Jonathan Ruben, Toronto Chartered Accountant - Certified Financial Planner &  Public Accountant (U.S)


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Jonathan's expertise has been called upon for financial and accounting articles in print media publications such as The Toronto Star, CA Magazine, Investment Executive, MoneySense, and The Financial Post along with radio, television and online publications including Bankrate.ca, 680News and TSN's "The Business of Sports".

Financial Post
Toronto Star
TSN
680News
Bankrate.ca
Investment Executive

The National Post
Money Sense


articles



Will Jose Reyes Get Hit By His Tax Bill?
theSTAR.com
Andrew Livingstone November 16, 2012

The pending blockbuster trade between the Toronto Blue Jays and Miami Marlins was greeted warmly by many Canadian fans. But for the players, one dark financial cloud hangs over the deal.

In the wake of the yet-to-be-confirmed trade, which would bring star players Jose Reyes, Mark Buehrle and Josh Johnson to Toronto, media south of the border have reported that players would pay much higher taxes working in Canada than they would in Florida.

Reyes, who will make $10 million (or $61,028 per game) in 2013, would be hit hardest by the Canadian taxman. With $96 million remaining on a $106-million, six-year contract, Reyes would pay nearly an extra $9 million in taxes over the course of the final five years of the deal he originally inked with the Marlins.

If Reyes files taxes in the states he plays half his games in each season — which he is able to do — the Canadian tax burden would be less.
In the past, athletes have been concerned about playing in Canada because of the tax rates. Former Raptor Damon Stoudamire said a big reason he wanted out of Toronto was the taxes he had to pay, and former Raptor Kevin Willis was outspoken about the taxes in Canada.

Athletes making over $1 million in California pay 45.3 per cent in federal and state tax, while players in New York pay 43.82 per cent (players in New York City would pay more because of city tax) — slightly less than 49.53 per cent the richest Ontario residents would pay in 2013.

However, U.S.-based players in Canada can cash in foreign tax credits from the Internal Revenue Service. "He will eventually get it back," said Richmond Hill-based accountant Allan Garber. "As long as he continues to play in Canada, the U.S. will continue to give him a foreign tax credit."

If Reyes only plays two or three years in Toronto, he'll still amass tax credits for those years, and could use them in future years while playing for an American ball club.

Retiring a Blue Jay might make it hard for Reyes to use those credits. Accountant Jonathan Ruben said while the four-time all-star could get back a portion of what he paid, he could struggle to do so if he's not making major-league money after his baseball career is done, and he might not use all the credits he'd amass from the life of his current contract.

"You'd need to have earnings to get those tax credits back similar to the amount taken," Ruben said. "It's one thing if you continue to earn $5 million a year, but if you're making average money, it'll be difficult."

The five players apparently coming to Toronto — Reyes, Buehrle, Johnson, utility player Emilio Bonifacio and catcher John Buck — will be hit with higher income taxes (Florida has no state tax, so players there would pay 36 per cent; in Canada, it would be 46.4 per cent with federal and provincial tax), said Garber.

But there are ways to get around the full tax hit, he added, such as using an income-deferring registered compensation agreement. The team could put a portion of his salary into an account, and when he leaves the organization he'd get it back and pay only 15 per cent tax on it.


Protecting Clients in Second Marriages

By: Rayann Huang, Editor Advisor's Edge Report August 01, 2011

"All you need is love” is probably not what Beatle Paul McCartney hummed after his $50-million divorce from Heather Mills in 2008. In hindsight, he also needed a prenuptial agreement.

According to the latest Statistics Canada research, 43% of marriages are expected to end in divorce before the 50th wedding anniversary. In a 2009 study by Dr. Anne-Marie Lambert of York University, of those individuals facing divorce, approximately 70% of men and 58% of women will remarry. Remarriage is more common among immigrants than Canadian-born citizens, and in Quebec, remarriage has become a minority phenomenon because of a preference for cohabitation.

A divorce can lower personal wealth, so creating a strategy to preserve individual wealth for those embarking on a second marriage is even more important, as their first marriage has likely eroded their net worth.

