Monthly Archives: December 2011

We’re so close to the end of 2011 – you can almost hear the notes of Auld Sang Lyne. At Silver+Goren, we hope you can spend some time thinking about the well-being and happiness of loved ones, enjoy the holidays and get ready to welcome in the New Year.

But we wouldn’t be doing a very good job if we didn’t push you to spend a little attention on your own financial well-being. With a bit of time and planning, the end of the year can offer some interesting tax planning opportunities.

There are a number of tax issues you should consider before the end of 2011 that can minimize this year’s taxes. (And yes, we know that’s just a few days away.)

Start by doing something simple – review your investment portfolio. Give thought to selling any stocks you have at a loss, so you can reduce taxes payable on any taxable capital gains you may have earned earlier in the year. If you have capital losses carried forward from other years, think about triggering some gains so you can use them while harvesting some of your profits. But, always keep in mind that your investment strategy is paramount. That means – never do something just for tax purposes if it will harm your overall investment performance.

If you have tax-deductible or tax-creditable expenses to be paid early in 2012, it may be better to pay them now. This way you can get the benefit of tax deduction or tax credits in your 2011 return. Remember, you can get a 2011 tax credit if you enroll your children in arts programs.

The prescribed rate for this is still 1% for the last quarter of 2011. So, this may be a good time to make a low-interest loan to your spouse to help income splitting for future investment income.

Don’t forget to update your travel logs for the year. If you’re an employee using an employer-provided vehicle for work purposes, you can reduce standby fees and extra charges for operating costs. This lets you cut down on taxes payable – as long as you can appropriately separate and document personal and business vehicle use.

If you turn 71 in 2011, this is your last year to make an RRSP contribution. Remember the deadline for your final contribution is December 31, 2011, rather than February 29 as the normal rules allow. You also must choose your RRSP maturity option before the year end.

Next, look at your charitable donations. If you’re thinking about making any in the near future – do it before the end of the year. You’ll get a cash credit at the lowest tax rate on the first $200 donated. For anything over $200, you’ll get a tax credit based on the highest personal tax rate.

If you have securities in unregistered accounts where the value has appreciated significantly, you can donate them to charity and not pay tax on the accrued gain, while still receiving a receipt for the full donation amount. But it’s worth noting that in the 2011 budget, the rules about flow through shares changed. You’ll now only be exempt from capital gains on the transfer of these types of shares to the extent the gain exceeds the original investment cost.

If you’re politically inclined, you can donate to political parties and receive tax credits for donations up to a maximum of $2,821.

Don’t forget education. Remember to make RESP contributions before the end of the year. For contributions up to $2500, the federal government will contribute a Canada Education Savings Grant up to $500 to your child’s RESP.

Finally, think about your Tax-Free Savings Account. Consider depositing $5000 into your TFSA. If you’re opening one for the first time, you can contribute up to $15,000 before 2011 ends. While you don’t get any tax deductions for your deposit, any income earned in this plan is tax free.

It’s a long list – but focus on the items that apply to you. Your holiday shopping for loved ones is probably done. With a little attention to your year-end tax planning opportunities, you can give yourself a wonderful gift of tax savings.

Everyone at Silver + Goren wishes you a wonderful holiday and the very best for the New Year.

You can feel the excitement around the New Year. The month of January brings new plans, new ideas and of course, those New (or new-again) Year’s resolutions.

This January, you’re in for a different change – to the Canada Pension Plan.  It’s an important element during a time when you may be already taking stock of your future.

The rules change January 1, 2012, and can make year-end tax planning a bit more complicated.

Previously, you could start receiving your Canada Pension Plan (CPP) benefits when you turn 60. To do so, your earnings must be reduced for the month before and the month after you start collecting.

Once you start receiving your pension, there were no more obligations for you to contribute to the plan or for your employer to match the contributions. The amount you received was reduced by .5% for each month you took it before age 65. So, if you started your pension at exactly age 60, your benefits would be 70% of what you would receive at age 65.

Now the rules are changing.

