Thursday, April 26, 2018

Tax Time Again!

Preparing a tax return, even if your part is only gathering all the information for your accountant, can be an overwhelming and stressful chore. However, it’s a task which must be done every year. It ranks right up there with spring cleaning around the house and yard. 

Many have a tendency to procrastinate and push the deadline as far as midnight on April 30th.   If you step over this deadline, then you may face interest and penalties.  If you are a proprietor of an unincorporated small business, your deadline is June 15th.  However, tread cautiously.  If you owe taxes as a result of your business income, the tax bill is still due and payable on April 30th.  The most sensible thing to do is to file your tax return by the end of April.   You want to avoid adding more money to the government coffers with interest charges on the balance due. 
The best rule is to follow Thomas Huxley’s advice. “Do what you should do, when you should do it, whether you feel like it or not.”   This is the power of discipline. 

Why Should We File a Tax Return?

I believe we need to understand “why” we need to do something to motivate us into action.  Once we know “why” then we are apt to file our tax returns on time.  

1. One reason for filing a tax return is to take advantage of applicable tax credits to reduce the amount of taxes payable.   Your income information slips report only your income and the minimum required deductions but other eligible provisions may lower your taxable income further.  Specific examples are tax deductions like RRSP contributions or tax credits for a dependent child under the age of 18.  Ultimately, the result is the possibility of a “tax refund” once the calculations are completed. 

2. Another reason is you may be eligible for money through one of the government’s social benefit programs once your return is filed.  Without taking the initiative of reporting your income, you may be saying "No thank you" to money that rightfully belongs to you.  Depending on the level of your combined family income, you may be eligible for the GST/HST credit benefits or Child Tax Benefit.      

Other social benefit programs for people over the age of 65 are Old Age Security and Guaranteed Income Supplement.  The Allowance provides a benefit for those between the ages of 60 and 64.

3. Your tax returns keep you “in the know”.  If you are not a financial guru, your return may be the only document to tell how you are doing from an income vantage point. Are you descending or ascending the income ladder?

4. If you are still not totally convinced that you should file a tax return, my last resort is you have to do this because it is the law. There are late-filing and failure-to-file penalties in addition to the interest charges due on outstanding taxes.  Coming up with the money to pay taxes is difficult; we certainly don’t want to add additional charges to the balance.   If you choose to ignore Canada Revenue Agency (CRA), they will chase you for the money that rightfully belongs to them. 
5.  When you are self-employed and are applying for a loan, the one way for a lender to verify your income is your annual tax returns for the last three years. No verification of income means no loan.

Why Are We Reluctant to File Our Tax Returns?

The most likely reason for failing to file a tax return is quite often linked to fear.  We may be afraid we may have a tax bill and won’t have the money to pay CRA.

In the Toronto Sun news article, Failure to file taxes could bankrupt you, John Waters, head of tax and estate planning at BMO Nesbitt Burns, says, if you’re struggling to meet the deadline, even if you don’t have the money to pay, "at least file to stop the bleeding on that 5% penalty and just get hit with the interest charges on the unpaid taxes."

The truth is you don’t want to get on the wrong side of Canada Revenue Agency (CRA).  Even when you file your return and are unable to pay the taxes, you should explain your situation to CRA. If you don’t, CRA is a powerhouse with the ability to collect the money.  Funds can be garnished from your bank account to satisfy the debt.  Your financial institution will receive a “requirements-to-pay” order (also known as a Third Party Demand).  If the money is not in your account at the time, then your account will be frozen.   The Third Party Demand will only be lifted once the payment has been made or at the very least satisfactory financial arrangements are in place to have the order removed.  To read more, click here to read, CRA Garnishments: Requirement to Pay Tax—A Canadian Tax Lawyer Analysis.

How Can We Overcome the Obstacles?  

Once we understand that we can run but we can’t hide from CRA, we need to take a proactive approach and prepare for the yearly routine of submitting our tax returns. 

  • The first step to eliminate our feelings of frustration is to find a method to keep all our important documents in one place. With unlimited access to the Internet, we can always search for ways to organize our tax information. 

  • If you can’t do this yourself, the second step is to ask for help.  There are people, even friends, who are “number people”. They would love to help us get organized and stay organized.  

  •  Lastly, we can pay for the service of a professional tax accountant to prepare our tax returns. 

The completion of an onerous task results in the greatest feeling. This is especially true when our tax returns are filed on time and our relationship with Canada Revenue Agency is maintained.  There is a reward at the end for doing this.  If it’s not money, then it is peace of mind or if we are lucky, it might even be both.

If you need additional information, the Government of Canada has prepared a series of videos, Preparing your Income Tax and Benefit Return.  These videos may provide helpful information for you.     

