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How Will the New Income Sprinkling Rules Impact Your Business?

How Will the New Income Sprinkling Rules Impact Your Business?

Proposed New Income Sprinkling Rules Go Too Far

Heads up people, the federal government has proposed some chilling private corporation tax changes that will have a profoundly negative impact if they should pass. They are looking to change some common tax planning practices used by private corporations. Many of these changes have raised the alarm because they are not good news for Canadian entrepreneurs!

How New Rules Impact Canada’s Entrepreneurs?

The government is looking to change the rules for income sprinkling. The practice of income sprinkling typically involves issuing shares and paying dividends to family members with lower or no income to reduce the family’s overall tax burden. Tax on split income currently applies, also known as “kiddie tax”. If an individual under the age of 18 receives a dividend or other specific income, it’s automatically subject to top marginal tax rates.

The proposed changes mean that the Kiddie Rule could now apply to everyone who receives split income from a family business, aside from employment income.

This new scope will apply to adults who receive split income deemed “unreasonable.” A reasonableness test will apply, based on contributions of labour and capital, and on previous returns and remuneration. As a rule of thumb, it is judged that an amount is “unreasonable” if it exceeds what an arm’s-length party would agree to pay to a person for the contribution. In order to be deemed legitimate labour contributions, those aged 18 to 24 must be “actively engaged on a regular, continuous and substantial basis in the activities of the business”. This is an even more rigid test than for those who are  older.

And if this wasn’t enough to shock you, the government is also proposing if business owners earn income through their corporation on which they pay tax at the corporate rate, the additional capital they have left to invest, if it’s not invested back into the business or paid out to them personally, would be viewed as them investing for their own benefit and not that of their corporation. So people that means that the present refundable tax system, in respect to those invested retained earnings, would no longer exist as an option.

Under the current refundable tax system, the option exists to pay a lesser corporate tax rate and have more to invest in the business or capital purchases such as a commercial property.  This practice has allowed business owners to use passive corporate investment portfolios as a very-much-needed nest egg that can act as the entrepreneurial benefits and pension fund.  As business owners are not guaranteed income, and often forego salaries during lean times, this practice can provide a critical financial reserve for business owners to keep operations going during lean times.

The absurd hypocrisy of these proposed changes is staggering. The government is forever touting that Canada is the land where entrepreneurs are encouraged and celebrated. They applaud the moxie of our entrepreneurs because they are courageous enough to strike out on their own and take on the risks of launching and growing a business, without the usual safety nets that come with most regular employment – health benefits, paid vacations, training, pensions… the list goes on! And in their bravery, these entrepreneurs drive the economy by creating jobs, purchasing services and supplies from other businesses and paying their taxes to support the social and economic infrastructure of our country. And yet the government, in a move one can only describe as draconian, creates these misguided changes which completely undermine Canada’s small business community by exponentially increasing their financial vulnerability and threatening their future!  And it is highly doubtful that there will be a line up of eager wannabe entrepreneurs willing to take the place of those businesses that don’t make it in this harsh new reality if this proposal is adopted.

What Proposed ‘Income Sprinkling’ Rules Could Mean to You

The changes contained in the government’s proposal will effectively handcuff entrepreneurs and make it incredibly difficult for many of them to keep their businesses viable. If the government implements these ruthless measures they should do only do so once they have publicly acknowledged that this proposal has the power kill off a good portion of our economy as businesses across this country are forced to lay off their employees and ultimately close their doors forever.

If you would like to share your input on this topic, I urge you to make your voice heard by using the email feedback channel provided by the government. They will be accepting comments until October 2, 2017, at fin.consultation.fin@canada.ca.

It also might be an idea to give your Member of Parliament and Member of Provincial Parliament a call to share your concerns as a business owner.

I will be keeping close tabs on this proposal and consultation process so that I can share updates with you. If you’d like to read the proposal, you can view it online at http://www.fin.gc.ca/activty/consult/tppc-pfsp-eng.pdf. In the interim, if you have any questions or concerns please contact my office.

