Tax-Effective Estate Planning Requires Will Power

Estate planning is basically the process of taking steps to ensure that:

1. Beneficiaries maintain as much of your estate as possible

2. Your estate ends up going where you want it to go

Both goals are equally important and there will be many people lining up to assist you along the way. There will be lawyers, accountants, investment advisors, insurance specialists (and more) and while they’re important, it’s also crucial you don’t let them dictate the process. 

The primary tool for estate planning is the writing of your will. A will contains the set of instructions on how things are going to go after your passing. It names an executor – the person who’s going to administer your estate. It gives them the power to make decisions and administer the will. The executor role is important (and often an honour), but it also brings with it a lot of work, responsibility and even stress.

As mentioned in our last article (and podcast episode), one of the main goals in estate planning is saving or deferring estate taxes. And a spousal rollover will, in general, accomplish that. By leaving your assets directly to your spouse, the tax will be deferred and triggered later when your spouse either sells the assets or passes away.

A spousal rollover may be tax efficient but may not fit your personal circumstances. For example, if this is your second marriage but your children come from your first marriage, things can get complicated. In this case, you may wish to set up a trust or perhaps divide the assets between your second spouse and your children.

You can also set up trust provisions that limit your child’s access to the estate until they’re older, a little more mature and less apt to do something you may deem to be frivolous.

When leaving something to your children, the assets do not have to be distributed equally. For example, if you have three children and, for whatever reason, you only wish to leave money to two of them, we suggest you include a detailed letter, explaining why you’re doing that. This will make your wishes crystal clear to the courts, minimize exposure to litigation and having your will contested by child number three.

What about other assets? For instance, the beloved cottage that’s been in the family for a long time. You want to pass it on to your family so they can continue to enjoy it. But maybe your children don’t use it equally. Some might live out of town. How will maintenance and operating costs be divided? It’s important to think about what you want to happen and communicate that to the drafters of the will.

For business owners, don’t underestimate the liability that can be created upon your death from owning private company shares. One important tool is an estate freeze. If you have a company growing in value, some reorganizations of your company may be in order, freezing the value of your shares at that point in time. So, if the company continues to get more valuable, it’s not creating a higher tax exposure for you.

Business owners also face the tax hazard of double taxation. Let’s say you have a holding company. It used to be a business but now it’s all stocks and bonds and worth a million dollars. If you pass away and have no spouse, there’s no spousal rollover. Now you’ve got a million dollar capital gain and your estate pays tax on that. Then later on, when your shares pass to your children and they pull money out of the company, that’s going to be a dividend. That will create a second layer of tax on top of the million dollar capital gains tax you paid at the time of your death.

There are solutions to double taxation but they need to be considered at the time of drafting your will.

Another solution to consider is insurance to cover the estate’s tax liability on death. But, just like life insurance, the policies can be expensive for those who are older or not in good health. 

Meanwhile, probate fees (the estate administration tax) aren’t likely to be as costly as income taxes but they’re not inconsequential. One of the ways to mitigate probate fees is to have multiple wills, separating the ones that require probate from the ones that do not. 

With RRSPs, you may also be able to directly designate a beneficiary. By doing so, the RRSPs would bypass your estate and wouldn’t be subject to probate.

A tax effective will is the key to maximizing the value of your estate. And don’t forget to revisit your will often. After all, tax rules change and the value of your assets may change as well. If there’s any complexity at all to your estate, you need to give it long, serious thought. Once you have, then you bring in an advisory team to help you put the most tax-effective wrap around your wishes.

Learn much more about estate planning in Episode 11 of the Vaive and Associates Tax Podcast.


What Taxes Will be Applied to Your Assets When You Pass Away?

When we think of estate planning, it’s crucial not to overlook the tax consequences. So, in part one of our two part series on estate planning, we’re answering this question: 

From strictly a tax perspective, what happens to my assets when I die? 

Here’s a simple way to look at it. Just pretend that, immediately before your death, you’ve sold everything you own for what it’s worth. You’ve now triggered the appropriate taxes, just like anyone else who sells off their assets. Effectively, this is how the CRA treats the situation, even though your assets haven’t actually been sold yet.