Fortunately, most individuals who are willing to say “I do” a second time are more cautious and in turn, open and pragmatic about exploring “what if” questions with their financial advisors.

Kathryn Jankowski, vice-president and financial divorce specialist at T.E. Wealth in Toronto, says most people lose assets or access to children as a result of divorce.

“You’re already talking to someone who’s gone through a period of loss,” she says. “They’re more prone to want to protect what they rebuilt or maintained. A first-time married couple probably doesn’t have anything, so they’re starting on equal footing.”

Protect premarital assets

According to Dr. Lambert’s study, second remarriages are at higher risk of dissolution since partners who have gone through a divorce once are more accepting of using this form of resolution again. (Dr. Lambert also noted, however, that remarriages that endure often outlast a first marriage.)

As the possibility of a divorce cannot be ruled out, your clients should draw a strict line between personal premarital assets and family assets to ensure individual wealth is not further compromised in the event of separation or death. Make sure clients document all their premarital assets and do not commingle them with family assets.

This can be more challenging than people think, says Jonathan Ruben, a Toronto-based chartered accountant and CFP. Even minor contact with family assets can put premarital assets at risk.

For example, if one partner had rental property or a family business prior to the marriage, those assets can form part of family assets if any of the associated maintenance costs, such as condo fees, are paid for by income generated during the course of the marriage.

To keep the property separate, your client should use pre-marriage income, such as that from a solely owned investment portfolio, to support the property or business.

Safeguard against an unfair split

For most people, the family home is their largest lifetime purchase. Yet in second marriages, partners often contribute funds unequally to a home purchase. Jankowski suggests some tactics to ensure each partner gets proportionate entitlement according to his or her premarital contributions.

To help provide for a proportionate division of the home (e.g. 70% owned by one partner, 30% by the other), such an arrangement should be clearly stated in a marriage contract. The couple should also consider registering the ownership of the home as tenants in common, rather than joint tenants.

As tenants in common, when one spouse passes away, his or her share of the home does not automatically go to the other spouse. Instead, the share can be given to an alternate person such as a child from a first marriage or an elderly parent. The proportionate ownership of the home should also be stated in the deed on the home.

While this is not a bulletproof approach to preventing a partner from making a disproportionate claim for the home, it is a precautionary measure Jankowski uses personally and recommends to her clients.

Gene Coleman, a Toronto-based family lawyer and principal of the Gene C. Family Law Centre, says these precautionary measures are good steps, but should be done in conjunction with independent legal representation.

The Family Law Act has provisions governing division of the matrimonial home. Proper legal guidance and representation helps to ensure any contracts the couple draws up are enforceable.

Be fair

If conditions in the marriage contract are considered to be unfair, particularly to the economically disadvantaged partner, it risks being changed by a judge, warns Coleman. Therefore, including provisions that do not economically deprive either partner will strengthen the contract.

Coleman points to a recent marriage contract drafted by a colleague in an attempt to insulate the husband from a spousal support claim. The contract stated the husband had to contribute a certain amount into a spousal RRSP every year to help with his wife’s “financial self-sufficiency.”

There’s no guarantee this arrangement won’t be changed by a judge, says Coleman, but by taking steps to build his wife’s financial self-sufficiency, it may take some pressure off on the need for spousal payment in the future.

This is a no-lose strategy: if the marriage lasts, both partners can enjoy the spousal RRSP. If it dissolves, the wife is in a position of greater financial self-sufficiency that may help alleviate the need for spousal support later.

Coleman stresses the contract must be negotiated well in advance of the wedding. Otherwise, it’s possible the contract may not be upheld later, because the more economically dependent party could argue he or she felt pressured to sign.

What happens next

Whether or not your clients have enacted wealth protection strategies, after a marriage dissolves, an advisor’s next step is to create a new financial plan. By taking divorced clients through financial scenarios and future projections, you’re putting them in the right frame of mind to move past a difficult period, says Jankowski.



Ecological Gifts Program

By Amy Brown-Bowers, Bankrate.com
February 2, 2011


Conservationists in Canada face a conundrum: much of the country's ecologically- sensitive land is privately owned. That's where Environment Canada's Ecological Gifts program, or EGP, comes in. The epitome of green giving, the EGP encourages landowners to donate environmentally-sensitive land for indefinite protection, in return for a sizeable tax receipt.