Regards,

Kelly

Kelly Melanson, CPA, CMA the author of Money Is Not The Root of All Evil: Debt Is! and founder/owner of Kelly Melanson Professional Corporation. She and her team specialize in helping people reach their dreams via strategic financial management practices. For almost 25 years, Kelly Melanson, Chartered Professional Accountant (CPA, CMA) has been helping people and businesses in Whitby, Oshawa, Ajax, Durham Region and the Greater Toronto Area (GTA) to reach and surpass their financial goals.

 If you would like to speak to Kelly regarding your retirement or tax planning, tax returns, bookkeeping or any of your other accounting or financial planning needs, please contact the office anytime – we’d love to chat with you.

Kelly Melanson Professional Corporation – Chartered Professional Accountant, CPA

11 Stanley Ct, #13 Whitby, ON L1N 8P9 – Local: (905) 666-5071 Toll-free: 1-800-942-5558 – Email: admin@kmpc.ca  Web: https://kmpc.ca 

Business Process Mapping

Business Process Mapping

Business Process Mapping – Getting the Big Picture

Business Process Mapping (BPM) is a tool used to provide a company with a clear picture of how it does what is does.  BPM is applicable no matter what type of company, its product or service.  Every company is comprised of business processes.  These processes address every area and function that exist within an organization.  A business process is defined as a series of activities that occur to deliver a specific business value or goal.  While this sounds simple enough, the act of mapping out these processes requires a skilled and systematic approach; if the results are to have any real management value.

Understanding how you do what you do is a key component of strategic management. Too often as an organization grows, delineation occurs between departments and these business areas begin functioning as separate business entities. Often a by-product of this occurrence is that growth and development occur in a silo fashion. Departmental team members are very knowledgeable about their own business areas but have only a limited understanding of the processes that occur in others and how these processes relate to and impact on theirs.

BPM maps out all of the business processes and clearly identifies the activities that are required to carry out these processes and the resources required to complete these activities, thereby providing a detailed and accurate ‘as-is’ organization-wide snapshot of all the business processes that occur within a company. It is very often the first time that management is able to obtain a crisp awareness of the processes that occur in all areas of the organization.  This holistic view facilitates the identification of gaps and overlaps that exist within these processes, both within and between departments.

This information can then be used to optimize and streamline existing business processes; which should always be the first step in any growth initiative.  Before introducing the added volume and strains of growth, a company should ensure that it does a complete ‘tune up’ to ensure that the existing infrastructure can support these increased demands.

Another benefit of BPM is the knowledge that is obtained by detailing business processes component by component.  The crisp identification of activities and resources can also be used for strategic financial management.  BPM creates a framework that supports the implementation of Activity-Based Costing (ABC).  By utilizing the strategic management tool of ABC, it is possible to attribute exact costs to each activity and required resource.  These costs can then be rolled up to the related business processes to ascertain the total costs of providing these business processes.  This information can be used in a variety of ways such as budget setting, quoting and efficiencies targeting.

By knowing the components of how you do what you do, it is possible to begin practicing meaningful performance measurement.  Strategic managers are now able to define and create clear, consistent and measurable performance metrics for each resource, activity and business processes.  With clearly defined performance metrics defined and communicated to stakeholders within the organization, these metrics can be tracked to ensure that each component is functioning at desired criteria levels.  This information can be used in a variety of managerial functions from efficiency tracking and reporting to employee performance reviews.  The practice of measuring organizational functions provides meaningful feedback to stakeholders to assist in determining required adjustments and how these can be conducted in a timely manner.

BPM can also assist in the strategic assessment of information systems.  The ability to view an organization component by component allows management to determine which information is required by which resource, activity and process, as well as the directional flows of that information to facilitate and manage business processes.  By mapping out this information, management can conduct meaningful information systems assessments of legacy systems, and strategically identify the functionally requirements of future systems.

While Business Process Mapping may seem like an obvious approach, it is surprising how many organizations do not have a true and detailed understanding of their own ‘big picture’.  It is the strategic manager who fully understands that breaking things down to their most basic components is the best way to see the whole picture.

