Canadian Income Tax: Happy 100th Birthday!

Canadians will be interested (though probably not happy) to know that this year marks the 100th anniversary of the federal income tax. Conservative Finance Minister Sir Thomas White introduced it for debate July 25, 1917, three years into the First World War, just days after Parliament adopted compulsory military service. What conscription did for young men the income tax was to do for wealth.

Conventional wisdom says the tax was to be temporary. In fact, Sir Thomas said only that he hoped Parliament would consider it again after the war ended. Parliament did consider it. And we’re still paying.

The tax started as a levy on the very richest Canadians. In the early years, as few as one in 50 people paid. As late as 1938, only 2.3 per cent did. Now three-quarters of Canadians file returns, if only to take advantage of such benefits as the refundable GST credit.

TOO HIGH?

Our top rate used to be middle-of-the-road in the G7. After last year’s federal budget, Ontario’s top rate of 53.5 per cent is below only Japan’s and France’s. Of the top 10 marginal tax rates in North America, seven are in Canadian provinces. B.C.’s lowest-in-Canada top rate of 47.7 per cent is higher than in 42 U.S. states. And top rates for U.S. states start at over $500,000, in some cases almost $1.5 million. In most provinces, by contrast, the top combined federal-provincial rate starts at $200,000.

TOO IMPORTANT?

Ottawa and the provinces together get more than a third of their revenues from income tax. The average OECD country gets less than a quarter. Only four of 35 OECD countries (the U.S., Australia, New Zealand and Denmark) rely on income taxes more than we do.

TOO COMPLEX?

The 1917 income tax act comprised just 3,999 words and was only 10 pages long if you put it on a standard Microsoft Word page with 11-point font. The latest version contains more than a million words and takes up 1,406 such Word pages.

TOO COSTLY?

Just filling it out your taxes, or paying someone else to fill them out for you, now averages more than $500 a family in time and outlay. And that cost is regressive — a higher share of income for poorer than richer people.

Then there’s the economic cost from distortions in effort, investment, saving and education because of high marginal rates. Bev Dahlby of the University of Calgary estimates that in all provinces except Alberta a dollar of new income tax revenue creates more than a dollar of economic cost, so that the total cost exceeds $2 per every new dollar raised. In Ontario, the cost is almost $7 for every new dollar of revenue raised.

After 100 years it’s likely time for a change.

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Bankruptcy and Insolvency Act offences — types, detection, penalties

The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate’ debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them. With the potential for abuse ever present, the Office of the Superintendent of Bankruptcy (OSB) has ways and means to detect and deal with offenders.

 

What constitutes a bankruptcy offence?

The common theme pervading bankruptcy offences under the Bankruptcy and Insolvency Act (BIA) is the intent by the debtor to deceive creditors and escape repayment with impunity. Offences can involve:

Documentation – falsifying a statement of account or hiding or destroying related documentation

Property – hiding or removing property or disposing of it at unfair, below-market values before or after bankruptcy

Credit – obtaining credit or good using false representations or without duly disclosing the bankruptcy to the creditor

BIA investigation – failing to cooperate fully and honestly with BIA examinations

Detection methods

Although the OSB has detection programs in place, bankruptcy offences are often discovered through complaints made by creditors. The Licensed Insolvency Trustee (LIT) may also uncover reasons for suspicion during the course of the bankruptcy process. The OSB may also learn of underhanded dealings through help by the members of the public.

Whichever means by which an offence comes to light, it must undergo examination by one of three special investigation units and always in association with the Royal Canadian Mounted Police (RCMP).

Serious Penalties – Case By Case

Offences under the BIA are punishable in a number of possible ways. Past cases have often involved imprisonment or other restrictions on personal liberty, such as probation, house arrest or curfew orders. Penalties may also include orders to perform community service or prohibitions from applying for credit. In most cases, the fraudulent bankrupt is ordered to pay amounts in restitution to the trustee.

