You’re Buying a Business. Have You Thought Twice About the Notice to Reader?

If you’re in the process of buying a business, you’ve likely been presented with the company’s Notice to Reader financial statements. An unaudited financial statement prepared by an accountant, a Notice to Reader can be an excellent indication of a business’s current financial situation.


It’s not the be-all and end-all.

Did You Know?

There are three levels of financial statements:

  1. The Notice to Reader
  2. The Review Engagement
  3. The Audit

Notice to Reader
The Notice to Reader is a financial statement prepared by an accountant in accordance with Canadian standards but all of the numbers are based on information provided by management and are not independently verified.

Review Engagement
The Review Engagement involves a significantly greater number of processes than the Notice to Reader, and yet it is much less extensive than an audit. While it is prepared using the balances provided by the company’s accounting system, Review Engagements verify accuracy by following a number of procedures.

The Audit is the most entailed of the three and the cost tends to be substantial. Very few for-profit companies without extensive public funding or interest actually ever require an audit. This explains why you likely haven’t seen many throughout your business purchasing endeavours. But, this is clearly the most reliable, detailed and verified financial information you can receive.

Do You Know Enough About the Business You’re About to Buy?

Simply reviewing the Notice to Reader financial statements (which are the financial statements you’re likely to be presented with during your due diligence) isn’t enough. It’s critical that you independently confirm what you see in the statement. For example, have you had a look at the company’s bank statements? Have you seen revenue deposits? Have you monitored purchases over the last year? All of the numbers you see should coincide and make perfect sense. Think of the presentation of the company as a puzzle and all the pieces need to fit together or else you may have a red flag situation on your hands.

Trust the People You’re Buying From

Yes, a big part of the business world is about the numbers, but we can’t dismiss the importance of integrity, trust and instinct. In a business acquisition, you need to trust the sellers. Once you’ve independently verified the numbers and researched the company inside out and backwards, ask yourself, do I trust these people? Does everything add up? Am I comfortable with this transaction? Do I believe everything to be true?

You’re Not Alone – Get Advice!

Why try to navigate blindly through the acquisition process without any assistance? Hire a legal advisor to stand in your corner. Mistakes are made when people don’t get the advice they need in the beginning. Don’t wait until papers are signed and deals are closed to get professional guidance.

Making sure you’re properly informed from the very start could mean the difference between a lucrative and detrimental business purchase.

Take Advantage of the HST Rebate on Your Investment Property

Did You Know?

The government sanctioned HST rebate program is a dollar amount already reflected in new home purchase prices. When you buy directly from a builder, the purchase price you see already has the HST rebate built into it. While this sounds fine and dandy upon first glance, it can actually be quite misleading when we get to the crux of the matter because this already reduced purchase priceonly applies to buyers who plan to live in the property they’re purchasing.

But What If You’re an Investor?

Oftentimes investors aren’t notified of the fact that they must pay the HST rebate until they’re about to close on their property and the words “investment property” somehow make their way to the surface of the conversation.

And then you have a decision to make: take the easy (and illegal) road and carry on as though you are going to live in the property hoping you won’t get caught, or bite the bullet, disclose your intentions and pay the HST rebate.

If you choose the latter, which you should, not to worry! You’re only out of pocket for a very short period of time. And this is what so many real estate investors don’t know.

About the HST Rebate

In order to qualify for the HST rebate, two key requirements must be met.

  • It must be a new home purchase.
    The HST rebate only applies to new home purchases in which you buy directly from the builder either pre or post construction. It does not apply to resale property purchases.
  • The home must serve as someone’s primary residence.
    Here’s where a lot of investors are misinformed or ill advised. An assumption is often made that because the owner will not inhabit the property personally, the HST rebate cannot be claimed. This is incorrect. If the owner leases the property to a tenant as a primary residence, the HST rebate can be claimed as soon as a tenant is secured.

When It Doesn’t Apply

If you plan to buy a new property and then flip it upon final closing, here is one scenario where you are not eligible for the HST rebate. In recent years, investors have made significant returns on their preconstruction purchases in Toronto and the GTA that, upon closing, are worth a lot more than when they originally made the purchase. In such cases, owners often choose to sell immediately upon closing, qualifying the purchase as a “flip”. Since the property at no point served as a primary residence, the HST rebate does not apply.

How it Works

When you buy directly from a builder, the purchase price you pay is already reflective of HST and the HST rebate. There is a specific formula to calculate the total value of the HST rebate on any given property but it tends to be somewhere in the vicinity of $17,000 to $24,000.

  1. If the home is your primary residence, the purchase price stays the same and the builder receives the rebate directly from the government upon closing. In this case, new homebuyers benefit from a seamless process and need not worry about applying for the HST rebate on their own.
  2. If, on the other hand, the home is not your primary residence, this must be disclosed to the builder prior to closing. You are then responsible to pay the purchase price plus the HST rebate amount of $17,000 to $24,000 upon closing.
  3. If you fall into the second category, then you must take one final step after you’ve solidified a tenant in your property. Fill out the required government form and send it in to the CRA. Within 4-8 weeks you will receive a cheque for the full amount of the HST rebate you paid upon closing.

