TSFA’s are my favourite investment vehicle. This is a great article.

A Tax Free Savings Account (TFSA) can be used together with your RRSP or RRIF to shelter more investment income from tax.

As you prepare to file your 2010 personal income tax, you may ask: Is there another means of reducing tax on income other than the RRSP?

TFSAs and RRSPs

The answer, of course, is a resounding “YES.” It is the Tax Free Savings Account (TFSA). When you contribute to an RRSP you get a deduction that relates to your “earned income” in the preceding year and a tax reduction based on the applicable tax rate. If you start withdrawing RRSP funds, however, they are taxed at your tax rate in the year of withdrawal. Contributions to the TFSA, on the other hand, are not tax deductible and do not, therefore, create an instant tax savings as does the RRSP contribution. The TFSA does, however, offer the opportunity to those who have already contributed their annual limit to their RRSP to set aside an additional amount and shelter any investment income (capital gains, interest and dividends) earned on those funds. Withdrawals are tax free. As with RRSPs, losses in a TFSA are not tax deductible. No capital gains tax is paid at the death of the account holder. Unlike RRSPs, the property in a TFSA can be used to secure a loan.

Unused contribution room can be carried forward indefinitely.

Any resident over the age of 18 can contribute up to $5,000 per year. (This limit may be indexed based on a formula that relates to the increase in the Consumer Price Index and so is intended to grow with inflation. However, the potential increase is rounded to the nearest $500 and may therefore be nil.) If you cease to be a Canadian resident, you may continue to hold the TFSA but cannot add to it. Unused TFSA room is carried forward indefinitely. Withdrawals from a TFSA in a year are added to TFSA room in the next year. Excess contributions are subject to a penalty of 1% per month.

It is important to note that the income attribution rules do not apply if a person provides funds to enable his or her spouse or common-law partner to contribute to a TFSA.

Different Ways to Contribute

There are three types of TFSAs: deposit, annuity contract and arrangement in trust. TFSAs can be issued by banks, insurance companies, credit unions and trust companies. The eligible types of investment are generally the same as for an RRSP: cash, mutual funds, securities listed on a recognized stock exchange, guaranteed investment certificates (GICs), bonds and certain shares of small business corporations. Foreign funds can be contributed but their value in Canadian dollars cannot exceed the $5,000 limit. The TFSA can be managed by an institution or self-directed in the same way as an RRSP.

Recent Problems

The TFSA was introduced effective January 1, 2009. Some contributors were reassessed for 2009 as a result of confusion on two main issues: the transfer of a TFSA from one institution to another institution, and how the TFSA worked with respect to withdrawals and recontributions.

With regard to the first issue, some taxpayers were initially penalized by the Canada Revenue Agency (CRA) for taking funds out of one institution by cash or cheque then opening an account at another institution. The CRA considered the transfer and deposit to be opening a new TFSA account. The CRA considered this to be a separate contribution subject to the $5,000 yearly limit and thus an overcontribution. The CRA applied the 1%-per-month penalty on the amount over the $5,000 personal contribution limit.

The TFSA is not like an investment account.

The second issue arose because taxpayers believed the TFSA was like an investment account to which they could deposit up to $5,000, remove funds then redeposit them provided the amount in the account never exceeded $5,000, at any time. Unfortunately, the CRA considered this activity to be overcontributing based on the following logic.

Suppose the taxpayer deposits $5,000 on May 2 and on September 30 withdraws $3,000 to leave a balance of $2,000. If, however, on October 25 the taxpayer deposits $3,000 to top the account back up to the $5,000 limit, the CRA will consider this deposit to be a $3,000 overcontribution and levy the 1% monthly penalty.

As indicated above, funds withdrawn may be redeposited only in the following year after the contribution room has been increased. CRA will remind you each year as to the accumulated room available for contribution.

Using a TFSA in Conjunction with a RRIF

There is no cut-off age for contributions to a TFSA as there is for the RRSP. You cannot make an RRSP contribution after December 31 of the year in which you turn 71. Thus a taxpayer over 71 can transfer the mature RRSP into a Registered Retirement Income Fund (RRIF) and from there into a TFSA at the eligible contribution amount then applicable. The amounts withdrawn from the RRIF will be taxable but the investment income earned in the TFSA and any withdrawals will not be. The funds invested in the TFSA can continue to grow without tax consequences as they did in the RRSP and RRIF.

