest charges and possible penalty interest. It is possible to pay extra amounts and reduce or offset the interest charges.

Filing on timeThe normal deadline for filing an income tax return for the previous year is April 30th. This filing deadline is extended to June 15th if you are self-employed or your spouse is self-employed. However, income taxes payable are still due on April 30th. Filing the information return for offshore investments with a cost over $100,000 is also subject to penalties if not filed by these dates.

Taxpayers who do not file their tax returns on time face late-filing penalties (5% + 1% per month to a maximum of 17%) on the tax outstanding, plus interest. A “second occurrence” penalty is double the amount above and can be charged if the taxpayer has failed to file on time for a second time in three years or if a formal demand for filing has been issued by the Minister.

Interest and penalties are not tax deductible and add up quickly at the rates charged by Canada Revenue Agency. Even if you cannot pay the amount of taxes due, ensure you file your tax return on time.

Changes to Canada Pension Plan that Came in Last YearTCPP rules changed on January 1, 2012. If you are over 18 and under 65 years of age and are earning wages, you have to pay CPP premiums even if you are collecting CPP. If you are over 65 but under 70 years of age and earning wages, you may choose not to pay CPP premiums and forgo the resulting increased pension. To stop paying CPP premiums, you must complete and file the CPT30 Form with Canada Revenue Agency and provide a copy of the completed form to your employer. This election is effective the first day of the month following the date you give the form to your employer and is effective until you turn 70 or revoke the election. Once you reach 70 and are earning wages, you cannot pay CPP premiums. For more details please contact your MacKay LLP professional.

At MacKay we service a diverse base of clients and, over the years, have developed strong expertise in several niche markets. We are pleased to announce the launch of two new micro sites to complement our existing website, which offer detailed information regarding the strength of our services in some of these areas. You can now access http://aboriginal.mackay.ca/ to learn about our team and the services we provide in the aboriginal sector and http://professionals.mackay.ca/ to learn about the services we provide for professionals. Stay tuned to gain greater insight into our offerings for a number of other markets including Junior Mining, as we prepare to launch additional sites in the near future.

MacKay LLP Has Launched Two New Websites!

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1. Avoid non-business expenditures in your company. Most businesses are valued on net earnings. The removal of personal expenditures in a business cannot be adjusted completely on sale. Additionally, these expenditures give rise to tax risks which a vendor must assume.

2. Undertake tax planning well in advance of the sale. Review the possibility of using the enhanced capital gains exemption. The possible need for dividends to holding companies and other tax techniques may be of considerable value, if planned in advance. These steps may not be possible to implement at the time of a sale.

3. Obtain employment agreements with critical employees or managers. These must include non-competition terms. If necessary, provide payments for the agreement to non-competition terms so as to ensure the goodwill value rests with the business and can be sold.

4. Transfer personal goodwill to business goodwill. A plan to improving the number and depth of senior managers or executives can turn personal goodwill to business goodwill. Personal goodwill is extremely difficult to sell. Corporate goodwill is the objective of operating a business.

5. Upgrade the premises. Painting, re-flooring, new windows and new signage can dramatically improve the appearance of the business. A cosmetic plan to keep the business site clean in appearance is essential. Modernizing and upgrading equipment may also be cost effective.

Tips to Increase the Value of a Business6. Extend leases at your option. Attempting to sell a business on which there are no lease renewal periods and where there is locational goodwill involved, may be catastrophic.

7. Liquidate redundant assets. This would include the sale of slow- moving or obsolete inventory and any equipment that is not used directly in the business. These items may include hobby assets, such as toys or non-business assets (boats, cars, planes, quads). The earlier these assets can be removed in advance of the sale, the better a value for the business can be achieved.

8. Optimize the company’s debt level. This may be either an increase or a decrease to the company’s debt level to ensure that the business has the maximum shareholder value. Too little debt will force a purchaser to invest excessive capital or determine how to refinance subsequent to acquisition. Too much debt will raise the business risk and reduce the value.

9. Remove or eliminate minority shareholders. Purchase their holdings or alternatively obtain a shareholders’ agreement which requires their concurrence with a sale by the majority owner.

10. Simplify the corporate and capital structure. This may involve eliminating classes of shares which confuse the value. It may involve the conversion of retained earnings to shareholders debt.

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We are pleased to announce the admission of the following partners and principals to the MacKay LLP Partnership in January 2013:

• Fred Deschenes, Associate Partner (Assurance), Yellowknife office• Diana Huang, Equity Principal (Assurance), Vancouver office • Heather Loblaw, Associate Partner (Assurance), Vancouver office • Lynn Wong, Associate Partner (Assurance), Kelowna office• A’Lana Rains, Associate Principal (Assurance), Kelowna office

These partners are available to serve new clients and welcome referrals, as do all partners of MacKay LLP.

Andy Wong of Yellowknife was a guest tax accounting lecturer at two universities in China this fall.

Dan Basso and Miles Laing of Kelowna are Tutorial Leaders at the Canadian Institute of Chartered Accountants six-day course for CAs on Income Tax Practice again this year.

Robin Middleton was appointed Director of Training for the firm and will be working from multiple offices while calling the Surrey office home base.

Announcements

Fred Deschenes

A’Lana RainsLynn Wong

Diana Huang Heather Loblaw