Category Archives: business

A perspective on Universal Tax Debt Relief

COVID-19 Government Aid

Canadian governments at all levels responded to COVID-19 by telling people to stay home and shuttering large parts of the economy resulting in massive job losses along with creating massive liabilities for business owners and threatening the survival of businesses ranging from theatres, to restaurants and airlines.

Federal COVID-19 relief as of April 24, 2020 was $145.6 billion according to news media.  In the first month COVID-19 emergency funding was already 3.5 times of Canadians’ old tax debt and it has continued to rise rapidly. As of May 26, 2020 news media reported that the $2,000 Canada Emergency Response Benefit had paid $40 billion dollars to 8 million Canadians. 8 million people represents a staggering 42% of Canada’s workforce, including sole proprietors, and self-employed Canadians.

The Government of Canada also immediately extended tax filing and payment deadlines from April 30 to September 1, 2020, ostensibly to reduce Canadians’ stress and anxiety of being unable to pay their outstanding 2019 taxes due to COVID-19 decimating their financial capacity to pay their regular bills for shelter, food and communications, let alone any outstanding taxes.

Canadians’ Tax Debts

In 2018, Canada Revenue Agency (CRA) reported that uncollected taxes had risen to $44 billion and “…unpaid tax owed is set to hit more than $47 billion by 2020. The steady increase in the tax debt — up by about $2 billion annually [since 2015] — comes despite a major investment in the 2016 federal budget to wrestle down fast-rising levels of uncollected tax debt.”

Importantly, “close to half of the unpaid tax debt is owed by individual Canadians. Corporations and businesses account for the remainder, which includes unpaid GST and payroll deductions not turned over to Ottawa.”

Source: https://www.cbc.ca/news/politics/tax-debt-liberal-budget-collections-1.4715967

To be clear, tax debt includes neither tax revenue lost to the underground economy (the black market) nor tax evasion, for instance through offshore tax havens. Tax debt means tax owed by Canadians who actually have filed their individual and business tax returns, i.e. people who rather than cheating are dealing with capacity to pay issues.

Universal Tax Debt Relief

Universal Tax Debt Relief is an efficient way to give affected Canadians a chance at recovery and rebuilding their lives, or at least some peace-of-mind. Meaningful tax debt amnesty has to extend to 2019 and perhaps include COVID-19 Year 1, ie the current year.

It would give affected Canadians a chance to wind down their businesses responsibly, perhaps even avoid personal and business bankruptcies, and stop having the millstone of CRA debt around their necks, potentially until the end of their lives. An utterly hopeless situation.

Eliminating their CRA debt would give affected Canadians a chance to begin the long but hopeful process of rebuilding their lives, their credit and start with a fresh slate in terms of their relationship with CRA. They could work to avoid poverty becoming a burden to Canada’s social safety system.

Unprecendented? Not really.

CRA has not collected from tax evaders despite having access to the Panama Papers and the Paradise Papers, for instance.

CRA has hired more tax collectors since 2015 to deal with the tax debt backlog, and they have assigned a few staff to tax evasion as well. But CRA simply does not have sufficient enforcement capacity and uncollected tax debt keeps growing – and no one seems to track what the other group, tax evaders, are doing overseas to avoid or evade taxes in Canada..

In 2012, the federal government simply wiped out about 280,000 skilled immigrant applications because they were backlogged and doing so gave the government a clean slate rather than have a years-old millstone around its ability to act in the present time.

https://www.cbc.ca/news/politics/canada-s-skilled-immigrants-backlog-to-be-eliminated-soon-1.1290847

But what about fairness?

COVID-19 isn’t fair. Falling into debt because of following ones passion
isn’t fair. Missing a single tax payment and learning the hard way how big a stick the government carries isn’t fair. Life isn’t fair.

My proposals isn’t suggesting anyone should not be paying their taxes – I pay mine and I expect all tax payers to pay theirs. This is simply a
recognition that there are groups of people who have ended up in dire financial situations, while they have been building businesses, communities and making all manner of contributions. With COVID-19 all bets are off. The fall out will include business and individual failures. This is a chance to give back hope for a better day.