No Dividend Tax Credit

The dividend tax credit was designed to overcome the problem of taxing income first in the hands of the corporation that earned it, then again in the hands of the shareholder. As with dividends received in an RRSP or RRIF, dividends from qualified Canadian corporations received in a TFSA cannot make use of the dividend tax credit since they are already tax sheltered. On the other hand, if a TFSA held a GIC, the interest income would be tax free whereas if held outside of a TFSA the interest would be taxable. If you have investments both inside and outside your TFSA, it may therefore be better to hold dividend yielding investments outside and interest bearing investments inside.

Is the TFSA Right for You?

Determining whether to place your 2011 investment within an RRSP or a TFSA is a decision that should be discussed with your Chartered Accountant to determine whether there are significant benefits of choosing one vehicle over the other. The end game is to increase financial security with investment strategies that reduce the taxes paid.

We all use it – in paper, coin, plastic or virtual.

How many of us understand it?

At its base it is just a tool that makes our lives easier as it allows us to trade for goods and services that we want or need.

Unfortunately in the North American culture many people determine personal net worth by how much money someone has or does not have. In reality the amount of money you have does not make you a better human being – being a better person does. If you had to choose yourself to be your best friend would you? If you want to leave a mark when you move on to the next place how will you ensure it is a positive mark and that people will say they are happy you were here.

Back to money ….

Each of us has a very personal relationship with money. We will tell our friends about our sex life before we would talk about how we handle money or our net worth. I find this very sad.

Society has very graphic images of what our life behind bedroom doors (or in airplane washrooms) should be like. We often think this is the way we should act and try to emulate this. Over time we get comfortable with our partner and settle into a pattern that may or may not work for us.

When we look at society and money we get some very strange messages. We get the Hollywood version in which the use of money is very messed up to our parents not wanting to talk to us about money when growing up as they are scared they are not doing the “right thing” and as a result feel that they do not understand it. Most people have issues about money that will determine whether they are savers or spenders or somewhere in between. You need to go back to you childhood generally to think about the beliefs you have and where they come from. (I can go all day on this alone).

At the end of the day you need to ask yourself – is how I use and treat money working for me? If it is not then find some little step you can take that help you move towards w

Where do you want to go?

here you want to go. If it is do not be scared to talk about it – it will help others.

At the end of the day remember that money is a tool, much like the vehicle you drive, it allows you to get from point A to point B.

Read Lindalee Brougham quoted in article for Canada’s More Magazine April 2010 issue

Want to avoid leaving money that’s rightfully yours in the government’s pockets? Here’s how  {original article by Camilla Cornell at More Magazine  http://www.more.ca}

At this stage of life, you can be forgiven for feeling like a walking wallet as you fork over cash for everything from home improvements and the kids’ activities (see: The real cost of sending kids to university) to your rapidly fluctuating retirement fund. Fortunately, some of those necessary expenses can actually net a little payback when tax time rolls around. With any luck, when you get your refund cheque, it will seem like a windfall. Here’s help to ensure you don’t leave money on the table.

Read whole article  www.more.ca/work-and-money/finances/tax-tips-how-to-save-money-on-your-tax-return/a/29932

Each year taxpayers pay money in taxes that would not have been paid if information had been available for inclusion in their T1. Most of us receive T4s and T5s from the source; however, we often overlook the multiplicity of transaction documents that impact our personal income taxes. Here are the more common omissions that your tax preparer encounters.

1. RRSP

RRSP deduction limits should be reviewed to minimize the possibility of overcontribution. It may be useful to review your bank statements, etc., to ensure that neither you nor your broker has forgotten RRSP contributions. Under normal circumstances, your broker will ensure that the RRSP receipts are sent, but it is not unusual for these receipts to arrive late or be misplaced.

