tag:blogger.com,1999:blog-90979486129432027762024-02-19T07:22:38.626-05:00Rob Ellerby's notesRob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.comBlogger105125tag:blogger.com,1999:blog-9097948612943202776.post-58763888888419750352022-01-23T14:53:00.000-05:002022-01-23T14:53:13.628-05:00Why don't Canadian businesses invest?<p>The tendency of Canadian businesses to under-invest has been noted for decades, and <a href="https://www.fraserinstitute.org/sites/default/files/business-investment-in-canada-falls-far-behind-other-industrialized-countries.pdf" rel="nofollow" target="_blank">the Fraser Institute reported in 2017</a> that investment further declined relative to that in other countries. In 2019, <a href="https://www.cdhowe.org/sites/default/files/2021-12/Commentary%20550_0.pdf" rel="nofollow" target="_blank">the C.D. Howe Institute noted</a> that this low level of investment has been undermining the productivity of Canadian workers. <a href="https://www.cdhowe.org/sites/default/files/attachments/research_papers/mixed/Tools%20e-brief_312.pdf" rel="nofollow" target="_blank">This was confirmed in a follow-up report</a> in 2021.</p><p>Every so often, I read commentators saying that we need to reduce corporate tax rates in order to help increase business investment. That is faulty logic, and I will show why.</p><h2 style="text-align: left;">The economics, and a graphical presentation</h2><p>As I noted several years back, in Canada the net present after-tax value of a capital investment is determined after deducting the positive cash flow generated by the tax shield from the application of the capital cost allowance rules. Under the standard full-year rule, the calculation is thus:</p><p>$ NPV = I \left ( 1- \frac{td}{i+d} \right )$</p><div>where <i>I</i> = the gross cost of the investment, <i>t</i> = marginal tax rate, <i>i</i> = cost of capital, and <i>d</i> = applicable rate of capital cost allowance (CCA).</div><div><br /></div><div>The net present value calculations also include allowances for annual operating expenditures directly connected to the project, as well as any marginal impact on working capital, but the capital investment would ordinarily be the greatest part of any proposal.</div><div><br />
Most investments would follow the half-year rule of CCA calculation, in which case the after-tax value would be calculated thus:<div>
<br />
$ I \left [ 1-\left (\frac{td}{i+d}\right )\left (\frac{1+\frac{1}{2}i}{1+i}\right ) \right ] $<br />
</div><div><br /></div><div>Simple economics will confirm the truth of the following:</div><div><ul style="text-align: left;"><li>the investment's tax shield should qualify for the optimal amount available under the corporate tax provisions</li><li>any investment with a positive net present value should be accepted</li><li>a higher cost of capital reduces the value of the tax shield</li><li>a higher CCA rate increases the value of the tax shield</li><li>a higher tax rate magnifies the value of the tax shield</li></ul></div><div><div>We can display this graphically, in charts where the maximum limits used are all 50% for the cost of capital, the capital cost allowance and corporate tax rates. In the real world, we will encounter very few scenarios where any of the maximum rates would exceed these figures.</div><div><br /></div><div>Why a 50% ceiling for the cost of capital? I went to a workshop several years back that dealt with preparing business plans for presentation to investors. Over supper later that day, the moderator told us that, in determining discounted cash flow projections, venture capital investors normally use a 40% rate for their cost of capital, while angel investors start their calculations at 50%. That weeds out all but the most attractive propositions, after which these groups will choose those which most closely align with their goals. That may be appropriate when searching for outside capital, but internal projects are not in that category. In most cases, business risks would probably justify a rate of 5%-10%.</div><div><br /></div><div>For example, let's see what the maximum tax shield will encompass where the cost of capital is set at a moderate risk of 10%:</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhVd_U7BnnIKjWPJK3WGNxgRmme7PW1bK2rf2Gm5dQ2spFdOm770PcnhPznLK9yd5y0KUcdXlQQhGPGnVTYip8v0AUr4s1ox_Q382Nyc6QB83hVbpya5vgIiDqK_c_y2Ickfs-puBYQ6mTxu_V0MKiwKYbe2mub34paifMaHuUP2ge4RrNqWEsL9VZ_zA=s640" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="476" data-original-width="640" height="238" src="https://blogger.googleusercontent.com/img/a/AVvXsEhVd_U7BnnIKjWPJK3WGNxgRmme7PW1bK2rf2Gm5dQ2spFdOm770PcnhPznLK9yd5y0KUcdXlQQhGPGnVTYip8v0AUr4s1ox_Q382Nyc6QB83hVbpya5vgIiDqK_c_y2Ickfs-puBYQ6mTxu_V0MKiwKYbe2mub34paifMaHuUP2ge4RrNqWEsL9VZ_zA=s320" width="320" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEi-QD2eSaEJxO3zVaNNinKrpe6nn2jN5jjHlkl-u3Jipj4uPqHqUUmGHG1qMJ6ZzBAFenM6p1x2V6JxlnP3gPFjyF5dtTPjvqC3d2mm1rB9gJnCaxRCUqoGR6yErk-3k_ROx-ASi2k3yFn7kx5Zbufy3-GW-5Kww7FQXyCNrnAvfrTexa1SZpRputz7AQ=s640" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="476" data-original-width="640" height="238" src="https://blogger.googleusercontent.com/img/a/AVvXsEi-QD2eSaEJxO3zVaNNinKrpe6nn2jN5jjHlkl-u3Jipj4uPqHqUUmGHG1qMJ6ZzBAFenM6p1x2V6JxlnP3gPFjyF5dtTPjvqC3d2mm1rB9gJnCaxRCUqoGR6yErk-3k_ROx-ASi2k3yFn7kx5Zbufy3-GW-5Kww7FQXyCNrnAvfrTexa1SZpRputz7AQ=s320" width="320" /></a></div><br /><div>You can see from these charts that the corporate tax rate is plotted on a line, while the CCA rates are drawn along a curve. The second chart also demonstrates another interesting economic effect, where, at the lower values of the tax shield, an inflection point is reached <i>beyond which an increase in the CCA rate will only have a minimal effect on the value of the tax shield</i>. That is a point that political commentators generally fail to see.</div><div><br /></div><div>What of the other combinations of factors? Let us see what happens when the CCA rate is given, such as the 20% specified for Class 8 assets:</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjbtb4IMyydH9fxaatB7fOchDQIH62XD8iagbugD2mIUuitcO5pa5ipUE7peGnyF58dPU4RRAtmbB-Iz_jg5RabPw6d6E_MjZ6QeZCPo9Kvk4ESaTZy_feC_t9WEAUZVQ6v8htSAeV4KcMvevfWrCeMdD_bvrMPfJLDpbHDPO6UvCxvztxk4GzOGGBDtw=s640" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="476" data-original-width="640" height="238" src="https://blogger.googleusercontent.com/img/a/AVvXsEjbtb4IMyydH9fxaatB7fOchDQIH62XD8iagbugD2mIUuitcO5pa5ipUE7peGnyF58dPU4RRAtmbB-Iz_jg5RabPw6d6E_MjZ6QeZCPo9Kvk4ESaTZy_feC_t9WEAUZVQ6v8htSAeV4KcMvevfWrCeMdD_bvrMPfJLDpbHDPO6UvCxvztxk4GzOGGBDtw=s320" width="320" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiBMmb-jVq8YGLpEeYSGdRGtQTWGSfRxoI-yS0CtxSv0DdNSt-fvtJ85AWejyVpl3pun9Bvo85SSiF-PMWLapjbF1Sq9wZgfADECHtbccRzLli-Z2nBuaN5vjbolYi8t-3GlZf3DOTmfqt7Odxfp1KAtFSGkacUhMDQ162KBIU78kLCy2o8Kx5FB1bawA=s640" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="476" data-original-width="640" height="238" src="https://blogger.googleusercontent.com/img/a/AVvXsEiBMmb-jVq8YGLpEeYSGdRGtQTWGSfRxoI-yS0CtxSv0DdNSt-fvtJ85AWejyVpl3pun9Bvo85SSiF-PMWLapjbF1Sq9wZgfADECHtbccRzLli-Z2nBuaN5vjbolYi8t-3GlZf3DOTmfqt7Odxfp1KAtFSGkacUhMDQ162KBIU78kLCy2o8Kx5FB1bawA=s320" width="320" /></a></div><br /><div>The cost of capital is also drawn along a curve, in the manner anticipated. Now let's see the impact where the corporate tax rate is specified (in this case, the standard federal rate of 38%):</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhQjaO3ZB2mQjnM2Q0S3I_4_pQdv7b0dEpfSwGXw6jggoyrdTbPseaISHFKJ9V98D6DG5atUmllYNgloIH3IkMa-g_7lAiMtdEKZBb1dt4G6jmREAadZQFDH_UhtRg_g-rPQhq3MDeuYWF3AzczrvPuxsT-xDB4yxyBc4cnk0EtVL1mmjO6RWz5Ip6GKw=s640" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="476" data-original-width="640" height="238" src="https://blogger.googleusercontent.com/img/a/AVvXsEhQjaO3ZB2mQjnM2Q0S3I_4_pQdv7b0dEpfSwGXw6jggoyrdTbPseaISHFKJ9V98D6DG5atUmllYNgloIH3IkMa-g_7lAiMtdEKZBb1dt4G6jmREAadZQFDH_UhtRg_g-rPQhq3MDeuYWF3AzczrvPuxsT-xDB4yxyBc4cnk0EtVL1mmjO6RWz5Ip6GKw=s320" width="320" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjnB6A8Lm-XeIxj5mO7zFfI4k14IV689kE7hlEQMoDwzqgD3ZKhDRX3vXEeOAvnRdyYPbuegwPcy0ngQWGvENnhJ1asFb-a_ThCeSOs5zvPR3hHmZc_0Bezs2dyX65oq52EhVW-4O1iD_Z-pyMHKYEFrRQjx3bRFRShnp4Wknhlvwz0UCjp10BrCuTeng=s640" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="476" data-original-width="640" height="238" src="https://blogger.googleusercontent.com/img/a/AVvXsEjnB6A8Lm-XeIxj5mO7zFfI4k14IV689kE7hlEQMoDwzqgD3ZKhDRX3vXEeOAvnRdyYPbuegwPcy0ngQWGvENnhJ1asFb-a_ThCeSOs5zvPR3hHmZc_0Bezs2dyX65oq52EhVW-4O1iD_Z-pyMHKYEFrRQjx3bRFRShnp4Wknhlvwz0UCjp10BrCuTeng=s320" width="320" /></a></div><br /><div>You will notice that a 40% value line does not appear on this chart, as 38% is the maximum amount that the tax shield can reach. This also demonstrates another fascinating observation: <i>capital cost allowance is the first building block in the tax shield, and a lower cost of capital helps to increase that value</i>.</div><div><br /></div><div>Some commentators have argued that tax credits could have a more pronounced effect than capital cost allowance on the investment decision. Let's revisit the first pair of charts, by inserting a hypothetical 10% tax credit. Of course, we have to adjust the tax shield calculation to ensure that the credit is deducted from the amount that would be subject to CCA:</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEg4KBDEtau_PHz3dJfYpb5iM4KP17-0VtnfG1VLfhwrkxxuSthEYWhNFa3x8EBqHTQKplN3niprB6ZvuSX7tkAM2GI7CoJHhHtZaUR40MOuouXiFLEl5lH0uHKQqZho89s9q3fg1Qmc_tDBcI5_f6oTH00rJxJbTlT7H3z6yPkpC4_6TjJBPNuUYb6ZbA=s640" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="476" data-original-width="640" height="238" src="https://blogger.googleusercontent.com/img/a/AVvXsEg4KBDEtau_PHz3dJfYpb5iM4KP17-0VtnfG1VLfhwrkxxuSthEYWhNFa3x8EBqHTQKplN3niprB6ZvuSX7tkAM2GI7CoJHhHtZaUR40MOuouXiFLEl5lH0uHKQqZho89s9q3fg1Qmc_tDBcI5_f6oTH00rJxJbTlT7H3z6yPkpC4_6TjJBPNuUYb6ZbA=s320" width="320" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjsNV1ipWNNtZgPZr5idAVVKGXqGE9WyKYWvpLZTr65UzVvE05-dS65bg_mxM3h4-cTl6jIQiG-5DMeJVcKVuzB390UaUWjkNcbV5hZ8DA8jsBisrhgKUhPfSYsI8vKaMyIrDbw_COPHp4rB6swGcXAFXCSCClmdUNYD5OFWv48ifjzjkY4hauxhvsxMg=s640" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="476" data-original-width="640" height="238" src="https://blogger.googleusercontent.com/img/a/AVvXsEjsNV1ipWNNtZgPZr5idAVVKGXqGE9WyKYWvpLZTr65UzVvE05-dS65bg_mxM3h4-cTl6jIQiG-5DMeJVcKVuzB390UaUWjkNcbV5hZ8DA8jsBisrhgKUhPfSYsI8vKaMyIrDbw_COPHp4rB6swGcXAFXCSCClmdUNYD5OFWv48ifjzjkY4hauxhvsxMg=s320" width="320" /></a></div><br /><div>Here, the minimum value of the tax shield is 9.09% (ie, 10%/1.1) and the initial rise in the curve is sharper, while the top is somewhat flatter, but we can still discern the diminishing value of returns as the CCA rate increases. This is something the Department of Finance should seriously study, in order to determine what the maximum value the tax shield should be generated by the capital cost allowance system, in order to nudge businesses into making more desirable choices.</div><h2 style="text-align: left;">Why does this matter?</h2><div>For several decades now, Ottawa has sought to lower tax rates, and raise CCA rates, even though Canadian incentives have been relatively attractive compared to those of other countries. However, Canadian business investment is still relatively low. There are three factors that explain this:</div><div><ul style="text-align: left;"><li>Cost of capital is risk-weighted and determined after tax - a lower tax rate will mean that the cost of capital is more expensive, which, along with higher (and possibly unnecessary) risk weightings, will reduce the expected value of the tax shield.</li><li>A higher tax rate provides a greater incentive to shelter taxable income to be withdrawn from the business - therefore, lower rates mean that income is sheltered anyway, and also that investments are effectively more expensive to undertake. That, by the way, is also an argument against the desirability of the small business deduction.</li><li>The CCA rate is in any case a signal as to which investments the government prefers to have businesses invest in. That intention does not necessarily coincide with what businesses see as desirable.</li></ul></div></div><div>
That last point may be more pertinent than the others. <a href="https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=2710028601&pickMembers%5B0%5D=1.1&pickMembers%5B1%5D=3.2&pickMembers%5B2%5D=5.1" rel="nofollow" target="_blank">A 2015 study by Statistics Canada</a> revealed several reasons why Canadian businesses chose not to invest in advanced technologies. For manufacturing enterprises in particular, the reasons were:</div><div><br />
<table border="1">
<thead>
<tr>
<th>Reason for not investing</th>
<th>Percent of respondents</th>
</tr>
</thead>
<tbody>
<tr>
<td>Not applicable to the enterprise's activities</td>
<td>50.1</td>
</tr>
<tr>
<td>Investment not necessary for continuing operations</td>
<td>32.9</td>
</tr>
<tr>
<td>High cost of advanced technologies</td>
<td>16.9</td>
</tr>
<tr>
<td>Not convinced of economic benefit</td>
<td>14.3</td>
</tr>
<tr>
<td>Lack of technical skills required to support this type of investment</td>
<td>7.9</td>
</tr>
<tr>
<td>Difficulty in obtaining financing</td>
<td>6.0</td>
</tr>
<tr>
<td>Lack of information regarding advanced technology</td>
<td>5.3</td>
</tr>
<tr>
<td>Capital expenditures made more than three years ago</td>
<td>2.4</td>
</tr>
<tr>
<td>Use of technology-sharing agreements or contracting for advanced technology needs</td>
<td>1.0</td>
</tr>
<tr>
<td>Decisions made elsewhere in the organization and not in the enterprise itself</td>
<td>0.8</td>
</tr>
<tr>
<td>Other reason for not investing</td>
<td>1.7</td>
</tr>
</tbody>
</table><br /></div><div>It's obvious that some respondents gave multiple reasons, but the main gist is apparent. When almost two-thirds of respondents say that advanced technology is either not applicable or of no convincing benefit, you know that there is a fundamental issue out there. Even the Bank of Canada has noted that <a href="https://www.bankofcanada.ca/2020/09/staff-analytical-note-2020-19/" rel="nofollow" target="_blank">this under-investment exceeds even that predicted in its models</a>.</div></div><div><br /></div><div>Therefore, given the inconsequential effects of current tax policy on capital investments, what other levers can the government pull in order to push businesses to make desirable investments? There are several, and they all require work (ie, extensive audit and review) in order to be effective:</div><div><ul style="text-align: left;"><li>regulatory requirements and sanctions</li><li>industrial policy for providing economic incentives for preferred goals</li><li>higher corporate tax rates</li></ul><div>This past week, <i>The Economist</i> devoted <a href="https://www.economist.com/special-report/2022-01-15" rel="nofollow" target="_blank">a special section on this very matter</a>, and I will not repeat what it says, It is well worth reading, in order to note what to watch out for and avoid in order to be worth pursuing.</div></div>Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-42715834708947787412022-01-12T11:48:00.006-05:002022-01-12T17:21:01.186-05:00CPA Canada's management accounting guidelines<p> My previous post outlined the various generations of Management Accounting Guidelines that had been issued by CMA Canada over the 30 years prior to the CPA Canada merger. There have been several issued since that time, and <a href="https://www.cpacanada.ca/en/business-and-accounting-resources/management-accounting/organizational-performance-measurement/publications/management-accounting-guidelines-mags" rel="nofollow" target="_blank">are described as having the following intent</a>:</p><p><i></i></p><blockquote><p><i>Change. It's global. It's constant. It's disruptive. It's the one constant in life and business that impacts everything. The drivers of change—societal, technological, economic, environmental, and geopolitical—are creating unprecedented challenges for organizations and CPAs alike.</i></p><p><i>The role of CPAs is also evolving to address the constant change. CPA Canada is developing resources in the form of management accounting guidelines (MAGs)—which provides guidance on how to implement a particular strategic or operational activity in your organization. The MAGs are meant to provide strategic insight into the competency areas of strategy, risk, financial, performance, and professional and leadership skills (with an overarching theme of emerging business issues and needs), along with the associated impacts, risks and opportunities for the business and accounting professional of today and tomorrow.</i></p><p><i>The MAGs are suitable for business and accounting professionals as they embark on their professional development journey. Such guidance is relevant in ensuring both professionals and organizations are resilient, adaptive, and innovative, creating sustainable enterprises.</i></p></blockquote><p><i></i></p><p>That appears to be a more prescriptive approach than what had been used at CMA Canada.</p><p>Here is a listing of the various ones that have been released under this page:</p><h4 style="text-align: left;">Strategy management</h4><p></p><ul style="text-align: left;"><li>Strategic partnerships - <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01683-rg-strategic-partnerships-overview-may-2018.pdf?la=en&hash=E4DDB3146A0F16767F713D251DDBCB55CAF20259" rel="nofollow" target="_blank">overview</a>, <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01684-rg-strategic-partnerships-guideline-may-2018.pdf?la=en&hash=7680167D06714C572EF02F28F677CE45A0426702" rel="nofollow" target="_blank">guideline</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01685-rg-strategic-partnerships-case-studies-may-2018.pdf?la=en&hash=12C781B26BF29167A685F02F36E6335A489FA188" rel="nofollow" target="_blank">case studies</a></li><li>Strategy mapping - <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01679-rg-strategy-mapping-overview-may-2018.pdf?la=en&hash=462F4B93DE485A1117230B3711249CA2854ACAD3" rel="nofollow" target="_blank">overview</a>, <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01680-rg-strategy-mapping-guideline-may-2018.pdf?la=en&hash=4088F2E36B71BBC1E1938D65FFE6E66FE78462CF" rel="nofollow" target="_blank">guideline</a> and case study <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01700-rg-strategy-mapping-case-study-1-sgr-may-2018.pdf?la=en&hash=BEC7CB5FA5C13FCA0C1A1042E1042456DA4D2763" rel="nofollow" target="_blank">1</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01681-rg-strategy-mapping-case-study-2-wikigear-may-2018.pdf?la=en&hash=997506D9D603721B51301DCC1884D83F4B392C1E" rel="nofollow" target="_blank">2</a></li></ul><p></p><h4 style="text-align: left;">Financial management and financial reporting</h4><p></p><ul style="text-align: left;"><li>Future value drivers - <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01692-rg-future-value-drivers-overview-may-2018.pdf?la=en&hash=B1F275D3319F865AFC981A3A1D5E2B3C24C5B72F" rel="nofollow" target="_blank">overview</a>, <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01693-rg-future-value-drivers-guideline-may-2018.pdf?la=en&hash=BDCCB3C86C04AB6D86067DADFB0A82739486F7AA" rel="nofollow" target="_blank">guideline</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01694-rg-future-value-drivers-case-studies-may-2018.pdf?la=en&hash=9C3E9CA29AD6831C82A57CD155ED7355C63C195D" rel="nofollow" target="_blank">case studies</a></li><li>Finance and accounting outsourcing - <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01076-rg-finance-accounting-outsourcing-overview-may-2018.pdf?la=en&hash=FA8A088AA4CA8CD9ECA08FCF6B67E06E7CBE5449" rel="nofollow" target="_blank">overview</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01074-rg-financing-accounting-outsourcing-guideline-may-2018.pdf?la=en&hash=DBC421159D7F5685E646D58F9F934E02BA990B64" rel="nofollow" target="_blank">guideline</a></li></ul><p></p><h4 style="text-align: left;">Performance management and measurement</h4><p></p><ul style="text-align: left;"><li>The CAM-I performance management framework: How to evaluate and improve organizational performance - <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02703-rg-cam-i-performance-management-framework-executive-overview.pdf?la=en&hash=F078660BAA749DEBF20F34E882086B8BEAC63D62" rel="nofollow" target="_blank">overview</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02703-rg-cam-i-performance-management-framework-case-study.pdf?la=en&hash=94AAC148D2FC36C7CBC68FB4EB9D47E647344F16" rel="nofollow" target="_blank">case study</a></li><li>A practical approach to managing risks for small- to medium-sized organizations - <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02505-rg-ermguideline-en.pdf?la=en&hash=3D4C029B23F628BE2045024970286FD61877283F" rel="nofollow" target="_blank">guideline</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02506-rg-ermcasestudies-en.pdf?la=en&hash=A6C95D6589C6126110FDAD16F95DC56097DAD6DC" rel="nofollow" target="_blank">case study</a></li><li>The CAM-I risk value curve: Understanding your risk appetite to create value - <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02507-rg-cam-i-risk-value-curve-july-2020.pdf?la=en&hash=7DD540038AC546269307D0DC890A55E15D101069" rel="nofollow" target="_blank">guideline</a></li><li>Performance measurement for non-profit organizations - <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01668-rg-performance-measurement-for-npos-overview-may-2018.pdf?la=en&hash=5AB5E99518CB332041E7D787EA64F87456BFF8CE" rel="nofollow" target="_blank">overview</a>, <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01667-rg-performance-measurement-for-npos-guideline-may-2018.pdf?la=en&hash=C8B7E1B3FCA706E65D02247E69B1B1DF96D3A151" rel="nofollow" target="_blank">guideline</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01669-rg-performance-measurement-for-npos-case-study-may-2018.pdf?la=en&hash=9251884F81CA145950EAF702DBDB86E161741A7D" rel="nofollow" target="_blank">case studies</a></li><li>Business model design - <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01738-rg-business-model-design-overview-may-2018.pdf?la=en&hash=6B967A6841AAEDDA85AE632202649744002F0DFA" rel="nofollow" target="_blank">overview</a>, <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01736-rg-business-model-design-guideline-may-2018.pdf?la=en&hash=AA24E328A32248FC5247917FC3EEDD9E222D90A4" rel="nofollow" target="_blank">guideline</a> and case study <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01734-rg-business-model-design-case-study-1-nespresso-may-2018.pdf?la=en&hash=E89D32F42FCB76E5810E25F13AE46E406CBB9276" rel="nofollow" target="_blank">1</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01735-rg-business-model-design-case-study-2-shaving-industry-may-2018.pdf?la=en&hash=E779303674DAB8EFE4D7E3EA6F85794063101788" rel="nofollow" target="_blank">2</a></li><li>Process-based management - <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01660-rg-process-based-management-overview-may-2018.pdf?la=en&hash=EE93051A10A328D9811C8258DA8CF13DD041250C" rel="nofollow" target="_blank">overview</a>, <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01661-rg-process-based-management-guideline-may-2018.pdf?la=en&hash=EFB5C30380FB9BE257FA3EA855D65D95D6AD1FE2" rel="nofollow" target="_blank">guideline</a> and case study <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/00323-rg-process-based-management-case-study-1-acme-may-2018.pdf?la=en&hash=112EBD990DC150A4522C1E0E258ABEEC43FD345F" rel="nofollow" target="_blank">1</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/00324-rg-process-based-management-case-study-2-csd-may-2018.pdf?la=en&hash=B5897F5416721AC14ECE32E52A72E0104F03C489" rel="nofollow" target="_blank">2</a></li><li>Scenario planning - <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01675-rg-scenario-planning-overview-may-2018.pdf?la=en&hash=3316A205CA6B78791DB7901E9AD5395A09F7C527" rel="nofollow" target="_blank">overview</a>, <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01677-rg-scenario-planning-guideline-may-2018.pdf?la=en&hash=853FEA3C261E8C1FF22CA58B53260DC21ABDA514" rel="nofollow" target="_blank">guideline</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01676-rg-scenario-planning-case-study-may-2018.pdf?la=en&hash=066F2AB161C2E6DBF6917B82981E0EAB040377AB" rel="nofollow" target="_blank">case studies</a></li></ul><p></p><h2 style="text-align: left;">There's more...</h2><p>However, there are other guidelines that do not appear on that list, but are identified as such elsewhere on the website. A simple site search revealed them, which suggests that there is rather poor maintenance going on there:</p><p></p><ul style="text-align: left;"><li>Cybersecurity from the inside out: <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02696-rg-cybersecurity-from-inside-out-guideline.pdf?la=en&hash=FADC3E848E90AD01151B7639723E2B593497EA14" rel="nofollow" target="_blank">guideline</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02697-rg-cybersecurity-from-inside-out-case-study.pdf?la=en&hash=EF0507776B60EC03C0522073C4B4B45A80C06E17" rel="nofollow" target="_blank">case study</a></li><li>Divestitures: <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01688-rg-divestitures-overview-may-2018.pdf?la=en&hash=7EA64C41B49D110603CAB6E1F1B490265FAA4DBB" rel="nofollow" target="_blank">overview</a>, <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01689-rg-divestitures-guideline-may-2018.pdf?la=en&hash=60428BC7B3699C404BEE79F0621E3FB3114E1376" rel="nofollow" target="_blank">guideline</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/mags/01690-rg-divestitures-case-study-may-2018.pdf?la=en&hash=5F8DA7ED193363C3DA889C2C386F788B3797B943" rel="nofollow" target="_blank">case study</a></li><li>From data to decisions: A five-step approach to data-driven decision making: <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02357-rg-mag-from-data-to-decisions-guideline-jan-2020.pdf?la=en&hash=CE52456ACFA7AA933AFAE6F1D7A6934816172501" rel="nofollow" target="_blank">guideline</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02358-rg-mag-from-data-to-decisions-case-studies-jan-2020.pdf?la=en&hash=29EBEFC85F432E522FF952BF7C1AE5765B3AE825" rel="nofollow" target="_blank">case studies</a></li><li>GHG emissions management: Linking strategy, risk, & performance management: <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02614-rg-ghg-emissions-management-guideline.pdf?la=en&hash=AD67A2B7E89A203B4A904C48AA64274EF87D4283" rel="nofollow" target="_blank">guideline</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02615-rg-ghg-emissions-management-case-study.pdf?la=en&hash=007165112421AD06D6F2DE1C18C278AD6A8023B3" rel="nofollow" target="_blank">case study</a></li><li>Organizational change management: <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02377-rg-mag-organizational-change-management-guideline-march-2020.pdf?la=en&hash=72572E59794DEB51F15AFA416C8A8D19B6C08C7B" rel="nofollow" target="_blank">guideline</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02378-rg-mag-organizational-change-management-case-study-march-2020.pdf?la=en&hash=8ECDC17671EBEDA96D71927BF3E8548F25C8C2B0" rel="nofollow" target="_blank">case study</a></li><li>Rethinking organizational strategy: A value-focused approach to strategic planning: <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02362-rg-mag-rethinking-organizational-strategy-guideline-jan-2020.pdf?la=en&hash=CA2AED061E4D4A0E05211B3AF414EE41B3599253" rel="nofollow" target="_blank">guideline</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02363-rg-mag-rethinking-organizational-strategy-case-study-jan-2020.pdf?la=en&hash=0FCBD27D634708CF5A81EB95E6E294ED990140F1" rel="nofollow" target="_blank">case study</a></li><li>Using humanity to drive organizational change: <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02680-rg-using-humanity-drive-organizational-change-guideline.pdf?la=en&hash=8D1CE5FD24DB6222981E3E50110621489E0C005E" rel="nofollow" target="_blank">guideline</a> and <a href="https://www.cpacanada.ca/-/media/site/operational/rg-research-guidance-and-support/docs/02681-rg-using-humanity-drive-organizational-change-case-study.pdf?la=en&hash=3AD32FE53614E0F023A059907483117CE73D8D51" rel="nofollow" target="_blank">case study</a></li></ul><h2 style="text-align: left;">What's new, and what has been carried forward?