COVID-19 relief has been fast and effective at saving the lives of millions of Canadians. It is time to save the lives of those Canadians who have been living under the unyielding choke-hold of tax debt and CRA tax collections.

Some added notes

Tax Debt and CRA’s punitive penalty and compound interest regime

CRA uses a punitive daily compound interest regime coupled with severe penalties for late filing or not being able to pay all taxes by the due date. This is applied in the harshest ways related to payroll taxes. GST debt and income tax is treated with somewhat less punishment in comparison. The penalties and compound interest exceed the average profit margin of many businesses by a wide margin, making catching up exceedingly difficult, if not impossible.

“The penalty for late filing payroll remittances is:

  • 3% if the amount is one to three days late
  • 5% if it is four or five days late
  • 7% if it is six or seven days late
  • 10% if it is more than seven days late, or if no amount is remitted
  • 20% if this is the second or subsequent time you are assessed this penalty in a calendar year, if the failures were made knowingly or under circumstances of gross negligence”

Amongst other penalties there is a “penalty for failure to file information returns over the Internet.” And for some tax remitting organizations, “payments made on the due date but not at a financial institution can be charged a penalty of 3% of the amount due.”

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/penalties-interest-other-consequences/payroll-penalties-interest.html

Importantly, any monies owned to CRA including penalties and interest CANNOT be used as a tax write off. Normally, interest on a loan is a tax write off, but interest on CRA debt has to be paid out of after-tax income, making paying old debts dauntingly difficult.

Getting a loan to pay off CRA debt?

Banks will not make loans to people carrying CRA debt. Loan sharks on the other hand charge more than 30% on loans they give – again, most businesses do not achieve such high profit margins. This spiral of despair is a set up for failure.

Does bankruptcy wipe out CRA debt?

Important to understand is that debt to CRA is unlike any other debt – even in bankruptcy CRA debt is not automatically wiped out and can persist to the end of a person’s life. In effect CRA can keep a bankrupt person from ever emerging from bankruptcy. CRA can and does claw back Canada Pension Plan payments, which average around $650 a month, leaving seniors with tax debt in a despairing situation.

Restaurants at the Brink – COVID-19 Response

A sector analysis series #1

Creative Commons Licence CC BY-SA (i.e. use in any way you want with attribution of source: “Inga Petri, Strategic Moves, May 17, 2020”)

Public health officials in Canada ordered dine-in restaurants closed everywhere during March 2020. Now in mid-May, they are musing about reopening restaurants with new obligations, centred on 2 metre distancing, disinfecting surfaces and perhaps more.

That potential “permission” to “open” cannot result in thinking restaurants and their owners wouldn’t require continued financial support.

The reality check

2018 financial data from Statistics Canada available at http://www.ic.gc.ca/eic/site/pp-pp.nsf/eng/home shows that for the 35,514 full-service restaurants with sales between $30,000 to $5 million (data for those earning above $5 million is suppressed):

  • 35% did not generate any profit at all, i.e. they were operating at a loss.  
  • The other 65% turned a profit of 7.6% on average, representing $24,400 for the year.

That means a profitable restaurant in Canada makes money only 4 weeks out of 52 on average. It also means a restaurant owner’s average annual profit is less than minimum wage. And no, many sole proprietors do not pay themselves a regular wage; instead keeping everything working in their business.  Anyone can see the high risk restaurateurs take and how tenuous their existence is.

In the Yukon, where I live, the numbers are a little better: only 22% do not report any profit and of the 78% that do, the average profit is 9.3% representing $66,000 on average in 2018. Nonetheless these figures show how little slack there is and how all the money for the years comes from the now cancelled summer tourist season.

This data makes clear:  the average restaurant, closed down already for two months due to the public health orders, is already bankrupt. Re-opening obligations are shaping up to be costly and won’t result in lower staffing complements despite serving far fewer customers due to new labour intensive cleaning regimes. There is simply no economic case to reopen for the great majority of dine-in restaurants.