2. Loan Interest

Loan interest incurred when borrowing for investment purposes is tax deductible. Documentation outlining the date of the loan, the principal and interest, and the term should be available to allow preparation of an amortization table. Many financial institutes provide summaries of interest on loans or lines of credit. Providing this documentation along with an explanation of the reason for the loan or line of credit will allow your tax advisor to determine whether the interest is tax deductible.

3. Investments

Information on carrying costs, such as brokerage, administration fees, and capital gains and losses in your portfolio is definitely necessary for tax preparation. The original cost of investments purchased many years ago may be difficult to determine. Where possible, find the original purchase details; but, if this is not possible, determine an approximate purchase time to allow research into the cost at that time.

4. Moving Expenses

Expenses associated with a move to a new residence at least 40 kilometers closer to a new work location may be deductible. Such expenses include, but are not limited to, travel costs, moving costs, and real estate fees. If in doubt about the deductibility of moving expenses, provide all of them to your tax advisor. The inclusion of receipts allows your advisor to determine not only those expenses that are deductible but also will provide a starting point for questions about possible additional deductions.

5. Rental Property

Individual taxpayers who own rental property should summarize income from tenants as well as all associated expenses. Reviewing last year’s tax return will remind you of necessary information. Be sure to provide your tax advisor with high-dollar-value receipts that detail just what was purchased. Your tax advisor can then provide guidance as to which expenditures were capital in nature and which may be perceived as personal. This step could prevent future tax squabbles with the Canada Revenue Agency.

6. Students

Receipts for tuition fees may be deductible and, therefore should be retained because they provide the required information that forms the basis for the education and textbook amount. If the student’s income is insufficient to make use of all the available deductions, the unused portion up to $5,000 may be transferred to a parent, grandparent or spouse (or the parent or grandparent of the student’s spouse or common-law partner).

Full-time students who must move to attend an educational facility should keep a record of all moving expenses. Deductions are available for moving expenses incurred at the beginning of each academic period provided the move is more than 40 kilometres closer to the post-secondary institution. The costs of moving back after the summer break might be deducted as well.

7. Installment Payments

Tax installment receipts should be kept available. If paid at a financial institution give them to your tax advisor. Providing proof of payment to your advisor will reduce the chances of overpayment and the subsequent difficulty of obtaining a refund of the overpayment. The CRA may inadvertently apply overpayments to the GST account of self-employed individuals thus adding to the refund confusion.

8. Medical Expenses

Retain receipts for all medical expenses. Low income individuals who require attendant care in a private facility may be able to deduct some of these costs. If you are self-employed and purchased a private health services plan from a third party, the premium is deductible as long as equivalent coverage is available to permanent full-time and arm’s-length employees. Self-employed individuals and their spouses can each deduct up to $1,500 plus $750 for each child. Should this option be used, however, the business cannot deduct medical premium costs. Out-of-country medical expenses are deductible as well as premiums paid to private insurers within the United States for medical and health care coverage.

9. Charitable Donations

To be deductible against taxable income, donation claims must be supported by receipts from a registered charity. You may carry forward and claim for up to five years any donations not claimed in a previous year.

Taxpayers can expand their donations beyond the accepted religious organizations and local charities to include registered Canadian amateur athletic associations; prescribed universities outside Canada; certain tax-free housing organizations in Canada; Canadian municipalities; the United Nations (or its agencies); or charities outside Canada to which the Government of Canada has made a donation.

Generally you may claim donations to US charitable organizations as long as they do not exceed 75% of your US income.

10. Income and Eligible Deductions

It is the taxpayer’s responsibility to report income from all sources and provide documentation supporting claims for deductible expenses. Most taxpayers rely on employers to provide the appropriate T4s or T4As for employment information, financial institutions for T3s and T5s, unions to send the appropriate slips and various other third parties, such as child care facilities, to send detailed or summary statements. Taxpayers should maintain all documents pertaining to employment and investments received during the year; during January and February they should take time not only to ensure the aggregate of detail agrees with the summaries received but also to determine whether all information is complete.

Ensuring that taxes are minimized is every taxpayer’s right and responsibility. Why not use the 10 areas mentioned above as a starting point to review any 2008 financial transactions that may impact your tax filing?
If you realize that you missed deductions in earlier years, you can ask the CRA to adjust returns filed for the 10 preceding years.

