Investments / Tax

When you take a loan to invest in investments that will produce profitable income. The interest you pay on these investments are tax deductible.

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Recognize your Employee

Recognize your Employee.

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Recognize your Employee

Recognize your employee by giving an award such as Employee of the Month or Employee of the Year. Non cash gifts such as gift cards, gas cards on anniversaries will be well recognized. However, must below $500 in a year to be not taxable. An employee becomes more productive when they work in a team and are encouraged to voice their opinion. Development through continuing education is highly motivating, this can be done through seminars, courses and coaching.

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Small Business Life Insurance

Life insurance coverage for a small business helps to perpetuate the business. Technically, individual life insurance is coverage for a business owner’s family. This insurance provides a business with a defence against a distressed sale. Benefits of this insurance-security for loans, buy-sell agreement funding, asset accumulation and estate planning.

The author, Roland Alemao CGA, is the founder of Roland Alemao Professional Corporation . He provides valuable tax planning, accounting and income tax preparation services in the Greater Calgary Area.
Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Roland Alemao CGA and Roland Alemao Professional Corporation will not be held liable for any problem that arise from the usage of the information provided on this page.

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Food, Beverages and Entertainment expenses

Small business owners can deduct 50% of meal and entertainment expenses for clients against business income.
Must keep names of the client entertained and their phone number.
Personal meals and entertainment and during travel are non deductible.
The entire expense could be deducted in certain cases.

The author, Roland Alemao CGA is the founder of Roland Alemao Professional Corporation . He provides valuable tax planning, accounting and income tax preparation services in the Greater Calgary Area.
Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Roland Alemao CGA and Roland Alemao Professional Corporation will not be held liable for any problem that arise from the usage of the information provided on this page.

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Important considerations before you choose a tax firm

As a premier tax firm, I thought it would be useful to educate and safe guard the public with the following hints –

  • A client must never be asked to sign a blank tax return
  • Tax is complicated and it would be best to avoid tax firms who claim they can obtain larger refunds than other preparers
  • Always use a reputable tax firm who signs your tax return, gives you a copy for your records and is willing to represent you at Canada Revenue Agency
  • Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed
  • A good tax consultant will make time to explain and understand the complexities of your return to you before you append your signature and the filing of your return
  • The reason why it is always better to approach CA’s, CGA’s CMA’s and CPA’s CGAs or a tax attorney, is because those who wish to offer public accounting services inclusive of taxation must possess specific capabilities, demonstrate competence in relevant areas, and meet defined educational and experience requirements before being granted the privilege of practicing tax or any aspect of public accounting
  • Furthermore, the above referred professionals that are registered to practice public accounting are required to undergo periodic reviews of their practice in accordance with the Public Practice Review Standard set by their Association. This affiliation with a professional organization provides its members with continuing education and resources, and holds them to a code of ethics
  • Never sign up with tax firms or preparers who base their fee on a percentage of the amount of the refund

Many of my clients have come to me with a bad past experience. I hope this will help to choose a tax consultant wisely.

 

 

 

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EXCHANGE TRADED FUND

EXCHANGE TRADED FUND

An exchange-traded fund (ETF) is an investment fund traded on a stock exchange. An ETF holds assets such as stocks, commodities, or bonds. Normally, trades close to its NAV or net asset value. The trade takes place during the course of a trading day. Most ETFs track an index, such a stock index, bond index or a commodity index. Investors find ETFs attractive as investments. This is because of their low costs.

There are two key aspects to how an ETF works.

• The Primary Market What’s unique about ETFs is the creation/redemption process that takes place in the primary market. To create new units for sale in the secondary market, a designated broker delivers a basket of securities, which is determined by the ETF sponsor. In return, ETF units of equal value are delivered to the designated broker. The designated broker then sells the units to the public on the exchange to meet investor demand.

• The Secondary Market In the secondary market buyers and sellers transact on the stock exchange – units are bought from/sold to another investor without any involvement/knowledge of the ETF sponsor. These transactions are processed throughout the trading day at negotiated at market prices.

Investors tend to choose ETFs over mutual funds due to these reasons-

Cost-effectiveness / diversification 

When you invest in an ETF you are purchasing a portfolio that consists of a number stocks or other investments. You acquire a diverse investment. This helps you reduce the risks of turbulence in the market that you would normally find by investing in a single stock. ETFs are available in a broad range of asset classes and sectors in stocks, bonds, and commodities thereby enhancing further diversification. Also, the cost of an ETF is much lower than purchasing each stock individually.

