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What Determines Tax Withholding Amounts?

By Randall Orser | Personal Income Tax

The Canadian Parliament and Provincial Legislatures establish federal and provincial tax-withholding rates. Procedures for determining your withholding amounts vary by tax. Sometimes withholding amounts depend on the type of wages being deducted.

TD1 Form

Your TD1 form helps your employer to determine the amount of federal income tax to subtract from your wages. For this reason, your employer must give you the form to complete when you're hired. Your withholding amount depends on the number of credits and filing status you claim on the form. Each credit gives you a sum that reduces your wages subject to taxation. The more allowances you claim, the less tax you pay; the fewer allowances you claim, the more tax you pay.

Note there are a Federal and a Provincial TD1, and you, the employee, must fill out both.

Taxable Wages

Federal income tax withholding is also based on your taxable wages. The more you earn, the more tax you pay; the less you earn, the less tax you pay. To arrive at your taxable wages, determine your gross pay, which is your entire pay before deductions. Then subtract nontaxable wages, such as qualified business expense reimbursements, and pretax deductions, such as qualified health insurance, from your gross pay.

CRA Guide T4032 Payroll Deductions Tables

Once taxable wages have been determined, withholding depends on CRA Guide T4032 Payroll Deductions Tables. Apply the withholding table that goes with your filing status, taxable wages, pay period and number of allowances. The table gives the exact amount that should come out of your paychecks. The CRA updates its tax tables periodically, typically semi-annually, so use the tax rate that applies to the tax year in question.

Flat Percentage Rates

Canada Pension Plan (CPP) and Employment Insurance (EI) are federal payroll taxes that are withheld at flat percentages of your wages. These rates are subject to change, usually annually. For 2018, Canada Pension Plan tax is withheld at 4.95 percent of your taxable wages, up to the annual wage maximum of $55,900. Employment Insurance is withheld at 1.66 percent of taxable wages to a maximum of $51,700.

Supplemental Wages

Supplemental wages are payments you receive from your employer that are not regular wages. They may include overtime pay, bonuses, commissions, severance pay, sick pay, awards, prizes and retroactive pay increases. For federal income tax purposes, if supplemental wages are paid in addition to regular wages, they’re taxed as though the total were a single payment for the regular payroll. If supplemental wages are paid separately from regular wages, federal income tax may be subtracted at a flat 25 percent. If supplemental wages exceed $1 million for the calendar year, the excess amount is taxed at 35 percent.

Provincial Taxes

Every province has an income tax rate and the amounts differ from Province to Province. If you are using CRA’s tax tables then both the federal and provincial amounts will show and are added together. Some Provinces do have additional taxes, such as Ontario’s health tax. Quebec has different rates for CPP and EI.

Are you Winning? Using the Figures to Boost Your Home Business

By Randall Orser | Small Business

The main indicators of success for your business are ‘work’ and ‘finance’.  

Work is a straightforward measure of how much work you have on at any time.  How many orders have you completed?  How many are there in the book that haven’t been started yet and how many are in progress?  A regular view of the value of orders in the book and the value of work finished each month will provide a trend.  

Finance is measured in many ways.  For the small business, it can be simply ‘what’s in the bank?’ and ‘how high is the overdraft?’    As with the work, however, a regular review for trends is extremely valuable.  For both, a trend upwards is a good sign that business is good and getting better.  Downwards is almost always not good.


The most obvious measure that everyone watches is simply ‘how much money is in the bank?’  A credit balance is good; an overdraft can be a challenge.   The balance will be the difference between money paid out and money taken in.   If you have more money going out than is coming in, you will not be in business for long.  The trick is to identify it early and find out what’s going wrong.

If you have a lot of orders coming through and being completed but are still not making money, first confirm that the invoicing and receipt processes are running smoothly.  No one will pay if you don’t ask them for it! 

Next, review what you are charging for your product against what you have to spend to make it.   Be sure to include your overheads in the cost calculations.  If it costs you £20 per month for the telephone services and during that month you can produce 100 of your product, then the cost calculation for each item must include 20 pence to cover the telephone overhead.  Similarly, electricity, premises rent and rates, insurances, any employees (and your time), and any other charge that you pay, will all have to be covered by what you charge people for your product.  The basic calculation is simply to divide the annual cost by the number of items you can produce in a year.  The price at which the item is sold must include the complete cost for producing it.  A small extra amount added into the price on top of the cost is your ‘profit’.  Too much and people won’t buy.  Not enough and you won’t be making enough to stay in business.

If it is costing you more to make than you are charging for it, then you have two avenues: put up the price you charge and/or cut down the costs for making the product. 