An early review may save you hundreds, if not thousands of dollars.

When Canadians pay taxes, the declaration of income and expenses is voluntary. But income and expenses are sometimes reported incorrectly; the taxpayer, whether individual or corporate, may not recognize the mistake until well after filing. To facilitate the correction of such errors, the Canada Revenue Agency (CRA) has established the Voluntary Disclosure Program (VDP), which allows taxpayers to “make disclosures to correct inaccurate or incomplete information, or to disclose information not previously reported.” Under this program, taxpayers can correct previous filings without fear of penalty or prosecution, if the changes are accepted.

Honest Errors do not Bring the Wrath of the Tax Department

In practice, honest errors realized after filing are corrected by simply writing to the CRA; the VDP is used where there has been a misrepresentation or gross negligence on the part of the filer.

Potential Reduction of Penalties and Interest

Penalty Relief

Disclosures accepted by the CRA as meriting relief under VDP guidelines will be considered valid and the taxpayer will not be charged penalties or prosecuted.

Interest Relief

If a disclosure is accepted by the CRA, the Minister may also grant partial interest relief on assessments for reporting periods preceding the three most recent years of required filings.

When the VDP is Recommended

Individuals and corporations are permitted to seek relief from penalty or prosecution when they have either claimed ineligible expenses or failed to:

• Fulfill their obligations under the applicable act
• Report taxable income
• Remit source deductions of their employees
• Report GST/HST, (including undisclosed liabilities or improperly claimed refunds or rebates, unpaid tax or net tax from a previous reporting period)
• File information returns
• Report foreign-source income taxable in Canada

When the VDP is Not Recommended

There are also specific areas in which the taxpayer should not use the VDP; specifically, the CRA will not consider:

• Returns with no taxes owing or with refunds expected
• Elections of provisions in acts administered by the CRA that entitle the taxpayer to choose specific treatment for certain types of taxable transaction
• “Advance pricing arrangement”: an agreement between the Minister of National Revenue and a taxpayer covering certain taxable transactions between the taxpayer and a non-resident entity that predetermines an appropriate transfer pricing method and its application to specific transactions for a stated period using certain terms and conditions
• “Rollover provisions”: an election allowing deferral of income that would otherwise become taxable when property is transferred to a taxable Canadian corporation
• “Bankruptcy returns”: these returns are required to be filed in the year of bankruptcy
• Post-assessment requests for penalty and interest relief because they will be considered as retroactive tax planning

It is also important to note that a disclosure will not be considered voluntary in certain circumstances, including if the taxpayer is aware of an impending audit or investigation.

2005 and 2007

For submissions made on or after January 1, 2005, relief is limited to any reporting period ended within the 10 years prior to the end of the calendar year in which the submission is filed. For example, if relief was applied for on May 1, 2007, it would be available only for 1997 and subsequent taxation years.

For submissions concerning GST/HST or excise taxes the limitation affects only those submissions made on or after April 1, 2007, for reporting periods ended within the previous 10 years.

Each Submission Will Stand on its Own Merit

The Minister is not obligated to grant relief under the VDP provisions; each request will be reviewed and decided on its own merit. If relief is denied or granted only in part, the CRA will provide the taxpayer with the reasons for the decision.

Named and No-Name Disclosure

There are two methods of submitting documentation: Named and No-Name. Both approaches require the same information but differ in the time of disclosing the taxpayer’s identity.

Under the Named method, the identity of the taxpayer is stated on the submitted disclosure forms.

The No-Name method allows the taxpayer to have informal, anonymous, general discussions with a representative of the VDP that bind neither party. After submission of all the required documentation, the CRA can, if requested, review the information and indicate any possible tax implications. If this information is contradicted by facts obtained after disclosure of the taxpayer’s identity, the CRA may discard its preliminary advice.

The CRA will only provide relief under the provisions of a No-Name approach if the anonymous taxpayer ultimately provides a name. The taxpayer must provide the name within 90 days of the effective date of disclosure (EDD). This date is considered the earlier of:

• The date the CRA receives a complete and signed Form RC 199 Taxpayer Agreement (available at www.cra-arc.gc.ca); or
• The date a letter, signed by the taxpayer or the taxpayer’s authorized representative and containing information similar to that in Form RC 199, is received by the CRA.