Play Smart

One of the biggest mistakes real estate investors can make is trying to pull a fast one on the government. If you do not disclose the fact that your new home purchase is in fact an investment property and you forego the HST charge upon closing, the government will, with little doubt, find out eventually. Yes, the additional HST charge is not pleasant but it’s only temporary and applying for the HST rebate is quite a simple, straightforward process.

If (or should we say when) you are “caught” and the CRA correctly identifies the fact that your purchase was in fact for investment purposes, you will receive a bill in the full amount of the HST rebate ($17,000 to $24,000) and you will no longer be eligible for reimbursement.

Plan Ahead

So, be prepared. Make a sound plan ahead of time. Budget for the temporary outlay of the HST upon closing before you receive the rebate in the mail. If you have enough borrowing capacity and you manage the process correctly, you may be able to roll the HST into your mortgage which will make it much more manageable – in fact, you’ll barely notice.

Keep in mind this article is meant to provide you with general information. There are special circumstances that may apply to your specific situation so please be sure to consult with your accountant. It’s a good idea to use a qualified accountant who’s knowledgeable about the HST rebate application process. If you need a referral, reach out!

Is Your Corporation Really Providing Limited Personal Liability?

You’ve probably heard it before. Heck, you may have even incorporated your business under this assumption: corporations limit personal liability.

While this is certainly true, there’s a little more to it than that. As is the case so often in legal matters, the situation isn’t always cut and dry – in fact, it rarely is. And it’s the same for corporations.

Limited Personal Liability – Defined

Limited personal liability refers to the fact that an owner’s personal assets are protected from the corporation’s creditors. If, for instance, you own the corporation and you find yourself facing a court judgment which states that your company owes a creditor $100,000, the courts cannot force you to use personal assets to pay the debt (such as your car, house, investments, etc.)

Only the corporation’s assets must be used to pay outstanding debts, so essentially, you only stand to lose whatever amount you invested in the company.

Personal Guarantee = No More Limited Personal Liability

Although there are several instances in which your personal liability is at risk regardless of the fact that your business is incorporated, one of the most common mistakes corporation owners make is personally guaranteeing bank loans or supplier contracts.

It seems harmless, but such actions instantly and completely void any limited personal liability your corporation once provided. In the event that your corporation defaults on such financial or business arrangements, and if the issue escalates into a legal matter handled by the courts, you may be ordered to pay your debts using personal assets.

Other Ways to Put Your Limited Personal Liability into Question

As the owner of a corporation, it’s wise to make yourself aware of the other ways you can risk exposing yourself personally. These include:

  • Improper signing of legal documents on behalf of the corporation
  • Negligence, fraud or other illegal actions
  • Acting in ways that “pierce the veil” of the corporation (i.e. comingling funds, using business assets for personal use without proper documentation, failing to keep required corporate records)

When you’re informed, you’re able to make better decisions as the owner of your corporation. To make sure you’re protected and acting in the best interests of your company, consider speaking to a corporate lawyer who can help you understand the legalities and advise you on a wide range of business matters.

Low Interest Rates and How Your Business Can Take Advantage

Interest rates are historically low in Canada. Prime sits comfortably at 3.0% and it’s possible to acquire a 3-year residential mortgage at a rate under 3.0%! Today, commercial lending rates typically range between 4.0% and 6.5% compared to over 15% some thirty odd years ago.

We all know what low interest rates mean in the residential market, but what about the commercial sector? As a business owner, how can you benefit from the Bank of Canada’s current prime lending rate?

If you’re considering a sale, now may be the perfect time.

Timing the sale of a business is an impossible decision. Not only must you consider a myriad of personal factors that may influence your choice, but you want to make sure you sell at a time when you’ll be able to profit the most from an asset you’ve worked so hard to build over the years.

If the sale of your business looms in the near future, perhaps Canada’s record low interest rates will give you a nudge in the right direction.

Low interest rates can increase your company’s value.

For the time being, low interest rates play a large contributory factor in the likelihood that your company is worth more today than it might be in the future when rates eventually rise again.

How is this so?

Low interest rates create increased cash flow in a leveraged purchase, and this translates into higher selling prices for assets. In other words, low interest rates mean that buyers are servicing debt at a lower cost of borrowing, which gives them the ability to borrow more than they otherwise would have.

You’re in a position to maximize the returns on your company sale.

When buyers can afford to service more debt, you can afford to profit the most from the sale of your business. By capitalizing on low interest rates today and putting your company on the market, you can take advantage of greater flexibility in the sales process.

Buyers are able to pay more, which means you’re able to profit more. And, it’s likely that you’ll sell faster without going through the tedious and discouraging process of watching your company sit on the market for too long.

Interested in selling? Low interest rates aren’t all you should be concerned about. Make sure you have a good succession plan in place.

What Donald Sterling Can Teach Us About Franchising

Remember our article from a few months back: Buy a Franchise or Start My Own Business? We explored the differences between independent startups and franchise initiatives, touching on a few key points, but one in particular stands out in light of the latest NBA controversy involving Mr. Donald Sterling…

How much power do you really have as a franchisee owner?