Significant direct contributions to Canadians

Through the risk borne by them, restaurateurs have been contributing far-reaching benefits to Canada’s economy: according to Government of Canada data, the average dine-in restaurant had $765,600 in sales. Of that $250,300 went to labour costs and wages.  Purchases and materials that are part of the cost of goods sold totalled $273,900. Rent accounted for $65,300 and so on.

And there are many more indirect, restaurant owners have been building communities, contributed to quality of life, played a large part in attracting and retaining a skilled workforce, growing tourism through the culinary arts and memorable dining experiences, supporting charities, paying staff, helping put young people through school, feeding people, all while breaking their backs and bank accounts.

In short, the direct and related economic activity generated by the restaurant sector is worth billions to Canadians and the Canadian economy.

A broken model – Restaurateurs need help

COVID-19 is showing for the world to see what has been true for some time: The business model independent full-service restaurants have been forced into, largely by price competition from other food sector players, is broken and the owners are broke.

The numbers also make clear why restaurants can fall into GST and Payroll remittance tax debt, when basic break-even is so difficult to achieve. Non-remittance incurs extraordinary penalties and interest charges that can take up any monthly surplus and more. And then they are exposed to the CRA’s relentless collections and being treated as less than valuable community builders and hard-working, creative, innovative business leaders.

They need a chance at a life beyond COVID-19 and beyond a broken business model.

How can Canada help restaurants and their owners now?

A few ideas that could pull restaurants and restaurateurs back from the brink:

  1. Consumers have to learn to pay much more for the pleasures of eating out, especially when they don’t wish to tip 20% for servers and rather see living wages for restaurant workers, rather than below minimum wage as is the case in some jurisdictions. In the Yukon where I live it appears as though most, if not all, workers in the restaurant industry earn well above minimum wage plus tips.
  2. Landlords should permanently slash rents to restaurant tenants to enable restaurant owners earning a living wage and being able to invest in innovations in their business or business model.
  3. In addition to short-term COVID-19 Transition Grants to pay for additional public health mandated expenses and staff training, Government has to consider providing meaningful tax debt relief to allow a fresh start or at least some peace for owners.
  4. Sole proprietors must be considered as a special group requiring assistance. If sole proprietors are considered as “making a profit” when they barely break even before paying themselves anything, their work translates into not being able to cover their personal expenses and falling into debt.
  5. Local governments should revisit their zoning requirements to enable new, innovative ways of providing food services to the public. They can range from quickly enabling sidewalk patios and taking over unused parking spaces (no tourists means ample parking spaces are unused); a new breed of home-based businesses offering nano-scale/single-table/prepared-food eating experiences without the massively expensive requirements for home-based commercial kitchens; significantly reducing restaurant and liquor licensing costs.
  6. Canada’s provincial and territorial government-owned and run Liquor Control Boards should look at offering higher discounts or find a way to return most of their profits to their customers, i.e. bars and restaurants that must purchase alcohol at government controlled prices; allowing off-sales within every restaurant liquor license during the COVID shutdown period and 3 months beyond.

COVID-19 relief has been fast and effective at saving the financial lives of millions of Canadians. It is time to save the lives of those Canadians who have been living under the unyielding pressures of low price competition while the market demands quality food and high quality, unique dining experiences.

The spaces in-between the places: On frequent travel

In my current version of life as a speaker and consultant I am thrilled to get invited to work across Canada. Then last year, I decided to actually live in two places about 5,000 km apart (Whitehorse, Yukon and Ottawa, Ontario). Already in my sixth year as a frequent traveler, I have had to find ways to not feel disconnected or plain lonely. It feels like I have finally found some groove in the last couple of years that keeps me socially connected and engaged with wherever I am.

Today a touring musician friend posted this update on Facebook:

Things that make me really happy:
Great Luggage.
New movies on Air Canada.
Great conversations with taxi drivers.
Swedish meatballs as snacks.