 Regards,

Kelly

Kelly Melanson, CPA, CMA is the founder and owner of Kelly Melanson Professional Corporation. She and her team specialize in helping companies grow via strategic financial management practices. For almost 25 years, Kelly Melanson, Chartered Professional Accountant (CPA, CMA) has been helping businesses in Whitby, Oshawa, Ajax, Durham Region and the Greater Toronto Area (GTA) to reach and surpass their profit goals.

If you would like to speak to us regarding your retirement or tax planning, tax returns, bookkeeping or any of your other accounting or financial planning needs, please contact us anytime – we’d love to chat with you.

Kelly Melanson Professional Corporation – Chartered Professional Accountant, CPA 11 Stanley Ct, #13 Whitby, ON L1N 8P9 – Local: (905) 666-5071 Toll-free: 1-800-942-5558 – Email: admin@kmpc.ca  Web: https://kmpc.ca

 

The 3 Angles to Growth

The 3 Angles to Growth

Are You Struggling to Grow Your Business?

Does it feel like you have hit a wall in your growth efforts? Do your growth strategies feel like they are falling short of the mark? If so, then your company has likely reached a fork in the road and it’s time to give your operations a refresh so that they are relevant to where you are now, and where you want to go.

Often in the struggle to survive those early entrepreneurial days it was necessary for you to adopt band aid solutions for issues that confronted your organization. While these ‘solutions’ made good business sense at the time, the impact of these decisions can begin to hamper the continued growth of your organization.

To give your company a proper “growth tune-up” you will need to see the big picture of your operations in relation to where you want to go and then examine each component’s ability in assisting you to reach those goals.

First, reflect to when you first started your business, what was your reason or goal?  Has this changed?  If so, how? You need to make sure you have relevant and defined goals because they will guide you in your assessment of your operations. As you review each area of your company you need to assess: Does this assist the company to reach our growth goals?  Why/why not? If it doesn’t, can it be refined so it does contribute? Your assessment needs to determine which elements should continue to exist in your company and which ones you should cut from your operations.

Impediments to Your Growth Success?

These legacy issues most often occur in the areas of Human Resources, Financial Management or Operations.  Many companies find they must make changes in a least two of these areas to before they are able to experience real growth.  While this process may be challenging, it is imperative that you do it or you will be drastically hampering your ability to grow the company.

Financial Management: It is surprising how long companies can exist without having a handle on their true bottom line. This understanding is critical because you need to be able to have an up-to-date financial picture because the added strains of growth can appear quickly and you need to know what resources you have at hand to support the demands of the expanding requirements. To be ready and able to do this you need to ensure that you have implemented a financial management system that can provide you with the data you need and be able to grow with you. By implementing a good financial management system, you will be able to better optimize growth opportunities because you will be able to be proactive due to your quick access to pertinent information for making strategic decisions.  All aspects of a company’s infrastructure benefit from a financial management system.

Human Resources: As your company evolves, so should your employees.  Too often this isn’t the case, and it can cause real problems in a small company that wants to grow.  While not always pleasant it’s essential that you objectively assess your employees to determine who is performing at expected quality or productivity levels. For those that are not performing at expected levels you need to create a plan to help them improve. If they don’t or can’t improve to meet the growth requirements of your organization then you need to have another plan to get rid of them as quickly as possible. While this may be difficult, keeping them on is not good for them and will hamper the efforts of those employees who are performing well.

Operations: Regardless of what line of business you’re in, it is imperative to really understand how you do what you do if you want to grow your business.  While this may sound easy, you would be surprised how quickly this knowledge can become diluted or segmented within a company as it grows.  Too often employees become very knowledgeable about their own areas but have only a limited understanding of the processes that occur in other areas and how these processes relate to and impact on their areas/functions because the daily functions have move further away from their daily duties and functions. To sustain growth in your company you need to ensure that you and your team remain current on knowing the components of how the company does what it does. Without this clear understanding of process and functions it will be impossible to practice meaningful performance management – tracking and measuring how well you do what you do in relation to the business goals.  The practice of operational performance measurement provides meaningful feedback that assists management in determining any necessary adjustments required to meet target operational performance goals. Without this data you will not be able to determine if you are meeting your growth goals, and if not, why not?

