Year: 2023

Prioritizing The Security And Protection Of Our Client’s Assets

Posted on by Edixon

Fraudulent activities and scams continue to pose a risk to individuals and organizations alike. As part of our commitment to your financial well-being, we want to ensure that you are aware of these risks and equipped with the knowledge to protect yourself.

The Impact of Fraud and Scams

In Canada, reports to the Canadian Anti-Fraud Centre revealed staggering losses of $530 million in 2022, with a concerning 40% increase compared to the previous year. However, it is important to note that these figures likely represent only a fraction of the total financial losses, as estimates indicate that only 5-10% of fraud cases are reported.

Source: Fraud Prevention Month 2023: Fraud losses in Canada reach another historic level | Royal Canadian Mounted Police (rcmp-grc.gc.ca)

Protect Yourself and Your Investments

Education is vital to staying one step ahead of fraudsters. Therefore, we encourage you to familiarize yourself with the following guidelines to protect your investments:

  • Be cautious of investment offers that seem too good to be true, whether from friends, family, social media contacts, or websites.
  • Be skeptical when someone insists that you keep an investment opportunity confidential.
  • Exercise caution with unsolicited investment opportunities received online or via phone.
  • Take your time to evaluate offers and avoid rushing into decisions. Fraudsters often use high-pressure tactics to exploit time constraints.
  • Assess the credibility of the information or “hot tips” you receive. Consider the motivations behind those providing the tips and verify the legitimacy of the information.
  • Before making investment decisions, verify the registration and background of the person offering the investment. Generally, anyone selling securities or offering investment advice must be registered with their provincial securities regulator.
  • When in doubt, ask questions and consult with your dedicated Financial Services Executive (FSE) Advisor or TriCert Portfolio Manager before proceeding.
Our Role in Preventing Fraud

There are many ways we help protect our clients:

  • We maintain up-to-date client records, including telephone, email, and mailing address details and Know Your Client (KYC) information. This information enables us to identify any uncharacteristic or uncommon requests.
  • We verify the accuracy of requests against the information on file.
  • We adhere to strict guidelines regarding the authorization of instructions and the disclosure of information. We request written and signed instructions from clients before sharing confidential information or acting upon requests.
  • We exercise caution with requests involving unfamiliar addresses, bank accounts, or third parties. We may contact your Trusted Contact Person (TCP) for clarification if we have any doubts.
  • We ensure the secure disposal of unnecessary paperwork containing personal information through shredding.
  • We encourage the immediate reporting of suspicious requests or fraudulent activities to your DJB Wealth Management Advisor or TriCert Portfolio Manager.
  • Never share sensitive personal account information via email.
Additional Measures for Client Protection

Apart from our internal efforts, we urge you to take the following steps to safeguard yourself against fraud:

  1. Create strong and unique passwords for your accounts, changing them periodically. Whenever possible, enable two-factor authentication for added security.
  2. Exercise caution when clicking links or opening attachments, especially from unfamiliar sources.
  3. Be mindful when using public Wi-Fi networks, which may pose security risks. Assume that your online activities can be monitored.
  4. In case of suspicious phone calls, immediately terminate the call without sharing any personal or financial information. If you need more clarification about the legitimacy of the phone call, contact the alleged source directly using a reliable phone number from a trusted source.
  5. Never grant strangers remote access to your devices or computers, as this can be exploited to obtain personal financial information.
What to Do if You Become a Victim of Fraud

If you believe you have fallen victim to fraud, please remember that it can happen to anyone, and you should not feel ashamed. Here are the initial steps to take:

  1. Document all relevant information regarding the incident, as it may be required for investigations.
  2. Notify your DJB Wealth Management Advisor, TriCert Portfolio Manager and/or financial institutions.
  3. Change your passwords with us and other financial institutions or service providers.
  4. Request warnings be placed on your accounts to ensure additional precautions are taken when accepting or disclosing information.
  5. Consider reporting the fraud to Equifax and TransUnion. If you suspect mail redirection, please get in touch with Canada Post.
  6. Report the incident with the Canadian Anti-Fraud Centre. They can be reached toll-free at 1-888-495-8501 or through the Fraud Reporting System.  
Test Your Knowledge

To test your knowledge and enhance your awareness of fraud prevention, visit this Government of Canada resource.

We remain committed to your financial security and well-being. If you have any questions or concerns regarding fraud prevention or any other matter, please don’t hesitate to contact your dedicated DJB Wealth Management Advisor or TriCert Portfolio Manager.