Your assets are now subject to two kinds of taxes: Income tax and probate fees.

Income Tax

The CRA won’t tax your assets on their overall worth. But it will tax the growth in their value. For example, let’s say you owned shares in a publicly traded company and you paid $5000 for them. Then, on the day of your death, the shares have grown in value to $40,000. At that point, you will trigger the capital gains tax on that extra $35,000 increase in value.

The same holds true of most other assets that either show inherent gains or haven’t been taxed before.

So, as you can see, it’s a highly taxable situation. 

But there are exceptions that can help you with planning, and the main one is a rollover. A rollover is basically when an asset passes from one taxpayer to another without any tax consequences. 

When discussing death and taxes, the most important rollover involves leaving assets to a surviving spouse (legally married or common-law). When you leave all of your assets directly to your spouse, there is a complete deferral on the tax. So everything passes over, as is, and no tax is triggered. 

But let’s say you have a spouse and two children. If your spouse one day remarries, it’s possible they may set up their own will so that everything is left to their new spouse. 

You do also have the option of leaving your assets to your spouse by way of a trust. You’ll still get that rollover and tax deferral, but you’ll now have a little more control and ability to direct things, ensuring that—upon your spouse’s passing—any remaining assets go to your children. 

There is one other less common exception. If you have an RRSP, you can leave it to a disabled child or grandchild who’s financially dependent on you and you will get that same tax deferral.

Probate Fees (Estate Administration Tax)

When your family presents your will to a bank or financial institution, looking to remove the money that’s been left to them, the bank will often insist the will be probated first. This means the will goes before the courts to be certified as valid and current. Once the will is probated, the bank will release the money. 

Naturally, there’s a fee for this service. Not all provinces have probate fees but, here in Ontario, we do. The fee is 0.5% of your first $500,000 worth of assets and 1.5% on anything above that. 

So, along with everything else it brings, death can be an extremely taxable event, especially if you don’t plan for it. We discuss more on these topics, along with terminal returns, estate returns, and how Canadians can be exposed to U.S. estate tax in Episode 10 of The Vaive and Associates Tax Podcast.


Selling Your Business When You’re Operating Through a Corporation

If you’ve made the decision to sell your business, it’s important to do some serious planning first to minimize your overall tax hit. Today, we’re focusing on the sale of incorporated businesses.

When you’re selling your incorporated business, you basically have two options:

  • You can sell the shares of the corporation.
  • You can sell the assets of the corporation.

At a glance, the two options may seem quite similar but, from a tax perspective, they can actually produce dramatically different results.

As a vendor, you’ll probably favour selling your shares because you can use the lifetime capital gains deduction and get a better tax result. But your buyer will usually be on the other page, wanting to purchase the assets.

What is the Lifetime Capital Gains Deduction?

If you sell your shares in your company and meet certain criteria, the first $892,218 of capitals gains you receive on the sale of the shares will be tax free. For example, if you started your business with nothing, paying nothing for your shares and then built up the business and sold it for $1 million, the first $892,218 of that would be tax-free.

But, again, there’s certain criteria, both corporate and personal, that must be met.

Corporate criteria: The LCGD is only available if the company you’re selling is carrying on an active business, primarily in Canada. Additionally, at the time of sale, you also cannot have redundant assets that represent more than 10% of the value of the assets on the balance sheet. A redundant asset is defined as any asset not needed by your business for ongoing operations.

Personal criteria: The LCGD is generally unavailable if you haven’t held your shares for at least 24 months. You may also be ineligible if your past tax history includes a CNIL or an ABIL (Cumulative Net Investment Loss or an Allowable Business Investment Loss). You should confirm this with the CRA before your sale is completed.

Why do buyers prefer to purchase the assets of your business?

Simply put, there’s less risk in buying the assets. If buyers opt to buy the shares in your company, they also take on your risks and liabilities. Even if it’s an issue that came well before the sale, it remains attached to the shares, and now it’s the buyer’s responsibility. This can include lawsuits, product defects, tax reassessments and more.

