How Safe are your Savings?

In Canada, we have a wide variety of alternatives for accumulating money for retirement from personal savings accounts or Guaranteed Investment Certificates to thousands of stocks, mutual funds and other more sophisticated investments. With the recent uncertainties in the business world, most of us are wondering about the long term security of our retirement funds.

Since 1967, Canada Deposit Insurance Corporation (CDIC)-a federal Crown Corporation, has covered any losses experienced by depositors’ with its member financial institutions.  Insurance premiums are paid by these companies to provide this security to their customers. For a complete list of CDIC members, visit their website (

What is covered?  $1 to $100,000 of eligible deposits payable in Canada,  in Canadian dollars

  • Savings and chequing accounts
  • GICs and other term deposits with terms of 5 years or less
  • Money orders, certified cheques, travellers’ cheques/bank drafts issued by CDIC institutions
  • Accounts that hold realty taxes on mortgaged properties
  • Debentures issued by CDIC members

What is not covered?  Stocks, stock options and mutual funds

  • Government bonds, treasury bills and corporate bonds because their values move with interest rates
  • Foreign currency deposits because their values move with
  • exchange rates
  • GICs and other term deposits with a maturity of more than five years

Critical Fact  This limitation is $100,000 per financial institution however protection is held separately for more than one category of account

CDIC insures eligible deposits up to the $100,000 held separately for each of the following ; savings held in one name, in joint deposits or in trust,  in RRSP, in RRIFs, in TFSAs and money held for paying realty taxes on mortgaged properties.

It is important to give some thought to how you do your banking.  Are your savings and chequing accounts at insured financial institutions? If your accounts are large are they at different financial institutions? Speak with your advisors to determine what accounts are covered and the extent of your coverage within that financial institution.

Marie Northey, CA

Partner (Campbellford Office)



The one fundamental that all investment advisors can agree on is for you to save your money.  The grey area starts when deciding on which saving vehicles to use: your tax free savings account (“TFSA”) or retirement savings plan (‘RRSP”).

The key differences between your TFSA and RRSP are as follows:

  • TFSA contributions are not tax deductible;
  • Withdrawals from your TFSA are not taxable, including income/gains earned on the investment;
  • The maximum annual contribution to your TFSA is $5,000 whereas your RRSP limit is 18% of your earned income up $22,970 for 2012;
  • TFSA does not have a maturity date whereby you have to start withdrawing; and
  • TFSA withdrawals can be re-contributed in the following calendar year.

Some of key considerations when deciding between your TFSA and RRSP are as follows:

  • Your current vs. future marginal tax rate – If you are currently in a lower tax bracket you are not getting the full tax benefit of a RRSP in the year meaning it may make sense to contribute some of your money to a TFSA.  As your income level rises and tax savings become more a priority, a RRSP may be the answer.
  • Receiving benefits – Certain benefits are calculated based on your level of income (e.g. Old age security, child tax benefits etc.).  RRSP withdrawals are included in this income calculation whereas TFSA withdrawals are not.
  • Investment plan – If you are saving for the short-tem, a TFSA offers more flexibility in terms of withdrawing funds.

If you are now officially confused, you are in the majority.  Let Welch LLP help advise you on the savings strategy that best suits you.

– Mathew Irwin, CA
Welch LLP 

GST/HST and Fundraising Activities

Charities and other not-for-profit organizations (NPO’s) rely on fundraising to generate significant dollars towards their annual operating budgets.  Often, the application of GST/HST to these events is overlooked or improperly executed.  Risks involve not collecting GST/HST on taxable revenue sources and/or over claiming input tax credits (ITC’s) for GST/HST paid on expenses related to tax-exempt fundraising activities.

Fundraising could include admissions to events like concerts, dinners or golf tournaments as well as the sale of goods, like chocolate bars, or rain barrels.  Determining whether you should be collecting GST/HST on your revenues depends first and foremost on whether you are a registered charity.  GST/HST legislation provides a broader range of exemptions for fund raising events carried on by a charity than for other NPO’s.

A charity hosting a golf tournament, for example, would not have to charge GST/HST on the admission as long as the charity is able to issue a charitable donation receipt in respect of at least a portion of the admission proceeds.  If the admission to the event is exempt of GST/HST, then the charity will not be able to claim ITC’s in respect of GST/HST paid on the underlying expenses, although partial rebates may be available.  The admission price to a concert hosted by an organization that is not a registered charity will, however, likely be taxable with ITC’s available in respect of GST/HST paid on underlying expenses.