US Citizens Living Abroad can Become Compliant with Their US Tax Obligations Relatively Unscathed by Using the Streamlined Filing Compliance Procedure

Posted on by Edixon

The Internal Revenue Service (IRS) has acknowledged that there are many US taxpayers outside of the USA who are non-compliant with their US tax filings including Reports of Foreign Bank and Financial Accounts (FBARs) and, as such, are offering special procedures for US taxpayers to become compliant.

The Streamlined Filing Compliance Procedure allows delinquent U.S. taxpayers the opportunity to come forward and avoids possible IRS enforcement action and the large penalties associated with not filing.

The streamlined filing compliance procedures are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The streamlined procedures are designed to provide to taxpayers in such situations with:

  • a streamlined procedure for filing amended or delinquent returns, and
  • terms for resolving their tax and penalty procedure for filing amended or delinquent returns, and
  • terms for resolving their tax and penalty obligations.

The streamlined procedures are available to both US individual taxpayers residing outside the USA and US individual taxpayers residing in the USA.  For the purposes of this article, we will focus on US taxpayer’s living outside of the USA.

For purposes of the streamlined procedures, US citizens and lawful permanent residents, i.e., green card holders, are nonresidents if, in one or more of the most recent three years for which the US tax return due date has passed, they (1) did not have an abode in the United States and (2) were physically outside the United States for at least 330 full days.

US taxpayers eligible to use the Streamlined Foreign Offshore Procedures must (1) for each of the most recent 3 years for which the U.S. tax return due date has passed, file delinquent or amended tax returns, together with all required information returns (e.g., Forms 3520, 5471, and 8938) and (2) for each of the most recent 6 years for which the FBAR due date has passed, file any delinquent FBARs (FinCEN Form 114, previously Form TD F 90-22.1). The full amount of the tax and interest due in connection with these filings must be remitted with the delinquent or amended returns.

A US taxpayer filing under the streamlined procedure must certify that:
  1. they are eligible for the Streamlined Foreign Offshore Procedures;
  2. all required FBARs have now been filed; and
  3. failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct.

A taxpayer who is eligible to use these Streamlined Foreign Offshore Procedures and who complies with all of the instructions outlined by the IRS will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties.

If returns are properly filed under these procedures and are subsequently selected for audit under existing audit selection processes, the taxpayer will not be subject to failure-to-file and failure-to-pay penalties or accuracy-related penalties with respect to amounts reported on those returns, or to information return penalties or FBAR penalties, unless the examination results in a determination that the original tax noncompliance was fraudulent and/or that the FBAR violation was willful.  As with any US tax return filed in the normal course, if the IRS determines an additional tax deficiency for a return submitted under these procedures, the IRS may assert applicable additions to tax and penalties relating to that additional deficiency.

If you need assistance in becoming compliant in the USA, we are well-seasoned in this matter and our cross border professionals can help you.

Are All Healthcare Services GST/HST Exempt?

Posted on by Edixon

Generally, healthcare professionals are not registered for GST/HST due to the fact that the majority, if not all, of their services supplied to their patients are exempt from GST/HST.  Changes made back in 2013 caused medical practitioners to have some taxable services, and therefore, there was a need to register for GST/HST. From speaking with practitioners, there still seems to be some misunderstanding of these changes.

Under the provisions in the Excise Tax Act (ETA), services that are provided solely for non-healthcare purposes, even if supplied by healthcare professionals, are not considered to be basic healthcare and are not intended to be eligible for the exemption. For instance, the GST/HST legislation specifies that all supplies for purely cosmetic procedures are a taxable supply, and thus subject to the GST/HST.   Given a number of past court cases, the scope of the GST/HST exemption was expanded beyond the original legislative policy intent to limit the GST/HST exemption to basic health care services.

The 2013 Federal Budget provided some clarity in the fact that GST/HST will apply to reports, examinations, and other services that are not performed for the purpose of the protection, maintenance, or restoration of the health of a person or for palliative care. For example, taxable supplies for GST/HST purposes include reports, examinations, and other services performed solely for the purpose of determining liability in a court proceeding or under an insurance policy.  They may also include the preparation of back-to-work notes and the completion of disability tax credit forms.   Supplies of property and services in respect of a taxable report, examination, or other service would also be taxable.