I’m Charging Right but Still Not Making Money

If the charge for your product already covers the item production and you are selling and invoicing successfully but still not making money, then you may be building up a stock of materials or parts.  This is easily done if your practice is to order slightly more than you think you will need, but never go back and use the extra that is sitting in the stock cupboard.  If you have built up a high stock, you need to consider how to reduce it and maintain it at a more appropriate level.   There may be quite a lot of money sitting in that cupboard that could be working better for you.  You also require a system for using up what’s in the stock cupboard.  Perhaps you order less.  Better still, you may include a current stock check into your routine when pricing a job and ordering materials.

Making the Most of Trends - a Case Study

 The other process for useful information is comparison.  Comparison of this month with the same month last year will show whether things are getting better or worse but will also provide clues to what might be causing the trend.

In the following case study, Martin started his hairdressing business in January 2010 and in mid-2011 is analysing his receipts for the first 14 months he has been in business.  He can see some important trends:



Jan 2010   
























Jan 2011




At the beginning of 2010, receipts were very low.  This was the beginning of business and people did not know him or his work.  He didn’t have much advertising working for him and his main custom came from family and friends and a few people who transferred with him from his previous salon.  It is common for new businesses to struggle for a couple of years while they get known and build up a clientele.

There is a steady growth from the beginning as the figures show an upward trend, although June, July and August seemed low and January 2011 showed a big drop from the months on each side.  In comparison, November and December 2010 jumped upwards very satisfactorily.

When Martin compares the two Januaries they both show low takings, so it may be that the starting low figure was affected by more than just being a new business.  It may be that January will generally always be slow.  He will need to take that into account when planning for future years.   It’s not a good idea to just charge a little more to cover the drop in work as it will alienate customers who have become used to the charges and expect them to stay the same.  Changing charges requires advance notice and extra publicity.    It is better to identify why the sales are down and encourage more people to come in.  If he offers a ‘post-Christmas discount’ he may be able to attract more customers in during that month.

In contrast, his sales immediately pre-Christmas have jumped upwards.  He reviews who came in during those months by checking his appointments book, remembering he was run off his feet, and finds that his older female customers flocked in to ‘have their hair done for Christmas’, while the young children and teens were less in evidence.  The customer mix, and the type of hairdressing that was required by them, would account for the increase in sales.  He can continue to expect a pre- Christmas boom if he maintains satisfaction for these customers and can keep them coming back. 

During summer his sales fell slightly.  His appointment book reveals more white space than usual, showing that he had times when no one was in the salon.  He remembered hearing a lot of holiday stories in the following months and realised that many of his regulars had been away and missed having their hair done with him.

In reviewing his expenses, Martin found high expenditure in December compared with the other months.  His invoice file showed that he had ordered in extra quantities of shampoos, conditioners, waxes and hairsprays.  He remembered that with all the extra business, he had run out of some products and had been forced to shop around for emergency supplies.  This had been more expensive than his usual suppliers, on top of being extra orders.  He made a note to stock up more in October so to be ready for the rush this year.

Overall, Martin was able to conclude that the business was generally good, although there was still plenty of room for more growth.  He would introduce a post-Christmas discount to see if he could entice more people through the door in January.   During the summer period he probably would still have a drop-in business, but he might be able to run a promotion for new customers.  He could also try attracting his regulars – and perhaps others – with a ‘look good for the holidays’ promotion just before they go away.  He would order in extra stocks of his consumable items ready for the pre-Christmas rush.  If he doesn’t sell as much as he expects, he could use the leftover extras for his post-Christmas promotion and sell them at a discount.

In this case study, Martin is identifying, and dealing with, seasonal trends that will affect his profitability.  By looking at the year as a whole, and comparing the months between years, he can see where his ups-and-downs relate to the time of year and plan accordingly.  Seasonal trend is only one factor among many that make a difference to your sales.  Depending on what you are selling, you may need to deal with fashions, new technologies, an event in the celebrity world, the impact of a new television program or film, a new law or regulation, an unusual weather pattern, a faulty product that lets you down, major job losses in your area limiting people’s spending, or something new that has never happened before.

The most successful businesses keep an eye on what’s happening, analyse why sales are dropping or increasing, drill down into the documents that are part of the daily process (such as appointment books and invoices), and find answers that they can then use to continue reducing expenses and increasing sales.  It’s not difficult to do, but if you need help – or just another point of view – your accountant is a useful resource in analysing the figures.  It will need your valuable knowledge of the daily business, however, to understand the underlying reasons and what might be done to address a potential problem. 

 It is up to you, as the business owner and manager, to keep an eye on the numbers, to measure progress regularly, and to address trends that are affecting your sales.

What Is the Disability Tax Credit (DTC)?

By Randall Orser | Personal Income Tax

The disability amount is a non-refundable tax credit used to reduce income tax payable on your income tax and benefit return. This amount includes a supplement for persons under18 years of age at the end of the year. All or part of this amount may be transferred to your spouse or common-law partner, or another supporting person.