The sale by a charity of used goods, or goods being sold on a “break even” basis, as well as the sale of goods that were donated to the charity will be exempt of GST/HST.  The sale of new goods being sold at a profit, that were not donated to the charity will be taxable, as will the sale of most goods sold by other not-for-profit organizations unless, among other factors, the selling price is less than $5, and all the salespersons are volunteers.

Compliance with the GST/HST legislation in this area can be very complex.  Our indirect tax group is glad to help you review the application of the law to your specific situation.

Garth Steele, Partner

Welch LLP

Are you an Employee or an Independent Contractor?

The determination as to whether a person is an employee or an independent contractor can be a difficult exercise and a source of uncertainty. The use of contractor / consultants within the IT professional services industry is commonplace.  Ensuring “onside” tax compliance is important as taxpayers have frequently been engaged in disputes with Canada Revenue Agency (CRA) as to the proper nature of a relationship.

The issue of whether an individual would be an employee or independent contractor is a question of fact. There is a “four-in-one” test which has generally been replicated by CRA in their policies. The four factors used in the test are:

  • Control – how much control does the taxpayer have over their work?
  • Chance of profit / risk of Loss – does the taxpayer have an ability to increase income and is there a risk that the taxpayer could have financial loss?
  • Ownership of tools – does the taxpayer provide the tools to complete the contracts?
  • Integration – is the taxpayer integrated into the payer corporation?

Based on the “four-in-one” test, the following checklist can assist you in determining if a person is an employee or independent contractor.

1)  Do you, as opposed to the payer, control when, where, and how you do your work? (Consider who determines the hours and place of work, whether the work performed was inspected and / or supervised, whether you report to someone, and whether you fill out a timesheet.)

2)  Are you able to work for other companies without the prior consent of the payer? If yes, do you provide similar services to other companies?

3)  Do you have the power to hire substitutes and assistants to perform the services you provide, without the payer’s knowledge or approval? Are you responsible for their remuneration?

4)  Are you responsible for any losses, expenses, or damages resulting from your activities?

5)  Have you worked for the company for a short period of time? Is there a foreseeable end to the project on which you are working, as opposed to there being a relationship that envisages an identified continuation of work?

6)  Do you provide your own supplies and equipment or reimburse the payer for the use of his or her equipment? Do you pay your own expenses?

7)  Do you use a separate office that is not on the payer’s premises?

8)  Are you ineligible for the rights, privileges, and benefits enjoyed by employees of the payer? (Consider such benefits as pension, disability and life insurance, health and dental insurance, employee stock option plans, and pay for vacation and statutory holidays.)

9)  Are your services supplementary to the payer’s business as opposed to being an integral part of the business?

10)  Do you issue invoices to the payer and receive cheques in payment of the invoices?

11)  When you invoice, do you calculate your fee on a basis consistent with that used by other independent contractors in your industry – for example, on the basis of production, flat fee, or time spent, whichever is the norm?

12)  Are you paid a fixed fee, or is there incentive compensation so that you can profit from sound management in the performance of your task?

13)  If a written contract exists, does it support an independent contractor relationship?

14)  Do you deal at arm’s length with the organization to which you provide services?

Setting up a proper structure and agreements that support the independent contractor status is key to avoiding potential audit / disallowed expenses / additional tax liability, penalties and interest. A review by your tax or legal professional can help you to ensure compliance.

– Jim McConnery, CA, TEP
Partner, Welch LLP

Back Office “Health Check”

As it should be, you are completely focused on building your business. But, have you done a “health check” on your back office lately? Without a strong accounting function, your business will not reach its potential.

Whether you have a dedicated accounting/finance department or you handle your accounting personally (sometimes off the side of your desk), it may make sense to investigate outsourcing all or part of your accounting needs. The following are scenarios where outsourcing may make sense:

  • A foreign company with an office in Canada
  • A start-up company
  • A fast-growing company which has outgrown its existing accounting and finance functions
  • A business struggling with payroll preparation
  • A business who would rather not worry about the headaches of managing an accounting department and focus on growing the business
  • An enterprise that is simply unhappy with its current accounting solution
  • An enterprise wanting to streamline and reduce costs

Once you have determined that outsourcing is a potentially attractive option, the next step is to assess which aspects of the accounting/finance function you should carve out. The following is a menu of functions that you could potentially outsource:

  • Bookkeeping (onsite or offsite)
  • Payroll services (onsite or offsite)
  • Cash flow projection and management
  • Design, implementation and preparation of Management Reports
  • Prepare HST returns and all other regulatory filings
  • Support with banking, financing and investor relations
  • Assistance with obtaining financing
  • Sounding board for strategic planning

Welch can first help you assess whether outsourcing all or part of your accounting/finance function might make sense for your business. If, in fact, outsourcing does make sense, Welch has a proven track record of providing the various functions either on a full-service or piecemeal basis with high quality results and sensible pricing.