But if they’re motivated buyers, they can mitigate the risks of buying assets through due diligence, fully exploring areas that may cause problems. They can also defer a portion of the sale price that can be used to cover off liability issues that may come up in the future.We get into much more depth on this topic in the latest episode of our podcast including: negotiating terms of the purchase and sale agreement, professional fees, working capital and more. Check out Episode 9 of the Vaive and Associates Tax Podcast with Rolland Vaive. 


Now That You’ve Incorporated, How Should You Pay Yourself?

Salary vs Dividends

One of the common conversations we have with our clients is the topic of, “How do you compensate yourself?” It’s a question we field from every kind of client, but it’s particularly familiar coming from those just starting out and setting up their corporations for the first time.

And the answer seems straight forward. You pay yourself by way of either a salary or dividends.

But deciding on the best option for your unique situation can be a little more complex. So let’s have a look today at both options, with information to help you make the best choice.

Tax Considerations

Salaries are a deduction to the corporation. For example, if the corporation has $100 worth of income and the owner draws $100 worth of salary, then the corporation is going to have zero taxable income.

Meanwhile, a dividend is considered to be an after-tax distribution. In this case, if a corporation has $100 worth of income, it pays tax on that $100 and whatever is left over is paid as a dividend to the shareholder. So there are two levels of tax here: one paid by the corporation and a second paid by the individual receiving the dividend.

At a glance, with two tiers of taxation, this would seem to be a less favourable option. But that’s not necessarily the case. The laws take into account that the dividend has been taxed once already, so the personal tax that you pay on receiving the dividend can be considerably lower than you’d pay after receiving a salary.

The bottom line is, because of that reduced rate on dividends, both options generally leave you – tax-wise – in pretty much the same position.

But there are some other significant differences that will help you make your decision.

When Salary is the Best Option

Depending on your age, paying yourself a salary may prove beneficial in helping you build up your Canada Pension Plan entitlement upon retirement.

Additionally, if contributing to an RRSP or deducting child card expenses are important considerations for you, then paying yourself a salary may, again, be your best path. Salary is considered to be earned income, which entitles you to more room for RRSP contributions and the ability to deduct child care costs.

Those benefits aren’t available to you when you pay yourself in dividends.

When Dividends are the Best Option

The biggest advantage to dividends is simplicity. Essentially, if you own the company and need money, you can just write yourself a cheque whenever you wish.

And if you’re not really concerned with child care deductions, RRSP room or CPP contributions, then dividends may save you some money through avoidance of CPP costs.

So, those are the bigger considerations when making your decision on how to pay yourself. The best news of all is, whatever you decide, you’re not locked in for life. If you choose a salary this year, you have the option to switch to dividends for next year.

You can even split the difference and combine the two, if that’s what make sense for you.

To hear more on this subject, we invite you to listen to Episode 8 of the Vaive and Associates Podcast.


Deducting Home Office Expenses: The Traditional, Salaried Employee’s Guide

It’s a question we hear a lot from traditional employees, the ones working for a company on a standard salary with no commissions. The answer can be somewhat confusing for two reasons:

  1. The Canadian tax system is often far more complicated than it needs to be.
  2. Some of the tax laws have been really slow to adapt to changes in how the world works today, especially in the throes of a pandemic.

The traditional employee can usually deduct home office expenses under the following circumstances:

  1. Your home office needs to be your principal place of work.

This means you must be spending more than 50% of your time doing your job from your home office. But, as a word of caution, how that is calculated is unclear. Does that mean 50% of your entire year? What if you spend 50% of a certain month in your home office? Do these scenarios qualify or not? There’s not a lot of guidance on this from the tax authorities.

  1. Your home office must be used exclusively for employment, with regular and continuous meetings carrying on.

The rule of thumb here is fairly simple. You cannot claim home office expenses if your workspace is used for other things. If you work in your kitchen, then that may prove prohibitive as, obviously, that room has other uses. If you work in your bedroom, that also qualifies as mixed-use since you’re in there sleeping at night. So, if your workspace is used for other things, deductions become a non-starter.

As for qualifying with regular and continuous meetings, the current tax laws still do not recognize our updated technologies or the realities of working through a pandemic. You might think that a conference or Zoom video call would quite easily qualify as a meeting, especially at a time when we’re being encouraged to wear masks and keep our distance. Surprisingly, this is not the case. In defining what qualifies as a meeting, the CRA takes an outdated, literal approach, recognizing only meetings where in-person interaction has occurred.