The disability amount is for those individuals who have a severe and prolonged impairment in physical or mental functions. You do have to file a form, of course, it is government and they thrive on paperwork. You file a T2201 Disability Tax Credit Certificate with Canada Revenue Agency (CRA); a qualified practitioner must fill out the medical portion of the form.

You are eligible for the DTC only if CRA approves the T2201 form. A qualified practitioner has to complete and certify that you have a severe and prolonged impairment and its effects. To find out if you may be eligible for the DTC, check out the self-assessment questionnaire which is on the T2201 form.

Do you receive Canada Pension Plan disability benefits, workers’ compensation benefits, or other types of disability or insurance? If so, this does not necessarily mean you will qualify for the DTC. These other programs have other purposes and different criteria for qualifying, such as your inability to work. You may not be able to work; however, your daily living may not be severely affected.

The DTC starts from the day the physical or mental impairment began. You can apply at any time and re-file any tax returns for years that the DTC would apply. For example, you apply for the DTC in 2013 for an impairment that began in 2010; CRA approves the DTC for 2010 and future years. You can now apply for an adjustment for tax years 2010, 2011 & 2012.

Some Definitions

Inordinate amount of time – is a clinical judgment made by a qualified practitioner who observes a recognizable difference in the time required for an activity to be performed by a patient. Usually, this equals three times the normal time required to complete the activity.

Life-sustaining therapy – You must meet both the following conditions: the therapy is required to support a vital function, even if it alleviates the symptoms; and, the therapy is needed at least 3 times per week, for an average of at least 14 hours per week.

Markedly restricted – You are markedly restricted if, all or substantially all of the time (at least 90% of the time), you are unable, or it takes you an inordinate amount of time (defined above) to perform one or more of the basic activities of daily living, even with therapy (other than therapy to support a vital function) and the use of appropriate devices and medication.

Prolonged – An impairment is prolonged if it has lasted, or is expected to last, for a continuous period of at least 12 months.

Qualified practitioner – Qualified practitioners are medical doctors, optometrists, audiologists, occupational therapists, physiotherapists, psychologists, and speech-language pathologists. The table below lists which sections of the form each can certify.

Significantly restricted – means that although you do not quite meet the criteria for markedly restricted, your vision or ability to perform a basic activity of daily living is still substantially restricted all or substantially all of the time (at least 90% of the time).

Type of impairment each qualified practitioner can certify:

Qualified practitioner:

Can certify:

Medical doctor

All impairments





Occupational therapist

Walking, feeding, dressing, and the cumulative effect for these activities




Mental functions necessary for everyday life

Speech-language pathologist


If you find yourself with any kind of a severe impairment, you need to look at the DTC. Currently (2017), the disability amount is $ 8113, which can be significant. Also, with the number of children being diagnosed with autism, you can have your child file a T2201 and will more than likely qualify for the DTC, which can then be transferred to one of the parents. Look at other potential disability credits that you may qualify for tax purposes too.

Automate Your Business to Grow!

By Randall Orser | Small Business

Mention "business process automation" and for most people, it’s the complex IT systems of the bigger business establishments that first come to mind. Yet the smaller businesses, even the start-ups and home-based enterprises, can make use of and benefit from business process automation.

What is Business Process Automation?

Business process automation refers to the use of technology and software applications in operating a business. It is the complete or partial automation of repetitive tasks and regular business processes so that labour is better utilized and costs are contained.

Tools to automate a business are aplenty: tools for accounting, inventory tracking, email marketing, order taking, customer relations, and many more. A good example is the automation of inbound calls to a company. Do you remember years ago when a telephone operator was a must for most firms? These days, callers interact with a voice response system that takes care of standard calls or inquiries and routes specific calls to the right person or department.

Benefits of Automating Your Home Business

Automation has become necessary for businesses of all types and sizes. Consider the following benefits you are bound to gain by automating your business processes:

1. Business process automation will save you time.

If you are a one-person operation, you can be freed from handling the everyday routine tasks and devote your time instead towards marketing and growing your home business.

2. Business process automation will cut down your costs.

By automating many of your processes, you can streamline your operations so you will not need to hire as many employees as you would if your operations were run manually.

3. Business process automation will minimize errors.

Human errors can be costly and can lead to financial losses or poor customer service. Automated accounting systems, for instance, guarantee accuracy in computations, ensure timeliness of sending billing statements and improve the efficiency of your inventory management.

4. Business process automation will help you manage information better.

As business owner, you need to be informed about all aspects of your business operation. With automation, information is sorted, classified, and ready for your retrieval anytime you need it.

5. Business process automation will facilitate communication.

With correct and timely information, you get to know exactly what your customers want. You can communicate directly with your customers to address their needs or resolve their problem with your product or service.

How You Can Automate Your Home Business

If you are not yet sure which of your business processes to automate and what automation tools to use, you may want to take stock of your various business processes and learn which can be automated. Make sure to break them down where needed so you can decide on the appropriate software or application.