That post reminded me about the spaces in between the places I go. As my travel schedule has grown I’ve come to focus a lot more on all the life that can happen in those spaces: like that hilarious late night conversation on the plane to Whitehorse the other day with one of the House of Commons staffers travelling with the Parliamentary Committee on Electoral Reform.  Or that messenger chat with a distressed friend while waiting at the gate. Or talking to the mom with the kid that is having a terrible flight and not making her feel bad about her child being a child. Or drifting off on that after lunch nap on an Air North flight to YXY – while in my regular seat (yes, I always get the same seat when I check in on AN) – and listening to my favourite artist on my iPod. Or binge watching new movies on Air Canada flights. Some of my friends may be surprised that I rarely work while in transit … to me offices and conferences are for working. I’ve come to prefer to be in transit and see what life there holds in store.

Of course, my friend managed expressed all that in the songpoet’s way in 4 half-lines!

 

New office in Whitehorse complements Ottawa location

Since 2011 my work has taken a decidedly national turn with many visits in every province and territory for research and consultations, training workshops, client projects and conference presentations and keynotes.

Business licenseTo facilitate growing demand and durably expand my client portfolio I have opened a second office in Whitehorse, Yukon in September 2015. You might wonder why Whitehorse? It’s simple: I love the freedom of the Northern landscapes and its magnificent mountains and I have been making friends and working with colleagues who do inspiring work, leading work, at the edges of this vast country. The Yukon has an amazing scene that makes Whitehorse and Dawson brim with arts and culture of all sorts; winters are even busier than summers for all the music, theatre and community activities.

I am thrilled and grateful to work with remarkable clients in Ottawa, too. I take great care to ensure we have plenty of time for face-to-face meetings as much of the impact of our work together lies in the deeper discussions of research findings and insights and the decision-making on implications and next steps.

As I have done for the first nine years of Strategic Moves, I continue to partner with research companies, marketers, creatives and digital whizzes whenever a project benefits from a larger team to deliver the desired results.

Splitting my time between Ottawa and Whitehorse means I have a new favourite airline: Air North has established a twice weekly, direct flight between Ottawa and Whitehorse with a short stop-over in Yellowknife. That means a commute of merely 7 hours to shuttle between my offices: shorter than any other airline and usually cheaper, too.

Finally, contact information is unchanged. As always you can reach me at:

  • 613-558-8433 (mobile, text – gotta love those “long distance included” plans)
  • ipetri@strategicmoves.ca.
  • Skype @ inga.petri
  • WebEx for online meetings.

All to say, I am as accessible as ever and the high degree of responsiveness my clients are accustomed to will continue to be my calling card.

My physical whereabouts in the next few months, pending any additional conferences, workshops and client meetings:

  • Ottawa, ON – until October 7
  • Wells, BC – October 8 to 13
  • Whitehorse, YT – October 14 to 26
  • Kelowna, BC – October 27 to 31
  • Ottawa, ON – November 1 to 4
  • Yarmouth, NS – November 5 to 8
  • Ottawa, ON – November 9 to 12
  • Whitehorse, YT – November 13 to 22
  • Ottawa, ON – November 23 to December 18
  • Whitehorse, YT – December 18 to January 10

[January 2016: For updates on my engagements across Canada click here.]

I’m excited to increase Strategic Moves’ footprint and to see what new opportunities and connections it will bring about.

Nuit Blanche Whitehorse

2015 Nuit Blanche Whitehorse – The Whitehorse Steam Laundry participatory piece by Sylvie Binette.

 

Nuit Blanche Whitehorse - webs

2015 Nuit Blanche Whitehorse – Doily Webs by Nicole   Bauberger and Jessica Vellenga.

 

Is it Sustainable? Volunteers in arts and culture

An off-the-cuff remark during the recent SPARC Network Summit, was captured by Chad Ingram of the Minden Times:

“The idea that we’re all volunteer-run [in rural communities] . . . is that sustainable?” [Inga] Petri asked, pointing out that the arts is one of very few industries where people are expected to donate much of their time. “We would never imagine mining to work that way. We would never imagine forestry to work that way.” [Or fisheries for that matter: all industries that are also often located in rural or remote locations in the country.]