For more information on the program, including the tax benefits and how to participate, read on.

An Overview of the Program

"The Ecological Gifts Program is a national program that promotes ecological stewardship by providing income tax incentives to protect Canada's environmental heritage," says Robert McLean, executive director of Canadian Wildlife Service, habitat conservation and protected areas for Environmental Canada.

The Environment Canada-led program was launched in 1995, "after members of the public, environmental groups, provinces and municipalities appealed successfully for the Income Tax Act to be amended to support conservation activities," says McLean.

The process involves multiple steps, starting with the land: "The Minister of the Environment, or a person designated by that minister, needs to certify that the land is important to the preservation of Canada's environmental heritage, and also determine the fair market value of the land," says Jonathan Ruben, a Toronto-based chartered accountant and certified financial planner. In addition, you must identify the recipient of your donation and ensure that they are a government-approved conservation charity.

McLean says that most people donate because of their desire to protect sensitive land and species. What's more, the program provides peace of mind to donors, who are assured that the land will be conserved by the recipient indefinitely; there are penalties enacted if charities renege on their protection obligations.

"Even with the enhanced tax treatment under the EGP, donors would be financially better off selling the land. But they make the donation because of a deep love of the land and a desire to ensure that it will always exist in its natural state," says Allyn Abbott, president of the Muskoka Heritage Trust, a land trust charity that accepts donations of land and conservation easements.

The response has been phenomenal and donations are growing exponentially. The 100th gift was made August 2009 and the 800th gift was made less than a year later in July 2010.

"In total, landowners across Canada have donated over 857 ecological gifts over the past 16 years, covering over 137,806 hectares of land valued at over $552 million," says McLean, adding land gifts have ranged from 550 square kilometres in the South Selkirks region of B.C., to a five acre parcel in the Muskoka region of Ontario.

Tax Details

The EGP enables donors to claim a donation tax credit based on the eligible amount of a gift of ecologically sensitive land. Ruben provides this example to illustrate the tax benefits, based on Ontario rates:

"For an individual in the highest tax bracket (above approximately $122,000 of taxable income), a non-refundable tax credit of about 46 per cent combined federally and provincially would be received," he says.

Ecological gifts receive preferential treatment when compared to other types of donations, says Ruben. For example, there is no taxable capital gain on the disposition of the property, there is no income limit for calculating the tax deduction (regular donations are typically limited to 75 per cent of your net income), and the Government of Canada certifies the donation value.

Furthermore, Ruben suggests thinking strategically about the timing of your donation "as donations can be carried back seven years and carried forward five years," he says. For example, if a gift is made December 15, 2009, "the donor is then eligible to claim income tax benefits beginning on his or her 2002 return and carry forward unused amounts up to five subsequent years."

"The ECG program is important because it encourages the protection of that land by taking away some of the financial disincentives of donation," says Abbott. "If someone is interested in protecting their land, the EGP makes their generosity much less onerous from a tax perspective."

Costs

As a caution, Ruben notes that there are costs common to nearly all donations and he encourages people to consider these when considering the program. "Costs can vary from a few hundred dollars to a few thousand dollars for legal work," says Ruben. "A land survey could cost anywhere from $1,000 and up. For most donations, the cost ranges from $1,000 to $3,000 to get a full report from an Accredited Appraiser Canadian Institute [member]. Land transfer tax and registry fees depend on the value of the land."

Simply put, while the true beneficiaries of the EGP are the sensitive ecosystems and species being protected, there are financial benefits to be had, and it's probably a good idea to seek independent tax advice to help navigate through the details.


Balancing Options; Following Investment Rules and Learning from Mistakes can Keep You on Solid Footing

SPECIAL SECTION: INVESTING
By Jerry Langton, SPECIAL TO THE STAR
Nov. 13, 2008


In the summer of 1996, Dilip Pradesh earned a $5,000 bonus. The Brooklyn-based graphic designer didn't need the cash, so he invested it in Apple.

"Everyone said I was crazy; at the time, Apple was in dire trouble – they all said I was throwing my money away because Apple would be extinct by the end of the year," he said.

