Once upon a time, the corporate tax rate in Ontario was 42%, and taxable income under the small business deduction was taxed at 15%. Bonusing down during those days was a sensible way for a business owner to pay less tax. No longer, says Howard Lerner, Partner at SBLR Accountants LLP. Today the corporate tax rate is down to 35%. As we business owners eagerly await that rate to be further reduced to 25%, it will make more and more tax sense to retain earnings inside our operating companies instead of bonusing them to ourselves.

Circumstances change constantly for business owners. To keep business owners up-to-date, we invite knowledgeable practitioners such as Howard Lerner, to speak at our Business Owners Speaker Series. Howard’s message in this morning’s BOSS event was on tax strategies for business owners.

What does this change mean to Ontario’s business owners? If less business owners bonus down at tax time, they will retain more earnings in their operating companies. Our natural desire to learn more about tax efficiencies under these new circumstances will increase demand for holding companies, family trusts, savings products, and tax consulting, just to name a few.

RIP

How prepared is your business for a double dip recession?  Nouriel Roubini’s analysis of the economic data (article below) indicates a rising risk of a further, deeper recession (also known as a “Double Dip”).

In a double dip recession, cash is king.  Your primary considerations would include liquidity, capital guarantees, shortening accounts receivables collection cycles, and reducing inventory turnover.  In terms of staffing the temp agency may become your best friend,  –AH3

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Last week, Nouriel Roubini released an analysis exclusively for RGE clients. While maintaining his core projection of protracted U-shaped growth in the United States, Roubini argued that the risks of a double-dip recession in the United States are rising. The following content is excerpted from that analysis, the full version of which is still available just for clients on Roubini.com.

V, U and W

A slew of poor economic data over the past two weeks suggests that the U.S. economy is headed for a U-shaped recovery—at best—in 2010. The macro news, including data on consumer confidence, home sales, construction and employment, actually suggests a significant downside risk even to the anemic levels of growth which RGE forecast for H1. The U.S. faces continued challenges in H2—particularly as historic levels of fiscal stimulus fade—and appears far too close to the tipping point of a double-dip recession.

This is not the conventional wisdom. Heated debate continues to rage in the United States on whether the economic recovery will be V-shaped (with a rapid return to robust growth above potential), U-shaped (slow anemic, sub-par, below trend growth for at least the next two years) or W-shaped (a double-dip recession). The V camp includes distinguished research groups and individuals such as Ed Hyman’s ISI, Larry Meyer’s Macroeconomic Advisors, the research group of JP Morgan, Michael Mussa and others. The U camp includes—among others—Roubini Global Economics, Goldman Sachs’ U.S. economic research group, PIMCO and Ken Rogoff. As early as August 2009, I worried in a Financial Times op-ed about the risk of a double-dip recession even if our RGE benchmark scenario characterizes the risk of a W as still a low probability event (20% probability) as opposed to a 60% probability for a U-shaped recovery. Others concerned about the double-dip risk include also David Rosenberg, Gary Shilling and John Makin.

Ed Hyman and I debated whether the recovery would be U or V-shaped on a February 22 conference call attended by over 2,200 listeners. Since that call, a slew of new U.S. macro data have come out. They have been almost uniformly poor, if not outright awful. Consumer confidence, based on the Michigan survey, has tanked. On the real estate front, new home sales are collapsing again, existing home sales are also falling sharply, and construction activity (both residential and commercial) is sharply down. Durable goods orders are down, initial claims for unemployment benefits remain stubbornly high (way above the 400K mark). Real disposable income for Q4 has been revised downward while real disposable income (before transfers) for January was negative again. The manufacturing ISM index—while still expanding being above 50—has now fallen a couple of notches and its production and new orders index levels are falling, too; and global PMIs suggest a loss of momentum in the global economic recovery. Real inventories look unchanged in Q1 relative to Q4; auto sales were at best mediocre; core CPI was falling and core PCE was close to 0%, suggesting anemic demand and economic weakness. Q4 GDP growth was revised upward to 5.9% but most of it (3.9%) was due to inventories; final sales grew at a 1.9% rate while consumption grew at a dismal 1.7% (down from 2.8% in Q3). Q3 growth has been revised from an initial 3.5% to 2.8% to 2.2%, with final sales growing only 1.7%. So, at the time of maximum policy stimulus (H2 of 2009), final sales were growing only at a pathetic 1.8% average rate.

The eurozone (EZ) debt crisis, which RGE discusses in depth in a major new paper, predisposes Europe to a rising double-dip risk, due to the wave of fiscal austerity sweeping the periphery of the EZ. Even if the EZ doesn’t enter a double dip, the growth of domestic demand there will be as or more constrained than in the United States. This, in turn, will be a drag on the potential for U.S. export growth. The U.S. dollar rally on risk aversion reflects this risk. The U.S. dollar is settling back down and the threat of a debt crisis is headed off by a stronger Greek fiscal adjustment and potential adjustment package. But fiscal spending cuts, confidence hits and the looming threat of either rising unemployment or falling wages in the public sector—on top of private sector retrenchment—will remain. A similar retrenchment may well lie ahead in the United Kingdom, given rising fiscal sustainability concerns and the threat of a sterling crisis. Europe then will have great difficulty being a source of demand for U.S. exports, and may even provide impetus to faltering global demand growth, contributing to the threat of a wider double dip across high-income countries.

Rights and Permissions: The preceding newsletter is the copyrighted property of Roubini Global Economics, LLC and meant for the use of RGE’s clients and newsletter subscribers. No forwarding, reprinting, republication or any other redistribution of this content is permissible without expressed consent of Roubini Global Economics, LLC. All rights reserved. RGE is not a certified investment advisory service and aims to create an intellectual framework for informed financial decisions by its clients.

This came out of the New York Federal Reserve.

Some numbers for comparison: at the height of the dot com bubble the S & P 500 Price – Earnings ratio was around 45. A market bottom looks like a Price -Earnings ratio under 15 times. We are at nearly 10 times that.

So it’s true that halloween is the scariest time of the year.

http://www.newyorkfed.org/research/directors_charts/ipage20.pdf