</h2><div>Most of CPA Canada's releases appear to be new work, but the following appears to be carried forward from CMA Canada:</div><div><ul style="text-align: left;"><li>"Finance and accounting outsourcing" appears to be a simplification of the original <a href="https://drive.google.com/open?id=18tcrAg10CEZHOYrSJuqfAAzn_nMPIa2h&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Outsourcing the finance and accounting functions</a> issued jointly by CMA Canada, CIMA and AICPA</li><li>"Organizational change management" appears to be an expansion of <a href="https://drive.google.com/open?id=14jrV7YZF3ey-mOEAnaccA-9qrzN8rp97&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Organizational restructuring</a> (MAG10)</li><li>"Process-based management" is based on "Implementing process based management in organizations". Sadly, I can't seem to find a PDF file of the original guideline.</li><li>"Strategic partnerships" appears to be an elevation from <a href="https://drive.google.com/open?id=16ZT9Nemr1melfO0hTdjg37ycNtDTf9-n&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Strategic partnering</a><i>,</i> CMA Emerging Issues Paper 8</li><li>"Strategy mapping" appears to be based on <a href="https://drive.google.com/open?id=17eiracwIsCyiSTe6XwF7sPROcJdr1ZGH&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Using strategy maps to drive performance</a> </li></ul><h2 style="text-align: left;">Going forward...</h2><div>That leaves a lot of CMA Canada's original work somewhat in limbo for the newer members of the profession. However, the rule has always been that guidance is in effect until it has been formally revoked. In fact, <a href="http://www.legisquebec.gouv.qc.ca/en/document/cr/C-48.1,%20r.%206" rel="nofollow" target="_blank">it is a statutory requirement for CPA Québec</a> that such guidance must be followed:</div></div><div><br /></div><div><div><b><i></i></b></div><blockquote><div><i><b>19.0.1.</b> The management accounting standards generally accepted in the profession are those set out in the Management Accounting Guidelines of the Society of Management Accountants of Canada.</i></div><div><i><br /></i></div><div><i>When a member deviates from one of the guidelines, the member must, to the extent possible, refer to authoritative literature and indicate the deviation.</i></div></blockquote><div></div></div><div><br /></div><div>CPA Ontario does not have that stated explicitly, but the CPA Ontario Code of Professional Conduct does state in Rule 203:</div><div><div></div><blockquote><div><i>A member shall sustain professional competence by keeping informed of, and complying with, </i><i>developments in professional standards in all functions in which the member provides professional </i><i>services or is relied upon because of the member’s calling.</i></div></blockquote><div></div></div><div>That would appear to cover the field with respect to having to be aware of the extent of a member's obligations. It is rather broad.</div><div><br /></div><div>What appears to be still valid, on which CPAs must still have regard during the course of their duties in management accounting? The following appears to be the case:</div><div><ul style="text-align: left;"><li>From the original sequence of guidelines issued to 1999, MAGs 2, 3, 4, 6, 7, 12, 18 and 24 have not been replaced</li><li>The 2002-2005 Management Accounting Standards are still in effect</li><li>The 2005-2006 series of guidelines has not been replaced</li><li>The 2007-2012 work done in conjunction with CIMA and AICPA, to the extent it has not been reissued by CPA Canada, is still in place</li><li>The guidelines issued by CPA Canada</li></ul><div>It appears that CPA Canada still has a lot of work to do to incorporate all of this on its website, as links to the sites of the legacy organizations no longer exist.</div></div><p></p>Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-77504826245216220052022-01-09T21:48:00.039-05:002022-01-12T15:58:40.889-05:00The CMA Body of Knowledge<p>CMA Canada did a great job of consolidating and streamlining the practice of management accounting, but little of it appears to be available on the CPA Canada website, and no credit is given to the previous work done. Fortunately, I still have all the hard copy in the <i>Management Accounting Practices Handbook</i> that was issued starting in the mid-90s, and PDF files of many of the issues were issued in 2005-2006, together with the publication of <i>Management Accounting Standards</i>.</p><p>I will go through and list all the guidelines, issues papers and standards that were issued up to 1998. As far as I know, none of these has ever been revoked.</p><h2 style="text-align: left;">Management Accounting Guidelines</h2><p>The MAG Statement of Purpose and Operation describes their intent thus:</p><p><i></i></p><blockquote><i>Management Accounting Guidelines are designed to be an authoritative source which identifies the relevant information required to arrive at rational decisions. Where alternative techniques or procedures are available to implement decisions and policies, the guidelines will recommend the preferred practice in given circumstances.</i></blockquote><p></p><p>There were 48 MAGs issued in total:</p><p></p><ol style="text-align: left;"><li><i>Post Appraisal of Capital Expenditures</i></li><li>Estimating Cash Flows for Capital Expenditure Decisions</li><li>Framework for Internal Control</li><li>Estimating the Discount Rate for Capital Expenditure Decisions</li><li><i>Cash Management</i></li><li>Foreign Currency Risk Management</li><li>Managing the Annual Financial Statements Audit</li><li><i>Accounts Receivable Management</i></li><li><i>Strategic Planning for Information Resource Management</i></li><li><i>Organizational Restructuring</i></li><li><i>Selecting the Optimum Product Line for an Enterprise</i></li><li>Pension Plan Management</li><li><i>Managing Banking Relations</i></li><li><i>Managing Quality Improvements</i></li><li><i>Human Resources - Accountability</i></li><li><i>Implementing Benchmarking</i></li><li><i>Implementing Activity-Based Costing</i></li><li>The Design of Executive Incentive Compensation Plans</li><li><i>Implementing Just-In-Time Production Systems</i></li><li><i>Information Systems and Services Management - Accountability</i></li><li><i>Implementing Business Process Redesign</i></li><li><i>Becoming a Time-Based Competitor</i></li><li><i>Outsourcing Information Systems</i></li><li>Implementing Electronic Data Interchange</li><li><i>Becoming ISO 9000 Registered</i></li><li><i>Implementing Workplace Flexibility</i></li><li><i>Distribution Channels Management - Accountability</i></li><li><i>Implementing Target Costing</i></li><li><i>Product Life Cycle Management</i></li><li><i>Managing Cross-Functional Teams</i></li><li><i>Developing Comprehensive Performance Indicators</i></li><li><i>Building Buyer-Seller Partnerships</i></li><li><i>World Class Research & Development Management</i></li><li><i>Managing the Human Aspects of Organizational Change</i></li><li><i>Tools and Techniques for Effective Benchmarking Studies</i></li><li><i>Monitoring Customer Value</i></li><li><i>Implementing Corporate Environmental Strategies</i></li><li><i>Implementing Self-Directed Work Teams</i></li><li><i>Developing Comprehensive Competitive Intelligence</i></li><li><i>Tools and Techniques of Environmental Accounting for Business Decisions</i></li><li><i>Value Chain Analysis for Assessing Competitive Advantage</i></li><li><i>Measuring the Cost of Capacity</i></li><li><i>Redesigning the Finance Function</i></li><li><i>Measuring and Managing Shareholder Value Creation</i></li><li><i>Understanding and Implementing ISO 14000</i></li><li><i>Implementing Ethics Strategies Within Organizations</i></li><li><i>Implementing Process Management: A Framework for Action</i></li><li><i>Building a Data Warehouse</i></li></ol><h2 style="text-align: left;">International Management Accounting Practices</h2><div>The International Federation of Accountants has issued several practice statements that aim to harmonize certain concepts in use:</div><div><ol style="text-align: left;"><li>Management Accounting Concepts</li><li>The Capital Expenditure Decision</li><li>Currency Exposure and Risk Management</li><li>Management Control of Projects</li><li>Managing Quality Improvements (essentially an adoption MAG 14)</li><li>Post Completion Review</li><li>Strategic Planning for Information Resource Management (essentially an adoption of MAG 9)</li></ol></div><h2 style="text-align: left;">Management Accounting Issues Papers</h2><div>The MAIP Statement of Purpose explained the rationale as follows:</div><div></div><blockquote><div><i>Issues Papers provide information about "leading edge" management processes and management accounting practices.</i></div><div><i><br /></i></div><div><i>Issues Papers also provide an opportunity to stimulate informed debate on some of the more provocative questions that organizations should be aware of or must contend with in their day-to-day operations.</i></div></blockquote><div>There were 16 papers issued in total:</div><div><ol style="text-align: left;"><li>Accounting for the environment</li><li>The role of management accounting in electronic data interchange</li><li>Activity-based costing</li><li><i>Virtual corporations - How real?</i></li><li>Management control systems in excellent Canadian companies</li><li><i>Agile competition: The emergence of a new industrial order</i></li><li>Benchmarking: A survey of Canadian practice</li><li><i>Strategic partnering</i></li><li>Electronic commerce</li><li>Activity-based management</li><li><i>Improving shareholder wealth</i></li><li><i>Measuring the impact of diversity</i></li><li><i>Codes of ethics, practice and conduct</i></li><li><i>Accounting for sustainable development: A business perspective</i></li><li><i>Corporate governance: The role of internal control</i></li><li><i>The management of intellectual capital: The issues and the practice</i></li></ol></div><h2 style="text-align: left;">Management Accounting Standards</h2><div>During 2002-2006, Management Accounting Standards were issued, and numbered in the same manner as those in the CICA Handbook. No consolidated PDF was issued at the time, but I have compiled one from the files I have:</div><div><br /></div><iframe allow="autoplay" height="480" src="https://drive.google.com/file/d/17N3yWVX6QahpnIFsTqiVymV9ANMqq7S5/preview" width="640"></iframe><div><br /></div><div>
The major sections were:</div><div><ul style="text-align: left;"><li>2000: Cost finding</li><li>3000: Cost using</li><li>4000: [Not used]</li><li>5000: Strategic performance measure and process control</li><li>6000: Management control</li><li>7000: Information technology</li><li>8000: Change management</li><li>9000: Stakeholder reporting</li></ul><div><div>The standards are prescriptive only in the sense where they advise what techniques and procedures <i>not</i> to use. CMA Canada expressed their purpose in these words:</div><div><br /></div><div></div></div></div><blockquote><div><div><div><i>One of the most important developments in the evolution of Strategic Management Accounting has been the notion that organizations can develop different cost information for different decisions.</i></div><div><i><br /></i></div><div><i>These Standards are intended to support this fundamental principle as their purpose is twofold:</i></div><div><ol style="text-align: left;"><li><i>To review common practice alternatives and discuss the relative merits of each. The intent is not to regulate, prescribe, or otherwise impose a uniform style of management accounting. Rather, the purpose is to identify which of the possible practice alternatives will best meet the needs, and advance the strategic objectives or competitive interests, of a particular organization in a particular setting.</i></li><li><i>There are contractual settings where resources are exchanged or decisions are made based on cost information. Examples include cost-plus reimbursement contracts, insurance claims that require property valuations based on cost, predatory pricing disputes that require a comparison between market price and cost, and regulatory environments where allowed prices are based on cost. When parties enter into a contract using cost measures, there is a need for cost standards and generally accepted definitions to insure that there are reasonable methods available for computing and defining costs that both parties understand and accept. In this sense, the role of these standards is to eliminate alternatives that are clearly unacceptable in order to provide a set of reasonable and well-defined alternatives to the contracting parties.</i></li></ol></div></div></div><p></p><p></p></blockquote><h2 style="text-align: left;">Recasting of guidelines and papers</h2><p>In 2005-2006, most of the guidelines were converted into PDF format and organized into various categories. They were not numbered as in the previous hard-copy series.</p><div><br /></div><div>In this table, those carried over from the previous hard-copy versions are cross-referenced and identified in <i>italics</i>. Those ones that are new to the series are identified in <b>bold</b>.</div><div><br />
<table border="1">
<thead>
<tr>
<th>Category</th>
<th>Guidelines</th>
<th>Issues papers</th>
</tr>
</thead>
<tbody>
<tr>
<td>Change management</td>
<td><i><a href="https://drive.google.com/open?id=15-UA8S_or60HBqgja-x4LcApDw_Ku0b0&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Human resources - accountability</a></i> (MAG15)<br /><i><a href="https://drive.google.com/open?id=14wnk0465LJgh_Im2JbVh-loGQ87PzsFv&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Implementing self-directed work teams</a></i> (MAG38)<br /><i><a href="https://drive.google.com/open?id=14wjJ52Kasf2BV8fc68mdx3P7eX64aRlH&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Implementing workplace flexibility</a></i> (MAG26)<br /><i><a href="https://drive.google.com/open?id=14wIOKN74lcMJ-4ltdQK9p9yPhWVCGSXe&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Managing cross-functional teams</a></i> (MAG30)<br /><i><a href="https://drive.google.com/open?id=14u7jdtGp9HXr0PJPnE605zXAtMPluJSt&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Managing the human aspects of organization change</a></i> (MAG34)<br /><i><a href="https://drive.google.com/open?id=14jrV7YZF3ey-mOEAnaccA-9qrzN8rp97&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Organizational restructuring</a></i> (MAG10)</td>
<td><b><a href="https://drive.google.com/open?id=1524WQIqVSTW899JWuB02vhWgiC0rulHi&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Collaborative innovation and the knowledge economy</a></b><br /><i><a href="https://drive.google.com/open?id=14tbJJ4YHGNw-R0Q5ySQTzx6fMgsYEUiU&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Measuring the impact of diversity</a></i> (IP12)<br /><b><a href="https://drive.google.com/open?id=14st-clqf6e7-W6VT5I2TOVOTUtjozd6h&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Measuring knowledge assets</a></b></td>
</tr>
<tr>
<td>Customer and supply chains</td>
<td><i><a href="https://drive.google.com/open?id=16ySQHX2Z7IAHVF6CXjUaNgLbcv3pdwUg&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Becoming ISO 9000 registered</a></i> (MAG25)<br /><i><a href="https://drive.google.com/open?id=16rSQy7Q4CO0xMV31497-iD12s3KbCOc1&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Building buyer-seller partnerships</a></i> (MAG32)<br /><b><a href="https://drive.google.com/open?id=16onk-EnV5tF6vUuDeybb3T1b9vBRCjyR&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Customer profitability analysis</a></b><br /><i><a href="https://drive.google.com/open?id=16k1LytkDASs03PhAF5oacyhuWxNtqu-8&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Distribution channels management - accountability</a></i> (MAG27)<br /><i><a href="https://drive.google.com/open?id=16jC-hdwIFxtTmbs7NcxcQCmBDz12vZ4m&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Monitoring customer value</a></i> (MAG36)<br /><i><a href="https://drive.google.com/open?id=16fL7X1Pq71dF7IH4y8FeeBHwWLuAqQ5y&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Selecting the optimum product line for an enterprise</a></i> (MAG11)<br /><i><a href="https://drive.google.com/open?id=16WzCR-eiyAGXsX3HWhhymkhLecwsLSHS&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Value chain analysis for assessing competitive advantage</a></i> (MAG41)<br /><i><a href="https://drive.google.com/open?id=16T7TefCI-RxMKbqSldff8eAAPvt5twNI&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">World-class research and development management</a></i> (MAG33)</td>
<td><i><a href="https://drive.google.com/open?id=16ZT9Nemr1melfO0hTdjg37ycNtDTf9-n&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Strategic partnering</a></i> (IP8)<br /><i><a href="https://drive.google.com/open?id=16UxqT2q8Jq57nRrEZFeFGAlnbVRaQgu-&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Virtual corporations - How real?</a></i> (IP4)</td>
</tr>
<tr>
<td>Information technology</td>
<td><i><a href="https://drive.google.com/open?id=14a4N9Vx5wfOo5lXvmTg-tYtoQhljMQ4d&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Building a data warehouse</a></i> (MAG48)<br /><i><a href="https://drive.google.com/open?id=14YOS-CSFtMX12AFF4csAR94mn_EcXRXi&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Information systems and services management - accountability</a></i> (MAG20)<br /><i><a href="https://drive.google.com/open?id=14SIikKGRFxF11Q5ClR5ct0wFoqgDvDia&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Outsourcing information systems</a></i> (MAG23)<br /><i><a href="https://drive.google.com/open?id=14MDVvl9jYHh2l0XeuVCPsgIRUVhq5eKY&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Strategic planning for information resource management</a></i> (MAG9)</td>
<td></td>
</tr>
<tr>
<td>Management control</td>
<td><i><a href="https://drive.google.com/open?id=13mpOyw1Dw2Ql8-FtCHMF675dWFzlJc56&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Implementing ethics strategies within organizations</a></i> (MAG46)<br /><i><a href="https://drive.google.com/open?id=13gLLbnPSOOPed02sKAi0vD7R-tzxnSyQ&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Post appraisal of capital expenditures</a></i> (MAG1)</td>
<td><i><a href="https://drive.google.com/open?id=14DqxcApdcuMSY0ZKRg0Sq1i5mxiS3o-V&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Codes of ethics, practice and conduct</a></i> (IP13)<br /><i><a href="https://drive.google.com/open?id=142UyB6X4cXG8lC0UaiYM_A8Mz9I2ZL14&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Corporate governance: The role of internal control</a></i> (IP15)</td>
</tr>
<tr>
<td>Strategic cost management</td>
<td><b><a href="https://drive.google.com/open?id=10jCf_n6GJdcJv405lfaodhPuNP569j8k&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Adopting and implementing shared services</a></b><br /><i><a href="https://drive.google.com/open?id=10ZYs2tzcHL_yx4LKVyGG21tfXyNlt6UF&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Becoming a time-based competitor</a></i> (MAG22)<br /><b><a href="https://drive.google.com/open?id=10RQSKf9DiysslPltAZeAu1S2oSGPD1k9&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Business continuity management</a></b><br /><i><a href="https://drive.google.com/open?id=10Qg7Ol0iNG_p0SCA8qe7X9P1g1Gldgc4&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Developing comprehensive competitive intelligence</a></i> (MAG39)<br /><b><a href="https://drive.google.com/open?id=10NT8jmpysOMYKe0cbaW_OUyPHbkSFI2I&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Identifying, measuring and managing organizational risks for improved performance</a></b><br /><i><a href="https://drive.google.com/open?id=10LsOEkUMqRHAOBFaO9L_m3HOABzskuWB&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Implementing activity-based costing</a></i> (MAG17)<br /><i><a href="https://drive.google.com/open?id=10K5sTi1TGsgtrwMB-pZkRuhQPjhYgfwv&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Implementing benchmarking</a></i> (MAG16)<br /><i><a href="https://drive.google.com/open?id=10CHGMXDvfFkTw7vPNzkaXvPWVsUHMDf0&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Implementing business process redesign</a></i> (MAG21)<br /><i><a href="https://drive.google.com/open?id=108UxaoAMu3LWz4nMlYi1F22n85HWamo2&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Implementing just-in-time production systems</a></i> (MAG19)<br /><i><a href="https://drive.google.com/open?id=106OR9-XpC7DTKFXElQhO5ke4iIjQamw_&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Implementing process management: A framework for action</a></i> (MAG47)<br /><i><a href="https://drive.google.com/open?id=105NVeLfmICggerP5-qa6qLu5XH9RYrk1&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Implementing target costing</a></i> (MAG28)<br /><i><a href="https://drive.google.com/open?id=103zoslUQhOerZI9kxC3RsCCUlZ1g5T82&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Measuring the cost of capacity</a></i> (MAG42)<br /><i><a href="https://drive.google.com/open?id=1-jBILAnZHxcfzjfgcm-aK7PbRlv7_zx4&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Redesigning the finance function</a></i> (MAG43)<br /><i><a href="https://drive.google.com/open?id=1-XuheDYCe4U_L_gJDvy5HkuoT30KGn8Z&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Tools and techniques for effective benchmarking studies</a></i> (MAG35)</td>
<td><i><a href="https://drive.google.com/open?id=10__RpRiicm5jQ0ME-7loNHae-dPeScis&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Agile competition: The emergence of a new industrial order</a></i> (IP6)<br /><b><a href="https://drive.google.com/open?id=1-jXXVmVZazYKGIIxsrhHkK8SxS7L98hZ&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Next generation enterprise</a></b></td>
</tr>
<tr>
<td>Strategic performance measurement</td>
<td><b><a href="https://drive.google.com/open?id=12EJGwCL3HIlvlzEYvo65iMqbtoGFZh6f&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Applying the balanced scorecard</a></b><br /><i><a href="https://drive.google.com/open?id=129fIHrmsFzS-3FwORNjkqga3J07l4dJB&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Developing comprehensive performance indicators</a></i> (MAG31)<br /><b><a href="https://drive.google.com/open?id=125_icPIthjIt2M7cXnTKvD2NCxNiWdPn&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Evaluating performance in information technology</a></b><br /><i><a href="https://drive.google.com/open?id=11oc_bBDdJOsB3dSjcONluOenwPYpObrP&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Managing quality improvements</a></i> (MAG14)<br /><b><a href="https://drive.google.com/open?id=11kYR4Tz2eerZgn3SjIQFUw3hggL-03Na&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Measuring and improving the performance of corporate boards</a></b><br /><i><a href="https://drive.google.com/open?id=11k1ne5i7Cq7sHmfqu3jhSXlQ0XEHNIKw&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Product life cycle management</a></i> (MAG29)</td>
<td><i><a href="https://drive.google.com/open?id=121UvjbMxnZE19VQOwd_pifyf832pT4Wu&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">The management of intellectual capital: The issues and the practice</a></i> (IP16)</td>
</tr>
<tr>
<td>Stakeholder reporting</td>
<td><i><a href="https://drive.google.com/open?id=116KwB5MoC-NlTohleCO2YPIBCohjc1z6&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Implementing corporate environmental strategies</a></i> (MAG37)<br /><i><a href="https://drive.google.com/open?id=10y0swlyvbsa-L4BNjbP3Pu-KRyQQXQQy&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Measuring and managing shareholder value creation</a></i> (MAG44)<br /><i><a href="https://drive.google.com/open?id=10vKf5Z9_ezBZOJ4eCA4a8zzzo2Djsnme&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Tools and techniques of environmental accounting for business decisions</a></i> (MAG40)<br /><i><a href="https://drive.google.com/open?id=10kT0KChdc1y8lYzZcxIjoGPpJFvyFu2h&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Understanding and implementing ISO 14000</a></i> (MAG45)<br /><b><a href="https://drive.google.com/open?id=10jZo_8yqRbY2MM8K801Re_DLDLKm8BuF&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Writing and evaluating sustainable development and environmental reports</a></b></td>
<td><i><a href="https://drive.google.com/open?id=11cFgvluvi76gJAYlRhbG6Yikk0Sy2x-b&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Accounting for sustainable development: A business perspective</a></i> (IP14)<br /><b><a href="https://drive.google.com/open?id=11Kabyim7hlSZF4QJBOGON23DWimfTeZW&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">An executive view of shareholder value creation: Determinants of success in publicly held Canadian organizations</a></b><br /><i><a href="https://drive.google.com/open?id=110dtxfgs-ggMpsTEq4ctfrbs3-uGLDhN&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Improving shareholder wealth</a> </i>(IP11)</td>
</tr>
<tr>
<td>Treasury management</td>
<td><i><a href="https://drive.google.com/open?id=15EsVlybhIBeKxCJnwQ5ZlJCjaGD4nll4&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Accounts receivable management</a></i> (MAG8)<br /><i><a href="https://drive.google.com/open?id=15ESJobO-9YcCsjhgbfUQg-0oIR1AakP3&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Cash management</a></i> (MAG5)<br /><b><a href="https://drive.google.com/open?id=15DEjd6biVQOZa7akVnwXL3VxHeRlltaV&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Financial risk management</a></b><br /><i><a href="https://drive.google.com/open?id=153OMBeTrj8RnNaCZa4QnYSIoBv7o11qP&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Managing banking relations</a></i> (MAG13)<br /><b><a href="https://drive.google.com/open?id=152y4K417DuGzRTrWEJpR_yk4A9k6Uuc4&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">A strategic role for treasury</a></b></td>
<td></td>
</tr>
</tbody>
</table><br /><div>