You can generally claim home office expenses if your employer demands you work at home or pay for supplies as a condition of employment in your contract. But what about the employee who’s been forced to work at home because of instruction from public health? Or the employee who needs to work at home because they have a higher-risk of COVID infection? They may not qualify because it’s highly unlikely there’s a mention of these extenuating circumstances in the employee’s contract.

Employers could potentially provide relief here with an official letter that demands – for COVID and health reasons – that the employee must work from home. But it continues to be our hope the CRA soon begins to update and clarify some of these tax laws to account for both a changing world and these challenging times.

Are you eligible to deduct home office expenses? Which expenses are actually deductible? And is there a greater risk of being audited? Find out more by listening to Episode 7 of the Vaive and Associates Tax Podcast, hosted by Rolland Vaive. 



To varying degrees, the pandemic has created challenges for all businesses, including ours. Whether they’re temporary or permanent, these issues can be overcome if organizations and managers stay progressive and adaptable.

Thanks to the virus, people have been required to work at home, creating a number of concerns and difficulties in a few areas of business. These include:

  • Efficiency
  • Costs
  • Prospective Clients
  • Recruiting and training employees
  • Team Building


Maintaining Efficiency

When people work remotely, organizations lose at least some of their efficiency. This is probably the biggest concern of all. Prior to COVID, most firms had everyone functioning under one roof, working together; all on the same schedule. Projects would swiftly flow through to different people and departments and there was always a problem-solver just down the hall, available for a quick pop-in to discuss and collaborate.

Now this has been disrupted, replaced by online communication products like Zoom and Microsoft Teams. These applications have been invaluable but simply cannot deliver pre-COVID levels of efficiency. Working from home, employees obviously cannot team up and connect in the same manner. They also grapple with distractions: family interruptions, personal appointments and other interference, throwing schedules out of balance. People still put in their 8 hours but they work on a more staggered basis. So, getting people onto the same page or into an online meeting can now be a timing issue as well, with potential for delays.

With this new world order, organizations are still trying to establish new processes that will be most efficient for them.


Working remotely may require additional hardware, software and upgraded home internet service. There may also be extra costs for sanitizing services and supplies. For most professional services firms, these expenses are unlikely to be a dramatic concern.

Prospective Clients

When welcoming prospective new clients, online interactions are less than ideal. There’s simply no replacement for sitting across from the prospect; describing what you can do for them; introducing them to your key people; and trying to impress them with the strength of your bench. Fortunately, it’s not really an issue for existing clients who already know and trust you. They’re far more willing to accommodate online communication.

Recruiting and Training

It’s harder to recruit and hire new people via Zoom. It’s just a different interaction. There’s no tour of the office or meeting the staff. It’s also tricky to get new employees up to speed. They’re learning on the job and need to get a feel for the way the business operates. A lot of that usually happens through osmosis but that becomes a longer process when the new hire is home alone talking to their computer monitor.

Team Building

Team building exercises help foster a positive, productive work environment. In the past, our office has enjoyed pot luck Fridays, a weekly beer tasting or sometimes tickets to a hockey game. It’s beyond obvious that doing a solo beer tasting at home while talking into a webcam is not the same level of team building.

It’s a complete reshuffling of the deck and there is no “one size fits all” solution. If you’ve relied on the size of your company for success, that isn’t enough anymore. In a COVID world, success is about being nimble, willing to adapt and redesign. Size doesn’t matter anymore…if it ever did. The winners will be the quick decision-makers; the ones who most embrace change.

We get into much more detail on this specific topic in Episode 6 of The Vaive and Associates Tax Podcast, hosted by Rolland Vaive.  We hope you’ll listen in.


The evolution of the audit specialty

Generalists, armed with a broad array of skills, used to be a mainstay within small and mid-sized accounting firms. But in a progressively dynamic field, with constantly changing standards and practices, public accounting shops are increasingly looking to bring on board specialists to keep pace.

“The role of the generalist – someone who does everything or dabbles in everything – is going by the wayside,” said J. Rolland Vaive, founder of Ottawa-based tax and public accounting firm Vaive and Associates.