A report, examination, or other service will continue to be exempt if it is performed for use in the protection, maintenance, or restoration of the health of a person or use in palliative care. As well, reports, examinations, or other services paid for by a provincial or territorial health insurance plan will continue to be exempt.

Overall, what this means is that it is no longer safe to assume that just because a service is provided by a healthcare professional that it will not be subject to GST/HST. If you are a medical practitioner and are providing services that are not direct to your patients, you should discuss all of your revenue streams with your local CPA to ensure you do not have a GST/HST liability.  If you need assistance, please don’t hesitate to call a DJB Professional.

Cash Management Strategies for the Construction Industry

Posted on by Edixon

The construction industry operates in a project environment that often involves progress payments from their customers.

Contractors typically submit invoices at specific stages of the project. Customers then may have 60 to 90 days from acceptance of the invoice to pay for the services performed.

Therefore, matching cash inflows against outflows can be challenging.  In this short article, written by RSM, they explore a few strategies that can help to reduce liquidity risk in construction entities. 

Read Article

How Should Redundant Assets be Treated in a Business Valuation?

Posted on by Edixon

Assets owned by an operating company can be divided into three broad categories in a business valuation:

  1. Tangible assets (i.e., assets that have a physical substance) required for day-to-day operations of the business;
  2. Goodwill and intangible assets such as patents, tradenames/ brands, or customer lists which do not appear on the balance sheet unless they have been acquired in a transaction; and
  3. Redundant assets which are typically physical assets not required by a business for ongoing operations.

In a business valuation, tangible assets, goodwill, and intangible assets usually form part of the going concern value, which is the value of a business enterprise that is expected to continue to operate into the future.

However, redundant assets do not form part of the going concern value as they are not required for operations. A potential buyer considering purchasing a business would only be interested in purchasing the assets that are used by the business to generate operating income. Therefore, redundant assets are not included in the value of the business operations. Instead, the value of redundant assets are added in addition to the value of the business operations to determine the fair market value of the en bloc share value or equity value of the business.

Examples of typical redundant assets:

  • Excess working capital
  • Marketable securities
  • Due from shareholder/related companies
  • Personal assets (i.e., artwork, vehicles, etc.)
  • Real estate
  • Life insurance policies

Redundant liabilities

Redundant assets increase the en bloc share value of the corporation. Conversely, redundant liabilities are items that reduce the en bloc share value of the corporate and can include non-operating loans such as loans to purchase a personal vehicle or due to shareholders/related parties. Identifying redundant assets or liabilities In some situations items that are typically redundant assets may actually be required for operations of the business depending on the nature of the business and its operations. For example, a life insurance policy which is needed as part of a loan covenant/ external lending requirement. As a result, the particular life insurance policy may not be considered redundant.

Real estate as a redundant asset

Generally, when a company does not directly rely on its real estate (i.e., land and building) to generate its revenue, real estate is often considered redundant. However, consideration must be given to the business industry and availability of rental space for operations, among other factors.

In a notional business valuation situation, businesses with real estate typically engage the services of a professional real estate appraiser to determine the fair market value of the property. In addition, when assessing the value of a business using the income approach, an adjustment to normalized cash flow should be made for the amount that would need to be paid if the operating space was rented at market rates from a third party.

Excess working capital

Working capital, (i.e., accounts receivable, prepaid expenses, inventory, less accounts payable) is the amount required to keep operations running and meet short-term daily obligations. If a business does not have sufficient working capital, it may require additional funding/investment to operate. Therefore determining the required level of normal working capital is essential and involves a review of the business, industry ratios, and banking covenants.

Once a required level of working capital is identified, any excess working capital is deemed redundant and removed from the business. During a sale of a business, if there is a deficiency in working capital, a reduction to the transaction price will be made to retain cash in the business. Working capital considerations are discussed in greater depth in our Fall 2022 FSAT Newsletter.

Tax consequences

In a disposal of redundant assets (often during an asset purchase of a business), disposal cost and tax consequences need to be considered such as taxable capital gains/losses, recapture/terminal loss, and income taxes. When a notional business valuation is prepared, the tax consequences are also considered, but may require some discount to account for the fact that the redundant assets will likely be sold at some point in the future, and not at the valuation date.

Conclusion

Proper identification of redundant assets/liabilities and determining an appropriate level of working capital are some important factors in determining an accurate value of a business.

If you would like more information on the topic or assistance in determining the value of your business, please contact our valuation specialists.