Take for example your marketing process. You can break it down to the following tasks: generating leads, distributing marketing materials, sending out sales letters, following up on leads, conducting surveys, and gathering feedback. For lead generation, you can design your website to include a subscription form or an opt-in box where visitors can submit their contact information. The pooled data go to your mailing list, which you then feed to your email auto responder that will in turn generate automatic responses to the email inquiries or send out pre-scheduled messages, newsletters, or sales pitches to those in your customers’ list.

With the right apps on your website, you can engage in e-commerce and run your online store where everything is automated from the order taking to receipt of payment and processing of shipment. If you have affiliates or if you advertise on other websites, you can also monitor their performance using a tracking system. Your accounting system can incorporate bookkeeping, invoicing, inventory management, payroll, voucher preparation, and so forth.

In the end, it is a matter of identifying the unique needs of your business and choosing the appropriate business process automation tools. Depending on your budget and the degree of automation that you want, you can hire an IT professional to develop an automated system for you or you can purchase one of the many canned programs that are readily available. A few solutions that you can download for free are available if your needs are simple and your volume is low.

When to Hire an Accountant to do your Taxes

By Randall Orser | Personal Income Tax

Do you fill out your own tax forms, use a software program to file your taxes, or have a tax service do it for you? Each of these methods is a good option, but sometimes it is better to work with a tax preparer. A tax preparer has specialized expertise and knowledge of tax rules making them the perfect candidate to accurately complete tax forms.  The more complicated your taxes are, the more likely you will need the help of an experienced preparer. 

If expense is not a concern for you, having a tax preparer file your taxes for you may be the best decision. You shouldn’t have to worry about your taxes being filed correctly if you are working with an experienced tax preparer. You also don’t have to spend any time calculating details and filing tax forms yourself. Whether you fill out a one-page form or you have a stack of forms to fill out, a preparer will be able and willing to do it for you. However, if you don’t want to throw away your money, simple forms can be done with software programs, through a tax service, or on your own much less expensively.

If you have several sources of income, such as a side business, stock investments, income properties, and other income sources, it is a good idea to have a preparer do your taxes for you. These types of income sources can be very complicated and require several extra forms to be filled out. A good preparer will have experience with it and can ensure that it will be done correctly and efficiently. Filling out a mountain of different forms can be tedious and confusing. One mistake can carry problems throughout the forms. Have someone who knows what they are doing complete it for you. On the other hand, if you only have one W2 form, you should be able to do it yourself.

Whether or not you should have a preparer do your taxes depends on what forms you need to file and how confident you feel doing them yourself. If you like to speed through things and don’t like looking over your work, you could miss important deductions and make costly mistakes. A preparer will ensure things are done right. Precision and detail are important when filing taxes to avoid mistakes and penalties. The more complicated the forms are, the more precise you need to be. If you feel uneasy about it, hire a preparer to do it for you. With a preparer, you are paying for expertise, precision, and accuracy.

How Smart Entrepreneurs Manage Inventory

By Randall Orser | Small Business

Inventory management isn't exactly made for the highlight reel. When people think of entrepreneurs, they think of bold ideas, trailblazing, and making money, not counting how much of your product you have. But inventory management is as important as accounting or securing your patents. Not enough of your big product to go around? Too bad, you just lost a chunk of your customers. The two basic things that your product needs to be are "functional" and "available for purchase". Fail the second one and it doesn't matter how good your product is - you're going to lose money.

Proper inventory management involves more than good hiring practices and keep an eye on your products. There are a couple of problems you'll need to solve.

1. Tracking Your Inventory

The Problem: So you know how much you expect to sell. The problem then becomes figuring out how much you have available for sale. Human error can put the kibosh on your finances. Inventory miscounts can occur when they're sold, when they're received, or when someone decides to use their five-finger discount. You'll also have to take scrapped items into account.

The Solution: Bar codes and electronic data interchange can help make sure that everything is accounted for. While you can count your inventory daily, it can put your employees and your finances under severe stress. A good alternative is to count a few items at a time. Pick a few of your products and see if they match your records. Put more emphasis on your best sellers - count them more often.

2. Having Too Much

The Problem: Too much of a good thing can be a bad thing. Making too much product can result in storage and production costs eating into what could be your profit. Anything that sits on a shelf for long enough is at risk of being stolen, damaged, or even becoming obsolete. Old product is notoriously difficult to sell, which can result in unplanned discounts or hoping that the overseas markets have room for your old stuff.

The Solution: The first thing you should do is figure out how much you need to have and when you'll need to have it. Take a look at how your sales have been over the past year. Take note of any peaks and dips and figure out if those deviations are connected to specific events or seasons. You can also figure out if you have spikes during specific times of the month, such as at the end of the month.

3. Data Loss

The Problem: Your inventory is properly marked and recorded and you're ready to turn in when your computer suddenly shuts down and refuses to turn back on. You get the repair guy to come in, and he tells you that your hard drive is gone. What do you do?