One specialty area of growing demand is assurance work, which underwent a dramatic change in perceived importance in the aftermath of several accounting scandals – think Enron and Nortel – in the early 2000s.

“There was a shift in the thinking emphasizing that you can’t cut corners on an audit,” Vaive said. “As a result, the standards that were enforced upon the profession – the amount of work, the nature of the audit – changed dramatically.”

Audits became more rigorous and technically challenging, opening up compelling opportunities for accountants. Vaive said the accounting area has developed into a “real specialty.”

There are no shortcuts to becoming a recognized expert, he said, but accountants can become audit specialists by accumulating career experience at firms that give their staff opportunities to gain hands-on experience.

The rewards go beyond the opportunity to work on highly engaging files. It opens up additional career opportunities outside public accounting, as audit specialists can go on to work in government departments and agencies such as the Office of the Auditor General of Canada.

It can also unlock global travel opportunities not available to accountants who specialize in other areas. Unlike, say, tax – where Canadian practices are dramatically different than in the U.S. and other jurisdictions – there is a high degree of harmonization of auditing standards around the world.

In all cases, accountants with an audit specialty are likely to enjoy good salaries and be in constant demand.

“It’s a matter of supply and demand,” Vaive said. “In the Ottawa market, everyone is looking for people with an audit specialty. You’re a valuable commodity.”


Many Canadians are intrigued by the idea of being their own boss

Many Canadians are intrigued by the idea of being their own boss.  Starting your own business is an exciting concept but setting it up can be complicated, and there’s no one resource that has all the answers.  Today we’ll begin to tackle the biggest questions the new business owner will generally ask. 

One of the first and most important decisions you’ll need to make is how exactly you’ll structure your business. 

Sole Proprietor

You can choose to be a sole proprietor of your business and, as such, any profit you make would be taxed on your personal tax return.  The advantage here is simplicity. This is the easiest kind of business to structure. It can literally be as simple as getting business cards, perhaps registering a trade name, opening up a separate bank account, and that’s it.  But essentially, it’s you carrying on the business.  

The downside is that you personally assume all the risks of the business. So if you get sued in the course of your business, your personal property and assets are at risk.  Additionally, you also have a potentially higher tax rate if your business starts to make a lot of money. For example, if your business reaches earnings of $250,000, every additional dollar above that will be taxed at a rate of 53%.


When you incorporate your business, you create a separate legal entity and your profits are taxed at a different rate – a flat tax rate.  In Ontario, for example, that rate is 13%. So if you’re earning significant income from this business, there’s a very powerful advantage to doing business as a corporation.  Your profit would be taxed at 13% versus where it would be if you were doing it as an individual, a sole proprietor.

In theory, a corporation also provides some liability protection.  This means you’re less likely to be personally responsible for the corporation’s debts, which offers some protection for your personal property and assets, although there are circumstances where this won’t be the case.

The real downside of the corporate structure is its complexity and that most people will require help with it, advisors, managers accountants.  That means much higher set up and maintenance costs.  

You can certainly start out as a sole proprietor then decide to incorporate later, but be aware that it becomes more complicated and expensive than if you had incorporated from day one.  So it’s a good idea to give some extra thought to your direction and make your best decision from the outset.

What Can I Deduct?

Whether you’re incorporated or a proprietorship, new business owners always want to know, “Now that I own my own business, what can I deduct as an expense?” There’s a misconception that the income tax act contains a big list of what is deductible and what’s not.  That’s not really the case. The overriding principle is if you have an expense and you can make a connection between that expense and the business, then it’s deductible. Once you’re earning a business income (as opposed to employment income), there’s a bigger pool of deductions available to you.  As long as you can reasonably connect an expense to your business, it will be deductible, no matter which business structure you’ve chosen.

So that’s a general outline of the key things, out of the gate, that a new business owner will be trying to figure out.  We get into much more detail on this specific topic in Episode 3 of The Vaive and Associates Tax Podcast, hosted by Rolland Vaive.  We hope you’ll listen in and hear more about this very interesting subject.  It could save you a lot of money.


What to look for in an accounting co-op employer

Co-op placements are exciting times for accounting students. Along with often being a first taste of real-world work,
they’re also a valuable resource for professional development.

