The Accounting Zone – November 2016

The November 2016 edition of The Accounting Zone has been released.

Click here to read the latest Accounting Zone newsletter.

In this issue;

  • Are all employee leaves of absence the same?
  • What the heck are preferred shares anyway?
  • Furious! Employer not charged in employee’s death while at work.
  • Make informed financial decisions – Financial Literacy Month is here!
  • Tax Planning – Do you want to know how to minimize the damage before it’s too late?

Subscribe to our monthly newsletter on our home page today and never miss another accounting tip!

Employment Standards Act, Part 3

Written by: Gwyneth James, MBA CPA, CGA, Senior Partner

This month we finish our review of the rules found in the Employment Standards Act (ESA) which is managed and enforced by the Ontario Ministry of Labour. These rules provide direction with respect to paying your employees, but there are certain individuals and organizations that the ESA does not apply to. An example is companies that fall under federal employment law jurisdiction.

Examples of what is covered by the ESA are: minimum wage, overtime, tips and gratuities, hours of work, public holiday pay, vacation pay, leaves, and termination. (See Part I and II for the first 6 of these.)

There are many types of leaves allowed by the ESA – pregnancy, parental, family caregiver, reservist, etc. A leave is unpaid, but the employee’s position, seniority and benefits must continue through the period and an employer cannot penalize the employee in any way. In some cases, the employee will qualify for Employment Insurance benefits for part or all of the leave period.

The ESA requires employers to give either written notice, pay in lieu of notice or a combination if they dismiss an employee after 3 months without cause. These notice periods do not apply if there is a well-documented cause for the termination.

The amount of notice or termination pay depends on how long the employee has been employed. The lump sum payment of termination pay must be treated like any other payment of wages with vacation pay applied and payroll deductions withheld.

Severance pay is separate and in addition to termination pay, but only applies when an employee has worked for 5 or more years for an employer with a payroll of $2.5 million or more. The amount paid also relates to the years of service.

As always, there are exceptions so checking the Special Rule Tool is wise.

Preferred Shares? What are those?

Written by: Suzanne Cody, CPA, CGA, Senior Partner

Preferred shares are a hybrid investment having both the characteristics of owner’s equity and fixed income. These shares represent an ownership interest, do not have a maturity date, do not generally have voting rights, and have a par value (the value as declared in writing by the corporation) which is arbitrarily assigned by the issuing corporation. They usually pay out at a fixed rate set at the date of issue. They are senior to common stock but rank behind debt or liquidation proceeds which means that your investment will be paid back before any common stock investments but after creditors’ debts are settled.

Preferred shares have a face value like a bond and dividends are paid at a percentage of the face value. Hence, the par value of preferred stock has some economic significance. For example, if a corporation issues 5% preferred stock with a par value of $100, the preferred stockholder will receive a dividend of $5 (5% times $100) per share per year. If the corporation issues 10% preferred stock having a par value of $25, the stock will pay a dividend of $2.50 (10% times $25) per year. In each of these examples the par value is meaningful because it is a factor in determining the dividend amounts.

In years gone by, a popular method of legal income splitting was to have a business owner issue shares directly or indirectly to their minor children. The corporation would declare dividends on the shares owned by the minors, and because they had little or no income, a significant amount could be paid out or be made payable to the children tax-free. This came to an end in 2000 when the Income Tax Act was amended to prevent this income splitting by assessing a “kiddie tax”. Under this rule, when a child under age eighteen receives dividends from a private corporation, the dividends are now taxed at the highest federal tax rate and except for the dividend tax credit, the minor is not able to make use of any other credits normally available.

There are also “attribution rules” which would make you pay personally pay income tax on some of your child’s earnings. In order to purchase the preferred shares, the child requires money. If you ‘gift’ this to him or her, then as soon as the ‘gift’ starts to earn income, that income becomes attributable to you for tax purposes.

So remember, if someone tells you it might be a good idea to share the wealth with your underage children, you should talk to your accountant!

If you would like further information, please call the office at 705-876-6011 or contact Suzanne directly via email at scody@codyandjames.ca

The Accounting Zone

Our latest newsletter from The Accounting Zone is now available!

In this issue;

  • Top 5 signs you are an “Anti-preneur”
  • Is your marketing budget giving you the ROI you expect?
  • Introducing the Cody & James team.  Meet Pam – baker extraordinaire!
  • 8 Things every student needs to know about their taxes….NOW!
  • Does WSIB Bill 119 still have you confused?  Attend our information session

Click here to read our latest issue of The Accounting Zone.

To sign up to receive The Accounting Zone, please visit our home page.