From the cross-referencing, it is apparent that the following guidelines and papers were not incorporated into the new series, and there is no indication that they have been formally withdrawn:</div><div><ul style="text-align: left;"><li>MAGs 2, 3, 4, 6, 7, 12, 18 and 24</li><li>IPs 1, 2, 3, 5, 7, 9 and 10</li></ul><div><br /></div></div>
After that round of consolidation, other guidelines were issued from that time until the CPA merger. Only some of them have since been reissued by the new body. In late 2011, CMA Canada published a list of these MAGs in its magazine:</div><div><br /></div><div><iframe allow="autoplay" height="480" src="https://drive.google.com/file/d/18yAZ_w7fQjtCFKIm_CMnYYjT7svP9Zs2/preview" width="640"></iframe></div><div><br /></div><div><br /></div><div><table border="1">
<thead>
<tr>
<th>Group</th>
<th>Title</th>
</tr>
</thead>
<tbody>
<tr>
<td>Issued jointly with CIMA and AICPA</td>
<td>Designing and implementing a performance measurement system (2010)<br /><a href="https://drive.google.com/open?id=189oKyvPdgVtSuS0vcCBapbjWC2XYxrQ9&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Environmental sustainability: Tools and techniques</a> (2009)<br /><a href="https://drive.google.com/open?id=17kEYqpr542aRPHYDCZmZKlFPLHR-ejIP&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Evaluating the effectiveness of Internet marketing initiatives</a> (2007)<br /><a href="https://drive.google.com/open?id=18mk1UFMxt_Sf3ewLZb455WG-oAqvQRqV&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Evaluating performance in information technology</a> (2005)<br /><a href="https://drive.google.com/open?id=18O_jU0FcLI2GyV0uu3WsqAPfYXhbmPfl&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Evidence-based decision making: Using business intelligence to drive value</a> (2009)<br /><a href="https://drive.google.com/open?id=18BiIwpgPxtoo0vcwQhcjATKoZZz50AAy&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Impacting future value: How to manage your intellectual capital</a> (2008)<br /><a href="https://drive.google.com/open?id=17vk36hfiZnoas6W0FjTY6E_GDAnn9KT_&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Integrating social and political risk into management decision-making</a> (2007)<br /><a href="https://drive.google.com/open?id=17uo12FHs-vdd5QpAixoRXeNhXpYvPCkp&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Managing customer value</a> (2007)<br /><a href="https://drive.google.com/open?id=17aM1gDmcZPsk0ua1hr6Bdqn62XhXzYWk&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Managing opportunities and risks</a> (2008)<br /><a href="https://drive.google.com/open?id=18tcrAg10CEZHOYrSJuqfAAzn_nMPIa2h&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Outsourcing the finance and accounting functions</a> (2007)<br />Strategic management of information for boards (2007)<br /><a href="https://drive.google.com/open?id=17tFNju4FOqEeVaGT8YJrzETHO8KrrBjs&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Supply chain management accounting</a> (2009)<br /><a href="https://drive.google.com/open?id=17dPAxhTs9rf9EjcTLFAhp2tXE8dkiyqw&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">The reporting of organizational risks for internal and external decision-making</a> (2006)<br /><a href="https://drive.google.com/open?id=17eiracwIsCyiSTe6XwF7sPROcJdr1ZGH&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Using strategy maps to drive performance</a> (2007)</td>
</tr>
<tr>
<td>Reissued by CPA Canada (original and reissue dates)</td>
<td><a href="https://drive.google.com/open?id=17aKnx6f6H2ka3YCiq8ITK6dwhT_c23cb&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Divestitures</a> (2009; 2018)<br /><a href="https://drive.google.com/open?id=17VTTPJkz1tFwj9jZI4iymXWyrSLM3emu&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Divestitures: Applying a five-step process</a> (2012; 2018)<br /><a href="https://drive.google.com/open?id=17xUqoRDfgevnFPfbuGGKT9HlTB_dBe4U&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">From data to decisions: A five-step approach to data-driven decision making</a> (2012; 2020)<br /><a href="https://drive.google.com/open?id=18Y8SYPJ_QTCa48fFkFSUb42SnU95I8dp&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Future value drivers: Leveraging your intangible assets using a five-step process</a> (2012; 2018)<br /><a href="https://drive.google.com/open?id=17mEMMsCszV7vmCvLLuN3nlLjj5Nzqbkx&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Performance measurement for non-profit organizations: The balanced scorecard as an approach</a> (2009; 2016)<br /><a href="https://drive.google.com/open?id=18tbd3ZE51Qnwsrm2TWgyA9HSGO6KmHsy&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Process-based management: A four-phase approach to improve organizational efficiency and effectiveness</a> (originally issued as "Implementing process based management in organizations", 2009; 2018)<br /><a href="https://drive.google.com/open?id=18FUjy0y9-JNzqyng1l69m_4nxoXFLV0v&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Scenario planning: Plotting a course through an uncertain world</a> (2010; 2018)<br /><a href="https://drive.google.com/open?id=18_G1SY58UWUm2_CMCTSK4QMR3U5UYqoY&authuser=raellerby%40gmail.com&usp=drive_fs" rel="nofollow" target="_blank">Scenario planning: Applying a six-step process to your organization</a> (2010; 2018)</td>
</tr>
</tbody>
</table><br /><h2 style="text-align: left;">The framework after the CPA Canada merger</h2><div>It was a challenge to get this far. I thank Worldcat for finding out about all the guidelines and papers that were issued.</div><div><br /></div><div>As for the current structure, the CPA Canada website is totally unhelpful in determining what exists now. Even running a web search of the site does not reveal the total picture. The guidelines that do exist are broken down between overviews, guidelines and related case studies, and there is no announcement when something new has been issued. That is extremely different from what had been the case before, when master lists of the publications were on the CMA Canada site, and members were given USB sticks at meetings that had the complete rundown of what had been issued to date. Before that, the members were mailed hard copies of the publications, and binders to keep them in. I still have all mine!</div><div><br /></div><div>I will attempt to give a listing, together with hyperlinks, to what exists now. That will be in a separate post.</div><div><br /></div></div><p></p>Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-7447791267585414852022-01-04T16:12:00.000-05:002022-01-04T16:12:02.718-05:00A look back at a long-gone and hated tax<p>I had forgotten that last year was the 30th anniversary of the introduction of the Goods and Services Tax (GST) in Canada, and the fact that it replaced the increasingly bizarre and convoluted Federal Sales Tax (FST). Very little has been written about the FST's history since that time, and to date it has not even merited its own article on Wikipedia. Perhaps this will help shed some light on how that tax came into being, and how it operated.</p><p>It was introduced on a limited scale on 1 May 1918, when the <i>Special War Revenue Act</i> (originally passed in 1915) <a href="https://archive.org/details/actsofparl1918v01cana/page/158/mode/2up" rel="nofollow" target="_blank">was amended</a> to impose a 10% war excise tax on (a) the duty-paid value of specified goods imported into Canada, and (b) the initial selling price of such goods that were manufactured in Canada. The goods on which the tax was imposed were:</p><ul style="text-align: left;"><li>automobiles for passenger use</li><li>records and cylinders, and their players</li><li>mechanical pianos and organs, and records for them</li><li>jewelry, both real and imitation</li></ul><p> On 19 May 1920, this was expanded through the addition of various taxes on luxury goods, <a href="https://archive.org/details/actsofparl1920v01cana/page/402/mode/2up" rel="nofollow" target="_blank">plus a sales tax</a> (subject to various exemptions) of:</p><ul style="text-align: left;"><li>1% on "sales and deliveries by manufacturers and wholesalers, or jobbers, and on the duty-paid value of importations", and</li><li>2% on "sales by manufacturers to retailers and consumers, or on importations by retailers or consumers".</li></ul><p> Provision was also made for the eventual introduction of an annual licence requirement on all manufacturers and wholesalers.</p><p>On 10 May 1921, <a href="https://archive.org/details/actsofparl1921v01cana/page/310/mode/2up" rel="nofollow" target="_blank">the rates were revised</a>:</p><ul style="text-align: left;"><li>1.5% on "sales and deliveries by manufacturers and producers, and wholesalers or jobbers",</li><li>2.5% on "the duty-paid value of goods imported",</li><li>3% "in respect of sales by manufacturers to retailers or consumers", and</li><li>4% "on goods imported by retailers or consumers ... for the purpose of resale ... on the duty-paid value".</li></ul><p> On 1 January 1924, <a href="https://archive.org/details/actsofparl1923v01cana/page/434/mode/2up" rel="nofollow" target="_blank">the following changes took place</a>:</p><ul style="text-align: left;"><li>a single rate of 6% was instituted for all subject goods (as noted above),</li><li>every manufacturer or producer who manufactured or produced goods worth ten thousand dollars or more during any fiscal year ending 31 March (beginning with the one in 1923) was required to obtain an annual licence for collecting the tax,</li><li>every wholesaler or jobber "who sells not less than [50%] of his total sales of goods to a licensed manufacturer or producer, to be used in, wrought into or attached to articles to be manufactured or produced for sale" had the option to apply for a sales tax licence, and</li><li>licensed manufacturers and producers were entitled to deduct the tax they paid on imported goods that were subsequently sold to another licensed manufacturer or producer, from the tax otherwise payable on sales made of their own goods, and<br /></li><li>licensed wholesalers were entitled to claim back tax they had paid on sales of similar goods.<br /></li></ul><p>In 1938, the fiscal year requirement with respect to sales by wholesalers and jobbers exceeding the 50% threshold <a href="https://archive.org/details/actsofparl1938v01cana/page/380/mode/2up" rel="nofollow" target="_blank">was revised</a> to the proportion of such such sales occurring during the three months immediately preceding such application. In 1958, the sales threshold for manufacturers and producers was repealed, and <a href="https://archive.org/details/actsofparl1958v01cana/page/238/mode/2up" rel="nofollow" target="_blank">all were required to obtain a licence</a>.</p><p>In 1947, the <i>Special War Revenue Act</i> <a href="https://archive.org/details/actsofparl1947v01cana/page/328/mode/2up" rel="nofollow" target="_blank">was renamed</a> as the <i>Excise Tax Act</i>, and the sales tax <a href="https://archive.org/details/actsofparl1947v01cana/page/334/mode/2up" rel="nofollow" target="_blank">became known as the consumption or sales tax</a>.</p><p>By the time that the <i>Revised Statutes of Canada, 1970</i> came into force, <a href="https://archive.org/details/revisedstatutes197003uoft/page/2837/mode/1up" rel="nofollow" target="_blank">the general framework</a> was as follows:</p><p></p><ul style="text-align: left;"><li>the general rate was 9%, with separate rates of 3% for goods produced by the blind and 8% for building materials and heating equipment;</li><li>the tax was imposed on</li><ul><li>goods manufactured or produced in Canada, payable on delivery or when title passed (whichever came first)</li><li>goods imported into Canada, payable on importation or upon later withdrawal from a bonded warehouse for consumption</li><li>sold by a licensed wholesaler, and the tax was calculated on the duty-paid value (if imported) or otherwise on the price paid by him</li><li>goods where kept for the licensee's own use, or for rental, as the case may be</li></ul><li>the following sales were tax-exempt:</li><ul><li>partly manufactured goods sold by a licensed manufacturer to another licensed manufacturer</li><li>partly manufactured goods imported by a licensed manufacturer</li><li>goods imported by a licensed wholesaler other than for his own use or for rental to others</li><li>goods sold by a licensed manufacturer to a licensed wholesaler other than for his own use or for rental to others</li><li>partly manufactured goods sold by a licensed wholesaler to a licensed manufacturer</li><li>goods sold by a licensed wholesaler to another licensed wholesaler (but a recovery of tax was in effect where the sale price was less than the original duty-paid value or purchase price)</li></ul><li>there was also an extensive list of goods that were tax-exempt under all circumstances</li></ul><div>As you can see, the scheme was quite complex, calling for extensive recordkeeping and extensive proof that vendors and purchasers had the proper licences to track both liability and exemption. This could be difficult, as there was no central registry of licence numbers to consult, and it was up to the purchasers to supply proof. Needless to say, there was ample scope for fraud, and the FST auditors found that to be a fruitful ground for reassessment.</div><p></p><p>The manufacturer's and wholesaler's licences were respectively known as S and W licences. Tax reported under S licences was netted against revenues, while those under W licences were added to the cost of sales. Manufacturers had the option of quoting prices either tax-included or tax-extra, which led to some rather sophisticated sales analysis reporting. I had the privilege of analyzing such reports in my first job after graduating from college. That was back in the days of reviewing monthly 11" x 17" flatpack reports that were regularly 3" thick, and internal office copies of invoices that showed the effect of netting the FST back to taxable items, or identifying the amount of FST that could be claimed back on imported goods. Our current accounting systems in Canada have nothing like this in effect now.</p><p>That type of internal reporting was essential, because of the tyranny wrought by the Customs & Excise auditors in charge of reviewing the FST returns. They were extremely aggressive, and there was little opportunity to appeal against their rulings. No wonder that none of them were given the opportunity to become GST auditors when the new tax came into effect in 1991!<br /></p><p>The new GST, in comparison, can be said to be a self-enforcing tax, as it is in effect a tax on markup, and it covers both goods and services supplied (subject to a list of exempt or zero-rated items). There is also <a href="https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/confirming-a-gst-hst-account-number.html" rel="nofollow" target="_blank">a central registry of Business Numbers available</a> for verification purposes. The results are easily exported into PDF for purposes of recordkeeping on the local ERP system. Accountants these days don't realize how easy their jobs are!</p>Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-57381141234318478532021-05-12T17:21:00.006-04:002022-01-03T14:09:32.346-05:00A reconstitution of some corporate history<p>A while back on my other blog on Wordpress, I did some reminiscing about a company I worked at back in the early 1980s. You can read those remembrances <a href="https://raellerby.wordpress.com/2013/05/27/remembering-a-long-gone-company/" target="_blank">here</a> and <a href="https://raellerby.wordpress.com/2013/05/28/my-first-corporate-investigation/" target="_blank">here</a>. I was looking at them recently, and had to do some repairs on some items that have undergone <a href="https://en.wikipedia.org/wiki/Link_rot" target="_blank">linkrot</a> over the years. I also decided to do some checking to see what has happened to that place in the ensuing years.</p><p>I knew that Ford Motor Company had sold its glass manufacturing operations to Asahi Flat Glass (AFG), which is now called AGC. I wondered how the evolution took place, and decided to do some checking. Fortunately, Industry Canada has the complete history of all corporations formed or continued under the <i>Canada Business Corporations Act</i>. That really helped, and I was able to reconstruct all the various movements into this PDF fiIe, complete with hyperlinks to all the various entries:</p><p><br /><iframe height="375" src="https://drive.google.com/file/d/131WnQYZVR-qFT6II6IXo8Bguf_CSSfNu/preview" width="500"></iframe>
</p><p>
<br />
There are some caveats to this timeline:</p><p><br /></p><ul style="text-align: left;"><li>For one year, AFG migrated to Ontario before returning to the CBCA. There may have been other corporate activity going on during that time, but Ontario doesn't allow free access to their files in order to verify that.</li><li>I personally know that Glaverbel Glass Ltd was the subject of extensive amalgamation activity under the previous <i>Canada Corporations Act</i>, but those files are not online. As well, Glaverbel (as well as its successor Canadian Glass Industries Ltd) had a Québec subsidiary (Verrerie Charlebois Inc) that was wound up with all its assets and liabilities being conveyed to CGIL. That was done as Québec company law did not allow for a more straightforward continuance to another jurisdiction at the time.</li><li>Glaverbel was also a minority owner in National Glass Ltd out in BC, but that was sold off in 1980-81.<br /></li><li>The first Ford Glass Ltd began its existence back in the 1920s as Pilkington Brothers (Canada) Ltd. It took on the Ford name after Pilkington plc disposed it to Ford Motor Company in 1981.</li><li>In a similar fashion to Glaverbel, Pilkington acquired a large network of local glaziers across Canada that have since been disposed of. It is unclear whether this chain of acquisitions was undertaken as asset purchases or amalgamations or both, but previous corporations laws were probably involved, and the records are probably still just on paper.</li><li>The later Glaverbec entry is interesting, as it appears to have been an attempt by the original Belgian Glaverbel parent to take up an interest in a glass mill that AFG set up at Saint-Augustin-de-Desmaures near Québec City. It has since been <a href="https://www.lesoleil.com/affaires/ancienne-usine-dagc-a-saint-augustin-de-desmaures-une-nouvelle-vie-des-decembre-116fada94cc9b79f7169a74b026db033" target="_blank">shut down and repurposed by an appliance manufacturer</a>, <a href="https://books.google.ca/books?id=d5PRen9waWkC&lpg=PA103&ots=nS074ivdSo&dq=glaverbec&pg=PA103#v=onepage&q=glaverbec&f=false" target="_blank">after Glaverbel was acquired by Asahi</a>.</li></ul><p>If anyone can undertake further research in the older corporate archives to take this further, I'm sure it would be very revealing.<br /></p>Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-30689810143134488142019-03-14T17:36:00.003-04:002019-03-14T17:36:57.377-04:00The future is coming, whether we want it or notYesterday's Globe and Mail had two especially contrasting items in the Report on Business:<br />
<br />
<ul>
<li>a six-page announcement from CPA Ontario congratulating the new cohort of graduates (news that is sadly lacking on its own website)</li>
<li>a column in the careers section <a href="https://www.theglobeandmail.com/business/careers/leadership/article-there-are-plenty-of-strong-career-paths-for-non-stem-graduates/" target="_blank">on the future job paths for non-STEM graduates</a></li>
</ul>
<br />
As always, I congratulate the new grads and wish them well. However, they may find it worthwhile to dig a big more in the second article. It refers to <a href="https://www.weforum.org/reports/the-future-of-jobs-report-2018" target="_blank"><i>The Future of Jobs Report 2018</i></a> issued by the <a href="https://www.weforum.org/" target="_blank">World Economic Forum</a>, which reveals much more than the Globe column alludes to.<br />
<br />
For example, on page 9 it gives risk profiles to certain categories of jobs: <br />
<br />
<br />
<table border="1" cellpadding="2" cellspacing="0">
<tbody>
<tr>
<th>Stable roles</th>
<th>New roles</th>
<th>Redundant roles</th>
</tr>
<tr valign="top">
<td><ul>
<li>Managing Directors and Chief Executives</li>
<li>General and Operations Managers*</li>
<li>Software and Applications Developers and Analysts*</li>
<li>Data Analysts and Scientists*</li>
<li>Sales and Marketing Professionals*</li>
<li>Sales Representatives, Wholesale and Manufacturing, Technical and Scientific Products</li>
<li>Human Resources Specialists</li>
<li>Financial and Investment Advisers</li>
<li>Database and Network Professionals</li>
<li>Supply Chain and Logistics Specialists</li>
<li>Risk Management Specialists</li>
<li>Information Security Analysts*</li>
<li>Management and Organization Analysts</li>
<li>Electrotechnology Engineers</li>
<li>Organizational Development Specialists*</li>
<li>Chemical Processing Plant Operators</li>
<li>University and Higher Education Teachers</li>
<li>Compliance Officers</li>
<li>Energy and Petroleum Engineers</li>
<li>Robotics Specialists and Engineers</li>
<li>Petroleum and Natural Gas Refining Plant Operators
</li>
</ul>
</td>
<td><ul>
<li>Data Analysts and Scientists*</li>
<li>AI and Machine Learning Specialists</li>
<li>General and Operations Managers*</li>
<li>Big Data Specialists</li>
<li>Digital Transformation Specialists</li>
<li>Sales and Marketing Professionals*</li>
<li>New Technology Specialists</li>
<li>Organizational Development Specialists*</li>
<li>Software and Applications Developers and Analysts*</li>
<li>Information Technology Services</li>
<li>Process Automation Specialists</li>
<li>Innovation Professionals</li>
<li>Information Security Analysts*</li>
<li>Ecommerce and Social Media Specialists</li>
<li>User Experience and Human-Machine Interaction Designers</li>
<li>Training and Development Specialists</li>
<li>Robotics Specialists and Engineers</li>
<li>People and Culture Specialists</li>
<li>Client Information and Customer Service Workers*</li>
<li>Service and Solutions Designers</li>
<li>Digital Marketing and Strategy Specialists
</li>
</ul>
</td>
<td><ul>
<li>Data Entry Clerks</li>
<li>Accounting, Bookkeeping and Payroll Clerks</li>
<li>Administrative and Executive Secretaries</li>
<li>Assembly and Factory Workers</li>
<li>Client Information and Customer Service Workers*</li>
<li>Business Services and Administration Managers</li>
<li>Accountants and Auditors</li>
<li>Material-Recording and Stock-Keeping Clerks</li>
<li>General and Operations Managers*</li>
<li>Postal Service Clerks</li>
<li>Financial Analysts</li>
<li>Cashiers and Ticket Clerks</li>
<li>Mechanics and Machinery Repairers</li>
<li>Telemarketers</li>
<li>Electronics and Telecommunications Installers and Repairers</li>
<li>Bank Tellers and Related Clerks</li>
<li>Car, Van and Motorcycle Drivers</li>
<li>Sales and Purchasing Agents and Brokers</li>
<li>Door-To-Door Sales Workers, News and Street Vendors, and Related Workers</li>
<li>Statistical, Finance and Insurance Clerks</li>
<li>Lawyers
</li>
</ul>
</td>
</tr>
</tbody>
</table>
<br />
<br />
Roles that are marked with an asterisk (*) appear in multiple columns, and their future is industry-dependent. However, the key takeaway I see for my profession is that almost all of its traditional roles are identified as being, or becoming, redundant. That should be disconcerting for everyone, as this means that all traditional career paths for a CPA are now in question.<br />
<br />
What types of skillsets will be in demand in the near future? On page 12, there's a table that attempts to identify certain "top 10" lists to consider:<br />
<br />
<br />
<table border="1" cellpadding="2" cellspacing="0">
<tbody>
<tr>
<th colspan="3">Comparing skills demand (Top 10 areas), 2018 vs 2022</th>
</tr>
<tr>
<th>Today, 2018</th>
<th>Trending, 2022</th>
<th>Declining, 2022</th>
</tr>
<tr valign="top">
<td><ol>
<li>Analytical thinking and innovation</li>
<li>Complex problem-solving</li>
<li>Critical thinking and analysis</li>
<li>Active learning and learning strategies</li>
<li>Creativity, originality and initiative</li>
<li>Attention to detail, trustworthiness</li>
<li>Emotional intelligence</li>
<li>Reasoning, problem-solving and ideation</li>
<li>Leadership and social influence</li>
<li>Coordination and time management
</li>
</ol>
</td>
<td><ol>
<li>Analytical thinking and innovation</li>
<li>Active learning and learning strategies</li>
<li>Creativity, originality and initiative</li>
<li>Technology design and programming</li>
<li>Critical thinking and analysis</li>
<li>Complex problem-solving</li>
<li>Leadership and social influence</li>
<li>Emotional intelligence</li>
<li>Reasoning, problem-solving and ideation</li>
<li>Systems analysis and evaluation
</li>
</ol>
</td>
<td><ol>
<li>Manual dexterity, endurance and precision</li>
<li>Memory, verbal, auditory and spatial abilities</li>
<li>Management of financial, material resources</li>
<li>Technology installation and maintenance</li>
<li>Reading, writing, math and active listening</li>
<li>Management of personnel</li>
<li>Quality control and safety awareness</li>
<li>Coordination and time management</li>
<li>Visual, auditory and speech abilities</li>
<li>Technology use, monitoring and control</li>
</ol>
</td>
</tr>
</tbody></table>
<br />
<br />
Looking back on past CMA training (and I believe the same holds for current CPA training), we have certainly acquired skills in nine out of the ten trending areas (EQ falling under on-the-job training), while our classical seating in #3, 6 and 10 on the last list is on the wane. That will definitely call for reskilling over and above our traditional CPD, and this report (at page 13) identifies the size of the task that needs to be confronted:<br />
<br />
<ul>
<li>by 2022, no less than 54% of all employees will require significant reskilling or upskilling</li>
<li>of that amount, 35% need to undergo additional training of up to six months; 9% for 6-12 months, and 10% will require additional skills training of more than one year!</li>
</ul>
Are we up to this task here in Canada, given Canadian employers' traditional aversion to training in-house? The WEF report is not encouraging to begin with, as it also states that "those most in need of reskilling and upskilling are least likely to receive such training." If that is a worldwide assessment, I can foresee a large wave of forced retirements coming down the pipeline (as that would be seen to be the cheaper option). At the very least, it will be a contradictory message to the whining our businesses are making now in complaining about not being able to hire candidates with the skills they need.<br />
<br />
Stay tuned. It will be really interesting to see what develops.Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-88867189168482742022018-11-24T19:00:00.001-05:002018-11-24T19:00:11.004-05:00Further, crucial thoughts on Morneau's CCA proposalsThere will be further commentary about Morneau's fall economic statement this week, but fuzzy accusations are already being posted about their effectiveness. For instance, Jack Mintz <a href="https://business.financialpost.com/opinion/who-cares-about-competitiveness-judging-by-morneaus-update-the-liberals-dont-jack-mintz" target="_blank">raised the following point</a> in the <i>Financial Post</i>:<br />
