Advisory Board: Measuring success

Accounting:
Jeff  Lllewellyn, CA, TEP President and Managing Director of Corporate Finance at Meyers Norris Penny LLP in Calgary

Given that family trusts are receiving more scrutiny these days from the Canada Revenue Agency (CRA), are they still worth having? And how can one ensure compliance?
Setting up a family trust can be an effective way to generate significant tax savings, and entrepreneurs often establish trusts as part of a comprehensive succession plan. Trusts can be used for income-splitting, as most allow for the discretionary allocation of income received by the trust. They also allow you to transfer ownership of a property without giving a beneficiary direct control over it. Another common use of trusts is to cap a shareholder’s tax liability upon death. Once an estate freeze is implemented with a trust that holds the shares of a company, all future growth in the value of the shares accrues to the trust and is not part of the former owner’s estate.

It is true, however, that the CRA has been scrutinizing trusts and, in some cases, finding flaws that lead to significant costs for taxpayers. Here’s what the CRA is looking for and how you can protect yourself and your beneficiaries from the start:

• Legal documentation: The CRA wants to see a proper minute book and documentation of the resolutions passed by the trustees. Attention to detail is critical.

• Evidence that settled property exists: If the property is a gold coin, the CRA wants to see the gold coin. This property is evidence the trust exists.

• Financial statements: The trust should have its own financial statements that clearly show what it owns, what it’s paying for and where the deposits have come from. The CRA may eventually require financial statements to be filed with trust tax returns.

• Compliance with the 21-year rule: This rule requires that all property held by an inter vivos trust be disposed of at fair market value every 21 years, or the CRA deems the disposition to have occurred. It is possible for the trust to defer the resulting taxes by distributing the assets to the beneficiaries prior to the 21st anniversary of the trust. The CRA wants to see that taxpayers have complied with this rule and have paid any resulting taxes.

• Interprovincial planning: The CRA is also looking at trusts in the context of interprovincial tax planning. Trusts can be established with the purpose of having the income taxed in jurisdictions with lower rates, such as Alberta. Previously, there was a presumption that a trust would be taxed in the jurisdiction in which the majority of trustees resided. But, following a recent court ruling, other factors now must be considered when determining where a trust is taxed. More specifically, the CRA will look at where the “central management and control” of the trust exists.

The fact that audits of family trusts are now more common shouldn’t deter you from establishing one as part of your succession plan. There are still many tax benefits if the trust is established, maintained and documented correctly.

Human Resources:
Carmine Domanico, President of Cristal International, an HR strategy consultancy in Brampton, Ont.

In today’s workplace, is there any value in annual performance reviews?
How many times have you heard this on the job: “Wow, I had a great annual performance review discussion with my manager today!” Yet, organizations continue to impose this curious punishment on their employees and managers.

The annual performance-review process fails for many reasons, including poor goal-setting, non-specific feedback and underpreparation for the annual face-to-face meeting. But the killer is the lack of timeliness. The APR withholds feedback and a performance rating until long after the individual’s work has been done. Opportunities to correct poor performance and reward good performance when it really matters are missed, and the delay allows subjectivity to slip into the manager’s assessment, providing fertile ground for favouritism and the halo effect.

For the review process to work, managers need to establish clear goals and ensure that employees understand their role in achieving them. Next, managers need to provide timely feedback. How timely? Reinforce or correct behaviour immediately. The act doesn’t need to be formalized or take a lot of time; a face-to-face discussion in the hallway or taking the time during a regular meeting should suffice. Most people want to know how they are doing; in fact, Gen X and Gen Y expect frequent feedback. But be prepared and honest when providing the feedback.

Combining the above with public recognition is also highly effective. Finally, reward performance with compensation changes that reflect the feedback provided. Give a star performer the same raise as everyone else, and you’ll lose credibility and trust.

Sales:
Harvey Copeman, CSP President and CEO of the Canadian Professional Sales Association in Toronto

What are the components of an effective sales contest?
Sales contests look simple enough and, intuitively, should never do any harm. But the reality of sales contests is that if they’re not well planned, they can have negative consequences. Here are the main things you need to consider when planning a sales contest.

As with most business initiatives, smart sales-contest planning starts with this question: what’s your objective? The answer is usually found in one of the following: to introduce a new product; revive a sagging one; increase performance; change behaviour; expand market share; or improve morale. The goal you set will inform the structure of the contest; it should give your sales team both a challenge and a good shot at achieving the objective.

For instance, if the objective is a successful product launch, you would want to structure your contest around measurable outcomes such as awareness, shelf space secured and display of point-of-purchase promotional material. But if you are trying to change behaviour, such as increasing the number of face-to-face calls your people make, you might stress appointment setting or geographical clustering for efficiency.

Next: does the contest support the short- and long-term sales goals of your company? Typically, sales contests last four to eight weeks. During that period, you don’t want the contest to dominate the attention of your salespeople to the detriment of future goals.

Your contest prizes must be valuable enough to generate excitement and maintain interest. According to a study out of Mellon University, “rank order” contests, in which prize value decreases from first-place finisher down, are best because they recognize degrees of performance. Mellon’s research shows that the total number of winners should not exceed half the number of participants.

Other factors to consider? You want to keep things simple and make the goals realistic. Nothing can sink a contest faster than unrealistic targets. It should challenge both your peak and not-so-peak performers. And you should continually promote the contest to your team and communicate results as they become available.

Last, don’t let this opportunity pass you by—invest in producing a great wrap-up report that includes vignettes of sales success. This will perform a dual role: educating your team in the fine art of sales and providing additional recognition to those who did well.

Ask Our Experts: PROFIT’s Advisory Board is ready to answer your questions on doing business. Send your query to PROFIT@PROFIT.rogers.com, and if we publish it, we’ll send you a book from the PROFIT management library.