Vaive and Associates founder Rolland Vaive suggests students arrive at co-op fairs and interviews armed with several questions for their prospective employers to make sure they get the most from the experience:

Where’s the office, and how do I get there?

Many co-op students are still somewhat new to the city and in many cases don’t have a driver’s license. So it’s important to determine how you’ll get to your prospective office. Is it close to transit? In the suburbs? Vaive and Associates’ Centretown office, close to transit and other amenities, has proven immensely valuable for students.

Is there a path to permanent employment?

Most co-op experience looks great on a resume, but it’s even better when there’s a path to permanent employment. Ask how many students they’ve hired full time in the past.

“Will you be there for your work term and then tossed aside, so to speak? We try to hire students who will be with us forever – that’s how we do our hiring,” says Vaive.

What sort of work will I be doing?

It’s crucial to know what work you’ll do – will it be interesting, and will there be a progressive path to more complex work so you don’t get bored? Asking these questions will not only ensure you’ll have a more fulfilling (and valuable) work term, but they’ll also impress your boss.

Will I get unique day-to-day responsibilities?

Will you be an integral part of the firm with access to clients, or be stuffed in a back room and never see the light of day? Vaive ramps co-op students up slowly – first by teaching software, systems and processes, then moving to more responsibility.

“We always explain why we’re asking them to do something,” says Vaive. “We’ll explain the theory behind it, then add more responsibility as they become more comfortable.”

Will I get support when I write my CPA exam?

Accounting students have difficult exams to pass before receiving a professional designation. So it’s vital to know you’ll be supported when exam time comes, either with paid or unpaid time off (or a combination of the two), or technical support in the form of preparatory courses.

“Miss your final exam, and you have to put your life on hold for another year,” Vaive cautions.

Vaive adds that accounting firms need to recognize the importance of co-op students and provide challenging work for
co-ops to truly work.

“It’s not a throwaway position,” he says. “We need their contribution in order to succeed during really busy times. We rely on them to make a contribution that is every bit as important to the firm’s success as our other staff.


The LinkedIn Gurus – Everyone’s An Expert

An increasing number of chartered accountants market themselves as gurus or experts. When encountering a person like this – in person or online – we need to ask, “Does this person truly possess the experience and education required to claim that label?” Once we’ve decided they’re credible, should we follow their business practices and abandon ours? This is the question we’d like to examine today.

On LinkedIn, for example, accounting advice is frequently posted about three specific, core business practices. They each have their merits but also come with a unique set of pitfalls.

1.  Moving from chargeable hours to value pricing

Some experts believe the chargeable hours model is antiquated and needs to be eliminated. With this model, the more time a project takes, the more money a client will be billed, with no real motivation to do quick, efficient work. However, a switch to value pricing leaves no room for variables. Some clients will fit perfectly with value pricing while others will not, taking up far more of your time than expected in your agreed-upon value billing. Those extra chargeable hours must be captured or you risk not being properly compensated.

2.  Moving Your Business to the Cloud

The Cloud has its benefits:  The ability to work remotely, get automatic software updates, and no worries of data loss if, for example, you have a fire in your building.  However, no one should dismiss the cloud’s potential for security breaches.  Additionally, what if you wish to leave a company’s cloud-based application?  Is there truly a clear path to actually retrieving your data?  These issues must be taken into account.

3.  Outsourcing

The guru frequently suggests outsourcing lower-level work.  For example, there are places in India where they’re trained in Canadian tax law. The labour costs are low and, with the time difference, work can be done overnight, ready the next day. However, security can again be an issue.  Even after the work is done, your affiliate in India still has the client’s sensitive data.  How will they treat it or use it?  Is their network truly secure Outsourcing can also affect the long term development of junior employees.

When it comes to new concepts from gurus or anyone else, it’s important to listen and keep an open mind.  However, it’s equally important to measure their experience and be cautious about what’s being suggested. The tried and true model isn’t always broken just because it’s been around a long time.

For more on this subject be sure to listen to Episode 2 of The Vaive and Associates Tax Podcast, hosted by Rolland Vaive, as he discusses the LinkedIn Gurus.