The Solution: There are a lot of things that can compromise your data, from viruses to theft. So when the inevitable "bad thing" does happen, take a deep breath. Take a look at your backup copy, which you should have. When you update your main file, make sure to update the backup as well. Software is available to both automate the process and to make sure that your data is recoverable. You can also have another copy of the file available to someone who needs it regularly, such as your accountant.

4. Skewed Priorities

The Problem: Inventory checking, for the most part, is a manual task. Someone has to visually confirm the existence of your products and note it down. This takes a lot of time and effort, both of which increase as your company grows.

The Solution: Entrepreneurs know that the first thing to do when solving a problem is to figure out your priorities. In this case, the priorities should lie in your most important products. Figure out how your best items are doing inventory-wise. Make sure that they're always in stock and up-to-date. Then take a look at your second-best items and so on and so forth. While it is possible to cover all your bases, focus on making sure that the most important products are protected. Your resources and your personnel are not unlimited.

5. Misused Spreadsheets

The Problem: Spreadsheet programs are often used as a way to easily track inventory. Microsoft Excel and OpenOffice software are used as computer lists. The problem is that computer files can be lost or modified. Changes are difficult to track, and synchronizing files across multiple branches can drive you to insanity.

The Solution: Entrepreneurs know that you have to use the right tool for the right job. Go with accounting software that has built-in inventory management systems, such as Quickbooks Online (QBO); maybe use an app for inventory that links to QBO. They'll ensure that human error is minimized and even provide vital functions such as a centralized database.

Your inventory might not be the most exciting thing in your life as an entrepreneur, but it's no less important. Mismanaged stock can easily result in lost sales, lost customers, and lost profits. Keep an eye on your product no matter how boring it gets and it will pay off.

Why are my support payments taxable?

By Randall Orser | Personal Income Tax

There are two kinds of support payments: child and spousal. Child support payments are those payments that you and your spouse have agreed on, or are court ordered, to help cover the cost of raising the children by the one spouse. Spousal support payments are those payments that you and your spouse agreed on, or are court ordered, that cover that spouse’s own maintenance (living expenses). Generally, the agreement or order must stipulate whether the payment is a child or spousal support payment.

Your payment is considered a support payment if the following five conditions are met.

  • The payment must be made under the terms of a court order or written agreement.
  • If the recipient is the payer's current or former spouse or common-law partner, the payer must be living separate and apart from the recipient at the time the payment was made because of a breakdown in the relationship. Otherwise, the payer must be the legal parent of a child of the recipient.
  • The payment is made for the maintenance of the recipient, child of the recipient, or both, and the recipient has discretion as to the use of the amount.
  • The allowance must be payable on a periodic basis. The timing of the payments must be set out in the court order or written agreement.
  • The payments must be made directly to the recipient.

For tax purposes, child support payments are not taxable income to the recipient. However, they must be laid out in the court order or agreement as child support payments. If your order or agreement predates May 1 1997, then the recipient would have to include the payments as income, and the payer gets a deduction.

Spousal support payments are taxable income to the recipient, and a deduction for the payer. As with anything tax wise, there are exceptions. Child support has priority. If your court order or written agreement specifies child support payments and support payments for the recipient, priority is given to the child support.

This means that all payments made are first considered to have been made toward child support. Any amount paid over and above the child support amount is considered to be support payments for the recipient. All child support payable to a recipient must be fully paid before any amounts paid as support for the recipient can be claimed as a deduction. Any arrears in the amount of child support is carried forward and added to the next year's support payable. The priority of child support does not apply when the child support and spouse or common-law partner support are payable under different court orders or written agreements and the recipients are different people.

Payments made after the death of the recipient are not deductible by the payer. Whether the payments are made to the estate or the children, these payments would not meet the conditions of a support payment. Payments made by the estate of a payer to the recipient are neither deductible nor taxable. The amounts do not meet the conditions of a support payment because an estate cannot have a spouse or common-law partner.

If you have to claim support payments you received, then it’s because they are for spousal support. Check your agreement or court order to ensure you are doing this correctly, and keep track of your child support payments as you may not have to claim the support payments if the child support is not paid in full.

A Formula for Disaster

By Randall Orser | Small Business

A majority of family-owned businesses have no succession plan to deal with retirement, disability or death. The cost of such negligence is often steep.

Except for the most bitter divorces or hotly contested lawsuits, nothing else comes close to the intense emotions and complex challenges of engineering a succession plan for a family business. That’s precisely why so few owners actually engage in the process. Only 30 per cent have a succession plan in place, according to a 2007 study by wealth management firm Laird Norton Tyee.

Even for those who do, tiptoeing through the minefield of succession planning leads to disaster more often than triumph. Just 30 per cent of family enterprises survive a second generation of stewardship, according to the Family Firm Institute (FFI). A scant 12 per cent make it through a third generation.