Disclosure Requirements

A disclosure is not considered valid unless it is:

• Voluntary
• Complete and accurate
• Subject to a penalty if not made under the protection of the VDP
• Providing information at least one year past its due date or correcting a previously filed return

Taxpayers must send in a written submission using Form RC 199 to initiate the disclosure. You must use Form RC199 or provide similar information in order to avoid a delay in the review.

To support a disclosure submission, the taxpayer must provide the following information:

1. Name, address, telephone number, social insurance number, partnership number, trust account number, business number, licence number, GST/HST registration number or any other identification tax number assigned by the CRA to the taxpayer. (Naturally, this information is not required in a No-Name disclosure.)
2. Postal code to determine the regional Tax Office that will handle the application. In the case of a if a No-Name disclosure, only the first three characters of the taxpayer’s postal code are required.
3. Address of the taxpayer’s authorized representative (if any), including telephone and fax numbers (if applicable)
4. Under the No-Name method, gender and age, if the taxpayer is an individual
5. Reporting period(s)
6. amount of the disclosure (where applicable)
7. Type of return(s) involved: personal T1, GST/HST, corporate T2, trust T3, etc.
8. Type of information return(s) and/or slip(s) involved ( T3, T4, T1134, T1135)
9. Type of omission (business income, unremitted GST/HST, investment income, pension income, capital gain, etc.)

10.  Reason for the omission

11.  Primary business activity

12.  An explanation of how the taxpayer considers each of the four validity conditions as set out under ICOO-1R2 (dated October 22, 2007) of the information circular have been met

Avoid Vagueness

The submission must include sufficient detail to allow the CRA to verify the facts. Taxpayers and/or their authorized representatives are expected to make available all documents, records, and books of account, as well as any other required information.

Where to File

The disclosure should be forwarded to the Assistant Director, Enforcement Division of the regional tax services office for the taxpayer’s home address or, if the taxpayer is a corporation, the operating address.

Seek Professional Assistance

Since timing of any submission is critical to obtaining relief from penalties and interest, it is in the best interest of taxpayers to rely on a professional to represent their interests. Careful consideration should be given to whether that professional should be a lawyer because communications between only a lawyer and client are privileged. This may be particularly important if the disclosure submission is denied.

What would you do if you won a lottery prize in the millions of dollars? Having a windfall of this magnitude is wonderful, no doubt about it, but the resulting change in your life must be managed, especially if you do not have experience with very large investments.

So for those of you who get to be so lucky, here are some tips.

Keep Your Life on Track

Some advisors suggest you put the ticket in a safety deposit box as soon as you know you’ve won. This gives you a chance to absorb the shock and think about the effect of this windfall on the life goals toward which you were working for yourself, family and friends. Don’t do anything rash such as quit your job, move, or throw aside your established lifestyle. Even very wealthy people choose to work because they enjoy participating in the affairs of this world and do not want to be pointlessly idle. The trouble with having a dream come true is that you have to find another one to make sense of your future.

Financial Planner

Before spending any large amounts find a financial planner and get a reality check on just what your new-found money can do if spent or invested. Of course, you will probably want to buy a new car and pay off your mortgage or other debts. When the winnings are in the millions, these objectives can be met quite quickly without impairing the majority of the money. The financial planner can review your current lifestyle and your overall net worth, and show you how to achieve financial security.

Consider the amount of the windfall and the rate of return it could provide if turned into an investment portfolio. Think of your current age and seriously consider whether it is financially feasible to wind up your business or quit your job. In the short term the funds may be adequate to support you. But erosion of the principal through unplanned spending could create a crisis down the road when all the funds are gone, you are a lot older and job opportunities are hard to come by when your former contacts have moved on with their lives and you have lost all those years of on-the-job experience.