Employment Standards Act – Part 2

Written by:  Gwyneth James MBA CPA, CGA, Senior Partner

This month we continue our look at the rules found in the Employment Standards Act (ESA) which is managed and enforced by the Ontario Ministry of Labour. These rules provide direction with respect to paying your employees, but there are certain individuals and organizations that the ESA does not apply to. An example is companies that fall under federal employment law jurisdiction.

Examples of what is covered by the ESA are: minimum wage, overtime, tips and gratuities, hours of work, public holiday pay, vacation pay, leaves, and termination. (See Part I for the first 4 of these.)

There are 9 Public Holidays (“Statutory” Holidays) in Ontario for which employees can take the day off work and be paid. The amount they receive is calculated as the average of the wages and vacation pay (not overtime) from the past 4 work weeks, divided by 20. The same calculation is used if an employee works; however in addition, they are either paid overtime pay for the hours worked or paid regular pay and given a substitute day off. Some jobs are exempt from public holiday pay. Note: The August Civic Holiday is not one of the public holidays.

Vacation pay is compulsory at 4% of earnings, including holiday pay and overtime. It is typically accrued and paid out when the employee takes a vacation. After one year of employment the employee should have two weeks’ worth of pay accumulated that they can ‘cash in’ for time off. The vacation time earned must be taken within 10 months. Employees can forego vacation time with written agreement from the employer, but the employer still must pay the vacation pay. There is no requirement to increase this rate or the weeks of vacation earned after certain years of employment. Very few jobs are exempt from vacation pay.

For more information please contact our office at 705-876-6011 or use our contact form by clicking here.

Should You Earn Investment Income in Your Corporation?

 Written by:  Suzanne Cody CPA, CGA, Senior Partner

A question often asked by people is whether they should own their investments personally or hold them in a corporation to delay paying income tax.  Remember!  There is no avoidance in paying the tax only careful planning to minimize the damage. The government strives to equalize the taxation of investment income across the board so that there is no preference between earning interest from within a corporation or earning it personally.  This goal is known as integration.  This equalization is not perfect.  For 2016, an Ontario corporation would be taxed at a combined rate of 50.57%.  While not an exact match, it is quite close to the highest personal combined marginal rate of 53.31%.

To achieve integration, there is a refundable tax imposed on Canadian Controlled Private Corporations (CCPCs) that earn investment income. In order to prevent double taxation, some of this corporate tax is refunded when dividends are distributed to an individual.  The idea behind this is to prevent your corporation from having more after-tax money available for reinvestment than you would have if you had received the interest income personally.  The bottom line is that your corporation will be refunded $1 for every $3 paid out to shareholders as dividends.

You can think of the refundable amount  as taxes that have been paid out in advance.   When  the dividends are paid out to you, you will be taxed personally on the income.  Where an individual’s personal income does not fall into one of the higher tax brackets, there may even be a disadvantage to this strategy.  What I hope to have highlighted here is that there really is no income tax benefit to earning investment income from within your  corporation.

Employment Standards Act – Part I

Written by:  Gwyneth James MBA CPA, CGA, Senior Partner

As a society we have developed laws and rules which are generally designed to address fairness and safety. All of the rules involving paying your employees in Ontario can be found in the Employment Standards Act (ESA) which is managed and enforced by the Ministry of Labour. As an employer you are expected to be familiar with these laws and provide a copy of the ESA poster to every employee.

Examples of what is covered by the ESA are: minimum wage, overtime, tips and gratuities, hours of work, public holiday pay, vacation pay, leaves, and termination.

Minimum wage is currently $11.25 per hour and will increase to $11.40 on October 1, 2016. There are different minimum wages for students and liquor servers, but they are still covered by the majority of the ESA rules.

With a few exceptions, all employees are entitled to overtime pay after working 44 hours in a week. Overtime pay is 1.5X the employee’s regular hourly rate. An employee and an employer can agree in writing that the employee will receive paid time off work instead of overtime pay, but the time is still “banked” at 1.5X.

Rules regarding tips and gratuities were changed effective June 10, 2016. Tips are allowed to be shared in a tip pool. Employers cannot deduct for breakage or slippage, but they are allowed a share if they are owners and work in the business themselves.

For most employees, the weekly limit on the number of hours they can be required to work is 48 hours. These limits may be exceeded if certain conditions are met.

Not all industries are covered by all aspects of the ESA. The Ministry of Labour website has a “Special Rule Tool” which allows you to check if your business is subject to any exemptions: https://www.labour.gov.on.ca/english/es/tools/srt/index.php

1-888-511-2791
info@codyandjames.ca