The RCMP regularly reports bankruptcy fraud convictions on its website and its annals should serve as a warning to those who are tempted to use bankruptcy as an all-expense-paid free ride out of debt.

The original article was posted on http://www.gdlaw.ca/ and is available here: http://www.gdlaw.ca/blog/2016/10/bankruptcy-and-insolvency-act-offences-types-detection-penalties.shtml

Gehlen Dabbs is a commercial litigation law firm, with a primary focus on insolvency solutions and commercial disputes. They can be reached at 604-757-9380.

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Top Eight Signs Your Client May Be In Financial Difficulty

This post is written to help those looking in from the outside (bankers, lawyers, accountants, insurance agents etc.) spot when a client of yours may be experiencing financial difficulty and might need the help of insolvency professionals like us. ?Assessing whether your client is experiencing financial distress does not require access to detailed financial information, but rather facts which are readily available if you keep a keen eye and watch for them.

 

  1. (Good) people are leaving. Management always thinks employees don’t know when the company is in trouble. They are wrong, the employees, particularly the good ones, always know and the good ones can always leave and find other jobs. So if there are people that you find are suddenly leaving an organization you are working with, it should raise a red flag or two.
  2. Sales are declining. You won’t know the numbers but it’s usually obvious – fewer customers in the store, fewer delivery trucks, empty parking lots, less advertising (or more advertising of sales).
  3. A competitor has opened and is making a splash. Sometimes the market isn’t big enough for two and the introduction of a competitor can often result in the older business not being able to compete. This is particularly true if the competito?r is one of the larger chains (i.e. Your client is a pharmacy and then Walmart opens a pharmacy in their store down the street).
  4. Dusty inventory – it’s kind of an old joke that says the best way to do an inventory count is wearing white gloves – if you find dust on the inventory then it isn’t turning over fast enough. It also means the company is not very good at returning inventory that doesn’t sell to suppliers.
  5. The owner(s) can’t explain the business. If you can’t tell me what business you are in and  explain your value proposition in 30 words or less ( 15 is better), chances are you aren’t going to succeed.
  6. The owner(s) can’t explain their role, their strengths and /or their weaknesses. Yes, you might be the president but you are likely either a sales person or a production professional, etc. So explain how you will have someone else to do things you can’t or won’t do.
  7. The owner(s) don’t know the Key Performance Indicators (KPIs) for their business. Every business has KPIs that tell you how your business is doing on daily basis. One will be sales – might be dollars, but occupancy for a hotel, nightly covers in a restaurant etc. might be better indicators. There will be two or three others depending on the business and a good owner knows them, tracks them and works to improve them. If they can’t tell you what they are then they won’t know if they are doing well or not. A good owner can tell you what their monthly income will be before the accountant pulls off the financial statements.
  8. And finally, a big red flag is raised when a business is growing too fast. It’s very, very difficult to grow a business extremely rapidly.  More businesses fail by failing to expand correctly than by failing to shrink. Where will the business get the people, the equipment, the inventory, the financing etc. to grow. It takes a skilled entrepreneur or manager to handle all the pieces and failure is all too common. If any of the pieces are missing, failure is almost inevitable.

We always prefer to get called earlier – maybe we can help save the business by bringing in other MNP specialists. We often get called to?o late and are brought in wearing our insolvency/ restructuring hats.

Ian Schofield is a Licensed Insolvency Trustee based in our Regina location. To learn more about how MNP Debt can help, contact our local office at 306.790.7900.

The original article was posted on http://www.mnpdebt.ca/ and is available here: http://mnpdebt.ca/en/blog/top-eight-signs-your-client-may-be-in-financial-difficulty

 

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Land of the Empty Wallets

More than half of Canadians are living within $200 per month of not being able to pay all their bills or meet their debt obligations, according to a recent Ipsos survey conducted on behalf of accounting firm MNP.

For 10 per cent of Canadians, the margin of error when it comes to household finances is even thinner, at $100 or less.