Taxes

Although the principal amount of lottery winnings is not taxed when received, if it is invested, any return such as dividends, interest, or capital gains, is taxable. It may be worth checking whether the lottery winnings should be claimed by one or more family members to reduce possible future income tax liability. Unfortunately, investment income from lottery winnings is not considered to be earned income for purposes of deductibility as an RRSP contribution. Although most taxpayers may have no concerns about taxes on their investment portfolios before the win, they may be faced with the possible assessment of an alternate minimum tax. So, before you invest in any tax-saving investment strategies, speak to your chartered accountant.

Debt May Be Good

Paying off the mortgage and other debt is a common consideration for most lottery winners. But, is this really the best strategy? Immediate use of the winnings to pay of the mortgage will reduce the principal amount available for investment to provide a stream of income into the future. If, for example, the mortgage is at 4.5 % and the invested winnings could return 8.0%, paying down the mortgage may actually cost money. That is not to say you should not consider paying off high-interest debt, but, evaluate whether it is better to pay the debt from the investment income or from principal.

Matrimonial Considerations

Before claiming the big prize, winners should seek advice concerning the effect of the dramatic change in personal wealth and income on their marriages and family responsibilities. Consideration should be given to the impact of sharing the windfall, what may happen in the event of matrimonial breakdown, child support payments, etc. For example, Federal child Support Guidelines require the non-custodial spouse to pay according to their means. If you have just become a big winner and your income has jumped significantly as a result, you may be facing a sharp increase in your monthly child support payments. Understanding the legal issues beforehand allows these issues to be resolved while the financial interests of all family members are protected without the need for costly litigation in the event of matrimonial difficulties, death, or unforeseeable legal proceedings.

Sharing

To share winnings with family members, donate to charities, or invest in a close friend’s business are wishes often expressed by winners. Such generosity is certainly a wonderful personal attribute, but before giving in to this impulse, be aware of the effect of the reduced principal on your future income. Talk to your financial planner about investing the principal and distributing after-tax earnings each year or reinvesting the income from the original investment then, ultimately, distributing out of your portfolio income. This income and capital-distribution approach will protect your future as well as satisfy the innate desire to “share the wealth” or help those in need.

Now that 2010 has taken hold and you are looking at the opportunities ahead of you we are sharing this list that may help you go to the next level. In periods of economic stress, any weaknesses in your business will start to show up in ways that can no longer be neglected. So, as an owner/manager, why not take the time to look more closely at your business practices, correct any problems, and implement those things you need but have deferred because of the pressures of time and circumstance.  

Take a Closer Look

Here are a few areas worth reviewing:

Employees

1. Initiate training programs to upgrade skills.
2. Provide first aid, health and safety training. Make employees aware that physical well being is important for morale and productivity.
3. Introduce profit sharing as an incentive to improve productivity.
4. Schedule regular employee meetings to discuss work issues.
5. Establish formal performance, wage and salary reviews.
6. Examine the 2009 absenteeism rate for any issues such as stress, physically unpleasant work conditions, personality conflicts, toxic middle managers or other issues that affect the willingness of employees to come to work and perform.
7. Consider incentives for employees such as enhanced medical coverage, employee savings plans, retirement plans or performance incentives.
8. Review employee contracts to ensure they are up to date in such areas as substance abuse, hiring and dismissal procedures, confidentiality, fraud, theft, misrepresentation, as well as discriminatory or harassment areas.
9. Establish shutdown schedules, ask employees to provide preferred vacation schedules, and give early feedback and final timetables to all employees.

10.  Review travel costs and meal and vehicle allowances to determine whether adjustments are required and whether payments meet the requirements of the Income Tax Act.

11.  Review contract- and part-time-employee arrangements to ensure the necessary contracts and confidentiality agreements are in order.

12.  Ensure that contract and part-time employees fall within the guidelines of part time or contract employees as established by the Canada Revenue Agency, the provincial Workplace Safety and Insurance Board, or health insurance regulatory authorities.