You don’t have to wait until your company reaches a certain point to begin implementing these strategic growth/management strategies. Manage your company like the big guys, even if your company is running its operations from your basement. Get a clear picture of where you want your company to go and start charting a course to take you there.  Strategic management is the true key to your success.

Regards,

Kelly

Kelly Melanson, CPA, CMA is the founder and owner of Kelly Melanson Professional Corporation. She and her team specialize in helping companies grow via strategic financial management practices. For almost 25 years, Kelly Melanson, Chartered Professional Accountant (CPA, CMA) has been helping businesses in Whitby, Oshawa, Ajax, Durham Region and the Greater Toronto Area (GTA) to reach and surpass their profit goals.

If you would like to speak to us regarding your retirement or tax planning, tax returns, bookkeeping or any of your other accounting or financial planning needs, please contact us anytime – we’d love to chat with you.

Kelly Melanson Professional Corporation – Chartered Professional Accountant, CPA 11 Stanley Ct, #13 Whitby, ON L1N 8P9 – Local: (905) 666-5071 Toll-free: 1-800-942-5558 – Email: admin@kmpc.ca  Web: https://kmpc.ca

 

Entrepreneurship: 7 Steps to Becoming an Effective Delegator

Entrepreneurship: 7 Steps to Becoming an Effective Delegator

7 Steps to Becoming a Good Delegator

Chances are when you started your business that you did everything yourself out of sheer necessity. Now that your business is growing in revenues and employees it’s time to learn how to be a good delegator. This may sound easy enough but it is surprising how many business owners have great difficulty with this transition.

While these owners may be slow to admit it, they constantly battle a little voice that says, “No one could possibly do this task as well as you.” That little voice makes an even stronger case when it whispers things like: “No one else in the organization has more experience, or is more familiar with the needs of the customers!” This relentless voice is once again victorious and another opportunity to benefit from strategic delegating is scuttled.

Managers Who Delegate Increase Profits!

Studies show that companies with owners who delegate to their employees experience a marked increase of revenue generation within the company! This is only one in a long list of benefits that come from delegating: higher profits, new markets developed, improved employee engagement and performance, reduced stress, more strategic management planning and a more positive work environment are additional byproducts of delegating. Sounds pretty great right?

So how do you begin to delegate? A most crucial part of this process is learning how to recognize when you are merely doling out tasks and not really handing over responsibility.

Here is an action plan that will jump start your transition to being a true delegator:

  • Admit that you can’t do everything yourself. Understand that delegating lets you free up your time and mind to focus on issues that will result in high returns from your company.
  • Take time to really get to know your team to determine what each person naturally does best and match them with those type of tasks. Matching skills with opportunities will engage and motivate your team.
  • Invest in the success of your team. Give them what they need to get the job done: tools, training and resources. This demonstrates your support of their talent and your confidence of the outcomes they will deliver to the organization.
  • Define and document all timelines, budgets, reporting processes . That way you and your team are in the same head space and things can proceed smoothly without unnecessary interruptions.
  • Clearly define and communicate all target outcomes and then step aside and let them do their thing!
  • Establish a ‘living loop’ of communication. Encourage your team to bring forth new ideas and approaches. This will create their sense of outcome ownership. Always close the loop with feedback. Make sure that you and your team have the opportunity to give constructive feedback, as this allows for timely and efficient realignments throughout the process.
  • Remember the old 80-20 client profit rule? Well this ratio can also be applied to those who do not delegate. They will spend 80 percent of their time focusing on only 20 percent of their responsibilities. What is happening to that other 80 percent of work? More than likely, nothing! So do yourself, your team and your bottom line a favour  – delegate!

One last point…don’t forget to give yourself the right tools to manage your company. We can help you learn how to get the most out of your financial management and reporting tools.

Thanks for stopping by,
Kelly

Kelly Melanson Professional Corporation – Certified Chartered Accountant,CPA 11 Stanley Ct, #13 Whitby, ON L1N 8P9 – (905) 666-5071 Toll-free: 1-800-942-5558 – Email: admin@kmpc.ca – Copyright 2017

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