Category: General Business

The Accounting Standards Board has issued significant application guidance for entities utilizing the percentage of completion method (POC) for revenue recognition under Canadian Accounting Standards for Private Enterprises (ASPE). This will specifically affect the construction industry since the POC is utilized in accounting for revenue on long term contracts. Also, there are new disclosure requirements outlined in the ASPE revenue recognition standard which mandate specific details that companies operating in the construction sector must now include in their financial statements.

Next steps:

With the enhanced guidance issued, entities should review their existing methods to ensure they are following the new requirements. Entities will want to evaluate their methods to ensure they have selected  the appropriate basis for progress measurement, the type of costs for inclusion in the POC calculation (such as whether it is appropriate to include uninstalled materials or equipment when an input method is used) and the method of calculating amounts of revenue and costs recorded in the reporting period. Identifying contract costs and reviewing your process to allocate general costs to a specific contract will be an important consideration under the new amendments. Lastly, entities should review their processes to compare total contract costs to expected contract revenue and recognize an expected loss when total contract costs exceed contract revenue.

New disclosures:

The additional guidance added specific disclosure requirements to Section 3400 of the ASPE Accounting Handbook for any contracts accounted for using the percentage of completion method. These new disclosures provide users of the financial statements with information regarding the significant estimates and assumptions involved in calculating revenue using this method. An enterprise is required to disclose each of the following for contracts in progress at the end of the reporting period accounted for using the percentage of completion method: (a) The method or methods of measuring the degree of completion; (b) The aggregate amount of costs incurred and recognized profits (less recognized losses) to date; (c) The aggregate amount of advances received; (d) The aggregate amount of holdbacks withheld; and (e) Uncertainties affecting the measurement of the degree of completion.  These disclosures are required for entities with fiscal year ends beginning on or after January 1, 2022. These new disclosures make take time and effort to accumulate this information.

If you need assistance with implementing these amendments and new disclosure requirements, please reach out to your trusted advisor at DJB.

Included is an article authored by RSM Canada, some helpful insights on the percentage of completion method.

Most businesses have accounting, computer, and vacation policies. Why do so few have family employment policies?

Making decisions about hiring younger relatives can be difficult. Skills and talents may vary widely, or maybe there’s not a job for everyone.  And sometimes a family member just doesn’t work out as an employee.

Hiring the kids requires a lot of thought, and the time to do the thinking is before the next generation comes of age. Employment in a family business is not an entitlement; business needs and individual abilities must determine hiring decisions.  

When creating family employment policies, consider:

Experimentation:  Summer jobs can be a great way for kids to “try out” the family business and vice versa. Create a summer job policy outlining the type of work kids are expected to perform, along with personal learning goals.

Education:  Is a college degree required to work at the company?  Perhaps a graduate degree in a certain specialty?  If so, detail the company’s expectations before hiring family members.

Situation:   In what position will the children start?  Will they rotate through jobs in a training program?  Should they work outside the family business first?  Address these questions in writing.

Compensation:   Family members should be paid based on fair market value for their job responsibilities.  Detailing salary and bonus formulas will help to ensure that everyone is treated fairly.

Performance:   All employees, including family members, deserve regular performance reviews. Spell out review schedules and adhere to them.

Separation:   It’s imperative to consider a separation protocol for family members. Indicate performance requirements for continued employment, and include specific behaviors or actions that will not be tolerated.  Also, specify severance package details.

Human resources issues are complicated.  Having formal family employment policies in place can alleviate at least some of the emotion and angst inherited in mixing family and business.

In a January 23, 2023, French Court of Quebec case, a commissioned salesperson deducted nearly $600,000 over 2015 and 2016, in sponsorship expenses of a professional cycling team in Canada. The individual was an investment advisor and reported commission income of $1,493,910 and $1,263,360 and taxable capital gains of $2,276,374 and $99,767 in the respective years.

The taxpayer argued that the sponsorship promoted his services as an investment advisor. As the main sponsor of the cycling team, the taxpayer explained that he benefited from enhanced visibility, as follows:

• the taxpayer’s name was in large letters on the front of the cyclists’ jerseys, on both sides of the cyclists’ shorts and on the team’s cycling shoes;
• the investment institution’s name and logo were on both the front and back of the cyclists’ jerseys; and
• the team’s website (www.silberprocycling.com) incorporated the taxpayer’s name (Silber) into the website domain.

The Court noted that neither the taxpayer nor any of his family members benefited from the cycling team’s equipment, advice, or products. The Minister argued that the sponsorship expenses were unrelated to the taxpayer’s employment as a commissioned salesperson and that the expenses were unreasonable.

Taxpayer wins

The Court found a sufficient link between the advertising from the sponsorship and the taxpayer’s investment advisory services, from which he generated his commission income. In addition, the Court opined that the taxpayer’s sponsorship expenses constituted a much lower portion of his total income (e.g. 5% for 2015) than in other cases. For example, in a 2010 case, the Court found that employment expenses constituting 65% of the taxpayer’s income were reasonable. The deduction was allowed.

Editors’ comment

The scope of deductible commission employment expenses is much broader than for non-commission employment expenses. Expenses incurred to earn commission income are deductible provided that they are not specifically prohibited (for example, personal expenses or payments that reduced a taxable employment benefit) and provided that the other standard conditions for deduction are met. In contrast, only expenses specifically listed as deductible in the Income Tax Act can be deducted against non-commission employment income.

ACTION ITEM: The rules surrounding deducting expenses against employment earnings are complicated. Care should be afforded before incurring expenses intended to be deducted against employment income.

A recent interactive discussion with more than 460 family office executives, family members, and their advisors revealed important insights related to their greatest challenges. 

Today’s tight labour market, in particular, has family offices competing with other businesses for top talent.  As a result, they are faced with many options to consider, including insourcing, outsourcing, and hybrid staffing models.  

Read the following article, authored by RSM Canada, to learn what the discussion uncovered and some key insights for today’s family office.