Thursday, April 12, 2018

What We Know

How often have we heard, “It’s not what you know but who you know”?  In all honesty, the proper proclamation should be “It’s what you know and who you know”.  Our expertise and experience are just as valuable as those of “who you know”. 

The Parkland CAFA (Canadian Association of Farm Advisors) Chapter gathers monthly for their regular learning event.  It is a meeting of the minds to learn something we might know very little about.  The presenter on a given topic is the expert. We tap into their resources and access their authoritative wisdom and knowledge. At any given meeting, the two professionals or agri-business experts know something the rest don’t. Their willingness to share is an opportunity for us to learn.  When applicable, we even refer clients to the appropriate professional who can better help them.

I believe everyone understands you can’t know everything.  Having an expert in your network circle is a valuable “fill-in” for the information and experience you lack.  A fitting expression, “Mind the Gap”, heard when you travel the rail system in London, can also be applied to our knowledge gap.   A person can only know so much, has only so much brain capacity, and has only interest in a specific area of expertise.  There may be some logic to the statement “a jack-of-all-trades and a master of none!”  When we try to be everything, we have to ask ourselves, “Is this fitting for what I am trying to accomplish for my clients?” As a CERTIFIED FINANCIAL PLANNER®  professional, I know my limitations and rely extensively on other professionals.  I appreciate having them in my network; they’re my links to information and experience.    

This past month’s learning event highlighted two hot topics:  Trusts and the Need for Them, both from a tax and legal perspective; and TOSI (Tax-on-Split-Income), the new rules and the exceptions-to-the-rules.  Our professionals, Jason Heinmiller, a tax expert, with Collins Barrow and Shawn Patenaude, a lawyer, from his legal firm, Shawn Patenaude Legal Prof. Corp, are privy to the latest updated information.  Procedures and processes are constantly changing. This is especially true when there’s a change in government.  In 2017 the federal government implemented new rules regarding the way income is distributed to shareholders of private corporations. The experts, Jason Heinmiller and Shawn Patenaude, addressed the impact this new legislation has on tax vehicles such as trusts and corporations.

Our professionals discuss new legislation with their peers. They dissect and analyze the logistics of the information to fully understand the new proposals: how they apply, when they apply; what exceptions exist; and who they affect. They exchange thoughts, ideas, and ask each other, “If we can’t do this, can we do that?”

The best professionals work together in tandem with other professionals to decide on the ideal strategies for their mutual clients.  The collaboration is important especially with multiple generational and blended families. Family business situations are both complex and complicated. Because peoples’ intentions are different, a strategy which might work well for one family operation doesn’t mean it fits another.         

When we try to work in isolation and try to do it all, we do our clients a disservice.  When professionals work together as a smart team, their clients benefit from the best quality advice and service.  When the clients receive a wealth of information from all the angles, they are able to make the right decisions. I’ve said before, “Good information leads to good decisions.”  Good decisions avoid financial and costly errors.  Some strategies cannot be undone and are permanent arrangements with dire consequences.  

This is an example of a costly consequence.

A father included his son as a joint owner on a piece of real estate.  Their relationship became estranged.  When the father requested that his son relinquish his ownership to the property, the son refused.  The courts decided if the father wanted the son’s name off the title, the father was obligated to buy his son’s half-share interest at the current fair market value.  We don’t know if the father sought legal advice when he was deciding to make the real estate joint with his son.  However, if he had, all the possible outcomes would have been discussed. 

Advisors help farmers make informed decisions around management, finance, marketing, tax, or legal issues.  If necessary, they network with other CAFA members. This networking creates links to a wealth of knowledge and expertise. When a basketball or football team executes play after play, they work together to accomplish a goal. That goal is to secure a win.  Win after win create champions.  We are all champions when we work together as a team.  John Wooden said, “A player who makes a team great is more valuable than a great player.”  

Thursday, April 5, 2018

Resolve Money Arguments

Fighting over money isn’t unusual. In fact it’s more common than you think.  Surveys have attested to this fact.  Concocting the ideal recipe, to repair a couple’s relationship broken because of money, isn’t easy. Certain methods are required to create meaningful conversations in order to make any progress. The ultimate goal is to live in peace and harmony without money woes to disrupt the home. If you find yourself in a stressful relationship, hunt for the secret ingredient that helps resolve arguments about money.  Here are a few thoughts and ideas.       