<br />
<blockquote class="tr_bq">
<i>"As it stands, about three-fifths of Canadian corporations do not pay corporate taxes, according to the Canada Revenue Agency’s recent corporate tax statistics (a breakdown by sector or size of companies is not available)."</i></blockquote>
<br />
While he does give an important qualification, he doesn't necessary point out that many corporations required to file returns are automatically exempt from income tax liability, including:<br />
<br />
<ol>
<li>Charities and other non-profit corporations</li>
<li>Federal and provincial Crown corporations</li>
<li>Municipally-owned corporations</li>
<li>Bare trustees whose only purpose is to hold property on behalf of another individual or entity</li>
<li>Dormant and other inactive corporations</li>
</ol>
<br />
Why the CRA doesn't isolate those entities in its analysis does tend to make us wonder. I would also add the following groups for consideration, based on person observation:<br />
<br />
<ol>
<li>Holding companies that act as trustees for trusts whose income flows directly to beneficiaries</li>
<li>Management companies whose expenses are offset by management fees charged to related parties</li>
</ol>
<br />
It's up for debate as to whether the underlying arrangements for these companies are legally valid, but that is a topic to be debated another time, especially as to why the CRA is not as aggressive as it should be in questioning them.<br />
<br />
The current debate is as to whether the new measures for accelerated capital cost allowance will help to boost the economy. I am skeptical as to whether that will happen, because Canadian businesses have been historically notorious for underpaying and underinvesting:<br />
<br />
<ul>
<li>For these past decade, the cost of capital has been at historical lows, which would have made borrowing for business investment correspondingly cheap. Coupled with capital cost incentives that were much more attractive than their US equivalents, and given the economists' teaching that any project having a return greater than the cost of capital should be undertaken, we should have seen significant uptakes in investment. That, however, has not been the case.</li>
<li>Even before that, when the Canadian dollar achieved temporary parity with the US dollar, we should have seen significant imports of capital equipment to upgrade our under-performing manufacturing plants. That did not happen either.</li>
<li>We witnessed <a href="https://www.theglobeandmail.com/report-on-business/economy/free-up-dead-money-carney-exhorts-corporate-canada/article4493091/" target="_blank">the existence of dead money</a>, where corporations just sat on their cash instead of investing it. </li>
<li>We have witnessed a massive waste of energy by business lobbies in promoting the concept that lower corporate tax rates will increase productivity, whether through the general rate or the small business rate. That hasn't worked either, because we have seen businesses using their improved cash flow to buy back their shares instead. That may very well be linked to the above point about dead money, but I have heard of no analysis published in that regard.</li>
<li>As for the small business rate break, <a href="http://www.legislation.gov.uk/ukpga/2014/26/schedule/1/enacted" target="_blank">the UK abolished its small profits rate in April 2015</a>, because it became quite obvious that it is an incentive to stay small, while <a href="https://www.ato.gov.au/General/New-legislation/In-detail/Direct-taxes/Income-tax-for-businesses/Reducing-the-corporate-tax-rate/" target="_blank">Australia introduced a gross revenue test (subject to certain passive income limitations) in July 2017</a> to bypass the games corporations play to minimize their taxable income to qualify for the break.</li>
</ul>
<br />
In addition, there has always been an over-conservative tradition in Canadian business when it comes to investing. The first employer I worked for after graduation in the 1970s had an effective policy of only approving projects with a payback of less than a year, which really halted a lot of potential investment. I remember a financial analysis supervisor that wrote up a mock appraisal for acquiring an electrical pencil sharpener, and I believe she was able to justify it on the basis of an annualized rate of return of 3,078%! Another employer later on used a hurdle rate of 15% to identify projects that would make the cut for a formal appraisal. As that was an after-tax rate, even at a time when bank rates were around 20%, the tax rate of around 50% would still have made for an after-tax rate of about 10%, and the financial analysts there were wondering why a higher rate was being applied for projects that were essentially risk-free. Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-40864950216991743472018-11-22T15:30:00.002-05:002018-11-24T12:26:39.146-05:00The new CCA rules, explainedAll the hype over Bill Morneau's fall economic statement yesterday was really overdone, but, once you look into the details, many questions remain. I won't discuss the macroeconomic and political issues, as they are being fully debated elsewhere. I will, though, expand on my initial thoughts about the changes to the capital cost allowance rules, because they are more complex than were originally described.<br />
<br />
<h2>
Recap</h2>
<br />
As most CMAs will recall from their training, the NPV of capital investment for the regular declining-balance classes in Schedule II of the Income Tax Regulations is determined through two calculations:<br />
<br />
<h3>
Full-year rule</h3>
<br />
<br />
$ I \left (1-\frac{td}{i+d}\right ) $<br />
<br />
<h3>
</h3>
<h3>
Half-year rule</h3>
<br />
<br />
$ I \left [ 1-\left (\frac{td}{i+d}\right )\left (\frac{1+\frac{1}{2}i}{1+i}\right ) \right ] $<br />
<br />
<h3>
</h3>
<h2>
The new accelerated investment incentive rules</h2>
<br />
Morneau's proposals essentially displace the half-year rule for selected groups of assets, but the much advertised touting of these as providing 100% writeoffs for capital investment are not really that simple. We have to look at how the computations are expressed, and they ain't pretty.<br />
<br />
First of all, under the current <a href="https://www.fin.gc.ca/drleg-apl/2018/nwmm-amvm-1118-l-eng.asp" target="_blank">Notice of Ways and Means Motion</a>,<br />
<br />
<ul>
<li>property acquired after 20 November 2018 (excluding property previously owned by the taxpayer or by another entity with whom the taxpayer does not deal at arm's length, whether by rollover or otherwise) that becomes available for use before 2028 is now identified as "accelerated investment incentive property", and</li>
<li>the capital cost allowance prescribed rates are now multiplied by the following adjusted acquisition values:</li>
</ul>
<br />
$ ab + cd + ef + gh + 0.5i $<br />
<br />
all of which are described in the table below:<br />
<br />
<br />
<table border="1" cellpadding="2" cellspacing="0">
<tbody>
<tr>
<th>Group</th>
<th width="25%">CCA Class</th>
<th colspan="2">Factor</th>
<th width="40%">Description</th>
</tr>
<tr>
<td rowspan="3">$ ab $</td>
<td rowspan="3">not in respect of property included in ITR 1100(1)(v) (ie, a Canadian vessel) or in any of Classes 12, 13, 14, 15, 43.1, 43.2 and 53</td>
<td colspan="2">$ a $</td>
<td><ul>
<li>0.5, in respect of property that becomes available for use before 2024, and</li>
<li>0, in respect of property that becomes available for use after 2023</li>
</ul>
</td>
</tr>
<tr>
<td rowspan="2">$ b = j - k $</td>
<td>$ j $</td>
<td><ul>
</ul>
the total of all amounts that become available for use within the year<br />
<ul>
</ul>
</td>
</tr>
<tr>
<td>$ k $</td>
<td><ul>
</ul>
<span class="fontfamilyserif">the amount, if any, by which the amount determined for $ s $ exceeds the amount determined for $ r $ in the description of $ i $</span><br />
<ul>
</ul>
</td>
</tr>
<tr>
<td rowspan="3">$ cd $</td>
<td rowspan="3">Class 43.1 (ie, clean energy processing)</td>
<td colspan="2">$ c $</td>
<td><ul>
<li>2 1/3, in respect of property that becomes available for use before 2024,</li>
<li>1 1/2, in respect of property that becomes available for use in 2024 or 2025, and</li>
<li> 5/6, in respect of property that becomes available for use after 2025</li>
</ul>
</td>
</tr>
<tr>
<td rowspan="2">$ d = l - m $</td>
<td>$ l $</td>
<td>the total of all amounts that become available for use within the year</td>
</tr>
<tr>
<td>$ m $</td>
<td>same calculation as for $ k $</td>
</tr>
<tr>
<td rowspan="3">$ ef $</td>
<td rowspan="3">Class 43.2 (ie, certain clean energy processing equipment acquired before 2025 that would otherwise fall under Class 43.1)</td>
<td colspan="2">$ e $</td>
<td><ul>
<li>1, in respect of property that becomes available for use before 2024, and</li>
<li>0.5, in respect of property that becomes available for use in 2024</li>
</ul>
</td>
</tr>
<tr>
<td rowspan="2">$ f = n - o $</td>
<td>$ n $</td>
<td>the total of all amounts that become available for use within the year</td>
</tr>
<tr>
<td>$ o $</td>
<td>same calculation as for $ k $</td>
</tr>
<tr>
<td rowspan="3">$ gh $</td>
<td rowspan="3">Manufacturing and processing equipment in Class 53 (if acquired before 2026) or Class 43 (if acquired after 2025)</td>
<td colspan="2">$ g $</td>
<td><ul>
<li>1, in respect of property that becomes available for use before 2024,</li>
<li> 1/2, in respect of property that becomes available for use in 2024 or 2025, and </li>
<li> 5/6, in respect of property that becomes available for use after 2025</li>
</ul>
</td>
</tr>
<tr>
<td rowspan="2">$ h = p - q $</td>
<td>$ p $</td>
<td>the total of all amounts that become available for use within the year</td>
</tr>
<tr>
<td>$ q $</td>
<td>same calculation as for $ k $</td>
</tr>
<tr>
<td rowspan="2">$ i $</td>
<td rowspan="2">property subject to the half-year rule</td>
<td rowspan="2">$ i = r - s $</td>
<td>$ r $</td>
<td>the total of all amounts that become available for use within the year</td>
</tr>
<tr>
<td>$ s $</td>
<td>amounts received as proceeds of disposition for property</td>
</tr>
</tbody></table>
<br />
<br />
While the last factor is effectively the classic half-year rule computation, the other factors are essentially the top-up amount that will be added. They effectively lead to the following composite results:<br />
<br />
<ol>
<li>Unless otherwise provided elsewhere, the CCA first-year claim is calculated at 1.5 times the standard rate for assets becoming available for use before 2024, after which the full-year rule will apply for assets becoming so before 2028, and then reverting back to the half-year rule thereafter.</li>
<li>For Class 43.1, the CCA first-year rate becomes 100% for assets available for use before 2024, 75% for those becoming so in 2024 or 2025, and 55% for those becoming so after 2025.</li>
<li>For Class 43.2, the CCA first-year rate becomes 100% for assets available for use before 2024, and then 75% for those assets becoming in 2024.</li>
<li>For Class 53 and Class 43 assets (depending upon the date they come into use), the CCA rate becomes 100% for assets available for use before
2024, 75% for those becoming so in 2024 or 2025, and 55% for those
becoming so after 2025.</li>
<li>The half-year rule continues to apply for those assets that do not qualify as "accelerated investment incentive property".</li>
</ol>
<br />
Therefore, <a href="https://raellerby.blogspot.com/2018/11/thoughts-on-federal-2018-fall-economic.html" target="_blank">the formula I was posting yesterday</a> for calculating the effective tax shields on the new accelerated rates, being:<br />
<br />
$ I \left [ 1-\left (\frac{td}{i+d}\right )\left (\frac{1+bi}{1+i}\right ) \right ] $<br />
<br />
can be used as appropriate, after taking into account the appropriate top-up factors outlined above.Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-22697220966407220862018-11-21T19:56:00.002-05:002018-11-21T19:56:51.971-05:00Thoughts on the federal 2018 fall economic statementBill Morneau <a href="https://www.theglobeandmail.com/politics/article-liberals-channel-higher-revenues-into-tax-breaks-for-business-in-fall/" target="_blank">was up to his usual stuff today</a>, but there are some practical consequences on what he pulled out of the hat for accelerated capital cost allowances. This will accordingly affect <a href="https://raellerby.blogspot.com/2013/05/capital-investment-appraisal-importance.html" target="_blank">some calculations I had presented five years back</a> on how to compute the effective tax shield on what can be claimed.<br />
<br />
<br />
<h3>
The new first-year allowance</h3>
This calculation is dead simple, as the tax shield is the full amount of corporate tax relief on the investment in question, and so the net present value of the investment is:<br />
<br />
$ I \left (1-t \right ) $<br />
<br />
<br />
<br />
<h3>
The bonus depreciation scheme, aka the "accelerated investment incentive"</h3>
<br />
The revised tax shield available for capital costs other than those eligible for the new first year allowances in the next five years, will now result in a NPV on the investment of:<br />
<br />
$ I \left [ 1-\left (\frac{td}{i+d}\right )\left (\frac{1+bi}{1+i}\right ) \right ] $<br />
<br />
where <i>I</i> is the investment cost, <i>t</i> is the applicable corporate tax rate, <i>d</i> is the normal CCA rate for the property concerned, and <i>b</i> is the bonus factor for multiplying into the first-year CCA claim (in Morneau's proposal, it's 1.5).<br />
<br />
<br />
I will work out some graphs shortly on what the impact of these measures will be. Stay tuned.Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-8513951787122072082018-11-06T13:53:00.000-05:002018-11-06T13:53:46.324-05:00The ever-expanding scope of the corporate profileI suppose I've been rather old-fashioned in my approach to setting up corporate and ownership structures, as I've always believed in the efficacy of <a href="https://en.wikipedia.org/wiki/Occam%27s_razor" target="_blank">Occam's Razor</a> being applied:<br />
<br />
<ul>
<li>every component entity should have genuine economic substance</li>
<li>the simplest solution is the best</li>
<li>oftentimes it is also the cheapest to administer </li>
</ul>
<br />
That's why I'm often bemused when I see owners devising a web of relationships when setting up their affairs, such as this one that was filed in a 2009 CCAA proceeding:<br />
<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="550" msallowfullscreen="" src="https://app.box.com/embed/s/cv18xe8c2g9gpn6jnfh901upyoic7je8" webkitallowfullscreen="" width="100%"></iframe>
<br />
<br />
<br />
The owners' identities here (anonymized in the court filings here as AR, MF and PB) can be easily determined through a standard Internet search, but their beneficial ownership in these companies (upon analyzing the investment flows) comes out to 12.5%, 12.5% and 75% respectively in the destination company of White Birch Paper Company, being an <a href="https://en.wikipedia.org/wiki/Unlimited_liability_corporation" target="_blank">unlimited liability corporation</a> incorporated in Nova Scotia. The choice of intermediaries was most likely driven by US tax law, as Canadian ULCs, <a href="https://en.wikipedia.org/wiki/Limited_partnership" target="_blank">limited partnerships</a>, <a href="https://en.wikipedia.org/wiki/S_corporation" target="_blank">S corporations</a> and <a href="https://en.wikipedia.org/wiki/Limited_liability_company" target="_blank">limited liability companies</a> (the latter two being uniquely American in nature) are regarded as flow-through entities for income tax purposes there. The fact that the three principals gained their primary wealth from real estate development may also explain their preference for such ornate <a href="https://en.wikipedia.org/wiki/Ringfencing" target="_blank">ring-fencing of assets</a>.<br />
<br />
White Birch, in turn, was the parent company for all the group companies shown below:<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="550" msallowfullscreen="" src="https://app.box.com/embed/s/m0q51dtrv9ld1ldnbfux7tzpt92i8l5y" webkitallowfullscreen="" width="100%"></iframe>
<br />
<br />
<br />
<h2>
The problem with ornate structures</h2>
Setups like this are especially problematic when organizations are working to secure financing, as it's only logical to assume that investors need to know with whom they are placing their money. Knowing who the principals are, and their previous experience (whether notorious or benign) is only common sense, but the stories concerning securities scandals, <a href="https://en.wikipedia.org/wiki/Phoenix_company" target="_blank">phoenix activities</a>, <a href="https://en.wikipedia.org/wiki/Money_laundering" target="_blank">money laundering</a> and <a href="https://en.wikipedia.org/wiki/Terrorism_financing" target="_blank">terrorism financing</a> that pop up in the business papers only too frequently remind us that this is a matter that should never be taken for granted. Canada, unfortunately, has been relatively naïve in guarding against this, resulting in what has been called <a href="http://projects.thestar.com/panama-papers/canada-is-the-worlds-newest-tax-haven/" target="_blank">"snow washing"</a>, and our financial institutions and professional advisers still need to get up to snuff with the rest of the world.<br />
<br />
<br />
<h2>
The current controls</h2>
<br />
The <a href="http://www.fintrac-canafe.gc.ca/intro-eng.asp" target="_blank">Financial Transactions and Reports Analysis Centre of Canada</a> (FINTRAC)currently governs what financial institutions and other money handlers must do to deal with the risks of money laundering and terrorism financing in the Canadian financial system. In that regard, there are specific guidelines dealing with:<br />
<br />
<ul>
<li><a href="http://www.fintrac-canafe.gc.ca/guidance-directives/client-clientele/1-eng.asp" target="_blank">"know your client"</a> requirements, including those for</li>
<ul>
<li>properly identifying individuals and entities</li>
<li>identifying their business relationships</li>
<li>determining significant beneficial ownership interests in entities</li>
<li>identifying any third parties that may have effective control over entities</li>
<li>identifying any politically exposed persons and those connected with them</li>
</ul>
<li>ongoing monitoring of such information</li>
<li>reporting any <a href="http://www.fintrac-canafe.gc.ca/guidance-directives/transaction-operation/Guide2/2-eng.asp" target="_blank">suspicious transactions</a> or <a href="http://www.fintrac-canafe.gc.ca/guidance-directives/transaction-operation/Guide5/5-eng.asp" target="_blank">suspected terrorist property</a> concerning such persons to FINTRAC</li>
</ul>
<br />
Much of this is self-explanatory, but some expansion is required to explain what is covered by the concept of "politically exposed persons". The following table will help to identify who is included:<br />
<br />
<br />
<table border="1" cellpadding="2" cellspacing="0">
<tbody>
<tr>
<th>Class of persons</th>
<th>Description</th>
</tr>
<tr>
<td>Foreign PEP</td>
<td><ul>
<li>head of state or head of government; </li>
<li> member of the executive council of government or member of a legislature; </li>
<li>deputy minister or equivalent rank; </li>
<li> ambassador, or attaché or counsellor of an ambassador; </li>
<li>military officer with a rank of general or above; </li>
<li>president of a state-owned company or a state-owned bank; </li>
<li>head of a government agency; </li>
<li>judge of a supreme court, constitutional court or other court of last resort; or </li>
<li>leader or president of a political party represented in a legislature.
</li>
</ul>
</td>
</tr>
<tr>
<td>Domestic PEP</td>
<td><ul>
<li>Governor General, lieutenant governor or head of government; </li>
<li>member of the Senate or House of Commons or member of a legislature; </li>
<li>deputy minister or equivalent rank; </li>
<li>ambassador, or attaché or counsellor of an ambassador; </li>
<li>military officer with a rank of general or above; </li>
<li>president of a corporation that is wholly owned directly by Her Majesty in right of Canada or a province; </li>
<li>head of a government agency;
judge of an appellate court in a province, the Federal Court of Appeal or the Supreme Court of Canada; </li>
<li>leader or president of a political party represented in a legislature; or </li>
<li>mayor or other head of a municipal council
</li>
</ul>
</td>
</tr>
<tr>
<td>Head of an international organization (HIO)</td>
<td><ul>
<li>the head of an international organization established by the governments of states; or </li>
<li>the head of an institution established by an international organization.
</li>
</ul>
</td>
</tr>
<tr>
<td>Family member of a PEP or a HIO</td>
<td><ul>
<li>their spouse or common-law partner; </li>
<li>their child; </li>
<li>their mother or father; </li>
<li>the mother or father of their spouse or common-law partner; and </li>
<li>a child of their mother or father (sibling)</li>
</ul>
Note: in this case, a child does not include a step-child </td>
</tr>
<tr>
<td>Close associate of a PEP or a HIO</td>
<td><ul>
<li>business partners with, or who beneficially owns or controls a business with, a PEP or HIO; </li>
<li>in a romantic relationship with a PEP or HIO, such as a boyfriend, girlfriend or mistress; </li>
<li>involved in financial transactions with a PEP or a HIO; </li>
<li>a prominent member of the same political party or union as a PEP or HIO; </li>
<li>serving as a member of the same board as a PEP or HIO; or </li>
<li> closely carrying out charitable works with a PEP or HIO. </li>
</ul>
Note: the above list is not exhaustive </td>
</tr>
</tbody></table>
<br />
<br />
One might think that such controls might already be comprehensive enough, but the Canadian rules have a lot of holes built into them, as has been noted by Transparency International <a href="https://www.transparency.org/files/content/publication/2015_BOCountryReport_Canada.pdf" target="_blank">here</a>. We still have a long way to go to comply with the <a href="https://www.transparency.org/files/content/activity/2015_TI_G20PositionPaper_BeneficialOwnership.pdf" target="_blank">principles adopted by the G20</a> in 2014 concerning the disclosure of beneficial ownership in entities.<br />
<br />
<h2>
Identifying who controls an entity</h2>
<br />
Trusts that earn income and/or make distributions are required to file form <a href="https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t3app/t3app-fill-18e.pdf" target="_blank">T3APP</a>, together with a copy of the instrument creating the trust, in order to obtain a trust account number for reporting purposes.<br />
<br />
As of July 2017, Canada adopted the Parts XVIII and XIX of the Income Tax Act, which respectively implemented the mandatory identification of US persons subject to IRS reporting obligations, as well as the <a href="https://www.crs.hsbc.com/en" target="_blank">Common Reporting Standard</a> which mandates the disclosure of a passive non-financial entity's controlling persons. Disclosure is by way of filing form <a href="https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/rc519/rc519-fill-17e.pdf" target="_blank">RC519</a> (or one with equivalent information) with the entity's financial institution.<br />
<br />
<h2>
The next steps underway</h2>
<br />
In December 2017, Canada's ministers of finance issued an <a href="https://www.fin.gc.ca/n17/data/17-122_4-eng.asp" target="_blank">Agreement to Strengthen Beneficial Ownership Transparency</a>, which stated that all jurisdictions had agreed in principle to ban the use of <a href="https://en.wikipedia.org/wiki/Bearer_instrument" target="_blank">bearer shares</a> by Canadian corporations, and to compel them to maintain registers of <a href="https://en.wikipedia.org/wiki/Beneficial_ownership" target="_blank">beneficial ownership</a> to show who really are the significant investors in them. <br />
<br />
<h3>
Bearer shares</h3>
While shares are ordinarily subject to entry on a register to record who owns them, bearer instruments do not require registration at all in the company records, and they can be controlled merely by whoever holds possession of them. Their abolition is definitely a no-brainer for establishing another formal link in tracing their real owners.<br />
<br />
Canada chose to implement this in 2018 as part of <a href="http://www.parl.ca/LegisInfo/BillDetails.aspx?Language=E&billId=8433563" target="_blank">Bill C-25</a>, which was advertised as being primarily a measure promoting gender equity on boards. It received Royal Assent on 1 May 2018, whereby the <a href="https://laws-lois.justice.gc.ca/eng/acts/C-44/index.html" target="_blank"><i>Canada Business Corporations Act</i></a> had the following new section inserted:<br />
<blockquote class="tr_bq">
<br />
<i><b>29.1</b> (1) Despite section 29, a corporation shall not issue, in bearer form, a certificate, warrant or other evidence of a conversion privilege, option or right to acquire a share of the corporation.</i></blockquote>
<blockquote class="tr_bq">
<i>(2) A corporation shall, on the request of a holder of a certificate, warrant or other evidence of a conversion privilege, option or right to acquire a share of the corporation that is in bearer form and that was issued before the coming into force of this section, issue in exchange to that holder, in registered form, a certificate, warrant or other evidence, as the case may be.
</i></blockquote>
One problem immediately comes to mind on reading this, in that there is no requirement for existing bearer shares to be converted into registered form by a specific date. That appears to preserve existing arrangements that may now be in effect, and it suggests that Canada will still be offside on the world stage in this matter.<br />
<br />
<h3>
Beneficial ownership</h3>
While financial institutions and others handling money have been obliged to maintain records on beneficial ownership of their corporate clients for some time, corporations have not had the same duty to maintain such records internally. It had essentially been a guessing game on the outside, where arrangements had been seen to be opaque. I can also easily see that bureaucratic inertia or wilful blindness could
impede upon the due diligence that would be necessary to make these
controls effective.<br />
<br />
Bill C-25 turned the screws partially on this as well, by amending another provision of the CBCA to read as follows:<br />
<br />
<blockquote class="tr_bq">
<i><b>153 (1)</b> Shares of a corporation that are registered in the name of an intermediary or their nominee and not beneficially owned by the intermediary must not be voted unless the intermediary, without delay after receipt of the prescribed documents, sends a copy of those documents to the beneficial owner and, except when the intermediary has received written voting instructions from the beneficial owner, a written request for such instructions.