So why do we not need to have volunteers running mining companies, like they run community-based arts presenting organizations in many regions of Canada? Why do forestry companies not call for volunteers to support their operations or sales teams, as many arts organizations do? Why such a dearth of volunteers in integral oversight roles in fisheries or construction industries?

Don’t worry. I get it. The performing arts is a sector where labour productivity can’t so easily be increased (that Beethoven symphony requires the same number of musicians today as it did when it premiered), unlike what has been achieved in those other industries through automation and machinery with ever greater capacity requiring ever fewer people. Yet, at the same time labour costs in the arts have to keep pace with inflation and cost of living for artists and administrators (well, that isn’t always the case, but still costs have risen while productivity has not). One response to what has been called Baumol’s Cost Disease means that it is hard to imagine the arts and culture sector existing to the degree it does in Canada without massive volunteer involvement.

Volunteerism – doing useful things in an organized way without pay to make others’ and our own lives better – is a great attribute of being part of a vibrant community.  Yet, especially in smaller communities in Canada, worries about attracting, training and retaining  volunteers are common. People burn out from the demands of volunteering in the arts,  volunteering at the local hospital and any number of charitable and not-for-profit organizations.

We collected pertinent information underscoring the importance of volunteering – and inferred the great importance it signifies in terms of the arts for Canadians – in the Value of Presenting study (links to PDF):

“(…) Canadians who volunteer in the arts and culture sector gave on average more time (127 hours per year) than those in any other sector in 2010. This represents an increase of 21% since 2007, the largest increase of any sector examined at a time when 6 out of 12 sectors registered a decline. (…) When considered in terms of total hours, the amount of volunteer time equates to about 100 million hours. That is equivalent to more than 50,000 full-time jobs.

(…) in the Survey of Performing Arts Presenters … [more than] half of survey participants report more volunteers than staff. The average ratio of volunteers is 17 for each paid staff member. (…)

The profound reliance on volunteers is even more evident among presenters of entire programming seasons in small communities under 5,000 people. They are less likely to have any staff and instead tend to be entirely volunteer run. These rural organizations rely on a day-to-day volunteer complement of an average of 36, with half reporting the use of 12 or fewer volunteers and half reporting more than 12. This increases to an average of 167 during the height of their operations.

I wonder whether this reliance on volunteers is sustainable. And whether it is sufficient to off-set the cost disease that has been diagnosed. And whether it is makes sense and is fair that so many functions (we can look at them as potential full-time jobs) are filled by unpaid labour?

To be clear, arts organizations have also undertaken other strategies to alleviate the inevitable pressures, including:

  • Higher ticket prices
  • Advocacy for greater public support
  • Increase in private, corporate donations
  • Renegotiating union contracts to reign in costs

While they do not address the underlying structure of the sector, each of these strategies has bought time for many organizations, even if not all in Canada, by generating needed income.

So, where do we go from here?

Well, one place I will go is to the CAPACOA conference in Halifax, where I will discuss Digitizing the Performing Arts and explore whether that could be “the holy grail” to shifting the performing arts presenting sector’s structure toward a new model that suffers less from this dynamic.

Solving the Start-up Challenge: A National Sistema Organization

During 2012-2013 I led the needs assessment and feasibility study to explore the creation and purpose of a national service organization called Sistema Canada. This brief post discusses the status of this initiative.

Sistema Canada is in the crucial phase of securing financing needed to become a fully fledged organization. With a national feasibility study (PDF report: http://www4.nac-cna.ca/pdf/corporate/SistemaCanada_FeasibilityReport_en.pdf) complete, a strong vision for the role a national organization will play in strengthening the Canadian movement, the challenge of start-up is primarily related to not having that one crucial staff person in place.