But those with anything at all left at the end of the month were in better shape than many: A whopping 31 per cent of respondents said they already don’t make enough to meet all their financial obligations

Debt is causing Canadians a fair bit of stress, the polling suggests, but few appear to be on track to buff up their monthly financial cushion.

Two-thirds of survey takers said they are “less than very confident” about their ability to create an emergency fund.

Another hair-raising finding from the survey: Roughly 60 per cent said they don’t have a firm grasp of how interest rates affect debt repayments. Such data raises the question of whether Canadians understand the implications of an interest rate hike by the Bank of Canada (BoC).

As an example a one percentage point rise in the BoC’s key interest rate would likely push up variable mortgage rates by a similar amount. A variable mortgage rate that’s currently set at 3 per cent, for example, would go up to 4 per cent, which represents a 33 per cent increase in interest payments for the mortgage holder. That’s an extra $83 a month for every $100,000 in outstanding mortgage debt.

A decision by the BoC to start lifting its key policy rate from historic lows would raise the cost of carrying debt across the country. The Bank uses interest rates, among other tools, to influence inflation and economic activity. Many economists believe it could start to raise rates in the first half of 2018, as economic growth picks up pace.

Although typically the BOC raises rates gradually and over time, the impact on Canadian wallets will be substantial.

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Earth Day: Time for Science (Maybe Someday Common Sense)

According to The Google, today we honor the rich, vast Earth that’s sustained generations before us and continues to nurture life and inspire wonder. At an estimated 4.543 billion years of age, the Earth is still the only known object in the Universe known to harbor life. It’s also the densest planet in the Solar System and the largest of the four terrestrial planets. That’s quite an awe-inspiring roster of qualities, if you ask us.

Furthermore today’s Earth Day has also rallied an additional movement The March for Science whose website indicates that the March for Science is the first step of a global movement to defend the vital role science plays in our health, safety, economies, and governments.

Who can argue with any of the above? Here at CASE, we can’t argue with many of us being avid enjoyers of the simpler pleasures that only nature can provide; hiking, canoeing, cycling, organic gardening, fishing, hunting…the list goes on and on. Not only are such activities righteous, but also prove to be economically low impact on one’s pocket book, and good for ones long term physical, mental and spiritual health…important attributes for us in order to peak perform for our clients.

Today’s Earth Day, now bringing to our attention, the noble focus of science as it relates to all things Earth allowed us to recall some wonderful scientific numbers that were originally brought to our attention by Mark Bonokoski (Sun Media) back in the summer of 2016 to wit:

Canada has 990-million acres of forests, 370-million acres of wetlands and 167-million acres of crop yielding farmland. These are known as “carbon sinks”.  Biologists tell us that trees absorb about 2.6 tons of carbon per acre. So if you do the math 990-million acres x 2.6 tonnes per acre = 2.574 billion tons of carbon being absorbed every year. Now if you do more math: 36-trillion tones {the amount of world emission}x 0.0167 (1.67%) = 601.2-million tones. —  This is the amount of carbon that Canada contributes to the world emissions.– In the forests alone, Canada absorbs almost four times the amount of carbon that it emits. This means that the other three quarters of our forests are being sustained by carbon being emitted by the rest of the world. This calculation does not take into account the wetland or farmland that also absorb carbon.

We’re excited to see the new focus brought to us by March of Science. Many these days seem hell bent and focused on the idea that its money that solves all problems, including the challenges faced by our natural environment by way of carbon taxes (or carbon levies if that sounds less expensive to the economy).  Perhaps bringing science and mathematics (fully appreciating we get it, math is hard) more will come to recognize that money isn’t the cure to what ails us.

Perhaps the next step in the evolution to the ‘earth debate’ will soon include A March for Common Sense; frugalness, simplicity, contentment and avoidance of conspicuous consumption.  And the beauty of it all is not only will common sense not cost us money, it’ll save us money!  Shouldn’t conservation entail conservation of everything, including our wallets? Unless of course if there is ulterior motives to those promoting money (taxation, levies et al.) as the solution to earths challenges.