 “The biggest issue with succession planning is recognition of the need and a sense of urgency around doing it,” says Beth Wood, assistant vice president at Springfield, MA-based MassMutual Financial Group and supervisor of another 2007 study, co-sponsored by FFI. “Our data, based on responses from 1,035 family businesses with at least $1 million a year in revenues, suggest that almost 75 per cent of business owners are within 10 years of retirement, but have not selected a successor or put a succession plan in place,” says Wood, who runs the succession planning practice at MassMutual. “In addition, 30 per cent of the owners have no estate plan in place beyond a will. That is a concern because in our last survey, in 2002, only 19 per cent had no estate plan beyond a will. So the problem is getting worse.”

For any successful privately owned enterprise, estate taxes represent the single biggest threat to long-term well-being if not handled properly, says M. Katharine Davidson, a partner at law firm Dreier Stein Kahan Woods George, LLC in Santa Monica, CA. In Canada, probate taxes can be quite high depending on the value of the estate. As a result, one of the most important goals of a succession plan is to dramatically reduce estate tax exposure.

Expensive misconceptions

Many business owners mistakenly believe they have effectively addressed succession because they do, in fact, have an estate plan. “There is a huge misconception about what a succession plan is, which is why so many people do not have one,” says Ricci Victorio, vice president and a partner-director at 35-year-old succession planning firm The Rawls Group in Fairfield, CA.

“Most business owners do not really understand what a succession plan entails. Many owners think, ‘I have a buy/sell agreement, I’ve got a will, I’ve got a trust.’ Those are standard estate-planning tools. However, what they have overlooked is whether they have trained a successor and whether they have one in place. And they have not asked themselves whether they have managers and the bench strength to carry that successor into the next generation, or whether they’ve provided a way for their successor to inherit, buy or earn the stock so they have a smooth transition of ownership.”

There are also emotional and psychological reasons why so many business owners fail to tackle the issue. “People don’t like to deal with their own mortality, so they don’t like to do succession planning,” Davidson says. “They often also don’t want to deal with some of the hard questions about how to treat family members. There are always relationship issues at hand and they don’t want to disrupt family harmony. And people are so busy running their business, because that is what has made them successful, that they don’t take the time to look to the next step.”

The consequences of such neglect can be very expensive, says David Mahmood, founder and chairman of Dallas-based investment banking firm Allegiance Capital Corporation. “Lack of a succession plan can literally destroy your business,” he says. “So, no matter your age or how good your health is, you need to have a plan in place. Nobody gets out of bed in the morning and expects not to make it through the day because they will get killed in a highway accident or drop dead of a heart attack.”

David Auchterlonie, chairman and CEO of corporate turnaround management firm The Scotland Group in Newport Beach, CA, has witnessed the carnage poor succession planning can inflict. Of 200 cases he has handled over the past 22 years, about one-third have involved family-owned businesses. Of those, succession issues have invariably been at the core of the problems the businesses faced.

“The most common issue is the inexperience or the lack of capability of the designated – or designated by default – successor,” says Auchterlonie. For example, he cites a $100 million distributorship whose owner died suddenly. His eldest son, who held an MBA degree of dubious practical value, took over the company and proceeded to offer deep discounts to its best customers. That, in turn, eroded the company’s financial performance and led to a desperation sale at a fire-sale price.

Victorio agrees with Auchterlonie that a less-than-competent successor, often enabled by a sense of entitlement and the failure of rank-and-file management to expose to the owner his or her lack of qualification for the heir apparent role, is a common problem. Facing it is also among the most emotionally wrenching aspects of succession, she adds.

Yet another emotional issue, one that is often ignored, the experts say, is that the son or daughter or other family member designated as successor actually does not want the job, but a lack of communication or pressure from a parent facilitates an unfortunate circumstance that quickly becomes a catalyst for failure.

As a result, Victorio says, a growing trend is a “succession bridge,” meaning that the plan skips a generation but keeps the business in the family. Typically, an outside CEO is recruited to run the business while a grandchild completes business school and then works in a training or mentoring program under the tutelage of the interim executive until he or she is ready to assume command.

But if in doubt about the existence of a competent successor who has the requisite ambition and drive to shoulder the long-term burden of a business, the best course is usually to sell the company at the peak of its value, the experts say.

Meeting the challenge

More than anything else, perception and attitude determine the success of a succession plan. “The important thing to understand is that succession planning is a process,” says Victorio. “It is not a project. It does not have an end date.”

Key components of a solid plan include a realistic understanding of where the business is today – its strengths and weaknesses – and where the owner wants it to go, as well as a careful assessment of who is the best successor. Often, that means looking outside the family or current management team.

But the grand tradition is for a capable successor to carry on for the family and build the value of the company. Sumita Batra, CEO of Ziba Beauty, a chain of specialty salons in southern California, has endured a succession process for the past four years. Since she took over four years ago, a partnership that includes her mother – the founder of the business – husband, sister and brother has successfully doubled the size of the company, from six stores to 12.