"But it was a good product and a well-known brand name, so I thought someone would buy it and I'd make my money back and a little extra." A year later, Apple co-founder Steve Jobs resumed control of the company and the stock Pradesh bought for $14 a share shot up to $18. He needed some money and was convinced Apple's rebuilding process would be long and difficult, so he sold, making a tidy 28 per cent return.

Of course, after the iMac, iPod and iPhone, Apple is not only back on track, but one of the most profitable companies in the world. After a split, the stock now trades at about $140 a share.

Faced with the realization that his original $5,000 investment in 1996 would now be worth in the neighbourhood of $100,000, Pradesh is philosophical.

"You can't look back on these things or you'll go crazy," he said.

Jonathan Ruben, a Toronto-based certified accountant and financial planner, disagrees. He thinks Pradesh would be better off learning from his mistakes. Pradesh, he said, broke Rule No. 1 by "investing (if you can call it that) without a proper strategic plan – document time horizon, capital, future contributions/withdrawals."

So while Pradesh made some smart moves by buying into a company with potential to rebound after hitting a low spot, he made a cardinal investment mistake. Warren MacKenzie, founder and president of Toronto-based Second Opinion Investor Services, agrees with Ruben.

"Impatience is one of the most common mistakes an investor can make," he said.

Conversely, another common mistake is holding onto a stock for too long.

"Chasing yesterday's star performer leads most to pay too much," said Ruben. "Many (investors) dig their heels in, refusing to fall out of love with your choices, and end up not getting out soon enough."

MacKenzie has a simple rule for such investors: "If it's not good enough to buy at this price – you should sell it at this price."

Just as important as timing, the experts say, is diversification. Smart investors know not only that their portfolio needs many different companies, but also different industries. Ruben warns about "putting all your eggs in one basket."

Any company or industry, no matter how well-managed, can run into hard times or even a full-bore catastrophe like the subprime lending crisis that ravaged Wall Street.

"Lack of diversification and absence of a well-executed and re-balanced asset allocation often cuts deeply into what otherwise would be above-average returns over the long term."

And, while it makes sense to have more stocks than fewer, it can be easy to get carried away. Every trade costs money and the amount they cost can quickly eat into any profit or equity.

"It's shocking how many simply don't know what they are really paying in trailer fees, commissions, administrative fees, etc.," Ruben said. "And how many erroneously regard their gross returns, rather than their net gains, as the performance of their portfolios."

Since any trade could have tax ramifications on the entire portfolio, every trade should be studied in great detail. Ruben warns investors not to "let the tax tail wag the investment decision dog" by investing willy-nilly as tax deadlines loom.


And many inexperienced investors get excited about something they've heard without realizing everyone else has already heard the same thing. Both Ruben and MacKenzie said they believed that doing one's homework is essential to any investor's success, but that keeping an eye on the big picture is necessary. Too many investors, MacKenzie said, fall into the trap of "liking a company and thinking it has a great product but not knowing about the competition or how this company stacks up with other companies with similar products."

So, while Nokia may make a really cool cellphone, keep in mind that Motorola does too.

And it doesn't make sense to invest at all if you are heavily in debt. A return of 10 per cent annually may look like free money, but if the investor has the same amount of credit-card debt with an 18 per cent interest rate, he or she would be farther ahead by paying off the outstanding debt. Of course, the biggest mistake many inexperienced investors make is in overestimating their own ability to understand the complex world of investing. In most cases, it makes sense to call upon a professional.

"In the stock market the competition consists largely of the professional trading desks of the large firms – these traders have PhDs, sophisticated analytical tools; they have discipline, experience and loads of money," said MacKenzie.

"If you accept the fact that you are unlikely to be able to beat Tiger Woods at golf you should accept the fact that you are unlikely to be able to consistently beat the professional traders at their own game."
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Share The Wealth; Complex Tax Math can Help Couples Save Thousands

David Hamilton, Financial Post·
Published in The National Post Sat. Apr.19, 2008

In anticipation of an extra $3,300 on their tax refund cheque, Morris and Adelle Greener indulged in a few luxuries. "I went out and bought myself a performance hybrid," says Mr. Greener, 60, who retired three years ago to build their dream home in the countryside north of Toronto, after working at the Toronto Star for 32 years in circulation and home delivery. "[My wife] is an artist. She does watercolour, so when we built our home we made a studio for her so that she's got lots of light, high ceilings, wall space and windows," says Mr. Greener.