</i></blockquote>
That should bring some of these arrangements out into the open. However, we still need more complete information as to who those beneficial owners may be at any given time, and not just at shareholder meetings. <br />
<br />
It's coming as Part 4, Division 6, in <a href="http://www.parl.ca/LegisInfo/BillDetails.aspx?Language=E&billId=10127729" target="_blank">Bill C-86</a> that was introduced in the House of Commons on 30 October 2018. The latest of the increasingly weighty omnibus finance bills, to become known as the <i>Budget Implementation Act, 2018, No. 2</i>, that particular portion within it will amend the <a href="https://laws-lois.justice.gc.ca/eng/acts/C-44/index.html" target="_blank"><i>Canada Business Corporations Act</i></a> to provide "for a corporation that meets certain criteria to keep a register of individuals with significant control and requirements respecting the information to be recorded in it." It's very notable that no press release has been issued for this particular matter, so we should pay special attention to it as a result.<br />
<br />
This builds upon <a href="https://laws-lois.justice.gc.ca/eng/regulations/SOR-2002-184/page-3.html#h-11" target="_blank">s. 11.1</a> of the <i>Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations</i> (SOR/2002-184), which requires financial institutions and others handling money to keep records of this matter, and specifically with respect to:<br />
<br />
<br />
<blockquote class="tr_bq">
<i>(a) in the case of a corporation, the names of all directors of the corporation and the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of the corporation;</i><br />
<i>(b) in the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust;</i><br />
<i>(c) in the case of an entity other than a corporation or trust, the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the entity; and</i><br />
<i>(d) in all cases, information establishing the ownership, control and structure of the entity.</i></blockquote>
<br />
It's only logical that the corporations themselves will now have a positive duty to maintain and regularly update this information. It's not unique, as similar requirements are being instituted around the world, and the UK adopted its particular scheme in April 2016 under <a href="http://www.legislation.gov.uk/ukpga/2006/46/part/21A" target="_blank">Part 21A</a> of the <i>Companies Act 2006</i> and the connected <a href="http://www.legislation.gov.uk/uksi/2016/339/contents/made" target="_blank"><i>The Register of People with Significant Control Regulations 2016</i></a> (2016 No. 339).<br />
<br />
<br />
The current federal Bill will provide, effective six months after Royal Assent, for any corporation constituted under the CBCA to maintain a register, updated annually, that would include:<br />
<br />
<ul>
<li>the names, the dates of birth and the latest known
address of each individual with significant control;</li>
<li>the jurisdiction of residence for tax purposes of
each individual with significant control;</li>
<li>the day on which each individual became or ceased
to be an individual with significant control, as the case
may be;</li>
<li>a description of how each individual is an individual
with significant control over the corporation, including,
as applicable, a description of their interests
and rights in respect of shares of the corporation;</li>
<li>any other prescribed information; and</li>
<li>a description of each step taken annually to ensure that the above information is accurate and up to date.</li>
</ul>
<br />
And who is an "individual with significant control"?<br />
<br />
<ul>
<li>A holder of a significant number of shares, whether as a registered holder, beneficial owner, or someone with "direct or indirect control or direction over them".</li>
<li>Each of two or more individuals that hold an interest or rights in a significant number of shares, or where a right is subject to any agreement or arrangement by which such a right is to be exercised jointly or in concert by such individuals.</li>
<li>In each of the above cases, a "significant number of shares" is any number of shares that constitute 25% of either the voting rights or market value.</li>
<li>Someone "who has any direct or indirect influence that, if exercised, would result in control in fact of the corporation".</li>
<li>Any other individual "to whom prescribed circumstances apply."</li>
</ul>
<br />
"Influence" and "control in fact" are not defined, but <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/675104/psc-statutory-guidance-companies.pdf" target="_blank">similar guidance in the UK</a> suggests that:<br />
<br />
<ul>
<li>"control" is where a person can direct the activities of a company</li>
<li>"significant influence" is where a person can ensure that a company adopts activities that are desired by him/her</li>
<li>possessing an absolute veto over activities (other than for protecting minority interests), or over appointing a majority of the board of directors, will definitely suggest such power </li>
<li>neither factor has to be exercised with a view to gaining economic benefits from the policies or activities of the company</li>
<li>control can also occur where someone directs or influences a significant section of the board, or where the board regularly consults with, and is therefore influenced by, that person; this also extends to similar influence over a majority of the shareholders' votes</li>
</ul>
<br />
Any corporation that is a "reporting issuer" under any provincial securities act, a member of a "designated stock exchange" under the <i>Income Tax Act</i>, or a member of a prescribed class, will be exempt from maintaining such a register. That effectively restricts the régime to private companies.<br />
<br />
<h2>
What are we not yet doing?</h2>
<br />
There are still some significant matters being addressed elsewhere that Canada has not yet touched:<br />
<br />
<ul>
<li>identifying the <a href="http://files.acams.org/pdfs/2016/Ultimate_Beneficial_Owners_A_Ghaith.pdf" target="_blank">ultimate beneficial owner</a> of an entity</li>
<li>disclosing the controlling persons of <i>active</i> non-financial entities</li>
<li>identifying the settlors, trustees, beneficiaries and controlling persons of trusts and similar arrangements (but that is <a href="https://www.fasken.com/en/knowledgehub/2018/09/pcs-bulletin-trust-reporting-requirements-and-compliance" target="_blank">scheduled to change in 2021</a>)</li>
<li>greater duties placed on nominee shareholders and directors in disclosing who they represent (as in <a href="http://www.guernseyregistry.com/CHttpHandler.ashx?id=111126&p=0" target="_blank">this guidance</a> from Guernsey)</li>
<li>more stringent requirements for entities to possess a genuine economic substance, as opposed to being just a mere shell or conduit (as is <a href="https://statesassembly.gov.je/assemblypropositions/2018/p.121-2018.pdf" target="_blank">currently being discussed</a> in Jersey)</li>
<li>more formal obligations on individuals and entities (such as <a href="https://international.standardbank.com/standimg/PBBInternational/Common%20elements/eforms/Corporate-Account-Application-Form-NON-AI-EFORM.pdf" target="_blank">what this bank is requesting</a> in the Isle of Man) to disclose their rationale for being in business and operating an account at a financial institution, as well as more basic information such as their actual residential address (as opposed to an address for service of documents)</li>
</ul>
I know some managers at these institutions are more diligent than others in gathering this data, but there are many clients (and professional advisers) out there that are somewhat less than forthcoming in giving it. I regard that last attitude as being more wasteful in time than being upfront would otherwise be. I've operated with the latter attitude in my affairs, and it really does work.Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-85789815953215634772018-10-28T15:49:00.000-04:002018-10-28T15:51:56.772-04:00The ever-shrinking scope of a deed (in Ontario)I was checking on required paperwork for executing power of attorney recently, and was fascinated by the variety of forms in effect in Canadian jurisdictions. While <a href="https://www.hsbc.ca/1/PA_ES_Content_Mgmt/content/canada4/pdfs/personal/power-of-attorney-qc.pdf" target="_blank">Quebec's form</a> is based on the civil law and its concept of a mandate, <a href="https://www.hsbc.ca/1/PA_ES_Content_Mgmt/content/canada4/pdfs/personal/power-of-attorney-full.pdf" target="_blank">the default form in the common-law provinces</a> (other than <a href="https://www.hsbc.ca/1/PA_ES_Content_Mgmt/content/canada4/pdfs/personal/power-of-attorney-on.pdf" target="_blank">Ontario</a> and <a href="https://www.hsbc.ca/1/PA_ES_Content_Mgmt/content/canada4/pdfs/personal/power-of-attorney-bc.pdf" target="_blank">BC</a>) calls for execution in the form of a deed. The latter two provinces don't require that to be done. That begs the question as to when the rules diverged, and what else happened along the way. This has proved to be a messy bit of legal history here in Ontario.<br />
<br />
<h3>
What a deed could cover (Blackstone, 1765)</h3>
<br />
The default position in this Province is that we adopted the English law as it existed at 15 October 1792, as noted in the <a href="https://www.ontario.ca/laws/statute/90p29" target="_blank"><i>Property and Civil Rights Act</i></a>. This means that we need to see what the legal commentaries were saying about what the jurisprudence stated at the time. <a href="https://en.wikipedia.org/wiki/Halsbury%27s_Laws_of_England" target="_blank"><i>Halsbury's Laws of England</i></a>, while an excellent source, only goes back to the early 1900s, but Blackstone's Commentaries on the Laws of England goes back much further, and I think <a href="https://archive.org/details/commentariesonla021768blac/page/295" target="_blank">the 1765 version</a> is probably the closest to the starting point we need.<br />
<br />
We can immediately draw upon the following observations:<br />
<br />
<br />
<ul>
<li>"a deed is a writing sealed and delivered by the parties"</li>
<li>"it is the most solemn and authentic act that a man can possibly perform ... and therefore a man shall always be estopped by his own deed, or not permitted to aver or prove anything in contradiction to what he has once so solemnly and deliberately avowed"</li>
</ul>
<br />
And the requisites of a deed?<br />
<br />
<ol>
<li>Persons able to contract and be contracted with, together with a thing or subject matter to be contracted for, all of which must be sufficiently identified.</li>
<li>Be founded on good and sufficient consideration, which may be good (ie, founded on generosity, prudence or natural duty) or valuable (such as money, marriage, or the like, and therefore founded in motives of justice). Those founded on good consideration are considered voluntary, and are more likely to be set aside in favour of creditors and <i>bona fide</i> purchasers.</li>
<li>It must be written on paper or parchment.</li>
<li>There must be words sufficient to specify the agreement and bind the parties.</li>
<li>It must be read by (or out to) any party that desires it, in order not to be declared void.</li>
<li>Each party must seal it, and preferably sign it as well.</li>
<li>It must be attested by witnesses, in order to preserve the evidence. They did not need to sign themselves, but their presence at the reading had to be recorded.</li>
</ol>
<br />
Deeds are further grouped as follows:<br />
<br />
<ul>
<li>Primary conveyances, where a benefit or estate first arises, being feoffments, gifts, grants, leases, exchanges and partitions.</li>
<li>Secondary conveyances, where a benefit or estate is enlarged, restrained, transferred or extinguished, being releases, confirmations, surrenders, assignments and defeazances.</li>
<li>Uses and trusts (including charitable trusts).</li>
<li>Charges and discharges, such as obligations or bonds (ie, to pay a certain sum of money to another on an appointed day), recognizances (ie, to do a specified act) and defeazances (conditions when, once performed, serve to defeat or undo an obligation or recognizance).</li>
</ul>
<br />
There was <a href="https://archive.org/details/commentariesonla713blac/page/306" target="_blank">a general limitation period of 20 years</a> with respect to commencing a civil action.<br />
<br />
Further English jurisprudence expanded on these premises, as <a href="https://archive.org/stream/lawsofenglandbei10hals#page/355/mode/1up" target="_blank">Halsbury explains further</a>:<br />
<br />
<ul>
<li> "A deed is necessary for every transaction which the common law requires to be evidenced by writing." (at 652)</li>
<li>"A deed is also required for any power of attorney which authorizes the attorney to execute a deed or to deliver seisin on the principal's behalf." (at 655)</li>
<li>"... a corporation can only bind itself by deed under its corporate seal."</li>
<li>"Gifts or gratuitous assignments of ... tangible goods, must, if not accompanied by delivery of possession, be made by deed."</li>
<li>"... all gratuitous promises must be made by deed to become legally enforceable."</li>
<li>"The appointment by the father or the mother of a guardian by statute of his or her child must, if not made by will, be made by deed." (at 657)</li>
<li>the alienation of any contingent, executory or future interests in real property, as well as any right of entry thereon, must be made by deed. (at 664)</li>
<li>equity does provide that "a deed is not necessary to effect the gratuitous assurance of any equitable estate, interest or right, provided that the intention of actual and immediate assignment (as opposed to a mere promise of future assignment or gift) be clearly expressed and that the assurance be put in writing and signed by the assuror." (at 677)</li>
<li>A deed can be either a deed poll (ie, made by one party only) or an indenture (made by two or more parties, but it has to expressed as being between them). (at 680). It should be noted that <a href="http://www.archives.gov.on.ca/en/access/documents/research_guide_229_change_of_name.pdf" target="_blank">a deed poll used to be the method by which a person could formally change his name</a>.</li>
</ul>
There are numerous, and very specific requirements, that must be followed to ensure that the form of the deed will truly be valid, but the above serves to outline the general concepts that were imported to Upper Canada's law, and hence later to Ontario's.<br />
<br />
<h3>
Later modifications</h3>
There were surprisingly few modifications to the common law during the 19th and early 20th centuries:<br />
<ul>
<li><a href="https://hdl.handle.net/2027/mdp.35112103435170?urlappend=%3Bseq=21" target="_blank">in 1837</a>, the 20-year limitation period was restricted to actions commenced with respect to deeds, as opposed to a 6-year period for other matters</li>
<li><a href="https://hdl.handle.net/2027/mdp.39015074211999?urlappend=%3Bseq=142" target="_blank">in 1865</a>, certain reforms introduced into English law by the <i>Law of Property Amendment Act 1859</i> were imported to Upper Canada:</li>
<ul>
<li>deeds henceforth required attestation by two or more witnesses (s. 11)</li>
<li>a power of attorney executed by a married woman was valid, in the same manner as for deeds and conveyances that could be executed by her (s. 22)</li>
<li>a power of attorney is not extinguished by the decease of the grantor, and any acts done thereafter are valid as long as they were done in good faith (ss. 23-24)</li>
</ul>
<li>the provision in relation to married women <a href="https://archive.org/details/statutesofprovin1877onta/page/44" target="_blank">was quietly repealed in 1877</a></li>
<li>the other provisions relating to power of attorney were <a href="https://archive.org/details/statutesofprovin1910onta/page/392" target="_blank">reenacted as a separate statute in 1910</a>, and <a href="https://archive.org/details/statutesofprovin1911onta/page/57" target="_blank">amended in 1911</a> to import <a href="http://www.legislation.gov.uk/ukpga/1893/53/pdfs/ukpga_18930053_en.pdf" target="_blank">s. 23 of the English <i>Trustee Act 1893</i></a>.</li>
<li>the requirement for two witnesses to attest <a href="https://archive.org/details/statutesofprovin1911onta/page/114" target="_blank">was reenacted in 1911</a> as part of the <a href="https://archive.org/details/statutesofprovin1911onta/page/106" target="_blank"><i>The Conveyancing and Law of Property Act</i></a></li>
</ul>
<h3>
</h3>
<h3>
Subsequent reforms</h3>
The Legislature of Ontario has since passed several important pieces of legislation that have served to restrict the availability of deeds:<br />
<br />
<br />
<table border="1" cellpadding="2" cellspacing="0">
<tbody>
<tr>
<th>Subject</th>
<th>Act</th>
<th>Effect</th>
</tr>
<tr>
<td rowspan="2">Deeds of guardianship</td>
<td><i>An Act respecting the Guardianship of Minors</i>, <a href="https://archive.org/details/statutesofprovin1887onta/page/70" target="_blank">SO 1887, c. 21</a></td>
<td>Deeds available only to mothers of children. (s. 3)</td>
</tr>
<tr>
<td><i>Children's Law Reform Amendment Act, 1982</i>, <a href="https://archive.org/details/statutesofprovin1982onta/page/309" target="_blank">SO 1982, c. 20</a></td>
<td>Guardianship of the person (ie, custody and access) and guardianship of the child's property are now governed by separate applications to the court</td>
</tr>
<tr>
<td>Change of name</td>
<td><i>The Change of Name Act, 1939</i>, <a href="https://archive.org/details/statutesofprovin1939onta/page/37" target="_blank">SO 1939, c. 6</a></td>
<td>Available only through an application to a judge of a county or district court (ss. 3, 13), except for changes arising from marriage or adoption (s. 13)</td>
</tr>
<tr>
<td rowspan="2">Corporate capacity to execute contracts</td>
<td><i>The Business Corporations Act, 1970</i>, <a href="https://archive.org/details/statutesofprovin1970onta/page/99">SO 1970, c. 25</a></td>
<td>A contract "may be entered into on behalf of a corporation in writing signed by any person acting under its authority, expressed or implied." (s. 18(2-3)) This appears to be the source for the statement found in most corporate documents here, being "I have authority to bind the Corporation."</td>
</tr>
<tr>
<td><i>Canada Business Corporations Act</i>, <a href="https://archive.org/stream/actsofparl197476v01cana#page/709/mode/1up">SC 1974-75-76, c. 33</a></td>
<td>An instrument or agreement executed on behalf of a corporation "is not invalid merely because a corporate seal has not been affixed thereto." (s. 23)</td>
</tr>
<tr>
<td rowspan="2">Power of attorney</td>
<td><i>The Powers of Attorney Act, 1979</i>, <a href="https://archive.org/details/statutesofprovin1979onta/page/671" target="_blank">SO 1979, c. 107</a></td>
<td>A power of attorney is available only in the specified form. (s. 2)</td>
</tr>
<tr>
<td><i>Substitute Decisions Act, 1992</i>, <a href="https://archive.org/details/statutesofprov1992v2onta/page/555" target="_blank">SO 1992, c. 30</a></td>
<td>Powers of attorney are subdivided into those relating to property (Part I), and those relating to personal care (Part II). Separate guardianship proceedings in both matters provided for those adults subject to the <i>Mental Health Act</i>.</td>
</tr>
<tr><td>Land registration</td>
<td><i>Land Registration Reform Act, 1984</i>, <a href="https://archive.org/details/statutesofprovin1984onta/page/375" target="_blank">SO 1984, c. 32</a></td>
<td>Any document recording a change of interest in land "need not be executed under seal by any person". (s. 13)</td>
</tr>
<tr>
<td>Limitations of actions</td>
<td><i>Limitations Act, 2002</i>, <a href="https://www.ontario.ca/laws/statute/02l24/v1" target="_blank">S.O. 2002, c. 24, Sched. B</a></td>
<td>From 2004, in all matters other than for real property, actions may not be commenced more than two years after when the claim was discovered (s. 4), and no more than fifteen years after the act or omission had taken place (s. 15)</td>
</tr>
</tbody>
</table>
<br />
<br />
<h3>
The remaining field</h3>
<br />
What scope remains? After the registration of real property being removed from being evidenced by deed, the benefit of longer limitation periods having been removed, and the gradual removal of more personal acts, there appears to be very little left, but there are some useful matters that remain:<br />
<ul>
<li>Deeds of trust (including those creating charitable trusts) are very much alive</li>
<li>They are still necessary in order to enforce gratuitous promises</li>
<li>Any contracts that could be attacked for lack of consideration would be protected when executed by deed</li>
<li>Where "actual and immediate assignment" is not contemplated in a transaction, a deed is still useful to protect a party's interest</li>
</ul>
This serves as merely a thumbnail sketch of the topic, and I'm sure that legal scholars would be able to flesh it out more comprehensively, but it should suffice for general purposes in this province. <br />
<ul>
</ul>
Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-9458610823229931482018-10-08T18:53:00.002-04:002018-10-08T18:53:47.151-04:00Does your employee really exist?I'm being quite serious with this question, because I have seen many instances where that was not the case:<br />
<ul>
<li>One person's Social Insurance Number was rejected when input into the payroll system, and he was asked to bring in his card. He left and never returned to work.</li>
<li>There was another instance where one person used another's SIN, and came into the payroll office later to say that he had finally gotten his own card. (He was fired on the spot.)</li>
</ul>
This is in addition to the other stories we've heard about false credentials, fake IDs and falsified references. Quite plainly, Canadian employers have been quite lax in who they've hired over the years. Even now, pre-screening in the hiring process is error-prone to the point of producing false positives and negatives, and human rights legislation prevents vetting at the point of application.<br />
<br />
How then should we ensure that our prospective employees are who they say they, have the requisite qualification for the position, and are of good character as well? The best recommendation is to make all job offers contingent upon satisfying specific verification requirements before their start date. The following checklist is certainly a good start.<br />
<br />
<h3>
The basics</h3>
<br />
To start, we require:<br />
<ul>
<li>proof of Social Insurance Number (required for any reporting to the CRA)</li>
<li>proof of name (duh!)</li>
</ul>
For the SIN, providing the card (if issued before 31 March 2014) or verification letter (if issued afterwards) will be sufficient, and a copy should be made for the employee file. For the name, I would prefer seeing an original voided cheque from a Canadian financial institution that has the person's name preprinted thereon. The latter will be useful for setting up direct deposit for the employee, which should be standard practice for all employers.<br />
<br />
<h3>
Proving identity and eligibility to work</h3>
<br />
While the basics are necessary, they are not sufficient in themselves to prove what is essential:<br />
<ul>
<li>identity</li>
<li>address</li>
<li>eligibility to work in Canada</li>
</ul>
<br />
<h4>
Proof of identity</h4>
<br />
Put quite simply, having a name does not mean it belongs to the person in question without further proof. We will need ID that bears the person's photo, date of birth and signature as well. A basic list would include:<br />
<ul>
<li>a current driver's licence or photo ID card issued by a government agency</li>
<li>a current passport</li>
<li>a current secure Certificate of Indian Status card</li>
</ul>
Amazingly, this is a very short list, as <a href="https://www.ontario.ca/page/acceptable-identity-documents" target="_blank">not many other documents in Canada consistently carry all four elements</a>. The Canadian Permanent Resident Card, for example, stopped showing the signature on cards issued from 4 February 2012.<br />
<br />
<h4>
Proof of address</h4>
If a person does not have a driver's licence or photo ID as noted above, an original mailed account statement from a Canadian financial institution (issued within the previous three months), or a recent notice of assessment from the CRA, should be sufficient to prove one's address. Failing those, <a href="https://www.ontario.ca/page/documents-needed-get-health-card" target="_blank">other acceptable documents</a> would be those listed for an Ontario Health Card application.<br />
<br />
<br />
<h4>
Eligibility to work</h4>
None of the above documents (with the exception of a Canadian passport) proves that a person is eligible to work in Canada. For that, we must consult <a href="https://www.canada.ca/en/employment-social-development/services/sin/before-applying.html" target="_blank">the list of documents acceptable for applying for a Social Insurance Number</a>. The essential documents are:<br />
<br />
<table border="1" cellpadding="2" cellspacing="0">
<tbody>
<tr>
<td valign="top"><b><u>Canadian citizens </u></b><br />
<li> Certificate of birth or birth certificate issued by a province or territory</li>
<li> Certificate of Canadian Citizenship</li>
<li> Certificate of Registration of Birth Abroad issued before 1977</li>
</td>
</tr>
<tr>
<td valign="top"><b><u>Permanent residents </u></b><br />
<li> Permanent resident card </li>
<li> Confirmation of Permanent Residence (only acceptable if used within one year of the date of becoming a permanent resident)</li>
<li> Record of Landing issued before June 28, 2002.</li>
</td>
</tr>
<tr>
<td valign="top"><b><u>Temporary residents </u></b><br />
<li> Work permi </li>
<li> Study permit, indicating authorization to work in Canada</li>
<li> Visitor record, indicating authorization to work in Canada</li>
<li> Diplomatic identity card and a work authorization issued by Global Affairs Canada.</li>
</td>
</tr>
</tbody></table>
<br />
<h3>
Proof of credentials</h3>
We also need to verify an employee`s education and (where required) professional credentials.<br />
<br />
For Canadian schools, this can be a very fragmented process, as transcripts are only provided directly to the people that were in the courses. If you just want a verification that a degree, diploma or certificate had been obtained, this has been simplified in recent years:<br />
<ul>
<li>Many universities and colleges have gotten together to provide this confirmation via <a href="https://www.auradata.com/" target="_blank">AuraData</a></li>
<li>Some provide a separate service, such as the <a href="https://degreeconfirmation.utoronto.ca/degree/online" target="_blank">University of Toronto</a></li>
</ul>
For foreign schools, the candidates will have to provide original documents, with translations where required. There are services available that can be useful for verifying such credentials. They are worth checking, because it's stupid to insist only on Canadian experience where there are many examples of more superior sources available internationally. <a href="http://www.rediff.com/money/2004/jan/21india.htm" target="_blank">Even the management guru Peter Drucker has said so</a>.<br />
<br />
The information available from professional bodies will vary from one organization to another. For example, in the accounting profession in this province CPA Ontario will not provide information directly to employers, but will <a href="https://media.cpaontario.ca/become-a-cpa/pdfs/2017/Student%20Record%20Request.pdf" target="_blank">send to members on request</a>:<br />
<ul>
<li>a letter of good standing (to student members only)</li>
<li>a history of practical work experience (where available) </li>
<li>education records</li>
</ul>
There is no membership card issued these days to prove that a member is in good standing, but a copy of their account profile can be obtained online and printed. Because of the CA/CGA/CMA merger (effectively in 2014, but legally sanctioned only in 2017), I would not ask for the original certificates such legacy members obtained, as that could constitute <i>prima facie</i> age discrimination. For example, I originally qualified as a Registered Industrial Accountant (RIA) in 1984, a year before it was reconstituted as Certified Management Accountant (CMA). Even the dumbest HR staff can do the math on that, so why give them the chance to back out of the offer (albeit on other bogus grounds)?<br />
<br />
<h3>
Proof of character</h3>
Beyond the question of proving documentation, there are other fundamental questions relating to a candidate's character:<br />
<ul>
<li>Is there a criminal record showing convictions, not otherwise pardoned, suspended or expunged, that would raise concerns relating to past behaviour that would be abhorrent to an employer? Quebec has a checklist of offences relating to dishonesty and corruption under <a href="http://legisquebec.gouv.qc.ca/en/showdoc/cs/C-65.1" target="_blank">Schedule I of the <i>Anti-Corruption Act</i></a>; the CRA has more general provisions <a href="https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/policies-guidance/ineligible-individuals.html" target="_blank">relating to individuals who are potentially ineligible to hold a senior position in a charity</a>; and the provincial securities commissions have a very comprehensive list for any director or officer of a public company, as shown in <a href="http://www.osc.gov.on.ca/documents/en/Securities-Category4/rule_20061222_41-101_gen-pro-requirements.pdf" target="_blank">Schedule A of National Instrument 41-101</a>. The checklist an employer will use has to be necessarily proportionate to its requirements (eg, a candidate for the Finance function will most likely need to have a clean record as far as offences for financial dishonesty are concerned).</li>
<li>Would a candidate's financial prudence be relevant in assessing acceptability for a position? If so, a credit report may be required to look for potential red flags.</li>
<li>Are there factors or concerns in a candidate's employment history that have never made it to the public record? That is why references must always be sought and checked out. They must also provide real information: a reference available only from HR that provides just bare details such as hire and exit dates may very well cover up an adverse background. For an appropriate process, the Government of Canada has an excellent page on <a href="https://www.canada.ca/en/public-service-commission/services/public-service-hiring-guides/structured-reference-checks.html" target="_blank">structured reference checks</a>.</li>
<li>Are there other factors or concerns about the candidate's personal character that may be relevant to future performance? Social media checks are happening now, and Google may reveal some rather positive - or awkward - information.</li>
</ul>
How far back do you need to go? It depends on how crucial or senior the position is, but five years is probably a safe span of time, unless something pops up that may justify going back further.<br />
<br />
<h3>
Other crucial needs?</h3>
The potential requirements an employer has may extend beyond the minimum noted above:<br />
<ul>
<li>If a position is situated on a First Nations reserve and the candidate asserts that he/she is Indigenous, they will need to show a Certificate of Indian Status card to prove the claim. That is necessary in order to prove the right to earn pay tax-free for working on the reserve.</li>
<li>Specialist certifications, such as those for bus and truck drivers, pilots and seamen, will need to be provided if the position calls for them.</li>
<li>Eligibility to obtain security clearances for access to sensitive areas will be relevant for the positions that call for it, and may well be a prerequisite before an offer is actually presented.</li>
</ul>
<h3>
Does this need to be done again later?</h3>
Sadly, a person's position and circumstances will change over time. If a person obtains new educational or professional qualifications, they should have an obligation to inform the employer about such changes, through the processes outlined above, and frequent voluntary updates will only make it easier to administer.<br />
<br />
If someone is initially hired for a low-level position and is subsequently promoted to one with more responsibility, more stringent requirements may apply with respect to character and that part of the verification process may have to be repeated before the new position is offered.<br />
<br />
There can certainly be more requirements an employer has and, subject to the restrictions imposed under human rights legislation, appropriate steps will need to be added. This is not an easy task, so good luck!Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-91565273788268801922018-09-10T17:33:00.001-04:002018-09-12T16:22:25.189-04:00California dreamin’…It was surprising to note on my recent trip to California that I only once encountered anyone smoking up on cannabis, and that was in a car parked at a lookout on the Sunset Cliffs in San Diego. The only other evidence of the legalized business was a billboard in North Hollywood announcing that a business had received permission to deliver the product to your home if you lived in LA. Rather low key, compared to the hype occurring now during the great ganja gold rush leading up to its legalization in the Great White North this coming 17 October.<br />
<br />
That has prompted me to look into what California is doing to govern this field, and how it compares and contrasts to the approach we are taking. Note that this focuses on the recreational use of it, and the rules governing medical use are totally separate.<br />
<h3>
California</h3>
The California Department of Tax and Fee Administration <a href="http://www.cdtfa.ca.gov/industry/cannabis.htm#Started" target="_blank">has a very useful guide</a> explaining the various requirements. The State also has <a href="https://cannabis.ca.gov/" target="_blank">a centralized web portal</a> that covers all aspects of the business and how it's regulated there.<br />
<br />
The State requires the holding of various tax permits and commercial licences that depend on the activity being undertaken:<br />
<br />
<table border="1" cellpadding="2" cellspacing="0">
<tbody>
<tr>
<td valign="bottom" width="20%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>Activity</b></div>
</td><td valign="bottom" width="20%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>Seller’s permit</b></div>
</td><td valign="bottom" width="20%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>Cannabis tax permit</b></div>
</td><td valign="bottom" width="20%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>Type of licence</b></div>
</td><td valign="bottom" width="20%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>Issuing agency</b></div>
</td>
</tr>
<tr><td valign="top" width="20%">Collective/cooperative</td>
<td valign="top" width="20%">Yes (Refer to <a href="https://bcc.ca.gov/about_us/documents/18-006_collective_faq.pdf" target="_blank">Collectives and Cooperatives Fact Sheet</a> for further details)</td>
<td valign="top" width="20%"></td>
<td valign="top" width="20%"><br /></td>
<td valign="top" width="20%"></td>
</tr>
<tr>
<td valign="top" width="20%">Cultivator</td>
<td valign="top" width="20%">Yes</td>
<td valign="top" width="20%"></td>
<td valign="top" width="20%">Cultivator</td>
<td valign="top" width="20%">California Department of Food and Agriculture</td>
</tr>
<tr>
<td valign="top" width="20%">Distributor</td>
<td valign="top" width="20%">Yes</td>
<td valign="top" width="20%">Yes</td>
<td valign="top" width="20%">Distributor</td>