 

New Mandatory Disclosure Reporting Requirements for Businesses

Posted on by Edixon

On June 22, 2023, new mandatory disclosure rules were passed into law comprised of three sections: reportable transactions, notifiable transactions, and reportable uncertain tax treatment.

These rules are intended to tackle aggressive tax planning, it is important to note that ordinary tax planning done by middle market companies will be captured under the scope of these new rules. Review the following article as written by RSM Canada outlining the requirements to remain in compliance. 

Read Article

Taxpayers who may have reporting requirements under the new mandatory disclosure rules should review the linked forms below carefully.

Form RC312 is used to report reportable and notifiable transactions and Form RC3133 is used to disclose reportable uncertain tax treatment (RUTT).  Further details can be found here.

As with all new legislation and reporting forms, there will likely be adjustments as the CRA, tax practitioners, and taxpayers have the opportunity to have practical experience with the new forms and rules.  Failure to file the required forms could result in monetary penalties and extended periods for the CRA to reassess the taxpayer.

Form RC312
Form RC3133

New AgriRecovery Initiative for Grape Growers – Applications Now Open

Posted on by Edixon

The governments of Canada and Ontario have introduced a new AgriRecovery initiative that will provide up to $5 million for eligible grape growers.

Starting in July 2023, eligible Ontario grape growers can apply for financial support under the Canada-Ontario Grapevine Winter Injury Initiative (2021-2022) to help recover from significant vine damage and loss. The initiative (delivered by Agricorp) will provide funding for up to 70% of the costs of replacing or renewing grapevines lost or damaged during the defined period.

The application can be viewed here. Note that completed application forms must be submitted to the Administrator no later than 11:59PM ET on Monday, August 21, 2023.

 

Read Full Release

TFSA: Carrying on a Business Within It

Posted on by Edixon

Earnings in a TFSA are typically not taxable. However, earnings in a TFSA become taxable when they are earned from carrying on a securities trading business.

In a February 6, 2023, Tax Court of Canada case, CRA had assessed the TFSA on the basis that it was carrying on a business and was therefore taxable on its income for the 2009 through 2012 taxation years. The TFSA holder was a professional investment advisor who had engaged in aggressive trading in non-dividend-paying speculative penny stocks, all of which were qualified investments. The total income assessed was $569,481, earned from annual contributions of $5,000 in each of 2009, 2010, and 2011.

The taxpayer argued that the TFSA should be treated in the same manner as an RRSP and not taxed on income from a business of trading in qualified investments. The taxpayer further argued that the traditional tests used to determine whether a business of trading in securities was being carried on were inappropriate for application to TFSAs. The taxpayer referred to an earlier Court case that had suggested registered accounts trading in qualified investments are not carrying on a business.

Taxpayer loses

The Court noted that TFSAs are one of several statutory schemes, each with its own detailed provisions. Their components are not interchangeable. In comparing TFSAs to RRSPs specifically, the Court cited ten significant differences between the two schemes other than the treatment of business income. The Court further noted that the judicial test for carrying on a business of securities trading was well established when TFSAs were introduced in 2008 and would have been known to Parliament when they legislated taxation of income from carrying on a business in a TFSA. This indicated thatthe existing test was considered appropriate for this purpose.

Parliament provided that income earned from carrying on a business within a TFSA would be taxable to the TFSA. If Parliament intended to exclude a business of trading qualified investments, it would have included the same exception provided for RRSPs.

The TFSA, directed by its holder, traded frequently, had an extensive history of buying and selling shares that were speculative in nature and held the shares for short periods. The holder was a knowledgeable and experienced investment professional and spent considerable time researching securities markets. There was no doubt that the TFSA carried on a business of trading qualified investments throughout the period at issue.

ACTION ITEM: Carrying on a business of trading securities in a TFSA leads to full taxable income inclusion rather than tax-free amounts. Caution should be afforded when considering such activities.

Charitable Gifting of Securities

Posted on by Edixon

According to Statistics Canada, Canadians donate $10.6 billion annually to charitable and non-profit organizations for altruistic reasons.  While most of this is in the form of cash donations from after-tax dollars, there is also the option for gifting using investment securities.  This could be done by those who do not have the cash resources for charitable gifting but who may have investment assets that could be used instead of an outright cash gift, or for those who want to donate and take some tax benefit for themselves at the same time.  It is therefore important to understand these additional tax benefits available when you have qualifying charitable donations of securities to include on your tax return.