The most important lesson Batra has learned, in going through a transition she acknowledges has been difficult at times, is that a family bond and shared trust are more important than anything else. “Blind trust must exist between the family members to come out of a process like this without damaging your family relationships,” she says. “And you have to put the emotion aside. What I learned is that you can go through a very, very tough experience and instead of getting distant, you can actually become even closer. And the business can grow and become even more successful.”

Where Does Our Tax Revenue Go?

By Randall Orser | Personal Income Tax

People just hate paying taxes. I think a lot of that has to do with we really don’t know where it goes. It all goes into that sinkhole we know as General Revenue. From there what happens to it is a mystery. Of course, there are many things the government spends money that really tick off people, and that has much to do with this hatred for taxes. So where does this money we grudgingly pay to the government go exactly?

The following figures are from the Department of Finance for the fiscal period 2013 to 2014, and we accept no responsibility for their accuracy, nor for how much they may tick you off. We did search for more current figures, however, the government doesn’t seem to put this information out as much as it used to in the past.

For the fiscal year ending March 31, 2014, Canada’s federal government spent $276.8 billion. That represents roughly 15 per cent of our country’s $1.9-trillion economy.

Transfer payments

Payments that go directly to persons, to provincial and territorial governments, and to other organizations are called “transfers.” Transfers are the largest category of government spending. They made up about 61 cents of each tax dollar spent ($169.4 billion).

Transfers to persons

Major transfers to persons cost 26 cents of each tax dollar spent ($72.2 billion). The biggest category within transfers to persons was elderly benefits. These transfers include:

Old Age Security

Guaranteed Income Supplement

Allowance for Spouses

Total elderly benefits cost about $41.8 billion, or roughly 15 cents of each tax dollar spent.

Another major transfer to persons is Employment Insurance (EI) benefits. Altogether, EI benefits cost over 6 cents of every tax dollar spent ($17.3 billion). The final category of transfers to persons is children’s benefits. The federal government provided $13.1 billion to help families raise their children through the Canada Child Tax Benefit and the Universal Child Care Benefit. These payments cost almost 5 cents of every tax dollar spent.

Federal support for health care

Federal support for health care goes beyond cash payments under the Canada Health Transfer and the Equalization and Territorial Formula Financing programs. The federal government also provided over $6 billion last year for:

First Nations health services

Health care for veterans

Programs for public health

  • Health research

Other transfer payments

Last year, spending on federal grants, contributions and subsidies added up to $36.7 billion, just over 13 cents of each tax dollar spent. This included:

$6.3 billion in assistance provided by Employment and Social Development Canada in support of learning, skills and employment, and social housing

$6.2 billion in transfers by Indian Affairs and Northern Development for First Nations and Aboriginal peoples

$3.4 billion in transfers by the Canada Revenue Agency, which includes transfers made to individuals and corporations through the tax system

Other funding was provided in support of farmers and other food producers, research and development, infrastructure, regional development, health research and promotion, the arts, amateur sports, international assistance, and multiculturalism and bilingualism.

Other program expenses

After transfers, the bulk of federal tax dollars went to cover the operating costs of the more than 130 government departments, agencies, Crown corporations and other federal bodies that provide programs and services for Canadians.

Government operating expenses such as salaries and benefits, facilities and equipment, and supplies and travel made up 29 cents of each tax dollar spent ($79.2 billion). Close to half of this spending—14 cents of each tax dollar—went to just three organizations.

National Defence

First, spending last year by National Defence, including the Canadian Armed Forces, made up 8 cents of each tax dollar spent ($21.5 billion)

Public Safety

Next, operating costs of Public Safety and Emergency Preparedness represented over 3 cents of each tax dollar spent ($9.8 billion). This includes funding for the Royal Canadian Mounted Police, the federal prison system, and border traffic and security operations.

Canada Revenue Agency

And third, expenses of the Canada Revenue Agency, which administers the federal tax system (and also collects taxes for all provinces except Quebec) totalled $7.8 billion, or 3 cents of each tax dollar spent.

Other operations

A further $32.6 billion—12 cents of each tax dollar—was spent on the operations of the other federal departments and agencies. These included major departments such as:

Employment and Social Development Canada

Environment Canada

Fisheries and Oceans Canada

Health Canada

Industry Canada

Department of Justice

Natural Resources Canada

Public Works and Government Services Canada

Transport Canada

Veterans Affairs Canada

Funding also went to federal agencies such as the Canadian Food Inspection Agency and Parks Canada.

Paying for Parliament

One of the smallest spending slices goes to Parliament itself—the House of Commons, the Senate and the Library of Parliament. Last year, the combination of salaries and benefits for Members of Parliament, Senators and parliamentary staff, and spending on facilities and services, totalled about $534 million. That’s less than one-quarter of a cent of every tax dollar spent.