<td valign="top" width="20%">Bureau of Cannabis Control, California Department of Consumer Affairs</td>
</tr>
<tr>
<td valign="top" width="20%">Manufacturer</td>
<td valign="top" width="20%">Yes</td>
<td valign="top" width="20%"></td>
<td valign="top" width="20%">Manufacturer</td>
<td valign="top" width="20%">California Department of Public Health</td>
</tr>
<tr>
<td valign="top" width="20%">Microbusiness (ie, a combined business that is engaged in cultivation, manufacturing, distribution and retail sales)</td>
<td valign="top" width="20%">Yes</td>
<td valign="top" width="20%">Yes</td>
<td valign="top" width="20%">Microbusiness</td>
<td valign="top" width="20%">BCC/CDCA</td>
</tr>
<tr>
<td valign="top" width="20%">Nursery</td>
<td valign="top" width="20%">Yes</td>
<td valign="top" width="20%"></td>
<td valign="top" width="20%">Cultivator</td>
<td valign="top" width="20%">CDFA</td>
</tr>
<tr>
<td valign="top" width="20%">Processor</td>
<td valign="top" width="20%">Yes</td>
<td valign="top" width="20%"></td>
<td valign="top" width="20%">Cultivator</td>
<td valign="top" width="20%">CDFA</td>
</tr>
<tr>
<td valign="top" width="20%">Retailer/dispensary</td>
<td valign="top" width="20%">Yes</td>
<td valign="top" width="20%"></td>
<td valign="top" width="20%">Retail</td>
<td valign="top" width="20%">BCC/CDCA</td>
</tr>
<tr>
<td valign="top" width="20%">Testing facility</td>
<td valign="top" width="20%">Maybe (Although not allowed to sell cannabis or cannabis products, they must hold a permit if they wish to sell any other types of tangible personal property, such as testing kits)</td>
<td valign="top" width="20%"></td>
<td valign="top" width="20%">Testing laboratory</td>
<td valign="top" width="20%">BCC/CDCA</td>
</tr>
</tbody>
</table>
<br />
<br />
However, a seller's permit is not required if no tangible personal property is sold in California, but the commercial licensing rules require that a certification letter must be issued by the CDTFA to the relevant licensing agency to confirm that that is truly the case.<br />
<br />
In addition, the tax structure consists of an excise tax and a cultivation tax.<br />
<br />
<ul>
<li>The excise tax is on retail purchasers of cannabis and cannabis products, and is 15%, based on the average retail price being realized. In an arm's-length transaction, that is the price charged at the cash register. in a non-arm's-length transaction, a markup would be applied to arrive at what would otherwise be the retail price. California sales and use tax is charged on the selling price including excise tax.</li>
<li>The cultivation tax is imposed on the category and weight of cannabis that is sold or transferred to a manufacturer or distributor:</li>
</ul>
<br />
<br />
<table border="1" cellpadding="2" cellspacing="0">
<tbody>
<tr>
<td valign="bottom" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>Category</b></div>
</td><td valign="bottom" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>USD/oz</b></div>
</td><td valign="bottom" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>USD/g</b></div>
</td><td valign="bottom" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>Equivalent CAD/g</b></div>
</td>
</tr>
<tr><td valign="top" width="25%">Cannabis flowers (including dry cannabis plant)</td>
<td valign="center" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
9.25</div>
</td>
<td valign="center" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
0.326284</div>
</td>
<td valign="center" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
0.429322</div>
</td>
</tr>
<tr>
</tr>
<tr><td valign="top" width="25%">Cannabis leaves</td>
<td valign="top" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
2.75</div>
</td>
<td valign="top" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
0.097003</div>
</td>
<td valign="top" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
0.127636</div>
</td>
</tr>
<tr>
</tr>
<tr><td valign="top" width="25%">Fresh cannabis plant (weighed within two hours of harvesting)</td>
<td valign="top" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
1.29</div>
</td>
<td valign="top" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
0.045503</div>
</td>
<td valign="top" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
0.059873</div>
</td>
</tr>
</tbody>
</table>
<br />
<br />
I've presumed an exchange of CAD 1.00 = USD 0.76 in the above calculations.<br />
<br />
<h3>
Canada</h3>
Health Canada has established classes of licences for the following:<br />
<br />
<br />
<table border="1" cellpadding="2" cellspacing="0">
<tbody>
<tr>
<td valign="bottom" width="40%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>Licence</b></div>
</td><td valign="bottom" width="30%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>Activity</b></div>
</td><td valign="bottom" width="30%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>Allowing for</b></div>
</td>
</tr>
<tr>
<td valign="top" width="40%">Standard cultivation</td>
<td valign="top" width="30%">Growing in an area greater than 200 m<sup>2</sup></td>
<td valign="top" width="30%">Plants (dried or fresh); seeds</td>
</tr>
<tr>
<td valign="top" width="40%">Micro-cultivation</td>
<td valign="top" width="30%">Growing in an area less than 200 m<sup>2</sup></td>
<td valign="top" width="30%">Plants (dried or fresh); seeds</td>
</tr>
<tr>
<td valign="top" width="40%">Nursery</td>
<td valign="top" width="30%">Growing for starting material (ie, plants and seeds)</td>
<td valign="top" width="30%">In areas up to 50 m<sup>2</sup></td>
</tr>
<tr>
<td valign="top" width="40%">Standard processing</td>
<td valign="top" width="30%">Making cannabis products on a large scale (ie, greater than 600kg/year of dried cannabis)</td>
<td valign="top" width="30%">Manufacturing</td>
</tr>
<tr>
<td valign="top" width="40%">Micro-processing</td>
<td valign="top" width="30%">Making cannabis products on a lesser scale</td>
<td valign="top" width="30%">Manufacturing</td>
</tr>
<tr>
<td valign="top" width="40%">Sale for medical purposes</td>
<td valign="top" width="30%">Selling cannabis for medical purposes</td>
<td valign="top" width="30%">Selling to registered clients</td>
</tr>
<tr>
<td valign="top" width="40%">Analytical testing</td>
<td valign="top" width="30%">Testing of cannabis</td>
<td valign="top" width="30%">Any type of testing</td>
</tr>
<tr>
<td valign="top" width="40%">Research</td>
<td valign="top" width="30%">Research of cannabis</td>
<td valign="top" width="30%">Research and development</td>
</tr>
</tbody></table>
<br />
<br />
In conjunction with this, there will be a <a href="https://www.canada.ca/en/health-canada/services/drugs-medication/cannabis/tracking-system/monthly-reporting-guide-federal.html" target="_blank">Cannabis Licensing and Tracking System</a> in effect, that will track all balances of, and changes to, inventories of licence holders, together with transaction counts and quantities by province and territory. The monthly reporting looks rather daunting, and I hope they will accept flat file transfers for that purpose. Manual entry would be brutal!<br />
<br />
In addition, the Canada Revenue Agency <a href="https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/edn53/general-information-cultivators-producers-packagers-cannabis-products.html" target="_blank">has a separate registration framework</a> for collecting the following excise duties:<br />
<ul>
<li>a flat-rate duty imposed at the time of packaging </li>
<li>an<i> ad valorem</i> duty of 2.5% imposed at the time of delivery; and</li>
<li>an additional duty (expected to be 7.5%) on delivery that will be remitted to participating provinces</li>
</ul>
The various rates of flat-rate duty are:<br />
<br />
<table border="1" cellpadding="2" cellspacing="0">
<tbody>
<tr>
<td valign="bottom" width="50%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>Cannabis product</b></div>
</td><td valign="bottom" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>Flat rate duty (CAD)</b></div>
</td><td valign="bottom" width="25%"><div align="center" dir="ltr" style="margin-right: 0px;">
<b>Flat rate + additional duties (CAD)</b></div>
</td>
</tr>
<tr>
<td valign="top" width="50%">Flowering material (flower) included in the cannabis product or used in the production of the cannabis product</td>
<td valign="top" width="25%"><sup>0.25/g</sup></td>
<td valign="top" width="25%"><sup>1.00/g</sup></td>
</tr>
<tr>
<td valign="top" width="50%">Non-flowering material (trim) included in the cannabis product or used in the production of the cannabis product (this includes flowering material that is industrial hemp by-product)</td>
<td valign="top" width="25%">0.075/g</td>
<td valign="top" width="25%">0.30/g</td>
</tr>
<tr>
<td valign="top" width="50%">Seed included in the cannabis product or used in the production of the cannabis product</td>
<td valign="top" width="25%"><sup>0.25 per viable seed</sup></td>
<td valign="top" width="25%"><sup>1.00 per viable seed</sup></td>
</tr>
<tr>
<td valign="top" width="50%">Plants included in the cannabis product or used in the production of the cannabis product</td>
<td valign="top" width="25%"><sup>0.25 per vegetative cannabis plant</sup></td>
<td valign="top" width="25%"><sup>1.00 per vegetative cannabis plant</sup></td>
</tr>
</tbody></table>
<br />
The actual liability will be the higher of the flat-rate duty or the total of the <i>ad valorem</i> duties. Of course, GST/HST is chargeable on the total selling price including excise duty.<br />
<br />
Registration will be required from all commercial producers, and packagers will also have to secure an additional registration in order to receive excise stamps for application to their manufactured product. Particulars of both schemes can be found <a href="https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/edn52/obtaining-renewing-cannabis-licence.html" target="_blank">here</a> and <a href="https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/edn54.html" target="_blank">here</a>. It should be noted that the required documentation to support the producer registration is quite extensive, incorporating detailed background of all directors, officers, other key personnel and the various facilities connected to the operation. The Health Canada applications also require this, as well as security clearances of all personnel concerned.<br />
<br />
<h3>
Summary</h3>
<br />
It appears that California has found more tax room to exploit in this field, compared to what current Canadian initiatives have gone towards, and there appears to have been little controversy as a result. Could this mean that we have underpriced the market here, or does this mean that producers will be getting profits that are unduly high? This merits further study, given the frenzy that venture capitalists have been in this year to get into the field. Stay tuned.Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-18534170643283351272018-03-07T17:27:00.001-05:002018-03-07T17:27:10.647-05:00Welcome changes to the refundable dividend tax rulesI promised <a href="http://raellerby.blogspot.ca/2018/03/the-passive-income-controversy-contd.html" target="_blank">in my last post</a> that I would visit the changes proposed in the 2018 federal budget with respect to the account for refundable dividend tax on hand (RDTOH), and here is the result. There are some very provisions coming into effect that will really bring some needed integration and antiabuse provisions in this field for Canadian-controlled private corporations (CCPCs).<br />
<br />
The changes will affect certain key forms that need to be filed:<br />
<br />
<ul>
<li><a href="https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t2sch3/t2sch3-16e.pdf" target="_blank">T2 Schedule 3</a>, which reconciles dividends received, taxable dividends paid, and Part IV tax calculations;</li>
<li><a href="https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t2sch53/t2sch53-12-17e.pdf" target="_blank">T2 Schedule 53</a>, which reconciles the flows within the <a href="https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/eligible-dividends/general-rate-income-pool-grip.html" target="_blank">Generate Rate Income Pool </a>(GRIP) that determine what can be paid as eligible dividends reported on the <a href="https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t5sum/t5-sum-17b.pdf" target="_blank">T5 return</a>;</li>
<li><a href="https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t2sch54/t2sch54-17e.pdf" target="_blank">T2 Schedule 54</a>, which reconciles the flows within the <a href="https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/eligible-dividends/low-rate-income-pool-lrip.html" target="_blank">Low Rate Income Pool </a>(LRIP) that determine what can be paid as non-eligible dividends similarly reported; and</li>
<li><a href="https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t2/t2-16e.pdf" target="_blank">page 7 of the T2 return</a>, concerning the determination of RDTOH and dividend refunds for the year.</li>
</ul>
<br />
This is important, as eligible dividends paid from GRIP, because of the "gross-up and credit" system of reporting taxable dividends, are more or less accounted for on the individual T1 returns with minimal impact on the overall tax collected when you add the effects of personal and corporate taxes together. Non-eligible dividends paid from LRIP will result in being effectively marginally taxed at the personal level. Until now, if there were balances in both pools there was no rule governing which pool had to be drawn upon first for paying dividends to shareholders.<br />
<br />
<h4>
The changes</h4>
<br />
<br />
Beginning with the first taxation year after 2018, the RDTOH will be divided into two accounts:<br />
<br />
<ol>
<li>The current account will be designated as "non-eligible RDTOH".</li>
<li>A new account, to be known as "eligible RDTOH", will be created.</li>
<li>Where a corporation is a CCPC throughout that first year, an opening balance will be created for eligible RDTOH equal to the lesser of a) its RDTOH at the end of the previous year, and b) 38⅓% of its GRIP at the same date. An anti-avoidance provision will be in effect to prevent any manipulation concerning the opening balance.</li>
<li>Otherwise, additions to eligible RDTOH will arise from Part IV tax on "eligible portfolio dividends", which are dividends received from a) corporations with which the corporation is not connected under <a href="http://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-186.html" target="_blank">ITA s. 186(4)</a>, and b) connected corporations paying dividends from their own eligible RDTOH accounts.</li>
</ol>
<br />
Why is that necessary? It is because of the rules that will also come into force with respect to obtaining dividend refunds relating to Part IV tax and the refundable portion of Part I tax paid in previous years that had already flowed into the RDTOH:<br />
<br />
<ol>
<li>If a corporation pays an eligible dividend, it will not be able to obtain a dividend refund unless it has a positive balance for eligible RDTOH.</li>
<li>If it pays a non-eligible dividend, it will obtain a dividend refund as long as there is a positive balance in either RDTOH account.</li>
<li>The non-eligible RDTOH account must be depleted before a dividend refund can be obtained with respect to its eligible RDTOH account.</li>
</ol>
<br />
<h4>
Why does this matter?</h4>
This is related to Ottawa's efforts to ensure that passive income within corporations is properly taxed when it flows back to individual shareholders. The current régime which provided for a single RDTOH pool was inconsistent with that goal, so it had to be dividend to ensure that taxation was occurring properly with respect to each source of investment income occurring for the corporation. This change was both necessary and desirable.<br />
<br />
Penalties will still exist for eligible dividends paid that are in excess of available GRIP for the year, reported as Part III.1 tax on <a href="https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t2sch55/t2sch55-15e.pdf" target="_blank">T2 Schedule 55</a>. Therefore, several different sets of forecast and other calculation scenarios will be necessary before directors decide to declare any relevant dividends. Another reason to have a very good CFO at your side.<br />
<br />
None of these changes affect the existing rules concerning the <a href="https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-2-dividends/income-tax-folio-s3-f2-c1-capital-dividends.html" target="_blank">capital dividend account</a>, out of which tax-free capital dividends can be paid, but it is still necessary to maintain up-to-date calculations as to what the eligible balance is. The relevant forms for this exercise are <a href="https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t2sch89/t2sch89-16e.pdf" target="_blank">T2 Schedule 89</a> and <a href="https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t2054/t2054-12-17e.pdf" target="_blank">T2054</a>, mailed together to the office stated in the instructions, on or before the date the dividend is first paid or payable.. The corporation's auditors should have already compiled the necessary information, if it is not already available internally.Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-42403124553665161862018-03-02T11:37:00.001-05:002018-03-07T15:37:11.878-05:00The passive income controversy (cont'd)Bill Morneau finally brought down his budget last Tuesday. While the flavour <i>du jour</i> is <a href="https://www.aadnc-aandc.gc.ca/eng/1100100028541/1100100028545" target="_blank">gender-based analysis</a>, you had to dig (as per usual) to find out what Finance is doing to really improve the <i>Income Tax Act</i>, among other laws. They have come up with an interesting resolution to the taxation of passive income in CCPCs that I discussed earlier <a href="http://raellerby.blogspot.ca/2017/10/how-not-to-consult_95.html" target="_blank">here</a> and <a href="http://raellerby.blogspot.ca/2017/11/better-ideas-they-could-have-used.html" target="_blank">here</a>, as well as doing a needed correction to the handling of refundable dividend taxes on hand. I'll deal with the latter matter in a subsequent post.<br />
<br />
<h4>
The Budget (and the real document)</h4>
<br />
The public version, which most commentators appear to have focused on, is an interesting PR exercise as usual: <br />
<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="600" msallowfullscreen="" src="https://app.box.com/embed/s/wm078639l818jkx7453dfajzpjjuh2vf" webkitallowfullscreen="" width="100%"></iframe>
<br />
<br />
However, to see what is really going on, you always have to read this:<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="600" msallowfullscreen="" src="https://app.box.com/embed/s/a5usts9fla4a56dwrsu264ckg0uj1070" webkitallowfullscreen="" width="100%"></iframe>
<br />
<br />
<br />
<h4>
What they're doing with the Small Business Deduction</h4>
<br />
Where they start discussing their proposal for limiting the availability of the small business deduction (SBD) to CCPCs (at pp. 17-20 and pp. 53-55), you discover that this is really a multiple-factor calculation. The basic formula is:<br />
<br />
<div style="text-align: center;">
$ ABL = BL - max(A,B) $</div>
<br />
where:<br />
<br />
<ul>
<li>ABL = adjusted business limit to what can be claimed for the small business deduction</li>
<li>BL = the business limit otherwise available</li>
<li>A = limitation with respect to taxable capital employed in Canada (a concept borrowed from the <a href="http://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-181.2.html" target="_blank">Part I.3 tax on large corporations</a>), which is already in effect as <i>ITA</i> <a href="http://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-125.html" target="_blank">125(5.1)</a></li>
<li>B = limitation with respect to adjusted aggregate investment income (ie, passive income) for the year (being the figure from the <a href="https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2sch7.html" target="_blank">T2 Schedule 7</a> with some adjustments)</li>
</ul>
The very brief summary of the impact is that:<br />
<br />
<ul>
<li>if a CCPC's taxable capital is less than CAD 10 million, and its passive income is less than CAD 50,000, it will continue to have full access to its business limit</li>
<li>if either its taxable capital is greater than CAD 15 million, or its passive income is greater than CAD 150,000, it will have no access to the small business deduction</li>
<li>there is a transitional phase where the above calculation comes into play; it is effectively a percentage reduction of what the dollar amount would otherwise be</li>
</ul>
<br />
The charts that illustrate the impact (as shown in p. 74 of the Budget and pp. 18-19 of the Tax Measures) are very poorly done, as they fragment the extent of its impact. Some commentators have said that these limitations are straight-line calculations, but they are wrong. Both limitations are curvilinear in nature as shown in the following.<br />
<br />
<h4>
The taxable capital limitation </h4>
<br />
The limitation with respect to a CCPC's taxable capital employed in Canada is:<br />
<br />
<div style="text-align: center;">
$ \left[ \frac{0.00225(C-10,000,000)}{11,250} \right], 10,000,000 \leq C \leq 15,000,000 $</div>
<br />
where C is such taxable capital, and the business limit after reduction for this limitation is:<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="400" msallowfullscreen="" src="https://app.box.com/embed/s/sp1cr2ppjod5mwfltdm1owc4fe735utd" webkitallowfullscreen="" width="100%"></iframe>
<br />
<h4>
The passive income limitation</h4>
<br />
The limitation with respect to a CCPC''s passive income for the year is<br />
<br />
<div style="text-align: center;">
$ \left[ \frac{BL}{500,000} - 5(E-50,000) \right], 50,000 \leq E \leq 150,000$</div>
<br />
where E is the adjusted aggregate investment income for the year. <br />
<br />
<iframe allowfullscreen="" frameborder="0" height="400" msallowfullscreen="" src="https://app.box.com/embed/s/ooj91vcjmbc9wd7pwjnrcp3uhp96ydaw" webkitallowfullscreen="" width="100%"></iframe>
<br />
<br />
Further testing proved that these calculations are effectively percentage reductions to what otherwise would be the business limit to which a CCPC would be entitled.<br />
<br />
This also begs the question as to what to expect when the two curves intersect - as that could happen - and this is something that the wizards at Finance decided not to try to visualize. I tried to summarize this in a single formula, but that was not a practical solution. Through the tried-and-true "brute force" technique, I compiled a dataset of calculated datapoints and have constructed a chart of my own, which proves to be revealing:<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="400" msallowfullscreen="" src="https://app.box.com/embed/s/4ljwy3q9ga2zwryvfd6alb5elsn3gd93" webkitallowfullscreen="" width="100%"></iframe>
<br />
You can see that the curve has a definite peak, either side of which tapers down to eventual ineligibility for the small business deduction. That may be worth investigating further, in order to help out with any necessary tax planning such corporations may need to undertake.<br />
<br />
I like this solution, but do object to the way it's being advertised. CPA Canada <a href="https://www.cpacanada.ca/en/connecting-and-news/news/media-centre/2018/february/2018-federal-budget" target="_blank">has described it</a> as being "much simpler than what was originally proposed," but no-one has mentioned its integration with the taxable capital limitation in any detail yet, but it represents a very significant expansion. If this goes through in its proposed form, it will essentially expand this anti-abuse provision, because much of the work that CCPCs and their tax advisers have done over the years in making sure that their taxable income is low enough to fully qualify for the small business deduction will become useless, as it's much more difficult to fudge passive income and capital employed. This is to be welcomed, together with last year's exclusion of personal services business income (as now shown on line 520 of Schedule 7) from the SBD and <a href="https://www.bdo.ca/en-ca/insights/tax/tax-articles/key-considerations-on-the-new-small-business-deduction-denial-rules/" target="_blank">the new SBD denial rules</a>.<br />
<br />
This area is becoming rather exciting now. Let's see what happens next.Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-80840727380986952182017-12-08T10:59:00.000-05:002017-12-08T11:07:46.937-05:00The screws are being turned...Ontario is reforming its labour laws once more, and this time there are some real changes to take note of. Here are what I think are the most significant ones that are happening to the <a href="https://www.ontario.ca/laws/statute/00e41" target="_blank"><i>Employment Standards Act, 2000</i></a>. I've organized them according to when they come in force.<br />
<br />
<h3>
On Royal Assent (27 November 2017)</h3>
<br />
The following provision came into effect immediately:<br />
<br />
<blockquote class="tr_bq">
<i><b>5.1</b> (1) An employer shall not treat, for the purposes of this Act, a person who is an employee of the employer as if the person were not an employee under this Act.
</i></blockquote>
<br />
<blockquote class="tr_bq">
<i>
(2) Subject to subsection 122 (4), if, during the course of an employment standards officer’s investigation or inspection or in any proceeding under this Act, other than a prosecution, an employer or alleged employer claims that a person is not an employee, the burden of proof that the person is not an employee lies upon the employer or alleged employer.</i></blockquote>
<br />
This is huge, for two immediate reasons:<br />
<ul>
<li>this will force an employer to document, before engaging a worker, the reasons why the work is being done by an independent contractor instead of an employee</li>
<li>as the Canada Revenue Agency, in its payroll audits, follows provincial law in determining who an employee is, their work has gotten much easier as they can now demand to see such documentation to satisfy themselves as to such status</li>
</ul>
<br />
This gets better over the coming months.<br />
<br />
<h3>
1 January 2018</h3>
<br />
The following definition in s. 1(1) is amended to read:<br />
<br />
<blockquote class="tr_bq">
<i>“employee” includes, </i><br />
<br />
<i>(a) a person, including an officer of a corporation, who performs work for an employer for wages,</i><br />
<i>(b) a person who supplies services to an employer for wages,</i><br />
<b><i>(c) a person who receives training from a person who is an employer, if the skill in which the person is being trained is a skill used by the employer’s employees, or</i></b><br />
<i>(d) a person who is a homeworker,</i><br />
<br />
<i>and includes a person who was an employee;
</i></blockquote>
<br />
The portion in bold replaces the current provision relating to interns and other trainees, and it looks like it removes any remaining excuses employers might have to say that training doesn't count for being paid.<br />
<br />
<h3>
1 April 2018</h3>
<br />
The following definition is added to s. 1(1):<br />
<br />
<br />
<blockquote class="tr_bq">
<i>“difference in employment status”, in respect of one or more employees, means,</i><br />
<br />
<i>(a) a difference in the number of hours regularly worked by the employees; or</i><br />
<i>(b) a difference in the term of their employment, including a difference in permanent, temporary, seasonal or casual status;</i>
</blockquote>
<br />
Why is this important? It's because of the new provisions that have been inserted into Part XII concerning equal pay for equal work:<br />
<br />
<br />
<blockquote class="tr_bq">
<i><b>41.2</b> In this Part,
“substantially the same” means substantially the same but not necessarily identical.</i><br />
<br />
<i> ...</i><br />
<br />
<i><b>42.1</b> (1) No employer shall pay an employee at a rate of pay less than the rate paid to another employee of the employer because of a difference in employment status when,</i><br />
<i>(a) they perform substantially the same kind of work in the same establishment;</i><br />
<i>(b) their performance requires substantially the same skill, effort and responsibility; and</i><br />
<i>(c) their work is performed under similar working conditions.</i><br />
<br />
<i>(2) Subsection (1) does not apply when the difference in the rate of pay is made on the basis of,</i><br />
<i>(a) a seniority system;</i><br />
<i>(b) a merit system;</i><br />
<i>(c) a system that measures earnings by quantity or quality of production; or</i><br />
<i>(d) any other factor other than sex or employment status.</i><br />
<br />
<i>(3) No employer shall reduce the rate of pay of an employee in order to comply with subsection (1).</i><br />
<br />
<i>(4) No trade union or other organization shall cause or attempt to cause an employer to contravene subsection (1).</i><br />
<br />
<i>(5) If an employment standards officer finds that an employer has contravened subsection (1), the officer may determine the amount owing to an employee as a result of the contravention and that amount shall be deemed to be unpaid wages for that employee.</i><br />
<br />
<i>(6) An employee who believes that their rate of pay does not comply with subsection (1) may request a review of their rate of pay from the employee’s employer, and the employer shall,</i><br />
<i>(a) adjust the employee’s pay accordingly; or</i><br />
<i>(b) if the employer disagrees with the employee’s belief, provide a written response to the employee setting out the reasons for the disagreement.</i><br />
<br />
<i>(7) If a collective agreement that is in effect on April 1, 2018 contains a provision that permits differences in pay based on employment status and there is a conflict between the provision of the collective agreement and subsection (1), the provision of the collective agreement prevails.</i><br />
<br />
<i>(8) Subsection (7) ceases to apply on the earlier of the date the collective agreement expires and January 1, 2020.
</i></blockquote>
Similar provisions have also been inserted to prevent the use of employment agencies to try to make an end run around these prohibitions.<br />
<br />
What does this mean? Quite simply, too many employers were claiming that anyone who was not a permanent full-time employee could therefore be hired at a discount. This was, frankly, abusive behaviour on their part which the law has sought to punish in recent times in both the legislature and the courts. I can also see the need to express all compensation in terms of specified hours per pay period for each employee, in order to determine an hourly rate in order to show that compliance is being achieved across all such classifications of employees, whether full-time, part-time, seasonal or casual. While I disagree with the present régime at Queen's Park on many things, this time I think they got it right.<br />
<br />
Stay tuned. I'm sure there's going to be a lot of fun seeing this come into force.Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-85753936836297809802017-11-27T16:32:00.002-05:002017-11-27T16:34:55.488-05:00Better ideas they could have used earlierMy earlier post on <a href="http://raellerby.blogspot.ca/2017/10/how-not-to-consult_95.html" target="_blank">how governments should not consult </a>may have been somewhat wordy, but it's time to revisit the subject now that some more sober thought is starting to be published.<br />
<br />
The Fall Economic Statement expanded on the subject, specifically at pp. 46-56:<br />
<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="850" msallowfullscreen="" src="https://app.box.com/embed/s/ig5n5z5ufqcx4abv7fqdn33puqy2h72l" webkitallowfullscreen="" width="100%"></iframe>
<br />
And last week the Parliamentary Budget Officer weighed in with its analysis of the issue:<br />
<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="850" msallowfullscreen="" src="https://app.box.com/embed/s/5gx6cz9gzn5mllhnwngj59lulbmjb00i" webkitallowfullscreen="" width="100%"></iframe>
<br />
The concern I have is that both of these documents carry useful data that should have been included in the original consultation paper. Analysis of how many Canadian-controlled private corporations (CCPCs) would not have to worry about the changes would have forestalled many emotional outbursts that were sure to have been included in the 21,000 submissions that were received. Consultations only truly work when the big picture is given a chance to be presented—theoretical examples such as the ones originally given don't properly give the target audience a chance to discuss the issues in a thoughtful and logical way.<br />
<br />
I suspect I'll be coming back to this matter from time to time, in order to keep everyone up to date.Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-64559799915428256732017-11-02T18:43:00.000-04:002017-11-27T16:05:20.966-05:00This will have lenders worriedOne of the consequences of having experience is that you can remember when things had been brutal when a company was going through financial problems. Back in the 1980s, the secured lenders were rather cavalier about how they went in to scoop assets from a debtor in collecting on their collateral, and they didn't care if anyone got stuck with remaining debts afterwards. There were too many stories I knew of back then, and I actually had to go in and work at one company that had been on the brink of shutting down before it was saved by an acquirer.<br />
<br />
One of the more abrupt scenarios was if you were in business in Québec, where the <i>Code of Civil Procedure</i> allowed seizures to be undertaken by secured lenders without notice. This only changed when the federal <a href="http://laws-lois.justice.gc.ca/eng/acts/B-3/index.html" target="_blank"><i>Bankruptcy and Insolvency Act</i></a> was amended in 1992 to provide <a href="http://laws-lois.justice.gc.ca/eng/acts/B-3/section-244.html" target="_blank">a ten-day notice period before such action</a>, which brought that province into line with the rule already in place in the common-law provinces.<br />
<br />
Other examples of bad behaviour exist to the present day. The most egregious I've seen is when a secured lender seizes collateral before a debtor collapses, and realizes, at any price, quick proceeds by power of sale. It was standard practice that the creditor would just scoop the proceeds, and that was that.<br />
<br />
According to the courts, that is not acceptable behaviour in the following circumstances:<br />
<ul>
<li>The creditor is now required to take reasonable precautions to obtain a fair market value on the property, and, should the proceeds exceed the amount due, return the difference to the debtor.</li>
<li>It the debtor has unremitted balances of Tax/CPP/EI source deductions and/or GST/HST, and the debtor does not have sufficient funds to pay them, the CRA will now go after the lender for any amounts owing</li>
</ul>
The first principle arose from the English case of <a href="http://www.bailii.org/ew/cases/EWCA/Civ/1971/9.html" target="_blank"><i>Cuckmere Brick Co Ltd v Mutual Finance Ltd</i></a>, where Salmon LJ stated:<br />
<br />
<blockquote class="tr_bq">
<i>I accordingly conclude, both on principle and authority, that a mortgagee in exercising his power of sale does owe a duty to take reasonable precaution to obtain the true market value of the mortgaged property at the date on which he decides to sell it. No doubt in deciding whether he has fallen short of that duty, the facts must be looked at broadly and he will not be adjudged to be in default unless he is plainly on the wrong side of the line.