Transparency

ETFs are transparent. Their holdings are published every day. It is easy to monitor and track the weighting, current market price each day as it is traded on an exchange. It is also possible to see what investments an ETF holds as this is published each day. This enables an investor to evaluate if the EFT meets their investment objectives.

• Ease of Trade

Trading of ETFs can be done easily through an exchange. This may be done through and investment company or through on line banking. Trading takes place throughout the day at a current market price. The trade involves a commission for each trade.

• Low cost to possess

Since ETFs simply track an index and does not involve a lot of research the cost to purchase an ETF is less than that of a mutual fund.

There are three types of ETFs-

• Index ETFs

This is the most common type of ETF. This type tracks the performance of an index and could involve stocks or a bond market index. The ETF could track the entire NASDAQ or S&P/TSX exchange. Or an ETF may just track a particular sector the stock exchange. The performance of the ETF depends on the performance of the particular index that it follows. Exchange-traded funds that invest in bonds are known as bond ETFs. They thrive during economic recessions because investors pull their money out of the stock market and into bonds. Commodity ETFs trade just like shares, are simple and efficient and provide exposure to an ever-increasing range of commodities and commodity indices, including energy, metals and agriculture.

Actively managed ETFs

The actively managed ETFs approved to date are fully transparent, publishing their current securities portfolios on their web sites daily. A portfolio manager is involved and makes decisions and the objective of this type of an ETF is to out perform the index. This type of an ETF has higher fees.

• Leveraged ETFs

Leveraged exchange-traded funds are a special type of ETF that attempt to achieve returns that are more sensitive to market movements than non-leveraged ETFs. The risk exposure is high in this type of an ETF. The reason being that the ETF uses borrowing to increase the return. The borrowing aspect creates the leverage.

Stable low interest rates have heightened interest in the strategy of leveraged investing.  Cautious and prudent leveraging can accelerate asset growth, but it can also involve high risk. Rising interest rates and market downturns would certainly increase investment losses. Rising interest rates are normally followed by a dip in the stock exchanges. The interest paid on leveraged accounts to earn interest and dividends could be deducted from taxable income. However, there are strict limitations and it would be prudent to consult your tax advisor.

ETF risks

Like any other investment an ETF is exposed to risks. There is no guarantee that an ETF would be in the money for an investor. The risk also depends on the type of ETF. ETFs have similar risks to the underlying investments. An ETF that follows a fixed income index has risks similar to a bond. An index ETF may not achieve the same return as the index or sector it tracks. This is because the weightings of investments in the ETF are not exactly the same as those in the index. Another factor is that fees and expenses could lower the return. ETFs that invest in commodities tend to be higher risk because they are concentrated in one sector and the prices of commodities easily fluctuate. There are several factors that could contribute to theses fluctuations some could be also political. Leveraged ETFs are very sensitive to market volatility. They typically aim to double or even triple the daily return of a market index.

Cost, fees, distributions

Trading in an ETF involves commissions, fees and operating costs. A commission is incurred for each trade. The commission is paid to the investment firm. Commissions depend on the plan chosen by the customer. All exchange-traded funds incur expenses related to the management of the fund. The most common expression of the fees associated with an ETF is the Management Expense Ratio (MER). ETFs that are not actively traded cost less as the fund manager does not have to engage in research. ETFS also incur operating costs such as fees associated with complying with national regulations and the fees payable to members of the board of governors of the ETFs. ETFs declare distributions. An ETF invested in bonds will pay an interest distribution; an ETF invested in a stock index will be a dividend. A capital gain would result if an ETF were sold at a higher price than its purchase price.

Taxes

ETFs invested through an RRSP or a RRIF account will not attract tax. However, tax would have to be paid if the RRSP or RRIF is withdrawn. The tax will be on the distributions as well as on any capital gain. The treatment is different if an ETF is purchased through a TFSA account. There will be no tax on the distribution or capital gain whilst the ETF is in the plan or withdrawn from the plan. ETFs pay dividends less often than mutual funds.

Normally, ETFs are a good choice for an investor because they provide liquidity, are flexible, and are cost – effective. Investors wishing to add an ETF to a portfolio would need to evaluate their own situation, investment style, knowledge level and time frame to conclude if an ETF meets their investment strategy.

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