You won’t have to reduce your income in the months before and after you start receiving benefits.  If you’re younger than 65, you must continue contributing to CPP even if you’re already receiving benefits—and your employer must keep matching those contributions.

If you’re between the ages of 65 and 70, you can choose whether or not to make contributions and have your employer match them. The choice can also be revoked, but not until the beginning of the next year.

Your employer will automatically start making CPP deductions starting January 1, 2012. If you don’t want that to happen, complete form CPT 30 and give it to your employer before January 1, 2012.

If you choose to take an early pension, your benefits will be reduced by .52% in 2012 and up to .6% in 2016. If you choose to delay receiving your pension, your benefits will increase up to age 70 by .64% per month starting in 2012 and by .7% per month in 2013. By 2013, if you delay CPP until age 70 your total benefits will be 42% larger than if you started receiving them at age 65.

These changes won’t affect your current benefits unless you are under 65 and collecting CPP. If that’s you, you’ll have to start contributing again in 2012 and your employer will have to start matching these contributions.

So how do you choose what to do? There are a number of factors to consider including:

• Do you need the money from CPP to live on now?
• What is the status of your health?
• What is your current marginal income tax bracket?
• Will you be subject to the OAS clawback?
• Will you be spending the CPP money to live on, or would you be able to invest the proceeds?
• Do you need to withdraw money from your RRSP in order to live?

If you’re turning 60 this year, your 2012 budgeting and cash flow planning will need to consider all of these factors – and more – to help you make the most appropriate decision.

Big fish, small pond … or one minnow in a school in the ocean. Let’s take your small business under water, for a moment. We promise you won’t drown.

We’ve talked about understanding the five forces of competition in your industry and how they impact your bottom line. The point was to start understanding how your industry works and where there may be opportunities to differentiate yourself – stand out as the lone rainbow fish, for example. You want to be the one unique rainbow fish with better food options and more swimming room. You also want better survival tactics to navigate the coral reefs. In human speak, that’s more profitability and increased value for your business, and allowing blocks and barriers (not the coral kind) to work for you.

In the ocean, there are all kind of predators to outsmart. There’s also lots of competition, especially when it comes to dinner.

Today we’re going to look at how the bargaining power of your suppliers and customers affects your small business plan.

The greater the bargaining power of your suppliers and customers, the lower your profits. If a big part of your industry’s cost structure is controlled by one or a small number of suppliers or customers, most of the profits earned in the supply chain will accrue to those who control the process. That leaves little available for you. In other words, if you’re a minnow, and there’s only so much food to go around … chances are you’re giving your lovely dinner to the few reigning sharks in the water.

The factors that influence a supplier’s position include:

• Number of available suppliers
• Whether there are other products that can be substituted
• How significant your business is to the supplier
• How important the supplier’s product is to your business
• Cost of switching to another supplier
• How easily you could start manufacturing the supplier’s product
• If labour is a critical component of the process, how tightly organized (unionized), highly specialized or in short supply it is

The factors that influence a customer’s position include:

• Proportion of your total sales taken by the buyer
• How important your product is to the buyer
• Number of competitors there are for your product
• Degree of differentiation between yours and your competitor’s products
• Costliness of your customer to switch to another supplier
• How easily your customer could start manufacturing the product you provide

Many small businesses find themselves squeezed at both ends. They’re subject to strong supplier power which affects costs, while at the other end they have limited ability to impact their buyers.

Mix in low entry barriers and intense competition and you’re looking at profit margins lower than New Orleans or Venice. If you try to be different by being a low cost supplier—good luck. It doesn’t work in this environment and will drop your profitability even further.

A better way to be different is to find your advantage through product or service differentiation. It’s a simple rule that always works: add more value for your customer than your competitors can.

There is one more rough patch at sea. You need to consider whether you would be better off investing your time, skill and resources in a more favourable industry. It’s always smart to do this type of analysis as early on in your business life cycle as you can.

One final phrase of wisdom? Remember, only dead fish go with the flow.