1.  Schedule a meeting in advance.  You might scoff at this crazy idea but think about it.  If spontaneous conversations about money haven’t worked in the past, always ending in the same result -- an argument -- wouldn’t this crazy idea be worth a shot?  Isn’t it better that everyone is prepared?   Emotions erupt when people are caught off guard.  Imagine opening a credit card statement. Suddenly your eyes detect an unexpected transaction for $300 to a clothing store or an automotive shop.  Or imagine the shock when your bank phones to advise that your joint chequing account is overdrawn.  Most likely you “hit the roof”.  Having a rational discussion at this point would hardly be the time. You need time to calm down.  Seeking rather than demanding an explanation will be well received by the accused when your emotions are in control rather than out of control.  When a meeting is scheduled and the agenda is known, people are not as likely to be on the defensive.  Consider creating an agenda about the issues that are tormenting your finances.  The first meeting will feel somewhat awkward.  You need to keep ironing the creases, meeting after meeting, until they run smoothly.  Attempt to schedule a meeting once a month to discuss the cost of current expenses, review bank and credit statements, and plan future expenditures.   Is the dishwasher on the fritz?  Does the truck need new tires? What’s the synopsis for the children’s tuitions?  Like any organization meeting, the agenda includes both old and new business.  I am certain you will never run out of things to talk about but you will run out of time to discuss all the things. All the more reason to table items for the next month’s meeting.

2.  Identify your beliefs about money and their origin.  Some beliefs stem from childhood experiences. You repeatedly may have been told by your parents, “Do you think money grows on trees?” leading you to believe money is scarce.  If money was continually lavished upon you, the belief may be you can buy whatever you want when you want. Imagine your spouse growing up in a totally different home environment than yours.  Can you see how your views about money can differ? Resolve to develop joint beliefs, the ones worth keeping in your relationship.  A simple detail may be calling your “budget” a “spending plan” because you dislike the connotation of budget, causing you to feel restricted.  A more complicated notion may be that your belief is vacations are a waste of money yet both may agree that in exchange for a vacation a hot tub will provide endless enjoyment all year around.  You may also conclude that “stay-cations” could be as much fun.

3.  Discuss your money management to determine what works and doesn’t work.  When managing your monthly expenses, read the blog, Do Joint Expenses Require Joint Accounts?  Discuss whether a change is necessary to the way you presently handle your finances. Try a new approach; review the process in a few months. If it’s not working, change the process again.  Learn as you go.  If one spouse cannot be trusted to manage the finances, then don’t put yourselves in that predicament. Recognize each other’s strengths and weaknesses to benefit both of you.

4.  Learn to be assertive. Assertive means respecting yourself and other people.  It is the ability to clearly express your thoughts and feelings through open honest and direct communication. This means learning how to talk appropriately. I had to learn this new approach. Start your sentences with the unselfish “I” statements.
I feel afraid we won’t be able to handle an emergency.
I am worried we are not saving enough for our children’s educations.
I am thrilled we saved for the down payment on our new home.
I am angry because I feel money is spent on needless things.  
If you would like to learn more about Assertiveness Training, click here.

5.  Consider writing a letter to your spouse. If you can’t express yourself verbally, try writing your feelings. Men and women are created differently.  If you are sincere about learning how to express your feelings, John Gray has a unique way to deal with your emotions.  

In a Feeling Letter, you want to be able to express your feelings of anger, sadness, fear, regret, and then love. My format allows you to fully express and understand all your feelings, so you can communicate those to the other person in a loving focused way.

6.  Provide a mutually supportive and positive learning environment.  This advice is part of the Toastmasters’ mission statement where people come together to develop their communication and leadership skills. If we are instructed to create this unique setting with strangers, then the same should be true in relationships with our loved ones. Most times, building relationships with strangers is easier than with our spouses. We don’t live and communicate daily with the new people on our block the same way we do with our better halves.  We may have been disappointed, angered, or provoked by their foolishness.  These repeated events lingering in our memories are difficult to erase. Therefore, being supportive under these conditions is difficult.  If we feel like that, is there a chance our partners may feel the same? Maybe we could do ourselves a favor.   One of the steps in Twelve Steps Recovery Program is to make a searching and fearless moral inventory of ourselves.  Is there some housecleaning we need to do within ourselves?  Do we harbor any resentment? Why do we become so easily angered? Are we approachable about money matters?  In order to create a supportive environment, we need to begin with ourselves.

Communication involves expressing your views about money clearly, discussing without any hidden agendas, and understanding your differences could be the “recipe” to strengthening your relationship. Your significant person has thoughts about how life should be enjoyed and how money should be spent.  As long as you can agree on certain specific points, you may release the remaining points and agree to disagree about the way every last penny should be spent.  Striking a balance between keeping your finances and relationship in check (or is that “in cheque”) is important.  Don’t stop hunting for the secret ingredient until you find it. When you do, please share.