December 06

In May, the federal government made it more attractive to gift securities directly to charities when the budget announced that charitable donations of publicly listed securities to registered charities would be exempt from capital gains tax. This is a major bonus for charitable givers who wish to donate securities with an accrued capital gain; previously, 25% of any capital gains triggered were taxed.

Eligible securities include:
- shares, rights and debt obligations (typically bonds or debentures) that are listed on a prescribed stock exchange (including most major foreign stock exchanges),
- shares of a Canadian public mutual fund corporation and units of a mutual fund trust,
- interests in a segregated fund trust, and
- a bond, debenture, note or mortgage of the Canadian federal or provincial governments.

The following example demonstrates the amount of tax that you would save (if you are in the top marginal tax bracket) if you gift shares of a publicly traded company that you’ve held for several years directly to a charity rather than selling the shares and donating the cash.

If you sell the shares and donate the cash to a charitable organization, you will have to pay $464 in tax. On the other hand, if you donate the shares directly to a charity, you will pay no tax. Kind of puts a whole new twist on gift ideas, doesn’t it?

Kais Aziz, CA, is a senior manager of BDO Dunwoody LLP (www.bdo.ca). If you have questions about this article or you would like to receive BDO’s Tax Factor newsletter, contact Kais at (905) 270-7700 or kaziz@bdo.ca.

Tax planning should be considered a year-round opportunity; however there are last minute strategies that can be implemented each year to save tax. As the year is quickly coming to a close, consider the following tactics which may be appropriate to your circumstances and help to reduce taxes for 2006.

Review the makeup of your portfolio: Consider restructuring your portfolio so that it is more tax efficient in 2006. Earned interest income which is highly taxed should have greater weight in your RRSP or RRIF, while tax advantaged income such as capital gains, and dividend producing income should be more prominent outside your RRSP and RRIF.

Harvest accrued capital losses before year end: If you have realized capital gains this year, or in one the three prior years (2003, 2004, or 2005), consider selling investments that have dropped in value in order to apply the capital loss against those capital gains. You can also apply these losses forward indefinitely.

Take advantage of the new charitable donation rules: If you are thinking about making a charitable donation, you should know that giving securities as a charitable gift is more tax advantageous than ever. There are no taxes on the capital gain on a security that is donated directly to charity.

Are you turning 69 in 2006? If so, you have to wind up your RRSP by year end. If you also have earned income in 2006, consider making a 2007 contribution this month (December 2006) before winding up your RRSP forever. You may face a small over-contribution penalty for the month of December 2006, but you’ll be entitled to a tax deduction in 2007 for the whole contribution you made in December 2006.

Buy an annuity for the pension credit: If you’re 65 or older, you’re entitled to a credit to offset your first $2,000 (pending royal ascent) of pension income. Consider using some of your RRSP dollars to purchase an annuity before year end that will pay out $2,000 annually. This will offset the tax on this income if you’re in the lowest tax bracket ($36,376 federally for 2006). If your income is above this amount, there will be at least some tax.

Contribute to an RESP (Registered Educational Savings Plan): There are tax benefits and savings for those wishing to contribute to an RESP for the benefit of a child, grandchild, or anyone else related by blood, adoption, or marriage. You’re allowed to contribute up to $4,000 each year for a future student. If you miss that $4,000 contribution opportunity in any year, you are not able to carry that contribution room forward to a future year. Don’t miss the opportunity to put those dollars to work in a tax sheltered environment.

Self-Employed – pay salaries to family: You can split income with family members by paying them salary and wages in 2006 for services they’ve provided to your business. Review what services family members provided in 2005 and determine whether you might be able to justify paying deductible (to your business) compensation to family members before the end of the year.

If you have any questions about these strategies, contact your financial advisor who will be able to assist you in understanding them.

Tom Allain CFP, is an Independent Financial Planner specializing in comprehensive retirement, investment and insurance planning to business owners/managers, and professionals. Allain & Associates, (905) 796-1219, email tom@trallain.ca or visit us at www.trallain.ca

Executive power and performance on demand

Do you dream of becoming such a success that you can ultimately run your organization from the golf course? That's a very civilized vision, and with the help of some of today's technologies you could "fake it" for awhile. Too bad it’s not very realistic.

No matter how profitable your organization might be, it constantly needs your skills and experience and your eye on the ball. I'm sorry, not the little white one.

In fact, organizations these days carry the minimum management "overhead" that they can get away with. There’s no “slack”. Many management people feel so "stretched", because they are. The priority, as it should be, is on "direct" resources - those that are essential to produce and deliver the products or services that are the organization's raison d'etre. That’s how organizations survive and prosper.