In a franchise arrangement, on the surface it seems as though you are in much the same position as any business owner. You own your establishment. Or do you? In the case of Donald Sterling, let’s break down the sequence of events:

  • Vile, racist comments are made
  • However revolting, these comments don’t change the fact that he owns the Los Angeles Clippers in the NBA Franchise
  • Just four days later, NBA Commissioner Adam Silver banned Donald Sterling from the league for life and fined him $2.5 million
  • But he still owns the Clippers!
  • Not for long…now the NBA owners are actively taking steps towards forcing a sale on Donald Sterling

At its core, the NBA is a franchise just like any other.

Although most of us think of it in quite a different manner, the NBA is a franchise. Similar to McDonald’s, Subway, Supercuts and 7-Eleven, the NBA franchisors ultimately hold the power in the arrangement – not the franchisees. As we can see from the Donald Sterling case, at any time, franchisees can be banned, fined and forced to exit the business.

Read the fine print.

You’re not above the law just because you own something or because you have money.

Caveat Emptor. Before you sign, be sure you’ve read every clause and understand every provision. There are some franchisors who own every franchise lease and take hefty royalty fees in perpetuity. Just because it’s a successful franchise doesn’t mean it has favourable arrangements for its franchisees.

The power lies in the franchisor, not the franchisee.

Take a look at another recent example: the Alex Rodriguez (A-Rod) case against the MLB. For months he pressed forward, suing the MLB in an effort to fight his 200-game suspension for multiple drug use violations. Suddenly, realizing he didn’t stand a chance against the MLB in court, he immediately dropped the lawsuit and the MLB went on to put the issue to rest in an even greater position of authority than originally anticipated.

What’s the moral of the story?

Do your homework. Understand fully the contractual arrangement into which you are about to enter.

In a franchise agreement…

Yes, you own a franchise.

But what exactly does this entitle you to? How much authority do you really have? What happens when things go awry? Are you fully protected? Will you be able to carry on the business you worked so hard to build? Or will you be “forced” to exit the franchise much like what we’re bound to see happen to Donald Sterling in the days to come?

Avoid Unwelcome Surprises – Know Your Closing Costs

Sounds simple enough, doesn’t it? You might be surprised to know just how many closing costs there actually are. When you try to go it alone without a legal advisor to inform you in advance, it’s easy for some to be overlooked or missed. But they certainly don’t go away. Instead, you’ll be hit in the face with a cold splash of reality on closing day.

Closing costs are somewhat different between new home purchases and resales. Here is a list ofnew home closing costs that you can expect to pay upon the finalization of your property purchase.

Land Transfer Tax

Land transfer tax is payable for both new home and resale purchases, however the calculations differ slightly between the two. When you buy from a builder, land transfer tax is calculated on a price that is net HST. This closing cost is calculated in increments and is based on the value of your property as well as location.

Title Insurance

For a one-time fee or a premium, title insurance can provide homeowners protection from title defects that affect clear ownership, liens against title, encroachment issues, title fraud, errors in public records or surveys, and other title issues that may have an impact on your ability to sell, finance or lease the property in the future. Although you might start to wonder about the necessity of each closing cost as you see the numbers accumulate on your invoice, know that most lenders won’t even grant you a mortgage loan without title insurance. Depending on the situation, title insurance can be as little as $150 or as much as $1500.

Legal Fees

You need a lawyer to close on your new property, so it comes as no surprise that he or she must be paid for services rendered. Legal fees are a set charge, however, be forewarned that there are some complications that may affect the fees. These include:

  • Court orders, such as a separation order from Family Court in which case legal fees may be subject to amendments to account for double the number of appointments, money to be kept in trusts, etc.
  • Encumbrances on title, such as the number of mortgages on your property (if you will have more than one mortgage or a private mortgage) which makes for a more complicated file that calls for additional legal services, and subsequently, a higher charge.


Disbursements are third-party costs paid on your behalf by the lawyer. Before you’re granted a mortgage loan, there are a number of detailed searches that must be performed in regards to those who are buying, those who are selling, city searches, title searches, property searches and many more. Disbursements are one aspect of the closing costs that many overlook and yet a charge as high as $500 is not uncommon.

Developmental Charges

These charges are subject to new home purchases only and account for all of the tasks that must be complete upon the finalization of the sale, which can include:

  • Hydro meter connection
  • Water meter connection
  • Driveway paving
  • Tree planting
  • Law society levies
  • Final development procedures

Builders often charge new homebuyers thousands for developmental charges upon closing! However, if you consult your real estate lawyer prior to signing the agreement, he or she can negotiate these developmental charges and put a cap on how much the builder can legally charge you. This gives you the ability to be more certain about your costs and to budget accordingly come closing day.

Mortgage Agent Fee

Did you use a mortgage agent to help you secure the mortgage on your new home? If so, remember to factor in their fee. Although sometimes the fee is paid by the lender, in most cases, mortgage agent fees are paid by the new homeowner upon closing.

When you buy a new property, it is critical that you budget accordingly, that you know exactly what to expect and that you don’t spread yourself too thin. The right real estate lawyer can help you through the process, from before you make your purchase right through to closing day when you’re handed your new keys.