We cannot say that we are Doctors; however, we can definitely help you create a healthier back office!

– Kathy Steffan, CA
Welch LLP

For more information regarding how to do a “Health Check” on you back office, please contact Kathy Steffan at:

Quick Method of Accounting and the Bottom Line of Your Small Business

A doubling of the annual taxable sales threshold applicable for the Quick Method of accounting for GST/HST was announced as part of the March 29, 2012 budget proposals tabled by Federal Finance Minister Jim Flaherty.  This means that more small businesses will have access to this potentially beneficial method of GST/HST reporting effective for reporting periods beginning after 2012.

Some people may not realize that the Quick Method of accounting for GST/HST can actually contribute to the bottom line of a small business. GST/HST registrants who elect to use the Quick Method collect GST/HST as usual but remit a reduced amount of the tax collected. In exchange, the registrant forgoes claiming input tax credits (ITC) unless the ITCs are in respect of capital assets acquired for use in the course of the registrant’s commercial activities. Therefore, the Quick method can be a source of income for businesses that incur a small amount of taxable expenses since there would be very few ITCs to forgo.

To illustrate, we can use the example of a consultant in Ontario, Paul Jones, who has elected to use the Quick Method of accounting with respect to the 2011 calendar year. We will assume the following facts;

  • Taxable fees for the year – $175,000
  • HST at 13% collected on fees – $22,750
  • Taxable expenses incurred – $5,000
  • HST at 13% incurred on expenses – $650

Based on the Quick Method of Accounting for GST/HST with respect to a service business located in Ontario whose revenue is derived at least 90% from sources within Ontario, the remittance rate is 8.8% of tax-included sales.

Furthermore, each year, GST/HST registrants who are on the Quick Method are entitled to a bonus 1% reduction in the remittance rate which is applicable to the first $30,000 of tax-included revenue for the year.

Therefore, Mr. Jones’ remittance for 2011 will be calculated as follows:

  • GST/HST included revenues – $197,750
  • Amount owing on first $30,000 of GST/HST included revenue ($30,000 x 7.8%) = $2,340
  • Amount owing on balance (($197,750 – $30,000) x 8.8%) = $14,762

Total GST/HST to be remitted = $17,102If Mr. Jones would not have made the election, his remittance for 2011 would be as follows:

  • GST/HST collected minus GST/HST paid.
  • $22,750 – $650 = $22,100

In this scenario, Mr. Jones realized a pretax profit of ($22,100 – $17,102) $4,998 by electing to use the Quick Method of accounting for GST/HST.

The Quick Method is not available for everyone. For example, accountants, lawyers, bookkeepers and financial consultants are among those not permitted to use it.

This is the first time we have seen an increase in the threshold amounts since the GST came into force on January 1, 1991. Therefore, it’s not surprising that the government found it necessary to double the limit to $400,000 of GST/HST included sales.

Other streamlined accounting methods have also seen their limits doubled. For example, the thresholds for the Streamlined Input Tax Credit Method and the Prescribed Method for calculating rebates are now $1,000,000 of tax-included sales and $4,000,000 of taxable purchases.

– Mona Tessier, CA, CA.IT
Senior Manager
Welch LLP

Dalton McGuinty and the 2% Surtax

So, under pressure from the NDP, Dalton McGuinty has added a 2% surtax to taxpayers that have income in excess of $500k…but is it really a 2% increase?

No, it’s not.

There is already in place a 56% surtax on high rate Ontario tax. By increasing the standard top rate from 11.16% to 13.16% (the publicized 2% increase) the net effect is actually to increase the  rate by 3.12% (2% x 1.56). Combined with the top federal rate of 29%, it now means that the highest personal tax rate in Ontario will come very close to 50%! The last time we saw tax rates that high, Bob Rae was the premier – and we know what happened to the economy when he was in charge.

This is not good tax policy when the government should be creating jobs not punishing the successful entrepreneurs.