While volunteer leadership is mandatory in Canadian charitable organizations through a board of directors, a lesser discussed aspect of sustainable organizational development is the crucial capacity that comes with a first dedicated staff person and how a partner organization can help achieve that.

It is a chicken and egg scenario where some substantive catalytic funds would fill a major gap. Without legal status in place, charitable funding is impossible to access directly. Without funding in place, a staff cannot be hired to drive forward charitable incorporation, prepare proposals and build all-important relationships. That means any interim fund development is a volunteer matter. Volunteers skilled in such areas tend to be busy people working in their day jobs; and in our case, in their own Sistema-inspired programs.

During the feasibility study, I was that paid project resource charged by the J.W. McConnell Family Foundation and the National Arts Centre Foundation with moving the process forward, collaborating with the national steering committee (its members volunteered countless hours), seeking input from all Canadian Sistema programs, providing expertise, building scenarios and, ultimately, delivering the outcome via a report.  With a common vision and mandate agreed upon by constituents across the country, the next step is to find the right partner that can provide the needed financial support and help hire an Executive Director to kick start the organization through fund development for its core programs.

Since our report was accepted, members of the all-volunteer national steering committee have been leading the charge and are working through the challenge of moving Sistema Canada onto sustainable, scalable footing. Meanwhile, an informal network of program leaders continues to share their expertise and enthusiasm for Sistema in Canada.

For regular updates on the US and Canadian movement visit http://ericbooth.net/the-ensemble/

Arts Marketing … or Orchestras are not for everyone

I came upon this discussion of the state of orchestral music in response to Ivan Katz’ analysis  of the Chapter 11 bankruptcy proceedings entered by the Philadelphia Orchestra Association early in 2011.

I am entirely unfamiliar with the specifics of these proceedings. In particular the forum posts by a Thomas Alan Broido prompted today’s post referencing something I wrote about: “Imagine: creating a brand new genre of live music making today!

I implicitly suggested that the product/service – “live orchestral music” – would be targeted at a particular segment of the population. Taking a segmentation approach in the first place implies that ticketed (paid) orchestral music is not for everyone. That is not to say that classical music or orchestral music is not for everyone; putting a price tag on it, however, diminishes audience and market potential.

I continue to collect compelling evidence of the intrinsic values and benefits of arts and cultural participation. When the belief in these values and benefits are transferred directly to the ticketed performing arts things become murky. The unshakable importance of the arts as a public good is challenged when box office revenues must be achieved which restricts access which means the public good takes a lesser role, one balanced with revenue imperatives.

To peel back the onion on this conversation could yield new ways of thinking about the performing arts and about orchestras specifically. Thinking about what an orchestra or a theatre offers its paying customers and how to market that vigorously is qualitatively different from what an orchestra would consider if the public good, the health and well-being of the community, was of foremost concern.

On recent travels on Canada’s east coast, I have been discussing his very thing, and I realize that we pay for many pubic good, hydro, food, snow clearing – without them becoming a lesser public good. In the arts, it creates a bona fides marketing scenario, that other areas experience in different ways and in some areas less so. Snow clearing happens through taxation. Hydro development, too, even where there is competition for delivery and such. Food is super competitive, but the staples much less so. Arts, professional arts, actually need to be excellent at break-through marketing and attention getting engagement to command a serious ticket buying commitment. And I know it can be done. (See Cirque du Soleil).

I have been talking about some case studies in the arts demonstrating integrated marketing strategies. Amazing how language I used corporately in the 1990s is so top of mind now in the 2010s. Perhaps it’s just my way of integrated thinking. 🙂

This is a link to the Atlantic Presenters Association newsletter discussing my East Coast presentations and workshops, in early March. So happy to see this amazing feedback. I got to connect with 110 Atlantic arts organizations in one trip. Just amazing.
http://us1.campaign-archive1.com/?u=98ddd3c7538d70d3aa9945907&id=041f96aa01&e=3ce7dd33bd

We can do so much, when we combine the best from all disciplines that help us connect art and audiences. Including full-on Marketing.