In-house Review

1. Conduct a safety audit and make necessary improvements.
2. Examine your records management practices. Make sure records are retained onsite, shipped offsite, and destroyed according to legal requirements. Secure customer and employee personal information in compliance with federal and provincial privacy legislation. Use a cross-cut shredder to destroy any sensitive material that could be used against your business, customers, or suppliers if it fell into criminal hands. Be aware of the potential misuse of personal information by identity thieves. Do not throw unshredded sensitive material out with the trash.
3. Meet with your insurance representative to review your auto, product liability, lost productivity, disaster recovery and any other type of insurance that affects your business.
4. Ensure that any changes in processing or other technologies are compliant with employment, environmental, municipal and safety laws.
5. Review inventory to determine whether the inventory account on the balance sheet needs to be restated. Be ruthless. Obsolete is obsolete. Period.

Information Management

1. Review your business plan and make the appropriate adjustments.
2. Formalize a plan to upgrade software, plant equipment, or production processes.
3. Network your computers to permit easier integration of data and reduce costs for peripherals such as photocopiers or printers.
4. Include corporate financial data in your weekly work schedule to maintain financial control on accounts receivable, accounts payable, payroll, and earnings.
5. Establish an annual cash flow budget for 2010 based on prior years’ experiences to fine tune your cash requirements to the seasonal fluctuations in your cash receipts and costs.
6. Establish a capital budget for the next five years then break it down by year to fit with your annual cash budgets.
7. Establish profit and loss projections for the next five years to understand where the company’s sales and expenses will be concentrated.

Envision the Future

1. Work with sales and marketing to develop sales projections and marketing plans for the next five years. Keep your production people in the loop so they will understand what they might have to do to produce the volumes and control costs required to achieve the marketing objectives.
2. Schedule planning meetings with plant supervisors and logistic personnel to develop ways to improve productivity and product handling not only for the foreseeable future but over the longer term.
3. Review the sales to each client, calculate their total sales as a percentage of company annual sales, look at the collection period for each account, note the current outstanding amounts, and categorize the clients as A (most sales), B, C or D clients. Using this rating, develop sales, billing, and credit strategies for the coming year.
4. Review every purchase from each supplier. Calculate each purchase as a percentage of total purchases and categorize suppliers as A, B, C, or D, as you did with your customers. Analyze costs, credit terms, and the discount structure to see whether you should try to negotiate better terms.
5. Hire a consultant to review your energy consumption and provide a five-year plan to reduce, recycle and reuse.

Financing

1. Look for ways to generate more capital internally. See whether you can reduce the collection period for your accounts receivable. Sell old, used, or unneeded equipment. Review your cash management policy for places to save. Always remember that in periods of expansion receivables grow as do associated operating costs. The income statement may look good but working capital problems may impair your ability to stay in business.

        Review your current borrowing costs. Do not be shy about approaching your financing sources to see whether you can negotiate lower costs.

        Take a look at your ratios. Ratio analysis can indicate trouble spots and force you to ask yourself the hard questions. Have you got too much debt? Can you continue to cover your fixed costs if sales revenues turn down? How fast are you turning your inventory into saleable product?

        Review the last five years’ summary financial data and note any trends that look worrisome.

        Reduce your liabilities as much as possible.

        Continue to cultivate good relationships with your financing sources.

Corporate

1. Finalize that shareholders’ agreement.

        Ensure that corporate records, resolutions for loans, asset purchases, as well as director, and shareholders meetings are current.

        Purchase key-man insurance.

        Consider income splitting with family members.

        Consider restructuring corporate ownership to protect existing assets or reduce or defer the tax cost of income distribution to existing shareholders.

        Ensure the wills, insurance, and company agreements for all key executives are up to date.

Financial Reporting

1. Meet with your accountant to discuss the business’s overall financial position.
2. Make sure the company reporting system can supply the information required by regulatory, bank, and taxation authorities.
3. Review all agreements with lenders etc. to ensure the financial data provided meets the requirements for the calculations of bonuses, commissions, royalties, leases or debt covenants.

Taxation

1. Review corporate income tax calculations for capital and non-capital losses, and small business rates to determine your ability to pay bonuses, dividends and corporate taxes at the end of the fiscal year.
2. Review total remunerations packages to determine the potential additional cost in health insurance should payroll costs exceed provincial thresholds.

Keep on Planning

Planning for 2010 by combining the expertise of employees, professional accountants and lawyers with the experience and goals of management will ensure your company is on its way to the best New Year possible!