6 quick facts about the capital gains exemption in Canada

Yesterday I was visiting my parents back home on the farm and enjoying a lazy Saturday afternoon away from the big city. In exchange for some really great ice cream, my Mom asked me for some tax advice related to the lifetime $500,000 capital gains exemption.

Long story short, she was under the impression she could shield any and all capital gains using the exemption. Unfortunately, the exemption is very specifically targeted and is not a blanket exemption for just any gain.

So, a rundown of the basic facts surrounding this oft-misunderstood tax tidbit.

  1. Share sales qualify for the exemption if and only if they are of a Small Business Corporation, which is defined in the Tax Act as being a Canadian-Controlled Private Corporation with generally 90% of its assets involved in active business.
  2. The shares must have been owned by you or a relative for a 24-month period prior to the sale, and for that same period at least 50% of the assets must have been used in active business in Canada.
  3. Steps should be taken to “purify” the corporation to take advantage of the exemption. This normally means removing investments held by the corporation, as these are assets not used in its active business and could thus violate the 50% and 90% rules above.
  4. The 2007 budget proposed increasing the lifetime exemption from $500,000 to $750,000, and proposes to take effect for dispositions after March 18, 2007.
  5. Unincorporated businesses – sole proprietorships or partnerships – are not eligible to use the exemption, which is a prime benefit to incorporation. There are ways to roll business assets into a newly formed corporation not resulting in tax.
  6. You can “crystallize” the exemption at a time when the corporation qualifies, which involves transferring the shares to a holding corporation and electing to recognize a gain. In case the government decides to eliminate or change the exemption, you’ve already taken advantage and are protected.

As with any general tax information, your situation will be unique. You should definitely seek out a Chartered Accountant to review your personal situation and prepare a plan tailored to you. If you need a CA, please contact me and I can provide some recommendations!

Twitter for accounting professionals?

Dennis wrote a post a few days ago about Twitter within “a business context” entitled “The pain of disruption“:

I want to DO something with Twitter. The more I think about what Twitter might deliver, the more scary it becomes. Twitter challenges my ingrained notions of how services and value are delivered.

In case you haven’t heard of Twitter, it is basically like group instant messaging. You create your own account and start making small (144 characters is the max) posts about what you’re doing or thinking about. Other Twitterers “follow” you and receive your postings on their home page.

For whatever reason the post really ignited something within me and I found myself commenting right away, although with an idea that sort of just fell out of my brain half-baked:

Off the top of my head, how about Twitter channels for large, distributed groups working together (I’m thinking specifically of audit teams but there are obviously other applications) to aid communication. Group IM seems useful as long as it can be secured for sensitive business.

I continued to ruminate on the issue and hoped some more ideas could be generated.

How about for Twitter for an entire accounting firm office? I could throw out a question to the entire firm, like “Does anyone have a GST reconciliation schedule template handy?” or “Why is the capital gains exemption limited to only qualified small business corporation shares?”

Being able to ask those sorts of questions is helpful since I’m rarely in the office unless it’s busy season (and even then it’s just evenings and weekends). Being able to ask my more senior colleagues technical questions when I’m in the field would be great, but not too different from using email. The difference I guess would be not having to enter all their addresses.

How about using Twitter to communicate with clients? This has some possibilities as well. Being able to communicate with clients about new accounting standards coming into effect, or relevant changes to tax law would improve client service and provide timely updates that blows the current model away.

Any other ideas for using Twitter within a business context or specifically for accountants?

7 quick facts about the new financial instruments standard

The Canadian Accounting Standards Board (AcSB) has finalized some new sections of the Handbook which include guidance on accounting for financial instruments. Financial instruments include investments, hedges, derivatives, and loans and receivables.

  1. The Canadian standard attempts to harmonize our GAAP in a way with FASB Statement 133, “Accounting for Derivative Instruments and Hedging Activities,” and IAS 39, “Financial Instruments: Recognition and Measurement.”
  2. The standard is balance sheet focused: It is an attempt to get the financial position right and flow the change through the statement of operations (income statement). It is expected to result in new assets and liabilities for most businesses implementing the standard.
  3. The default measurement basis is fair value. There are exceptions: Loans, receivables and investments intended to be held to maturity should be recorded at amortized cost, and equity investments for which no market value is readily available should be recorded at cost.
  4. The Canadian standard has been modeled closely on the IFRS, which is more comparable to Canadian GAAP in general and newer than the US standard.
  5. The new standard will require companies to reassess existing contracts as well as explicit hedges. A previous standard on hedge accounting has been in effect since 2003. The new standards may require changes to the way certain hedges are accounted for.
  6. The new standard is effective for periods beginning on or after October 1, 2006 for public companies and non-profits, and October 1, 2007 for private companies.
  7. The standard will improve, as an example, comparability between companies that are approaching their foreign exchange risk differently. Clearly there is a possibility that a company hedging the risk is in a different position than one not.

Google improves Analytics and now I’m in on it!

This weekend was the first long weekend of the summer here in Canada. On Fridays before long weekends at my firm we get the afternoons off, so around 1pm everyone clears out and gets an early start on the rest of the cubicle dwellers around the Greater Toronto Area.

I took the opportunity to do a little shopping for a new mouse at Future Shop. My old mouse had for whatever reason stopeped functioning properly. For the rcord, Microsoft mice have failed on me twice now, so I went with Logitech this time.

I also decided to splurge on a year’s subscription to Flickr, since it was so reasonably priced at about $25 USD. I hit the limit on the free account a while back. It’s useful as a blogger because I use it to host images I want to use in blog posts, such as the one in this post, and it doesn’t use up my bandwidth.

But I digress. Point is, when I got home from shopping, unwrapped and plugged in my shiny new mouse and by chance decided to check out my site statistics, I noticed that Google had upgraded my Analytics account to their new beta!

Analytics New Beta

The whole package is still freely available to anyone who has a Google account and a website. The graphics have been tweaked, but it’s the functionality improvements where the new Analytics really impresses. For example, the geographical breakdown now allows you to drill down from a map of the globe down to a specific US state or Canadian province.

Canada Analytics

Unsurprisingly, most of my traffic comes from Toronto and the surrounding area. Most of my US traffic originates from the most populous states: California, New York and Texas. It’s also interesting to see the browser and operating system breakdown of my visitors. Most still use Internet Explorer despite its deficiencies, but 31% using Firefox on all operating systems is above average:

Browsers and OS

The title of this post refers to the phasing-in of the new Analytics. Google announced the new version a few weeks ago but has been moving everyone over on a relaxed time frame, assumably to catch any bugs or glitches otherwise missed. So I’ve known for a while what was coming, but didn’t know when!

Google has also put together a video tour of the new features.