But what if:
• Your controller resigns shortly before the year-end financials are due?
• Your head of HR is feeling too much stress, and asks for several months’ leave of absence?
• You’re considering a merger, or an acquisition, and there’s a complex due diligence to do?
• You need to move to expanded premises, but there’s no one with the time or the know-how to put together your requirements and search for a matching facility? Let alone manage the transition without missing a beat?
• You need to implement a major new computer system, or face cost and service level erosion? And there’s no one with the necessary expertise to do it, let alone the hours in the day to spare?
• A key executive goes on maternity leave, or is incapacitated by sudden illness, or even dies suddenly?

What should you do? Just hope nothing like that happens? All of these are realistic possibilities and several could happen at once.

A good mitigation strategy for these kinds of possibilities is to have a "virtual bench" - a roster of executive talent that has a track record of delivering the executive power and performance that you need, when you need it. You could try to line up an inventory of all the management talent that you require for all eventualities - who are all willing to work on an interim basis, and then maintain it yourself.

Al Venslovaitis is a Principal Of The Osborne Group Toronto Inc. He can be reached at 905 279 0625 or by email at avenslovaitis@osborne-group.com

It’s 2011: Did you plan for the future?

As you look at the calendar you are shocked to see it now reads “January 2011”. You can hardly believe it has come upon you so soon. It seems like only yesterday the calendar read November 2006.

A sudden realization hits you. First, you are now five years older, five years closer to your retirement. Secondly, you realize all your staff is also five years older and those “senior” folks are spending their lunch hour quietly talking about what they will do when they retire.

You recall someone telling you that statistics indicated approximately 82 per cent of the working force in 2006 would be between the ages of 55 and 65 in 2011. You now realize that the statistic relates directly to the folks in your operation. Your company is in the position it is today, largely because of the efforts of that very 82 per cent of the population.

The good news is that just as your heart rate starts to race at the thought of who will take over in the key leadership roles, you wake up. Quickly glancing at the calendar you see that it is still November 2006 after all. The fright over with, you can relax, or can you?

True this may have been just a bad dream. However, will the reality be something you look forward to because you are well positioned with folks to take over key roles? Or will this be a nightmare that keeps you up at night.

The good news; there is still time for you to do something to influence which type of dream you will have and what the future of your organization will be like. But first you need to answer a few questions.

• Have I identified the key roles in my leadership team?
• Am I aware of the aspiration of the folks on my leadership team?
• Are my present leaders grooming individuals to follow them?
• Do I have someone who can take over my role so I can retire?

Four very simple questions when read quickly. However, can you answer YES to all four? If not, then you might want to consider what it will take to ensure that you can answer a positive YES to each of these questions. As in the dream sequence, 2001 will be upon us before we know it.

Gordon is President and Founder of The Newman Learning Group Inc. an organization dedicated to providing value add solutions to improve the bottom line performance of organizations. Gordon may be reached at gordon@newmanlearning.com or 905-790-2944.

Do you have a “George” or Georgette” working for you? He/she is micro-managed by a leader who does not know how to delegate. They have lost their drive and initiative. They keep a low profile, doing only the necessary parts of their job that will keep them “out of trouble”, no more no less.

They do not take on extra responsibilities nor offer to take on projects. Why should they, they are sure they will not be recognized for what they have done anyway. They believe there is no chance of promotion. Every time there is an opening, the company goes through the motions of posting the position internally, and then hires someone from outside, because “no one internally was qualified”.

Succession planning has taken a back seat in organizations for the last decade or more, as we continue to recruit from outside the organization. Recruitment should be an opportunity to both bring new blood to the organization and identify talent within your organization that will be needed for future growth.

The most common complaint that I have heard over the ten years spent in change management was “They didn’t think of the human side of change.” An increasing pressure for the foreseeable future; working faster with less people; new technology; customer demands and changing needs; the constant downsizing; mergers/acquisitions.

When we ignore the human dimension, the power of the change process evaporates and the change is mismanaged. Some companies present change in a way that understates the real significance and thereby not engaging the support of those who have the passion to make it succeed.

Managers who assume the role of coach immediately begin to invest their time and energy in their people. You might think the ability to be a good coach is something that you are born with. Actually, everyone can develop the skills, the personal techniques – the attitude to successfully coach other people. It takes the “P” word and the “T” word- Patience and Time, two commodities that managers in general find increasingly difficult to spare.

But as difficult as patience and time are to come by, failure to invest them in your employees will create pitfalls to success that can be extremely difficult to overcome. Help your managers learn how to coach and George/Georgette will change their behaviour. The result will be an improved level of service to your clients and employees who ‘go the extra mile’ for you.

Frances Laming-Vancer is founder and President of HR Management Consultants Inc. an organization dedicated to providing organizations with full service Human Resources support from recruitment to development of staff. Frances may be reached at frances@hrconcepts.ca or via phone at 905-793-5017