Furthermore as any theologian, irrespective of denomination, that is worth his (or her) weight will tell you;

When earth becomes our obsession, anxiety becomes our lord.

 

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Alberta: Government Fueling the Debt Culture

Today’s sheep are spared, so that tomorrow’s may be more lavishly fleeced.

Finance Minister Joe Ceci’s budget released this past Thursday showed a $10.3 billion deficit for the coming year and that Alberta’s debt would rise to $71.1 billion by 2020! Remember it was only 12 years ago, in 2005 in fact, that Alberta was debt free!

The province’s deficit for the coming year is $200 million higher than the government had forecast at last year’s budget announcement. Similarly, the fiscal plan shows next year’s budget deficit will be $9.7 billion, compared with the previous estimate of $8.4 billion.

Premier Rachel Notley said she knows Albertans are worried about the growing size of the debt, but said it is “absolutely manageable.”

Ceci’s ministry budget also shows the province’s debt-to-GDP ratio roughly doubling from current levels of 10.6 per cent to 19.5 per cent in 2020.

On Friday at an Edmonton Chamber of Commerce luncheon Ceci was quoted as saying, “With regard to financials, I can tell you we have the best balance sheet of any province, we have amongst the lowest debt to GDP and as we go forward we will address our debt servicing and the debt we will accumulate.”

So in essence at street level, what I’m hearing from our leaders is;

  • Little Suzy wants a pony and riding lessons? She’s entitled to it, she deserves it, take on debt to make it happen, its absolutely manageable, the math shows it, your income is guaranteed to be going up over the next 4 years.
  • That fishing cabin you’ve always dreamed of on the Snake River outside of Jackson Hole Wyoming? You’ve worked hard, you’re entitled to it, you deserve it, borrow to make it happen, its absolutely manageable, the math shows it, your income is guaranteed to be going up over the next 4 years…and while you’re at it you may as well get that $2000.00 handmade custom bamboo fly rod you’ve always dreamed of… it’s only a few more bucks in the grand scheme of things.

All this is ok Chris because even with all the debt you’re taking on with the pony, Suzy’s riding lessons, a cabin and custom made bamboo fly rod your personal debt service ratio (PDSR) will still be lower than everyone else’s in the neighborhood. You can just address the debt servicing as it accumulates over time.

Are you kidding me?

Unsophisticated, credulous, naive and gullible.

But then again from where we sit what do we know about the long term negative consequences that debt has on people?

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Chicken Little Beware!

Ever since Trump’s unexpected victory at the polls, trade has been a hot topic here in Canada.

With good reason: President-Elect Trump has spoken of renegotiating NAFTA, the trade deal governing Canada’s relationship with its biggest export market the USA. On occasion, he’s even vowed to pull the U.S. out of the agreement entirely.

In 2015, the U.S. took in $325.4 billion worth of goods and services from Canada, or about 75% of our total exports.

Given Trump’s ongoing heated rhetoric on NAFTA both during the campaign and in the short time thereafter, he’s unlikely to backpedal—though it’s important to remember that, to date, his ire has been entirely aimed at Mexico, not Canada.

But while NAFTA may be in for some changes, dumping it entirely would be trickier than Trump’s rhetoric suggests.

For one, there’s plenty of evidence that the U.S. has benefited greatly from a more-open northern border with Canada.

Since 1993, when NAFTA came into force, American exports of goods to Canada—including machinery made in the Rust Belt states (that also proved to put Trump over the finish line on Nov. 8)—have jumped 179%. And exports of services have soared 237%, according to the Office of the U.S. Trade Representative.

Canada is currently the largest export destination for both America as a whole (taking in 19% of U.S. exports) and 35 individual states, so there would likely be pushback if Trump did anything that jeopardizes U.S. companies’ access to Canadian markets.

Something else to keep in mind is that, according to David MacNaughton, Canada’s ambassador to the U.S., if the U.S. were to withdraw from NAFTA, the two countries would still be bound by the 1988 Canada/U.S. free-trade agreement, signed before NAFTA added Mexico to the bloc in 1994.

