Canada: Are You Paying Too Much? A Guide To Financial Consulting

Last Updated: July 30 2013
Article by Deborah Stern, BComm, CPA, CA

Business owners and operators all want to optimize their performance while saving on operating costs. As a professional who has advised companies from various industries over the years, I have observed many cost-saving opportunities for businesses of all sizes. In this article, I outline my observations and provide my top six recommendations in this area.

1. Duty and duty drawback

International trade regulations are complex and are continually changing. They often place a tremendous burden upon companies. For example, duty fees are a normal cost of doing business for manufacturers. Each year, manufacturers around the world pay millions of duty on imported goods that go to the government. Of these amounts, portions are available for a refund.

The duty drawback program allows importers and exporters to compete more effectively in export markets by permitting them, in certain cases, to recover duties paid on imported goods. More specifically, the program benefits those who import goods into the country, and then subsequently export the imported goods, subject to the conditions described below. This prevents the issue of double taxation, paying the duty when receiving the goods and then subsequently shipping the same goods to a country Canada has a treaty with.

To apply for the duty drawback program, the qualifiable goods must be:

  1. Further processed; or
  2. Displayed or demonstrated in Canada; or
  3. Used for development of production in Canada of goods for subsequent export; or
  4. Exported without having been used in Canada for any purpose other than noted above.

It is also very important when exporting your product to complete the paperwork properly and have the correct duty codes or you could be overpaying on duty. It is beneficial to periodically have a duty audit by a professional to review your paperwork and ensure you have coded all our product properly. Savings could be achieved without the upfront costs of a review because the consultant generally charges based on a percentage of the savings.

Beware of the significant changes in the last Federal Budget. The last Federal Budget removed duties on certain "sports equipment." The intent was to discourage cross-border shopping and encourage Canadian sales of like products.

However, a more important issue and one that will have a huge impact on businesses is the Federal Government's intent to remove the preferential status of certain countries (including China) as qualifying for the General Preferential Tariff (GPT) treatment. Imports will no longer be subject to lower preferential rates. In fact the rates will be assessed at the higher Most Favoured Nation rates (MFN).

The Federal Government is proposing the above changes be effective July 1, 2014 and some duty rates under the new legislation could more than double.

2. Telecom expense reviews/audits

For any business, reliance on communication technologies is unavoidable. However, paying more than you should is something that you can prevent. A telecom audit is especially helpful for companies with significant telecommunication costs or whose primary focus is telecommunications. Performing an internal audit of contracts and usage could potentially save you money.

Review/audit methods include looking at:

  • Cell phone usage;
  • Video and audio conferencing;
  • Telephone land lines;
  • Internet access;
  • Data lines; and
  • GPS.

Telecom audits ensure that your cellular/telecom provider is complying with the original contract, in addition to:

  • Confirming that you are not being overcharged;
  • Identifying hidden telecom costs and billing errors;
  • Ensuring you are not being billed for inactive lines; or
  • Recovering funds in the case you were overcharged.

3. Freight auditing and analytics

Similarly, hiring a consultant to conduct an audit on your company's freight costs – checking for invoicing inaccuracies or errors, possible fraudulent use and service failures could improve the management of your freight spending and reduce your costs.

4. Value-added tax (VAT)

VAT is imposed upon goods and services in every member country of the European Union (EU) as well as certain countries around the world. It is the equivalent of Canada's GST/HST. Until recently, foreign businesses suffered an economic loss when paying VAT - it is not recoverable against a Canadian entity's HST liability. To rectify this unfavorable position and encourage the trade of goods and services, EU members have now provided a set of rules allowing for VAT refund claims by foreign businesses.

Many of your business expenses might be eligible for VAT refunds, some of which can be substantial. For example, travel expenses alone may allow you to recover up to 25% of those total costs, depending on the European country of travel.

They may include:

  • Hotel accommodations;
  • Restaurant meals;
  • Telephone;
  • Exhibition, event and conference costs;
  • Car rental.

5. Accounts receivable insurance

You can buy domestic and global credit insurance policies to protect against commercial and political risks. By insuring your accounts receivable you are able to protect your cash flow and profits against bad debt losses, expand sales to new customers and markets, without increasing risk, and enhance your relationship with lenders allowing you to borrow potentially more working capital. Banks will normally give you more financing on your accounts receivables if they are insured. The common rule of thumb on bank financing of receivables that are not significantly overdue is: 75% if not insured and 90% if they are insured.

6. Risk management for foreign exchange

As the global economy has grown ever more interconnected, the foreign exchange markets have become increasingly vulnerable to sudden and dramatic shifts. The impact of these adjustments has also grown as companies have increased their international exposures, to the point that exchange rate movements now materially affect earnings for the majority of the world's international businesses. In this highly uncertain and rapidly-changing economic environment, a solid currency risk management framework can drastically reduce the possibility of surprising losses, make cash flows more predictable, and provide a competitive advantage against other firms that leave themselves exposed to currency volatility.

The world's most successful companies have built robust risk management practices directly into their corporate cultures, taking a holistic, disciplined approach to managing exposure. This focus on an integrated and adaptive process, rather than on the use of complex trading tactics or advanced quantitative modeling has proven to be the most sustainable and profitable strategy for managing risk over the long term. Ultimately, a strong currency risk management strategy can help to provide the foundation for success in markets around the world – helping the best businesses to survive and thrive on a global scale.

A dedicated foreign exchange specialist can add significant value to this process by providing the information, the tools and the expertise required to help you make the right decisions. The process is not complex and it can be as simple as locking in your rates for future purchases so you can calculate with certainty what your actual costs will be.

To find out how you could be paying less, contact your financial advisor.


DEBBY STERN

Debby is a partner in Crowe Soberman's Audit & Advisory Group. She provides auditing, business advisory services, cash flows, personal and corporate tax planning and tax compliance to a wide variety of clients. Her specialties also include succession and estate planning.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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