</i></blockquote>
<br />
Canadian courts have adopted a similar approach. <br />
<br />
The latter is a consequence of jurisprudence that has only arisen in recent years, and is neatly summarized <a href="https://www.restructuringroundup.com/2017/10/crown-priority-under-section-2223-of-the-excise-tax-act/" target="_blank">in a case decided by the Federal Court of Appeal </a>this past summer. While such debts may (with the exception of source deductions) rank only with other unsecured creditors at the time of bankruptcy, any move to realize upon security before that point will have massive consequences, <a href="http://www.mcinnescooper.com/publications/cras-super-priority-gains-strength-federal-crowns-deemed-trust-priority-for-unremitted-gsthst-survives-bankruptcy-in-canada-v-callidus-capital-corporation/" target="_blank">as noted here</a>:<br />
<ul>
<li>A creditor is obliged to pay proceeds from a tax debtor’s assets to
the Crown whether or not that creditor is aware the debtor hasn’t
remitted its taxes.</li>
<li>The creditor can be personally liable for the debtor’s GST/HST arrears</li>
<li>The Crown will now be more aggressively inclined to pursue creditors post-bankruptcy to recover amounts obtained from the debtor’s assets in pre-bankruptcy actions.</li>
<li>This will not be available with respect to certain "prescribed security interests" (generally involving real estate), but the amount of the interest must be reduced by any collateral being held as well as any payments that have been made, and the exemption will not apply where a deemed trust amount has arisen before an interest has been registered.</li>
</ul>
This will force lenders to get more documentation and assurance that debtors do not have issues that may complicated efforts to protect their security. It appears accountants will have a bit more on their plate to work on. Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-24932379176285334002017-10-24T17:10:00.000-04:002017-11-27T16:17:06.197-05:00How not to consultI have to admit that I was one of the 21,000 who made a submission to the Department of Finance for their consultation this summer on <a href="http://www.fin.gc.ca/activty/consult/tppc-pfsp-eng.asp" target="_blank"><i>Tax Planning Using Private Corporations</i></a>. Here is a copy of what I sent:<br />
<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="800" msallowfullscreen="" src="https://app.box.com/embed/s/j10gk1be0qj5ocv0m379rse8bxwznsu0" webkitallowfullscreen="" width="100%"></iframe>
<br />
<br />
<br />
At this particular time, unless the Department has <a href="http://okfnlabs.org/blog/2016/04/19/pdf-tools-extract-text-and-data-from-pdfs.html" target="_blank">good PDF scraping software</a>, I doubt that anyone has even read this yet, and one columnist in <i>The Globe and Mail</i> has calculated that the resources needed to do it manually are too huge to be realistic. I essentially argued that the principal proposal relating to taxation of passive investments harkens back to the original concept of tax reform that was introduced in 1972, which I still believe should have been retained instead of being abandoned in 1973.<br />
<br />
<h3>
Historical background</h3>
<br />
Interestingly, the original proposal that was promoted in the 1970 White Paper called for private corporations to be treated the same as partnerships. Ottawa has scanned the original white paper to the Web, and a copy is here:<br />
<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="800" msallowfullscreen="" src="https://app.box.com/embed/s/ahxkfwk3dkb4bymov37s1nrojbpvv3sm" webkitallowfullscreen="" width="100%"></iframe>
<br />
<br />
The feds backed away from that when they introduced the actual bill in 1971, and a handy summary of it is here:<br />
<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="800" msallowfullscreen="" src="https://app.box.com/embed/s/vmh1pxtcpegeq4lbx43ntokp2qffli3s" webkitallowfullscreen="" width="100%"></iframe>
<br />
<br />
<br />
This eventually translated into the Act that implemented it all:<br />
<br />
<br />
<iframe frameborder="0" height="600px" src="https://archive.org/stream/actsofparl197072v02cana#page/1311/mode/1up" width="100%"></iframe>
<br />
<br />
The intended tax on passive investments was abandoned in 1972, with retroactive effect:<br />
<br />
<br />
<iframe frameborder="0" height="430px" src="https://archive.org/stream/actsofparl197374v01cana#page/219/mode/1up" width="100%"></iframe>
<br />
<h3>
</h3>
<h3>
What just happened now</h3>
<br />
Enough about the history. In any case, I did my civic duty, but subsequent events showed the the feds had no real intention of fully assessing the content of these submissions, and their response reeks more of panic than anything else:<br />
<br />
<ul>
<li><a href="http://nationalpost.com/news/politics/bill-morneaus-town-hall-meeting-on-small-business-tax-changes-turns-heated" target="_blank">town hall sessions</a> started to be held before the consultation period had ended</li>
<li><a href="http://www.fin.gc.ca/n17/17-077-eng.asp" target="_blank">a "national listening tour"</a> also began a month before</li>
<li>the government announced, shortly after the period ended, that <a href="http://www.fin.gc.ca/n17/17-097-eng.asp" target="_blank">the small business rate would be reduced from 10.5% to 9%</a></li>
<li>as well, the government also announced very quickly <a href="http://www.fin.gc.ca/n17/17-099-eng.asp" target="_blank">changes relating to smaller amounts of passive investments</a> and <a href="http://www.fin.gc.ca/n17/17-100-eng.asp" target="_blank">the abandonment of proposals to combat the conversion of income into capital gains</a></li>
<li>the above changes were confirmed in today's <a href="http://www.budget.gc.ca/fes-eea/2017/docs/statement-enonce/fes-eea-2017-eng.pdf" target="_blank">Fall Economic Statement</a> </li>
</ul>
<br />
All of this suggests that the initial consultation was essentially a sham. Perhaps someone may analyze the submissions some day through Access to Information requests, but I'm not holding my breath. All in all, this was a bush-league exercise, and a huge embarrassment.<br />
<br />
<h3>
Could this have been done better?</h3>
There are more sophisticated procedures that are in place elsewhere in the world, but I prefer what has been put in place in the UK, which has been summarized in a very good set of principles, available <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/492132/20160111_Consultation_principles_final.pdf" target="_blank">here</a>. They can be expressed as follows:<br />
<br />
<ol>
<li>Consultations should be clear and concise </li>
<li>Consultations should have a purpose </li>
<li>Consultations should be informative </li>
<li>Consultations are only part of a process of engagement </li>
<li>Consultations should last for a proportionate amount of time </li>
<li>Consultations should be targeted </li>
<li>Consultations should take account of the groups being consulted </li>
<li>Consultations should be agreed before publication </li>
<li>Consultation should facilitate scrutiny </li>
<li>Government responses to consultations should be published in a timely fashion </li>
<li>Consultation exercises should not generally be launched during local or national election periods</li>
</ol>
I doubt that the one just held by Finance complies satisfactorily on any of these counts. It doesn't appear that anyone has even done an online search to get help on how to do so, while I was able to quickly find a great start <a href="https://www.involve.org.uk/2012/10/01/how-to-consult-great-guides/" target="_blank">here</a>.<br />
<br />
The English jurisprudence on the subject is very enlightening as well, as seen in <a href="http://www.eversheds-sutherland.com/global/en/what/articles/index.page?ArticleID=en/Public-sector/The_Public_Law_Duty_to_Consult" target="_blank">this article</a>. Notably, it must "take place when policies can be influenced and views genuinely taken into account," and the decision-maker must give "'conscientious consideration' to the outcome of the consultation process." Quite a contrast to what we have just witnessed.<br />
<br />
<h3>
Follow-up</h3>
<br />
There were extensive submissions from <a href="https://www.cpacanada.ca/en/connecting-and-news/news/professional-news/2017/july/finance-canada-consultation" target="_blank">CPA Canada</a> and the <a href="https://www.cpacanada.ca/en/the-cpa-profession/about-cpa-canada/governance-of-cpa-canada/cpa-canada-committees/tax-committees-overview/cbacpa-canada-joint-committee-on-taxation" target="_blank">Joint Committee on Taxation of the Canadian Bar Association and CPA Canada</a> that I won't reproduce here, but for which I've provided links. The latter group's package of submissions add up to more than 150 pages in total.<br />
<br />
I've only been able to find one submission online from any of the Big Four accounting firms, in this case from Deloitte, and it's quite comprehensive. It contrasts quite sharply with my polemic, but I'm not ashamed of that.<br />
<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="800" msallowfullscreen="" src="https://app.box.com/embed/s/npm8inzzpzpe9ve9xy9t9m8l6p0ujw88" webkitallowfullscreen="" width="100%"></iframe>
<br />
<br />
<br />
The initial analysis coming out on Finance's panic is rather interesting. Here is the Tax Alert put out by EY this week:<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="800" msallowfullscreen="" src="https://app.box.com/embed/s/3cwn5mj4v08bd18oant556gu08nym7i9" webkitallowfullscreen="" width="100%"></iframe><br />
<br />
The repercussions will be coming out fast and furious now.Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-40049812405055861022017-06-29T14:59:00.001-04:002017-06-29T15:05:06.913-04:00Helping people to get lit since 1975It was purely by happenstance that I discovered that a company I had once worked for from 1985 to 1990 has just been in the news this spring, through becoming the vehicle by which a medical marijuana producer has become the first publicly listed company in Canada in that industry. The company is <a href="https://www.maricann.com/" target="_blank">Maricann Group Inc</a>.<br />
<br />
That's rather interesting, since it was an electrical lighting fixture manufacturer and distributor when I knew it, operating as Danbel Industries Inc, a subsidiary of Noma Industries Limited ("Noma"). It was founded by two brothers-in-law, Les Bresge and Ben Shtang, back in 1975, and was taken over by Noma in 1985. The circumstances behind that acquisition are irrelevant to this discussion, as I want to explain what happened to it after I left.<br />
<br />
That is not easy, but it was still feasible as all transactions were carried out by publicly listed companies, and <a href="http://www.sedar.com/homepage_en.htm" target="_blank">SEDAR</a> provides access to all documents of such entities back to 1997, and <a href="http://www.ic.gc.ca/app/opic-cipo/trdmrks/srch/home?currentTab=reg&batchSize=25" target="_blank">CIPO's trademark database</a> was useful for disclosing another material change prior to that.<br />
<br />
<h4>
1994</h4>
<br />
<b>1 July</b>: Amalgamation of Danbel with Noma Inc, a subsidiary of Noma Industries Limited and manufacturer/distributor of Christmas lights and accessories at that time. It continues operations as an operating division of that company.<br />
<br />
<h4>
1997</h4>
<br />
<b>9 January</b>: Noma announces that it has reached an agreement to sell the assets of Danbel to <a href="http://www.sedar.com/DisplayProfile.do?lang=EN&issuerType=03&issuerNo=00008561" target="_blank">Applied Inventions Management</a>, an unlisted junior company then trading on the Canadian Dealer Network.<br />
<br />
<h4>
1998</h4>
<br />
<b>10 June</b>: After delays relating to a dispute concerning the purchase price, Noma and AIM close the deal. Immediately prior to that, AIM assigns its rights to the acquisition to 1158478 Ontario Inc, a company controlled by Les Bresge. After the acquisition closes, 1158478 immediately changes its name to Danbel Inc.<br />
<br />
<b>21 December</b>: Danbel Inc undergoes a reverse takeover with Augusta Technologies Limited, a junior company listed on the Alberta Stock Exchange. Augusta's previous shareholders are cashed out, and it is renamed as Danbel Industries Corporation.<br />
<br />
<h4>
1999</h4>
<br />
<b>9 December</b>: The TSE grants approval for Danbel to transfer its listing to that exchange.<br />
<br />
<h4>
2001</h4>
<br />
<b>23 August</b>: Danbel's secured lender appoints a receiver with respect to its operating subsidiaries.<br />
<br />
<b>6 September</b>: The receiver assigns most of the operating subsidiaries into bankruptcy.<br />
<br />
<h4>
2002</h4>
<br />
<b>15 January</b>: The receiver assigns Danbel Inc into bankruptcy.<br />
<br />
<b>21 January</b>: Trade is suspended on the TSE. Cease-trade orders issued by the OSC, BCSC and ASC would continue in effect until 4 March 2011.<br />
<br />
<h4>
2011</h4>
<br />
<b>16 December</b>: Name changed to Danbel Ventures Inc.<br />
<h4>
</h4>
<h4>
2012</h4>
<br />
<b>21 December</b>: Exit of Les Bresge from the company.<br />
<h4>
</h4>
<h4>
2017</h4>
<br />
<b>21 April</b>: Reverse takeover, described as a "reverse three-cornered amalgamation", is undertaken with Maricann Inc, a company licensed as a medical marijuana producer since 2013. Danbel changes its name to Maricann Group Inc.<br />
<br />
<b>24 April</b>: Trading of Maricann shares begins on the <a href="https://en.wikipedia.org/wiki/Canadian_Securities_Exchange" target="_blank">Canadian Stock Exchange</a>.<br />
<br />
This constitutes the essential details, which I doubt will be covered in detail anywhere else, and may be of use if anyone pursuing a business degree wants to investigate it further. It does disclose several fascinating aspects of how public listings can be obtained rather easily on the Canadian markets.<br />
<br />
Throughout the documentation, there are other interesting details tying together many underlying developments over the years that would be fascinating to insiders, but I will not dwell upon them here. However, they are all publicly available for people to look at.<br />
<br />
The corporate history of Noma is also quite fascinating in itself, and deserves a separate article. That I will come back to at another time.Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-82992495615156368852017-06-12T18:38:00.001-04:002017-06-12T18:38:48.308-04:00Why structure and design matterAll too often, managers tend to get rushed into implementing things that have never been fully thought out. While smaller decisions may be more easily reversed before the damage has fully set in, decisions implementing designs with fundamental flaws will always be messy.<br />
<br />
For example, in the mid-1990s I was involved with a company that had achieved a reputation for performing rescue work on behalf of groups of investors in real estate limited partnerships formed in the early 1980s during the property boom that was going on back then. Among the challenges they took on was a group of investors in a condominium apartment building. I won't say where, but I'm given to understand that the given situation was used elsewhere.<br />
<br />
Its initial formation by the promoter took on a framework similar to this:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNWL0IhUv3GGqK2ZmBr6aZmmL_KNmZVFjdo4Rzrgm1RQYsIjvgNoFRMEANuTMs95HPCeKfrEJREL92495Xd6ZoWYB-7v1qpY7trfMzsAB-_mzVPjv0UxNyoAdZ8RKR4ImFhSGdWFUxHHNt/s1600/realestateLP_early1990s.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="775" data-original-width="928" height="332" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNWL0IhUv3GGqK2ZmBr6aZmmL_KNmZVFjdo4Rzrgm1RQYsIjvgNoFRMEANuTMs95HPCeKfrEJREL92495Xd6ZoWYB-7v1qpY7trfMzsAB-_mzVPjv0UxNyoAdZ8RKR4ImFhSGdWFUxHHNt/s400/realestateLP_early1990s.png" width="400" /></a></div>
<br />
<br />
At first glance, the concept appears to have been straightforward, but you have to keep in mind the fact that real estate has always had its share of irrational exuberance, which meant that little thought was given to what to do if things went wrong. Those of us who saw this in the early 1990s saw a lot of such disasters when prices imploded during that recession. In hindsight, it was easy to see the fatal flaws:<br />
<br />
<ul>
<li>The premise given by the original promoter—who the investors subsequently kicked out, appointing us in their place—was that cash flows would be stable for the foreseeable future, and the cash distributions together with tax benefits arising from initial rental losses and annual capital cost allowance deductions would be sufficient to fund the initial payout on the promissory notes, followed by the required payments to mortgages on the individual condo units. Unfortunately, the recession later on caused occupancy rates to fall, thus restricting available cash for distribution to investors.</li>
<li>There were knock-on effects once the financial institutions started exercising their power of sale, seizing individual condo units, thus removing them from the CCA pool. This was a situation that was never envisaged in the original partnership agreement and connected financing arrangements, and the concept of stapled securities did not come onto the Canadian investment scene until the beginning of this century. The lenders did not bother to take on the related partnership interests, as the mortgages did not address that circumstance, and thus the limited partners still appeared to be part of the rental pool, thus diluting cash distributions and connected taxable income available to the investors. We had to take the position that the power of sale effectively squeezed the affected investor out of the partnership, but this was the result of a very wide interpretation of the provisions relating to voluntary withdrawals.</li>
<li>There was also a problem that had resulted from the previous history relating to cash distributions to investors. The definition of "distributable cash" that appeared in the partnership agreement only contemplated that sufficient amounts had to be held back to service current liabilities, but it was silent as to whether last month's rents were to be included in the holdback. The previous general partner decided that they were not included, and distributions were overestimated during the startup years of the LP. This became ugly when we calculated what amount was needed to make things square on the investors' withdrawal, as the overdistribution meant that we had to sent a bill for an amount that was fairly close to their <i>pro rata</i> portion of the LMR on hand. This proved to be rather ugly, but we did manage to collect the amounts in the end.</li>
<li>The provisions relating to voluntary withdrawal presumed that the investors would take over the underlying unit tied in to their interests, withdraw from the LP, and thereafter be free to sell it or take it on and thus become a member of the underlying condominium corporation. In the interim, the general partner would exercise control over the condominium corporation based on the units still within the partnership. Because of the powers of sale that had been exercised, the general partner was thus no longer in full control, as new owners came in and started exercising their rights as members of the corporation.</li>
<li>It didn't help matters that the condominium corporation was not properly managed before we came onto the scene, and there was a further complication in that the condominium, together with two other condominiums and another developer, controlled another condominium corporation that ran a central recreation centre!</li>
</ul>
There were other bizarre aspects to this story, but they are merely tangents in comparison to the central problems outlined here. Looking back twenty years on, especially given later developments in the legal and investing fields, the following would have greatly helped the situation:<br />
<br />
<ol>
<li> Initial income and cash flow projections should be subject to realistic simulation and sensitivity analysis, to indicate upsides and downsides of a given investment. We have certainly come a long way since that time, but the investment prospectus still tends to be a sales tool instead of a truly informative document. Back then, they weren't even handed out to investors until after they had signed the agreements! I hope things have become more sophisticated now.</li>
<li>The partnership and financing agreements should have addressed the issue of forced withdrawals head on. In that regard, the LP interest and underlying condominium unit should have been treated as a stapled security, and seizure under power of sale should have applied to both parts. A forced withdrawal would trigger a withdrawal from the partnership, thus giving clear title for the lender to be able to dispose, but the settlement on withdrawal would be direct with the lender, which he would have to record on the statement of adjustments that must be given to the original investor. That last item has only been recently been put in place by the courts, as some lenders had previously scooped up any cash they had collected on the sale in excess of the amount of debt in question.</li>
<li>The cash held by the LP with respect to last month's rents should be held in escrow, and only released to apply against the last month's occupancy by the relevant tenants. This would help minimize the settlement amount due on withdrawal from the partnership and thus minimize the risk of disputes. I am unsure as to why this was not normal practice at the time, given that it appears to have been standard in many other jurisdictions.</li>
<li>The connected condominium corporation(s) should be properly constituted once the condominium declaration has been filed. This will ensure that their funds and related reserves are kept separate from those of the limited partnership, further avoiding the risk of excess cash distributions. I have since heard too many horror stories of commingled funds that had occurred in such circumstances when segregation had not been enforced.</li>
</ol>
Other improvements could also be implemented, but the above would go a long way towards avoiding the really nasty experiences from occurring any time later on. Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-43159443584728993462017-04-29T12:23:00.000-04:002017-05-07T08:25:26.725-04:00The CPA Ontario merger will finally be implementedInterestingly, the merger is taking place as part of the 2017 Ontario Budget, and appears as Schedule 3 of <a href="http://www.ontla.on.ca/bills/bills-files/41_Parliament/Session2/b127_e.pdf" target="_blank">its implementation bill</a>. Apart from <a href="http://www.fin.gov.on.ca/en/budget/ontariobudgets/2017/ch7.html#ch7c9" target="_blank">a mention in the budget document</a> and <a href="https://www.cpaontario.ca/newsroom/ontario-government-introduces-chartered-professional-accountants-of-ontario-act" target="_blank">a media release from CPA Ontario</a>, I find no mention of it anywhere else. Perhaps that is because the unification agreement adopted three years ago, together with a fair bit of nationwide advertising, has dampened the passions that abounded during the several years before. However, our legislation is finally going through, leaving only the Northwest Territories and Nunavut as the final laggards.<br />
<br />
Upon Royal Assent, the <i>Chartered Professional Accountants of Ontario Act, 2017</i> will contain several provisions that are unique, in comparison to implementation legislation adopted in other jurisdictions:<br />
<br />
<ul>
<li>The governing Council and officers of the Institute of Chartered Accountants of Ontario become the governing Council and officers of the new CPA Ontario. This is because the ICAO has been operating under the business name of CPA Ontario since the adoption of the unification agreement in 2014.</li>
<li>CMAs and CGAs will finally become full members of CPA Ontario. Until now, they had only been associate members of the ICAO.</li>
<li>The Certified Public Accountants Association of Ontario, which had been inadvertently abolished in July 2007 and which had been the ICAO's previous shelter for protecting the initials "CPA" in Ontario, is acknowledged only in a transitional provision that effectively provides for the transfer of the CPAAO's assets and liabilities to CPA Ontario. This effectively bypasses <a href="https://www.ontario.ca/laws/statute/15f38" target="_blank">the law relating to escheats</a>, but there is no provision for reviving any of the former provisions to save whatever other actions may have taken in the past ten years.</li>
<li>The disciplinary provisions extend not just to current members, but also to
those whose membership has ceased due to resignation or revocation, and
this covers memberships in the predecessor bodies of CPA Ontario. This
is subject to a two-year limitation period from the time the event
occurred. Although not specifically stated, any consequential court proceedings would be circumscribed by
the limitation periods found in the <a href="https://www.ontario.ca/laws/statute/02l24" target="_blank"><i>Limitations Act, 2002</i></a>.</li>
<li>As of the date of the 2018 Annual General Meeting, the Council will no longer be prevented from passing bylaws that would have the effect of preventing a member of a predecessor body from having "access to any aspect of the accounting profession" that they may have had through such prior membership. I am puzzled as to the rationale of this provision, or what potential effect this might have. </li>
</ul>
<br />
There are some provisions in the bill that I find highly surprising, in that parliamentary draftsmen are normally more diligent in their deliberations and more elegant in their results, and I wonder how much consideration of the wording really happened before this was brought forward:<br />
<br />
<ul>
<li>There is an unusually expansive definition as to who may not call themselves an accountant. No individual who is not a member of CPA Ontario may "<span lang="EN-CA">take or use a [protected] designation ...