The following provides some helpful information if you are considering this strategy.

Charitable Giving Using Investment Securities

Most charitable organizations accept investment securities as gifts or donations instead of cash.  These are referred to as donations in-kind and are eligible for the donation tax credit equal to the market value of the investment at the time it is transferred to the charitable organization.

When gifting an investment security to a registered charitable organization, Canada Revenue Agency (CRA)does not require the taxpayer to recognize any taxable gains associated with the donated investment securities.

Using an example to illustrate, let’s say an individual wants to donate $10,000 to a registered charity. In order to fund that donation, this individual needs to sell $10,000 worth of stock which they originally purchased for $6,000. When the donor files their tax return, they will need to include the $4,000 capital gain income ($10,000 – $6,000), of which 50%, or $2,000, is taxable.  If this individual has a marginal tax rate of 40%, the act of selling those shares to fund their donation added $800 to their tax bill ($2,000 x 40%).

Alternatively, if the donor in the example above had gifted the shares to the charity, they would not have had to recognize the capital gain and saved $800 in tax while receiving a tax receipt for the $10,000 donation. So, if you are thinking of donating, check your investments and consider making the donation by a transfer of securities – you may be able to save on tax and make a larger charitable contribution as a result. And most importantly, you will be contributing to a worthy cause.

NOTE: These are general figures for the purposes of illustration. We recommend you seek appropriate professional advice before deciding on your charitable gifts.

Work in Process (WIP) Valuation Strategies

Posted on by Edixon

In many industries – and especially in construction – the method by which a company chooses to value its work in process and consequently recognize revenue on projects can have a large impact on the timing of the related tax that it owes. It can also significantly impact the value of the company at a given point in time and its standing in relation to any debt covenants that the company may have. Identifying the optimal accounting method to report income and expenses is not always an easy task and making the incorrect choice can negatively impact your business.

In some cases, it is simple to determine the timing for when revenues are earned. That is, once ownership of a product is transferred or a service is complete, revenue is considered to have been earned. If your projects are relatively short in nature, waiting till the contract is complete to recognize the revenue (known as the Completed Contract Method) may be the appropriate option.

However, if you have a longer term project, delaying the recognition of revenue until the end of the contract could cause problems, for example, tying the direct cost of the project to the revenue it relates to.  The solution to this problem is often the Percentage of Completion method of revenue recognition.

Completed Contract Method

Under the Completed Contract Method, revenue is recognized when the sale of goods or the provision of services is complete or substantially complete. This method is appropriate when the performance of a contract consists of the execution of a single act or when company’s management cannot reasonably estimate the extent of progress toward completion of the contract.

Since most construction contracts involve the execution of many acts by a contractor, the Completed Contract Method is not appropriate in many circumstances. It is likely only in exceptional circumstances that the stage of completion of a contract cannot be reasonably estimated. Nonetheless, some smaller contractors have adopted this method for the following reasons:

  • It is simple and it is easy to determine when a contract is virtually complete;
  • There is no need to estimate costs to complete a project (i.e. costs are all known when the profit is booked); and
  • Assuming that the contractor is profitable, the income tax is deferred to the end of the contract.

As previously mentioned, depending on the type of contracts you have, your completion status at the end of the year and any other specific factors, this method may not be appropriate.

Percentage of Completion Method

The Percentage of Completion Method is generally the preferred method of revenue recognition for larger companies with longer term contracts.

This method matches revenue from the long-term contracts with their respective costs, calculating estimated revenue and gross profit at various stages of construction.

Calculating gross profit on individual jobs on a regular basis allows contractors to track their progress more accurately in these circumstances. This can also provide profitability benchmarks at key points in the year.  Having this information regularly can be helpful for planning purposes by avoiding surprises at the end of the year with respect to the amount of income being reported and also help to provide timely feedback to allow management to control costs and identify the most profitable types of jobs to pursue in the future.

Regardless of the method of revenue recognition being used or the type of projects you are undertaking, having a strong costing system in place to track the profitability of your jobs is very important. In addition, the ability to make accurate estimates with respect to items such as overhead cost allocations and stage of completion are equally important. Although these items can be very complex and specific to your business, refining these things can play an integral role in your company’s success.

The good news is that you don’t have to develop this alone, DJB’s Construction industry professionals can assist you with building a successful strategy for revenue recognition.