Still, in light of the high level of interconnectedness between the countries, any change in trade terms—and wider U.S. fiscal policy—would have significant implications for the Canadian economy.

Meanwhile, from where we sit, we would encourage any chicken littles out there to simply relax, sit back, enjoy watching the s**t show the US political scene has become (if you’re into that kind of thing) and zero in on those things that are within your control to successfully manage your business (ie. customers, sales, payables, receivables, quality assurance etc.). The last thing one wants to do is to dwell on those things that are not within your control. In the event that the Trump presidency does become the demise of the free world and its economy the last thing one wants to do upon being sucked down into the economic abyss is play the victim card, blaming someone else for your failure while in retrospect realizing you did absolutely nothing to help yourself to survive (other than complain). Victim mentality has never paid well, nor will it in the future.

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I want to do right, just not right now

dont-stopA new poll from CIBC finds that paying down debt is once again the top financial priority for Canadians in 2017, the seventh straight year that debt concerns have headlined the annual survey. Coming in at nearly 30 per cent, prioritizing debt repayment is at its highest level since 2010.

According to the latest data from Statistics Canada however, household debt, including mortgages, rose to a record 166.9 per cent of after-tax income in the third quarter, with debt loads rising faster than disposable income.

The findings also revealed that just over half of Canadians surveyed (52 per cent) plan to reduce their spending on non-essential items to meet their 2017 financial goals. Yet, only a quarter (26 per cent) will actually set a household budget, and fewer still (12 per cent) will meet with a financial advisor to get professional advice on how to reduce their debt and meet their financial goals.

For years Canadians have continued to say that paying down debt is a top priority while continuing to pile on debt in record amounts!

It appears that Canadian consumers continue to operate in a world of rainbows and unicorns governing themselves with the life philosophy of, “I want to do right, just not right now.”

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Y U No Listen?!

anyonelisteningAs MacLean’s Jason Kirby points out, the Bank of Canada, in a clear sign of desperation, has taken to YouTube to warn Canadians about the dangers of too much debt and unrealistic house price expectations. He wonders, however, whether anyone will listen considering on growing housing bubbles in some regions and household debt ratios continuing to grow.

As talked about ad nauseam in this blog over the years Canada’s household debt ratio data continues in an unabated uptrend going back 25 plus years and is showing no signs of slowing down.

In a video posted on December 19, 2016 on YouTube, in conjunction with the release of the Bank’s semi-annual financial system review December 15, 2016, Bank of Canada senior policy adviser Joshua Slive sketches out how Canada’s dangerous brew of debt and inflated house prices could combine to devastate the economy.

There is good news, Slive says. Stress tests show Canada’s big banks will be just fine even with a large drop in house prices (stress tests also showed that both Belgian Dexia and Spanish Bankia were perfectly solvent just months prior to their respectively failrues). It’s also important to note that the Bank, in its financial system review, said there is a “low probability” of a sharp correction in house prices (for what it’s worth once considering the overall predictive success rate of economists). Regardless, there is no getting around the immense damage such a scenario would have on the economy

Although central-banker dry, the message is stark, and shows the Bank of Canada is desperate for Canadians to heed its warnings on debt and rising house prices.

Whatever the case, the Bank’s video should be another wake-up call for Canadians, but “not that anyone’s listening” as Jason Kirby laments.

Here’s a link to the BOC video “The risk of household financial stress and a sharp correction in house prices” explaining things in under 2 minutes.

https://www.youtube.com/watch?v=rR8TqaHIOu4

 

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We Have Moved!

movedEffective December 2016 we have moved our headquarters in Sherwood Park, AB. to a new location.

We’ve finally moved, but its not far, Here’s our address, so you know where we are.

 

 

Suite 280 – 2181 Premier Way, Sherwood Park, AB. T8H 2V1

All of our other contact information remains the same.

 

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