Don Scott, FCA
Director of Tax Services
Welch LLP

Other business-related incentive tidbits in the federal budget outside of the SR&ED changes

While the federal budget of last week contained widely anticipated changes to the Scientific Research and Experimental Development (SR&ED) tax credit, it also contained many other aspects of funding and incentives to encourage innovation and commercialization:

  • $400 million to help increase private sector investments in early-stage risk capital, and to support the creation of large-scale venture capital funds led by the private sector.
  • $110 million per year to the National Research Council to double support to companies through the Industrial Research Assistance Program.
  • Western Innovation Program
  • $ 14 million over two years to double the Industrial Research and Development Internship (IRDI) program.
  • $12 million per year to make the Business-Led Networks of Centres of Excellence program permanent.
  • $500 million over five years, starting in 2014–15, to the Canada Foundation for Innovation to support advanced research infrastructure.
  • $105 million over two years to support forestry innovation and market development.
  • $95 million over three years, starting in 2013–14, and $40 million per year thereafter to make the Canadian Innovation Commercialization Program permanent and to add a military procurement component.

To read Terry’s full article about these changes, please click here.

– Terry Lavineway
Director of Business Incentives
Welch LLP 

Changes to SR&ED Tax Credit in 2012 Federal Budget – Are they impactful and meaningful?

The Scientific Research and Experimental Development (SR&ED) program was one of the long-anticipated and highly debated areas expected to be addressed in the 2012 Federal budget. Politically, the government needed to show they were listening to their taxpayers over a number of recent years given the amount of consultations, the amount of press and discussion about the SR&ED program and, certainly, Innovation Canada: A Call to Action (also known as the Jenkins Report).

The biggest change introduced relates to the tax credit rate available to SR&ED claimants who are not Canadian Controlled Private Corporations (CCPC’s). The tax credit rate for non-CCPC’s will decrease from 20% to 15%. This is a significant reduction. The government’s view is that the reduction of the corporate income tax rate since 2007 along with the corporate tax restructuring of non-CCPC’s has resulted in growing pools of unused tax credits; these corporations are not generating enough taxable income in Canada to make use of all the SR&ED investment tax credits that they are generating. Therefore, the government reasons that they can reduce the rate from 20% to 15% without much impact. While this may be true in many cases, there are definitely large taxpayers in Canada who will be significantly impacted by this reduction.  Only time will tell how this change will impact the amount of R&D performed in Canada by multi-national corporations or even medium-sized corporations who do not qualify for the CCPC enhanced rate.

The other changes proposed are categorized as follows:

  1. Simplifying the tax credit base
  2. Increasing the cost effectiveness of the program
  3. Enhancing Predictability

I further discuss these points in an article that can be found here.

– Terry Lavineway
Director of Business Incentives
Welch LLP 

2012 Federal Budget Review

Finance Minister Jim Flaherty yesterday presented the federal government’s 2012 Budget. Leaving aside the government’s re-presentation of its pre-election 2011 Budget, it was the first Budget presented by a majority government in Canada since 2004, and the first by a Conservative majority government in almost twenty years.

Presented in a 498-page document entitled “Economic Action Plan 2012: Jobs, Growth and Long-Term Prosperity,” the Budget will likely be considered to be favorable to businesses, as it includes provisions to increase funding for research and development, improve access to risk capital and extend the hiring tax credit for small businesses. It also focuses on reducing deficits and moving towards a balanced budget through spending restraint rather than increased taxation.

The Budget proposes no new personal or corporate tax rate changes, nor are there any proposed changes to previously promised tax rate reductions. It does, however, contain a wide array of tax and tariff changes, most of them designed to increase revenue by eliminating perceived abuses.

Overall, Budget-related headlines are likely to focus on the proposed Old Age Security eligibility changes (raising the age limit from 65 to 67 starting in 2023), downsizing of t­he federal civil service, CBC budget cuts, and a proposal to increase the allowable duty-free dollar-value of goods purchased while outside of Canada from $50 to $200 for a stay of 24-48 hours and from $400 to $800 for a stay of more than 48 hours. Some prominence will also likely be given, however, to a proposal to save $11 million per year by doing away with the penny. Calling the penny a ”currency without currency,” the Finance Minister noted that the present cost of producing a penny is approximately 1.6 cents. Of course, I have to ask – a penny for your thoughts…..?

Don Scott, FCA
Director of Tax Services
Welch LLP