Their newest indulgence is courtesy of pension-income splitting. As a retired couple living on Mr. Greener's pension, they are a textbook example of how Canadians are benefitting from the new pension-income-splitting rules.

Accountant Jonathan Ruben, who prepared the couple's taxes, says clients such as the Greeners can be saving thousands of dollars when they agree to split their pension income. "It's wonderful to see that clients are recognizing the benefits and optimizing their tax savings."

Optimizing savings is like balancing a scale -- one has to weigh the numbers to find the best savings formula. "The form itself is simple, but the results and implications are not necessarily intuitive," Mr. Ruben says.


"It's not like there's a lot of extra money kicking around," Mr. Greener says. "I've gone from a decent income to a very modest retirement income. This year I would have ended up paying the taxman all of that $3,300."

The Greeners are not the only ones benefitting from the new rules introduced for the 2007 returns. After more than four decades working for mining company Cominco, Vulcan, Alta., resident Bill Smith, 67, retired two years ago. In all those years, he had always done his own taxes. The new pension-income splitting legislation finally made him seek professional help.

"I don't know how to do it. There's lots of jiggling figures around," Mr. Smith says. "I just don't have the patience or the time."


Mr. Smith and his wife of 46 years ended up saving about $3,000 more than they did last year. He figures there was a difference of about $2,500 between the tax form he filled in and his accountant's. The accountant's fees were a little more than $200. Mr. Smith's accountant, Neel Roberts, says he has a number of clients who have been doing their own taxes but have found the new pension-splitting formulas confusing.

Other tax firms are also seeing more clients coming to them as a result of pension splitting. In retirement community Penticton, B.C., accounting firm Harvey, Lister and Webb has done more than 1,000 tax preparations using pension splitting. "Some have been as high as $4,800, and it can go even higher than that. But most people are saving in the range of $2,000 to $3,000 per year," says partner Bob Harvey.

Ottawa tax lawyer Adam Aptowitzer, with the firm Drache LLP, says while pension splitting can result in a larger refund for the couple, it underscores the fact that one partner is making more money than the other. "What happens is that there is a power imbalance between the spouses," Mr. Aptowitzer says, noting both spouses have to agree to the income split.
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Verify Your Capital Gains Values

Inside Finance By Barry Critchley; Money Box, The Financial Post

If you claimed the capital gains exemption on your 1994 return it may pay to verify the Feb. 22, 1994, security values you used. That advice comes from Jonathan Ruben, a chartered accountant in Toronto. His firm took Feb. 22 valuation statements clients got from financial institutions and investment dealers and compared them with newspaper stock and mutual fund tables. In one client's case, a discount brokerage statement difered from published closing prices on four out of five stocks and undervalued the portfolio by $855. Ruben said his firm found gaps as wide as 12%, adding that undervaluation could prevent the taxpayer from making full use of his or her exemption. If you find discrepancies you can send your Revenue Canada district office a letter asking them to amend your return.


Athletes Have Got It All Wrong, Say Tax Advisors

By Tony Van Alphen; Business Reporter, The Toronto Star

Some multi-millionaire professional athletes from the United States say they don't want to play for a Canadian club because the taxation hits them a lot harder than south of the border.

But Canadian teams and tax experts argue that after they add it all up and the government takes a good chunk away, the difference between the two countries can be minor for those wealthy sports stars.

It's a matter of simply taking advantage of some basic provisions under the tax law, accountants and tax lawyers say.
"They can achieve a pretty level playing field," says dennis McMullin, a tax partner at Deloitte & Touche in Winnipeg. "You can get fairly close with advanced tax planning."

The tax bogeyman popped up again recently when trading speculation swirled around the Toronto Raptors basketball club. Star Raptor point guard Damon Stoudamire cited it as a reason why he wanted to get out of town.