or initials ..., whether alone or combined or
intermixed in any manner with any other words or abbreviations.</span>" This appears to have been included because <a href="http://canlii.ca/t/g20s1" target="_blank">a failed attempt by CGA Ontario</a> to bar the use of the <a href="http://www.cgma.org/" target="_blank">CGMA</a> (Chartered Global Management Accountant) designation in Ontario. It may also explain why "certified public accountant" was not specifically included as a protected designation in this bill in order to rectify the 2007 repeal of the former CPA Act. It still constitutes an extraordinary attempt to block other accounting bodies from establishing a foothold in the Province.</li>
<li>Interestingly, while the Act "<span lang="EN-CA">does not affect or interfere with the right of any individual who is not a member of CPA Ontario to practise as an accountant</span>", "<span lang="EN-CA">[n]othing ... affects or interferes with
the right of a person to use any term, title, initials, designation or
description identifying himself or herself as an accountant, if the
person does not reside, have an office or offer or provide accounting
services in Ontario.</span>" This is a "cut and paste" from the previous Acts governing the predecessor bodies that was originally intended to prevent turf wars happening amongst themselves, and I wonder why this was preserved in the current bill.</li>
<li>There is no statutory definition for "accounting services", unlike what has been achieved in other jurisdictions. A definition for "public accounting services" exists in the <a href="https://www.ontario.ca/laws/statute/04p08" target="_blank"><i>Public Accounting Act, 2004</i></a>, but that only covers a portion of what "accounting services" would encompass as a whole. That in itself will lead to problematic litigation in future.</li>
</ul>
<h3>
</h3>
<h3>
What are "accounting services"?</h3>
<br />
It might be worthwhile to recap what constitutes "public accounting services" in Ontario. Under the <i>Public Accounting Act, 2004</i>, they constitute:<br />
<br />
<ol>
<li>Assurance engagements, including an audit or a review engagement,
conducted with respect to the correctness, fairness, completeness or
reasonableness of a financial statement or any part of a financial
statement or any statement attached to a financial statement, if it can
reasonably be expected that the services will be relied upon or used by a
third party. Such engagements may or
may not include the rendering of an opinion or other statement by the
person who is providing the services.</li>
<li>Compilation services, if it can reasonably be expected that all or any
portion of the compilations or associated materials prepared by the
person providing the services will be relied upon or used by a third
party, but they do not include compilations that contain a notice in prescribed form that provides that any assurance
given by the person is limited to the accuracy of the computations
required in order to complete the compilation.</li>
</ol>
Therefore, "public accounting" in Ontario covers audit, review and compilation engagements, other than compilations accompanied by a prescribed "<a href="https://www.ontario.ca/laws/regulation/050238" target="_blank">Notice to Reader</a>". This begs the question as to what scope "accounting services" would cover in a more general sense. An idea as to a more comprehensive definition of "professional accounting" can be found in the <a href="http://www.bclaws.ca/civix/document/id/complete/statreg/15001#section47" target="_blank">BC Act</a>:<br />
<br />
<blockquote class="tr_bq">
<div class="sec2" id="d1e3092">
<i><span class="secno"><b>47</b></span> <a href="https://draft.blogger.com/null" name="d1e3100 d1e3154 d1e3163"></a>(1) The practice of professional accounting comprises one or more of the following services: </i></div>
<blockquote class="tr_bq">
<div class="para">
<i><a href="https://draft.blogger.com/null" name="d1e3108"></a>(a)
performing an audit engagement and issuing an auditor's report in
accordance with the standards of professional practice published by the
Chartered Professional Accountants of Canada, as amended from time to
time, or an audit engagement or a report purporting to be performed or
issued, as the case may be, in accordance with those standards;</i></div>
<div class="para">
<i><a href="https://draft.blogger.com/null" name="d1e3117"></a>(b)
performing any other assurance engagement and issuing an assurance
report in accordance with the standards of professional practice
published by the Chartered Professional Accountants of Canada, as
amended from time to time, or an assurance engagement or a report
purporting to be performed or issued, as the case may be, in accordance
with those standards;</i></div>
<i><a href="https://draft.blogger.com/null" name="d1e3126"></a>(c)
issuing any form of certification, declaration or opinion with
respect to information related to a financial statement or any part of a
financial statement, on the application of </i></blockquote>
</blockquote>
<blockquote class="tr_bq">
<blockquote>
<blockquote class="tr_bq">
<div class="subpara">
<i><a href="https://draft.blogger.com/null" name="d1e3134"></a>(i)
financial reporting standards published by the Chartered Professional
Accountants of Canada, as amended from time to time, or</i></div>
<div class="subpara">
<i><a href="https://draft.blogger.com/null" name="d1e3143"></a>(ii)
specified auditing procedures in accordance with standards published
by the Chartered Professional Accountants of Canada, as amended from
time to time.</i></div>
</blockquote>
</blockquote>
<div class="subpara">
<br /></div>
<div class="sub">
<i><a href="https://draft.blogger.com/null" name="d1e3154"></a>(2) No person,
other than a chartered professional accountant member in good standing, a
professional accounting corporation or a registered firm that is
authorized by the CPABC to do so, may provide or perform the services
referred to in subsection (1).</i></div>
<div class="sub">
<br /></div>
<i><a href="https://draft.blogger.com/null" name="d1e3163"></a>(3) Subsection (2) does not apply to the following: </i></blockquote>
<blockquote class="tr_bq">
<blockquote class="tr_bq">
<div class="para">
<i><a href="https://draft.blogger.com/null" name="d1e3171"></a>(a)
a member who is not authorized by the CPABC to provide or perform the
services referred to in subsection (1) or a student if the member or
student is providing or performing the services referred to in
subsection (1) under the direct supervision and control of a chartered
professional accountant member in good standing, a professional
accounting corporation or a registered firm that is authorized to
provide and perform the services referred to in subsection (1);</i></div>
<div class="para">
<i><a href="https://draft.blogger.com/null" name="d1e3180"></a>(b)
a person performing a service for academic research or teaching
purposes and not for the purpose of providing advice to a particular
person;</i></div>
<div class="para">
<i><a href="https://draft.blogger.com/null" name="d1e3189"></a>(c)
an employee in relation to services provided to her or his employer
or in her or his capacity as an employee of an employer that is not a
registered firm;</i></div>
<div class="para">
<i><a href="https://draft.blogger.com/null" name="d1e3199"></a>(d)
a person providing advice based directly on a declaration,
certification or opinion of a chartered professional accountant member
in good standing, a professional accounting corporation or a registered
firm that is authorized to provide and perform the services referred to
in subsection (1);</i></div>
<div class="para">
<i><a href="https://draft.blogger.com/null" name="d1e3208"></a>(e)
a person providing bookkeeping services, consulting services or
income tax return preparation and processing services that do not
purport to be based on the standards of the Chartered Professional
Accountants of Canada;</i></div>
<div class="para">
<i><a href="https://draft.blogger.com/null" name="d1e3217"></a>(f)
a person acting pursuant to the authority of any other Act.</i></div>
</blockquote>
</blockquote>
<br />
Given that BC's Act has been in place for two years already, it is surprising that this wording, with necessary modifications, was not included in the Ontario bill. Perhaps this could be rectified before passage of the bill, but I think that would be highly unlikely given the lack of interest of the current provincial Government in wanting to manage the parliamentary timetable at the Legislative Assembly. In addition, time allocation procedures that are sometimes invoked with respect to Budget bill debates may not allow for discussion as to why certain decisions were taken on the wording, or on why implementation was inordinately delayed. The overarching debate will probably dwell on more high-profile aspects of the Budget, thus distracting attention from this matter. Let's see what develops.Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-2651288243026799202017-04-21T21:09:00.002-04:002017-04-23T05:34:28.216-04:00Nonresident and speculation taxes: the return of an ideaThe Grits in Ontario have announced a nonresident speculation tax that will be effective as of today, 21 April 2017. We'll have to wait until next week to see the implementing bill's details, as the Legislative Assembly is currently in recess, but the announcement can be seen <a href="http://www.fin.gov.on.ca/en/bulletins/nrst/nrst.html">here</a>. Briefly, it will charge a tax of 15% of the purchase price upon closing, and will cover the following real estate transactions:<br />
<ul>
<li> the transfer of land which contains at least one and not more than six single family residences,</li>
<li>being acquired by an individual who is neither a Canadian citizen nor a permanent resident of Canada, or by a corporation not incorporated in Canada or which is incorporated in Canada but is controlled in whole or in part by a foreign national or other foreign corporation not listed on a Canadian stock exchange, or is controlled directly or indirectly by a foreign entity for the purposes of section 256 of the <i>Income Tax Act </i>(Canada).</li>
</ul>
A foreign national who receives confirmation under the Ontario Immigrant Nominee Program to immigrate to Canada, or who is conferred the status of “convention refugee”
or “person in need of protection” (“refugee”) under the <i>Immigration and Refugee Protection Act</i> at the time of the purchase or acquisition, or who purchases a property with a spouse who is a Canadian citizen, permanent resident of Canada, “nominee” or “refugee, will be exempt from the tax.<br />
<br />
Tax will be rebated where the foreign national:<br />
<ul>
<li>becomes a Canadian citizen or permanent resident of
Canada within four years of the date of the purchase or acquisition;</li>
<li>is a student who has been enrolled full-time for at
least two years from the date of purchase or acquisition in an
“approved institution”, as outlined in Ontario Regulation 70/17 of the <i>Ministry of Training, Colleges, and Universities Act; </i>or</li>
<li>has legally worked full-time in Ontario for a continuous period of one year since the date of purchase or acquisition.</li>
</ul>
<h3>
</h3>
<h3>
We've been here before</h3>
<h3>
</h3>
<h4>
The Land Speculation Tax</h4>
<h4>
</h4>
In 1974, Ontario imposed the Land Speculation Tax, <a href="http://business.financialpost.com/personal-finance/mortgages-real-estate/ontario-tried-a-speculation-tax-on-property-and-the-market-collapsed-overnight" target="_blank">which had a dramatic effect</a> on a previous round of speculation. It had a short history, and was eliminated completely by 1979. The legislative history was as follows:<br />
<ul>
<li><a href="https://archive.org/stream/statutesofprovin1974onta#page/82/mode/2up" target="_blank">3 June 1974</a>: original imposition, retroactive to 9 April 1974, of a 50% tax on the capital gain of most real property;</li>
<li><a href="https://archive.org/stream/statutesofprovin1974onta#page/766/mode/2up" target="_blank">10 December 1974</a>: technical amendments, together with a reduction of tax to 20%, after Ottawa refused to allowed it as a closing cost for purposes of calculating a capital gain under the Income Tax Act, all of which were retroactive to the original imposition;</li>
<li><a href="https://archive.org/stream/statutesofprovin1974onta#page/1152/mode/2up" target="_blank">6 February 1975</a>: further technical amendments retroactive to the original imposition; </li>
<li><a href="https://archive.org/stream/statutesofprovin1977onta#page/86/mode/2up" target="_blank">12 July 1977</a>: various technical amendments, retroactive to 20 April 1977;</li>
<li><a href="https://archive.org/stream/statutesofprovin1978onta#page/506/mode/2up" target="_blank">24 November 1978</a>: the tax ceased to be imposed as of 24 October 1977 with respect to transactions after that date, or which were in the process of being closed at that time. In addition, any statutory liens for tax liability not registered against title for any property as of 1 January 1979 were deemed to be discharged as of that date.</li>
</ul>
Its scope was broad:<br />
<ul>
<li>it covered the disposition of any real property in Ontario, other than</li>
<ul>
<li>a mineral resource property, </li>
<li>a principal residence, </li>
<li>property less than 20 acres in size that was used as a principal recreation property,</li>
<li>property transferred from one family member to another,</li>
<li>property transferred to shareholders upon the winding up of a corporation in which more than 50% of the assets consisted of designated land, </li>
<li>a tourist resort, </li>
<li>property upon which a building or structure was constructed (or where renovation occurred at a cost of at least 20% of the property's cost or fair market value), </li>
<li>property disposed by a municipality, </li>
<li>property acquired by statutory notice, or</li>
<li>property sold to the Crown or one of its agencies.</li>
</ul>
<li>the proceeds of disposition consisted of:</li>
<ul>
<li>the selling price of the property,</li>
<li>where transferred under the terms of an option, the total of the option price and the exercise value, or</li>
<li>the fair market value of any other type of disposition, but</li>
<li>transfer under the terms of a will was not included.</li>
</ul>
<li>the proceeds were deducted from the fair market value of the property as at 9 April 1974, or at the selling price (or fair market value of the transfer) if acquired after that date, to arrive at the taxable value on which tax was charged.</li>
<li>a deduction was allowed for every 12 months the property was held, for the lesser of 10% of the starting value of the property or the total of its maintenance costs and the closing costs upon its disposition;</li>
<li>where the land was used for farming, a further deduction of 10% of the starting value, calculated at compound interest, was allowed for periods preceding 9 April 1974 in which the property was held;</li>
<li>the liability for tax constituted a lien upon the property which did not need to be registered against title, which continued until the Minister issued a certificate that no lien would be claimed with respect to a specific disposition.</li>
</ul>
As noted at the top of this section, the effect was sudden and quite brutal, causing many deals to collapse. It was repealed at a time when mortgages shot upwards to over 20%, which proved to be a more effective damper on housing prices.<br />
<br />
<h4>
The Land Transfer Tax (nonresident rate)</h4>
<br />
This had <a href="http://www.fin.gov.on.ca/en/bulletins/ltt/2_2005.html" target="_blank">a very interesting history</a>. <br />
<br />
<a href="https://archive.org/stream/statutesofprovin1974onta#page/40/mode/2up" target="_blank">At the same time in 1974</a>, a rate of 20% was imposed on sales of real estate to non-residents occurring after 9 April 1974. In that regard:<br />
<ul>
<li>a "nonresident person" was defined as:</li>
<ul>
<li>an individual not ordinarily resident in Canada, or who, if ordinarily resident in Canada, was neither a Canadian citizen nor a permanent resident, and an individual ordinarily resident in Canada included those who had sojourned in Canada for 366 days in the 24 months preceding the transaction, those lawfully admitted into Canada for permanent residence, or members of the Canadian Forces, the foreign service or workers in an international development assistance programme required to be stationed outside Canada, including the spouses thereof;</li>
<li>a partnership, syndicate, association or any other kind of organization, where more than one-half of the members or in which beneficial interests of more than 50% of the partnership's property was held by nonresident persons;</li>
<li>a trust established by a nonresident person, or where nonresident persons held more than 50% of the beneficial interests in it; and</li>
<li>a nonresident corporation. being one where 50% of the voting rights were owned by nonresident persons or where 25% of the voting rights were owned by one nonresident person (or where direct or indirect control by one or more nonresident persons existed in such circumstances), or where more than one-half of the corporation's directors were nonresident persons.</li>
</ul>
<li>such rate was also charged where a nonresident person held land in joint tenancy with a resident person, or where land conveyed to resident persons could not be readily distinguished from land conveyed to nonresident persons;</li>
<li>deferral or remission could be made where the Minister was satisfied that the land was being acquired for commercial, industrial or residential development with resale to persons who were not nonresident persons.</li>
</ul>
The scope of the tax was <a href="https://archive.org/stream/statutesofprovin1977onta#page/78/mode/2up" target="_blank">significantly restricted on 20 April 1977</a>, when the nonresident rate was no longer applied to property designated under a zoning bylaw or order to commercial or industrial purposes, or was assessed for residential assessment, or was lawfully used or occupied for commercial, industrial or residential purposes. However, this did not cover land that was assessed or used for farming and agricultural purposes, woodlands, recreational land or as an orchard. The rate was <a href="https://archive.org/stream/v01statutesofont1997ontauoft#page/256/mode/1up" target="_blank">finally abolished on 7 May 1997</a>.<br />
<br />
<h3>
Then compared to now</h3>
<br />
The 1974 measures had a more pronounced effect, and were much broader in scope, when compared to the 2017 proposals. The newer ones appear to be tailored more for effect, and, dare I say, for pandering for votes in the coming 2018 election. It will be interesting to see what transpires in the coming weeks.<br />
<ul>
</ul>
<ul>
</ul>
Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-6754311588481385122017-02-13T18:29:00.001-05:002017-02-20T13:35:00.451-05:00He haunts us still...<a href="https://commons.wikimedia.org/wiki/File%3AJRBooth23.jpg" title="See page for author [Public domain or Public domain], via Wikimedia Commons"><img alt="JRBooth23" src="https://upload.wikimedia.org/wikipedia/commons/5/5b/JRBooth23.jpg" width="512" /></a><br />
<br />
It can be a blessing or a curse to have a distant relative who was rather famous. Take, for example, <a href="https://en.wikipedia.org/wiki/John_Rudolphus_Booth" target="_blank">J.R. Booth</a>, shown above, who died in 1925. To put it briefly, he was my paternal grandmother's maternal grandmother's half-uncle, and probably the richest man in Canada when he passed on. Sadly, none of that wealth came our way, although my grandmother used to brag about receiving <a href="https://www.jandm.com/script/getitem.asp?CID=3&PID=50" target="_blank">a gold coin</a> at Christmas from him. As she was born in 1910, there would not have been that many, and none were found in her estate when she passed away in 1997. This was another of the mysteries she took to her grave. But I digress.<br />
<br />
His name came up in <a href="http://www.bailii.org/ew/cases/EWHC/Ch/2017/184.html" target="_blank">an English court case</a> this month, because of his involvement in a company that mined for nickel. His main interests were in the lumber industry, and he also controlled the largest railway in the world owned by a single person, the <a href="https://en.wikipedia.org/wiki/Canada_Atlantic_Railway" target="_blank">Canada Atlantic Railway</a>. He also owned a cement company, which became part of Canada Cement in 1910. Nickel mining, however, was a completely different business. In 1915, the Ontario Nickel Commission was appointed to inquire into the province's nickel industry, and <a href="https://archive.org/stream/reportofroynickel00onta#page/n3/mode/2up" target="_blank">its 1917 report</a> gives some fascinating background to what was going on. A <a href="https://archive.org/stream/nickelindustrywi00cole#page/n7/mode/2up" target="_blank">report by the Canadian Department of Mines</a> in 1912 also provides useful information.<br />
<br />
<h4>
Involvement with Dominion Nickel-Copper </h4>
<br />
In 1904, the Dominion Nickel-Copper Company was formed to take over ownership of the <a href="http://www.geologyontario.mndmf.gov.on.ca/gosportal/gos?command=mndmsearchdetails:mdi&uuid=MDI41I15SW00013" target="_blank">Whistle Mine</a>, which can be seen here:<br />
<br />
<iframe frameborder="1" height="700px" src="https://archive.org/stream/canadasresources00jean#page/170/mode/2up" width="600px"></iframe>
<br />
<br />
Booth, together with <a href="https://en.wikipedia.org/wiki/Michael_John_O%27Brien" target="_blank">M.J. O'Brien</a> and other associates,took over Dominion Nickel-Copper in 1907, as reported <a href="https://archive.org/stream/canminingjournal1907donm#page/n1282/mode/1up/" target="_blank">here</a>. O'Brien is not mentioned in the original report, as the acquisition was attributed to the Booth and McFadden Syndicate. McFadden appears to be J.J. McFadden of Renfrew, where O'Brien also lived, so it appears one was the agent for the other. McFadden would later make his fortune after the war through lumber mills in Blind River and Thessalon.<br />
<br />
That company bought the <a href="http://www.sciencenorth.ca/dynamic-earth/geotours/sudbury/05_discovery_mining-camp_e.pdf" target="_blank">Murray Mine</a>, the site of the first nickel find in the <a href="https://en.wikipedia.org/wiki/Sudbury_Basin" target="_blank">Sudbury Basin</a>, in 1912, and sought to revive the operation and make it a viable competitor against <a href="https://en.wikipedia.org/wiki/Vale_Limited" target="_blank">International Nickel</a>, controlled by <a href="https://en.wikipedia.org/wiki/J._P._Morgan" target="_blank">J.P. Morgan</a>.<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="450" src="https://www.google.com/maps/embed?pb=!1m18!1m12!1m3!1d2745.687192980783!2d-81.06749768440706!3d46.51430197912747!2m3!1f0!2f0!3f0!3m2!1i1024!2i768!4f13.1!3m3!1m2!1s0x4d2fac8a1d2b0c9f%3A0xc7cec4e49724f79b!2sMurray+Mine%2C+Sudbury%2C+ON!5e0!3m2!1sen!2sca!4v1487024015373" style="border: 0;" width="600"></iframe>
<br />
<br />
<h4>
Acquisition by British America Nickel</h4>
<br />
Their reach probably exceeded their grasp, as in 1912 they later granted
an option to the British America Nickel Company, formed by <a href="https://en.wikipedia.org/wiki/Frederick_Stark_Pearson" target="_blank">F.S. Pearson</a> and controlled by the British Government and <a href="https://brage.bibsys.no/xmlui/bitstream/handle/11250/243013/536125_FULLTEXT01.pdf?sequence=1" target="_blank">Kristiansand Nikkelraffineringsverk A/S</a>
of Norway, to take over the company. British America also controlled
other copper-nickel interests in the Sudbury region, including the later-famous
<a href="https://en.wikipedia.org/wiki/Falconbridge_Ltd." target="_blank">Falconbridge</a> properties. That option was exercised in 1913. The extent of the deal was detailed in a report in the <i>Canadian Mining Journal</i>:<br />
<br />
<iframe frameborder="1" height="700px" src="https://archive.org/stream/canminingjournal1913donm#page/1387/mode/1up" width="600px"></iframe>
<br />
<br />
Note the significant players mentioned here. <a href="https://en.wikipedia.org/wiki/William_Mackenzie_(railway_entrepreneur)" target="_blank">William Mackenzie</a> was involved in the successful deal with Pearson—understandable, as the two were already associated together in <a href="https://en.wikipedia.org/wiki/Brookfield_Asset_Management" target="_blank">Brazilian Traction, Light and Power</a>—but the <a href="https://en.wikipedia.org/wiki/Daniel_Guggenheim" target="_blank">Guggenheims</a> of New York wanted to get in instead. This was quite the rarified atmosphere, even back then. The original name "Canadian Nickel Corporation" was not used, as the actual incorporation papers were in the name of "British America Nickel Corporation, Limited" as reported <a href="https://archive.org/stream/canminingjjanjun1917donm#page/n419/mode/1up" target="_blank">here</a>.<br />
<br />
What made British America's business model unique was that they aimed to be the only nickel miner in Ontario that would also smelt and refine on site, instead of sending the ore for further treatment outside the Province. It would also have exclusive North American rights to the <a href="https://worldwide.espacenet.com/publicationDetails/originalDocument?CC=US&NR=1098443A&KC=A&FT=D&ND=&date=19140602&DB=&locale=#" target="_blank">Hybinette smelting process</a> developed by its Norwegian investor.<br />
<br />
As a result of the 1913 disposition, J.R. Booth became the second-largest bondholder in British America, second only to the British Government itself. O'Brien, with some others, had much smaller amounts. There was also an issue of debenture stock secured by a floating charge, which was held by the British Government and the Norwegian company. It was that whole arrangement that would cause some awkward circumstances later on.<br />
<br />
In 1916, the British Government signed a ten-year contract to purchase all the nickel output of British America, and the bonds were replaced by a new issue of mortgage bonds, secured by the assets of the company. The terms of the underlying deed of trust could be altered at any time by a vote of the bondholders, representing at least ¾ of the bonds' value.<br />
<br />
<h4>
The dispute</h4>
<br />
At the end of the war, the nickel market took a real beating, and the Canadian Bank of Commerce was granted a prior lien bond in 1920 which had priority over the mortgage bonds. British America then defaulted on an interest payment in 1921, and a reorganization was proposed, in which the mortgage bonds would be replaced by 'A' Income Bonds, which would have a lower priority to First Income Bonds having a first charge on the property of the corporation. 'B' Income Bonds could be issued later on which would rank <i>pari passu</i> with the 'A' Income Bonds, but the latter could be converted into other securities at any time through extraordinary resolution. The remainder of the supply contract with the British Government would also be cancelled. A committee of four people would be appointed to make the decision, thus bypassing any requirement of an extraordinary resolution by the bondholders.<br />
<br />
In order to make this work, J.R. Booth had to give his support, because of the significant holding of bonds he had. He was induced to approve, after being promised a gift of shares bearing a par value of CAD 2 million in British America.<br />
<br />
O'Brien, to put it mildly, was not a happy camper. This move would strip any real security from the bonds he held, and the possibility of later conversion into other securities could effectively make them worthless if any other adverse developments in the nickel industry were to happen. He took the matter to the Supreme Court of Ontario to get the result overturned. He won, and the result was later upheld at the Appellate Division of the court. Both rulings can be found <a href="https://archive.org/stream/v57ontariolawreports1925#page/536/mode/1up" target="_blank">here</a>.<br />
<br />
That was not the end of it. The final court of appeal in those days was the Judicial Committee of the Privy Council, <a href="http://www.bailii.org/uk/cases/UKPC/1927/1927_7.html" target="_blank">and they upheld the Ontario courts in 1927</a>. They described the whole affair thus:<br />
<br />
<blockquote class="tr_bq">
<i>At the trial in the Supreme Court of Ontario Kelly J. held that what was really done was that the majority at the meeting did not act in the bona fide exercise of the rights which the majority might exercise, but in consideration of what would benefit the Nickel Corporation and the personal interests of those whose votes were to be secured. The vote had been influenced by special negotiations in advance of the meeting. … There was an appeal to the Appellate Division, where Ferguson J.A. delivered the judgment. He agreed with Kelly J. in holding that the votes neither of Mr. Booth nor of the British Government would have been given for the scheme had they been influenced only by what was most in the interest of the bondholders. Both of these may, he thought, have acted honestly if mistakenly. But what really moved them was not a legitimate consideration of the improvement of their security, but that they felt that a refusal to approve the scheme would result in serious loss to other persons who had lent to or invested in the corporation. They wished to give these persons a chance, even if a risk to the bondholders had to be taken in doing it. This the Appellate Division held to have been improper.</i></blockquote>
<br />
The law that governs this type of decision-making has consequentially been expressed in these terms:<br />
<br />
<blockquote class="tr_bq">
<i>To give a power to modify the terms on which debentures in a company are secured is not uncommon in practice. The business interests of the company may render such a power expedient, even in the interests of the class of debenture holders as a whole. The provision is usually made in the form of a power, conferred by the instrument constituting the debenture security, upon the majority of the class of holders. It often enables them to modify, by resolution properly passed, the security itself. The provision of such a power to a majority bears some analogy to such a power as that conferred by s. 13 of the English Companies Act of 1908, which enables a majority of the shareholders by special resolution to alter the articles of association. There is, however, a restriction of such powers, when conferred on a majority of a special class in order to enable that majority to bind a minority. They must be exercised subject to a general principle, which is applicable to all authorities conferred on majorities of classes enabling them to bind minorities; namely, that the power given must be exercised for the purpose of benefiting the class as a whole, and not merely individual members only. Subject to this, the power may be unrestricted. It may be free from the general principle in question when the power arises not in connection with a class, but only under a general title which confers the vote as a right of property attaching to a share. The distinction does not arise in this case, and it is not necessary to express an opinion as to its ground. What does arise is the question whether there is such a restriction on the right to vote of a creditor or member of an analogous class on whom is conferred a power to vote for the alteration of the title of a minority of the class to which he himself belongs.</i></blockquote>
<br />
In other words, no dirty tricks are allowed in proceedings like these, and decisions must be taken in the best interests of the class of investors. But some people just can't help but try.<br />
<br />
<h4>
Consequences to this day </h4>
<br />
That is what happened in the English case this month. Two companies were seeking to merge under a scheme of arrangement, which under English law must receive the approval of a majority of investors, together representing ¾ of the value of the shares. In order to thwart the merger, one employee shareholder gave away one share each to 434 people, and registered the transfers immediately prior to the meeting taking place to approve the scheme, as sanctioned by the Court. All 434 intended to vote against the transaction, but the Chairman of the meeting disallowed their votes, resulting in the scheme's approval. The Court ruled that the Chairman acted properly, and what J.R. Booth did in the 1920s was quoted prominently to explain why this had to be so.<br />
<br />
It was explained here that meetings that are sanctioned by the Court operate under slightly different principles than shareholders' general meetings that are governed by normal corporate legislation:<br />
<br />
<blockquote class="tr_bq">
<i>50. There was some debate also in the course of argument as to the powers of the chairman of a court meeting to reject votes cast of his own motion. It seems to me that the court must indeed have an inherent power to direct the mode in which meetings are to be held .... Moreover, once a court has directed that a meeting take place, I cannot see why the chairman should not conduct the meeting in accordance with normal principles. He may have many decisions to make in order to achieve the objective of the meeting. The court would normally, I think, only interfere with such decisions if they were perverse, made in bad faith, contrary to the court's directions, or on the basis of a mistaken understanding of the law .... It seems to me that the validity of votes cast at the court meeting is to be judged as at the time of that meeting and not with the benefit of hindsight that may be acquired after the meeting and before the sanction hearing. Conversely, the sanction of the court is to be evaluated as a matter of discretion on the basis of all the facts placed before the court at that hearing.</i><br />
<br />
<i>51. In directing the chairman to hold a court meeting, the court is effectively directing him to take all appropriate steps to hold a fair meeting for the purpose of ascertaining the votes of the class for or against the scheme. He must, for example, be able to reject proxies if they obviously do not emanate from the member in question. The court would, it seems to me, wish to respect the decisions made by its appointed chairman as to the proper conduct of the court meeting, unless one of the defaults mentioned above were established. </i></blockquote>
<br />
I've known meetings in the past where such squeeze plays breezed through quite easily. It's obvious these days that such unfairness will not be tolerated, but it's taken some considerable time and effort to get there. Not just the lawyers, but all other parties, should be glad that's the case.Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0tag:blogger.com,1999:blog-9097948612943202776.post-89169461752055903942016-12-11T18:03:00.002-05:002016-12-11T18:05:05.281-05:00The Canadian tax reachSome time back, <a href="http://raellerby.blogspot.ca/2014/09/dealing-with-us-you-can-run-but-you.html" target="_blank">I posted about the extent</a> to which the US tax authorities can tax the income of foreign corporations. There are similar considerations at hand for when foreign corporations operate in Canada, albeit on different principles. The most important questions are:<br />
<ul>
<li>Is a corporation resident in Canada?</li>
<li>Is it carrying on business in Canada?</li>
</ul>
These must be read together with the basic requirements of <a href="http://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-2.html" target="_blank">s.2</a> of the <i>Income Tax Act</i>, where liability to tax arises where:<br />
<ul>
<li>a person is resident in Canada, or otherwise</li>
<li>a person is employed in Canada, carries on a business in Canada, or disposes of a taxable Canadian property.</li>
</ul>
This is reinforced by the requirement in <a href="http://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-150.html" target="_blank">s. 150(1)(a)</a> to file the appropriate returns, which also covers other circumstances where tax is payable, or the income is exempt is exempt as provided under the provisions of an applicable tax treaty. In the latter case, a return must be filed together with the specified declaration claiming treaty protection.<br />
<br />
<h3>
Who is a Canadian resident?</h3>
<br />
We must first deal with where persons are deemed to have such status or not:<br />
<ul>
<li><a href="http://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-250.html" target="_blank">s. 250(4)</a> deems any corporation incorporated in Canada after 26 April 1965 to be a Canadian resident, as well as any similar corporation formed before 27 April 1965 that was a Canadian resident or carried on business in Canada.</li>
<li>if an applicable tax treaty so provides, s. 250(5) will deem a corporation to be resident in the other country and not resident in Canada.</li>
</ul>
Otherwise, common law principles govern whether a corporation is resident in a jurisdiction or note. This is said to be "where the central management and control resides." This is said to be the place where the board of directors holds its meetings, but that cannot be said to automatically apply. <a href="http://www.austlii.edu.au/au/cases/cth/HCA/2016/45.html" target="_blank">A recent case in the High Court of Australia</a> held several foreign corporations to be resident there, as the meetings of the board acted only as a rubber stamp to actions undertaken by a principal in Sydney. This was held to be distinct from <a href="http://www.austlii.edu.au/au/cases/cth/HCA/1973/67.html" target="_blank">a previous case where the board did not blindly accept the actions of others</a>, as it actively discussed whether such moves would indeed be appropriate to accept. Tax treaties with the UK and Switzerland did not act to shield the taxpayers in the recent case, as the act of incorporating within those jurisdictions was insufficient to override where the actual management and control were taking place. <a href="http://www.wolterskluwercentral.com.au/tax/income-tax/vibe-thing-esquire-nominees-reconsidered-high-court/" target="_blank">The impact of this decision could be huge</a>, and it will be interesting to see if the CRA picks up on it.<br />
<br />
<h3>
Who carries on business in Canada?</h3>
<br />
Common law principles govern whether business is carried on, and <a href="http://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-253.html" target="_blank">s. 253</a> deems certain activities undertaken by a non-resident as constituting such activity. Applicable tax treaties will usually specify that income earned by a non-resident is taxable only where it can be attributable to a permanent establishment.<br />
<br />
The most important factor in determining where a business is being carried on is the place where the contract is made. Other factors such as the place of delivery and the place of payment (among others) may also play a role, <a href="https://www.ctf.ca/ctfweb/Documents/PDF/1995ctj/1995CTJ5_26E_Kyres.pdf" target="_blank">but the analysis can be quite complicated</a>.<br />
<br />
The definition of a permanent establishment is generally left up to the tax treaties, but the following situations can arise:<br />
<ul>
<li>a fixed place of business will constitute a PE</li>
<li>an agent authorized to conclude contracts on behalf of the foreign corporation can also be said to be a fixed place</li>
<li>in some circumstances, office space made available by a subsidiary to a parents' employees can be a fixed place</li>
<li>executives who can act on behalf of both a parent and subsidiary are problematic, as their presence in the other country's office can also constitute a PE</li>
<li>similarly, it can be argued that a foreign corporation that is constantly seeking guidance from a manager in a Canadian parent <a href="https://www.osler.com/en/resources/cross-border/2010/united-states-permanent-establishment-enforcement" target="_blank">can be said to possess a Canadian PE</a> </li>
<li>certain tax treaties (such as the one with the US) can specify that, where services are being provided, days spent in the other country will trigger a PE <a href="http://www.mcmillan.ca/Files/PermanentEstablishment_1007.pdf" target="_blank">when the total passes a specified threshold</a></li>
<li><a href="http://www.globalbusinesslawreview.org/wp-content/uploads/2012/04/1gCastro.pdf" target="_blank">there can be other complications</a>, such as in the manner that e-commerce platforms are structured</li>
</ul>
This is not an exhaustive list, and <a href="https://www.osler.com/en/resources/regulations/2015/oecd-releases-proposed-changes-to-permanent-establ" target="_blank">discussions are taking place at the international level</a> as to <a href="https://www.dlapiper.com/en/us/insights/publications/2016/02/global-tax-news-feb-2016/beps-action-7/" target="_blank">whether such scope should be widened</a>. That is an area that should be watched closely.<br />
<br />
<h3>
Summary</h3>
This is a very short article on a very complex topic, and I have known of many companies that did not get this right. Foreign corporations must consider the various issues carefully before proceeding to enter the Canadian market. Similar issues also arise in assessing whether foreign entities are subject to GST/HST, but the rules are slightly different and must be assessed separately.<br />
<br />Rob Ellerbyhttp://www.blogger.com/profile/03535250805472014867noreply@blogger.com0