Crown corporations

Crown corporations (organizations owned directly or indirectly by the Government) cost $7.5 billion, or 3 cents of each tax dollar spent. Most of these expenses were recorded by three organizations:

Canadian Commercial Corporation—$1.7 billion

Canadian Broadcasting Corporation—$1.7 billion

Atomic Energy of Canada Limited—$1.3 billion.

Funding was also provided to cultural organizations (including the National Gallery of Canada, the Canadian Museum of History and the Canada Council for the Arts), to enterprises like VIA Rail, and to the Canadian Tourism Commission.

These costs were partially offset by revenues earned by the Crown corporations, which totaled $3.5 billion in 2013–14. These revenues are included as part of the Government’s other revenues discussed in the section entitled “Where the money comes from.”

Public debt charges

Interest charges on Canada’s public debt—money borrowed by the federal government over the years and not yet repaid and liabilities for pensions and other future benefits—cost $28.2 billion. That’s 10 cents of every tax dollar spent. Currently, 74 per cent of the Government’s un-matured debt is owed to Canadians, including citizens and domestic institutions holding federal bonds, treasury bills and other forms of the debt.

Here’s a summary of where all your tax dollars go:

Canada Health Transfer (11 cents)

Canada Revenue Agency (3 cents)

Canada Social Transfer (5 cents)

Children’s benefits (5 cents)

Crown corporations (3 cents)

National Defence (8 cents)

Employment Insurance benefits (6 cents)

Other major transfers to other levels of government (6 cents)

Other operations (12 cents)

Other transfer payments (13 cents)

Public debt charges (10 cents)

Public Safety (3 cents)

  • Support to elderly (15 cents)

Unusual Tips for Entrepreneurs

By Randall Orser | Small Business

If there's anything a successful entrepreneur should learn, it's that there's always something they don't know. Even experienced entrepreneurs may find that there are a few tricks that they haven't heard of, things that may improve the way the run things. Smart entrepreneurs look for ways to improve their efficiency daily. If you want to be successful, you'll want to cultivate that same habit.

1. Organize Your Data

As an entrepreneur, you'll need to keep an eye on a lot of details, from the amount of materials and stock you have to how the audience is reacting to your marketing campaign. Being detail-oriented will make sure that you don't miss any opportunities and that you react to any missteps before they get out of hand. That means that any data or information that you have should be organized and readily available.

This will also help you when the time inevitably comes to make sales pitches, either to potential customers or possibly investors. If they need any data, you'll have it ready for presentation. This could easily turn a maybe into a definite yes.

2. Research Answers

The wonderful thing about the Internet is that you have, at your fingertips, a massive amount of information. Due to the ease at which this information is available it is almost criminally neglectful to not use it. If you have any questions, chances are that someone has already asked that question. Even if it does not fit your specific context, you may find the answer still relevant. Look at forums or see if Reddit has a subreddit for your question.

3. Write Things Down 

Entrepreneurs need to be detail oriented. The problem is that there's a lot to remember. Clients, employees, investors and more will ask and tell you about a great deal of things. You're probably going to remember most of it, but most will not cut it. You'll need to write things down, either in a notebook or on your phone, to make sure you forget nothing.

The things with you can do with the information you write down and organize are endless. You can use that information to spot trends, nip trouble in the bud before it sprouts, and even make suggestions to other entrepreneurs in terms of hiring or strategy. Knowledge is power, but only if you remember it.

4. Make Sure That Lines of Communication are Open

A big part of efficiency is communication. Everyone has to be one the same page. They need to know when other tasks are completed and they need full understanding of what needs to be done. As an entrepreneur, you can make sure the lines of communication are open simply by talking to people. Ask them what they think and check up on their tasks every once in a while. Keep everyone else updated, possibly through a mailing list or by simply making announcements. You shouldn't be the only one updating people, however. Make sure everyone knows that it's their responsibility to both stay informed and make sure that those around them are informed.

It's important to note that communication doesn't just involve making sure everyone knows how everyone else is going. It also means that employees, partners, and even clients should be aware that their opinions can and will be heard.

5. Be Nice

Politeness is free, so you should be as polite as you can to everyone you meet. Being a successful entrepreneur is all about treating people right. Treat customers right and they'll come back for more. Give your partners and investors the respect they deserve and they'll be more inclined to work harder on the start-up.

While the strength of your product is what is primarily going to determine the success of your start-up, it would be foolish to say that your attitude and relationships with other people has no effect on your future. It's probably possible to make it as a rude entrepreneur, but you'll probably find the journey a lot more difficult than if you took the time to be polite and kind.

While these tips will help, it's important to remember that there's a lot more to being a successful entrepreneur than unusual tips. There's having a good product, having a strong marketing campaign, and grit. The road might get bumpy, but if you apply these tips and stay in the fight, you'll likely find success.