Houston Rockets centre Kevin Willis, who was almost traded to the Raptors told USA Today the differences in the structure were " a huge deal" and "pretty hard to swallow."

"They're not getting good advice," concludes Bill Johnston, an Ottawa tax lawyer who structures pro athlete contracts to minimize taxes. In fact some accountants say a New York Knicks star can end up with paying more income tax than a rich Raptor.

Tax lawyers and chartered accountants acknowledge that income tax rates are higher in Canada than in the United States, but they say some U.S. agents and players exaggerate the gap.

In Ontario, the rate is 51.64% for anyone with taxable income of more than $63,500. In New York and California, it's about 50% on income of $278,000(U.S.). All major league athletes with U.S. clubs easily make more than that and face the full hit.

The rate on a pro baseball, hockey or basketball player in Ontario drops below 51% even before devising the first tax strategy. That's because the effective tax rate for a U.S. pro athlete in Ontario declines every time he works south of the border in games and practices during the season.

He usually spends about 35% of his work time in the U.S. That automatically reduces the Canadian tax bite. Structuring a contract with tax rules in mind can reduce the sting further, according to experts.

Jonathan Ruben, a Toronto chartered accountant, says higher-paid athletes can negotiate a "retirement compensation arrangement" that defers income and can help the club and player since they don't pay the taxes until after the contract expires. "It's essentially an unregistered retirement savings plan," says Ruben, who provides tax advice to wealthy people, including major league athletes in Toronto.

Under this arrangement, the team makes contributions to a "custodian" or trustee. Payments could be subject to a lower tax rate because they are spread over a longer period of time.

The player receives benefits after he quits, or the team fires him. Athletes can negotiate a similar arrangement, commonly known as an "employee benefit plan," under which the club also pays a good chunk of its income annually to a trustee for investment.

Revenue Canada can tax the investment earnings every year while the athlete plays but not the income that the club paid. The club doesn't get a tax deduction until the player starts drawing down the funds and paying taxes.


"Players can select investments to acquire growth prospects so there is little annual income," says McMullin. "Growth appreciation is reflected in enhanced value of investment, which builds a pool of capital for retirement."

McMullin says there are no such tax provisions that benefit athletes in the United States. On the other hand, U.S. residents can write off mortgage interest and property taxes. Canada doesn't have those tax breaks.

Meanwhile, Johnston says some athletes can negotiate their contracts to minimize the tax hit without even setting up a retirement or benefit plan with a club. He says an athlete can negotiate a good portion of his contract in the form of a signing bonus. It's taxable here at a rate of 15% under the Canada-US tax treaty. That rule effectively allows the athlete to get full U.S. foreign tax credit against Canadian taxes, Johnston says.

"It means the player pays at the U.S. rate."

In addition to different ways of minimizing tax, experts say some U.S. athletes don't take into account the big bang they get from the American dollar in purchasing goods in Canada. All major pro stars playing here get their salaries in U.S. dollars, which is worth $1.42 (Canadian).

Ruben, a member of the New York and Illinois state societies for certified public accountants, and McMullin add that Canada offers those athletes safer cities, better schools and health care, fresher air and extensive cultural attractions.

The Raptors are currently working on an information package for agents and players who will be free to change teams this summer. It will emphasize the city's merits and lifestyle, clarify the financial benefits and offer assistance so players can reduce their exposure to income taxes.

"There are fears the taxes are much higher here, but it's not true," says John Lashway, vice-president of corporate and community development for the Raptors. "There has to be an education. We have to show players and their agents how thehow ththe hows work and all the advantages of living in Canada."

Some league insiders suspect a few agents are trying to portray Canada in negative terms to create perceptions of marketing limitations and cultural shock here so their clients stay away,

But Lashway says that although Toronto is not New York, Chicago or Los Angeles, few other cities offer the national and local marketing potential of Toronto or the quality of life.

"It's ludicrous some of the things we've been hearing about Totonto and the taxes."
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Over many years, aside from completing tax returns very competently, Jonathan has provided excellent financial advice on a range of issues including business start-ups, investment advice, retirement and estate planning, to our entire family.

We truly value his always being there for us and, with zero hesitation, highly recommend his services.

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