Entries from September 2017 ↓


A strange thing seems to have happened between Re/Max and the media.

Early yesterday Canadian Press filed a story based on the latest press release this over-hyped company churns on a regular basis. But unlike the usual buy-now-cuz-prices-are-exploding fare, this release was all about a market correction. Yes, some unexpected realism from an industry giant.

TORONTO – Even luxury real estate buyers are holding off in Toronto and Vancouver, watching and waiting after recent government measures aimed at cooling off the hot housing markets, according to new figures.

New numbers from Re/Max show that between January and July of this year, sales of luxury properties with a price tag of $3 million or more slipped 40% in Vancouver and 14% in the GTA, compared to a year ago. The number of $3-million-plus properties that changed hands in Vancouver in the first seven months of the year fell to 499 from 838 in 2016, Re?max says. In the Greater Toronto Area, the number of properties sold between January and July fell to 738 from 860 a year earlier.

Christopher Alexander, Re/Max’s regional director for Ontario-Atlantic Canada region, says would-be buyers moved to the sidelines after the introduction of government measures aimed at cooling the market, including a foreign buyer tax.

Too bad it didn’t last. Blog dog Prash noticed that, weirdly, the negative story appeared for only a few hours before being spiked. “Earlier Wednesday there were some online pieces in the Toronto Sun, Global News, HuffPo, etc saying luxury real estate sales have dropped,” he says. “These articles appear to have now been taken down, although I was able to scrape some cached content from Google. The numbers themselves aren’t surprising (Jan-Jul luxury sales down 40% in Van and 14% in GTA). There however does appear to be a concerted effort to minimize negative news on the internet.”

While it’s possible to ferret out a copy from some obscure sites, the piece is gone from Global, CTV, CBC and the fading Suns. A reader in Vancouver even heard a radio announcer comment that Re/Max had contacted the station to have the piece pulled.

Maybe it’s nothing. Maybe it’s something. It’s understandable Re/Max might have second thoughts about spooking the market. But it’s unconscionable that media would censor. Even this blog doesn’t stoop that low.

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Speaking of media and messaging, the embattled finance minister will be live on Facebook Friday morning in an orchestrated Town Hall meeting in upscale Oakville defending and selling his proposals to pulverize small business owners. It’s being staged at the highly convenient time of 5:30 am PT, or 8:30 am ET, with the media being told to be in place shortly after the cocks mount the yardarm. If you’re available, here’s the address: www.facebook.com/CanadaBusiness/.

And here’s your smiley minister’s promo for the event. (Dig the hastag, #TaxFairness. Right up there with #puppies.)

Reader Matt wrote his Toronto-area MP in protest to the changes and to add his voice to the sham consultation period which ends Monday. John McKay (who I know well and thought was a reasonable guy) replied, categorically, saying this:

  • If you are paying a dividend to your spouse or adult children who have not provided reasonable services to your business, you could be affected;
  • If you are holding profits inside your corporation for retirement, you could be affected.

So, as suggested here, it’s a done deal. People who played by all of the rules will be whacked. Husbands and wives who together invested time and capital to build a business will no longer be able to share income, even if they’re both shareholders, solely because they’re married. Professionals without pensions who scrimped for years so they could amass a retirement nest egg inside their corps will, in fact, soon see them taxed away. And two million people who did absolutely nothing wrong will have been labeled tax cheats and manipulators by their own government. All for political advantage. Shame, Mr. Speaker. Shame.

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Back to real estate (it’s safer), it’s rumoured we’re now just a month away from the new universal stress test taking effect. Property bulls are shirking it off. But the mortgage dudes are trembling. The overall effect, says the lending industry, will be a drop in available credit of approximately 18%.

The major impact will be in markets where prices are highest and wages have barely budged over the last few years – obviously YVR and the GTA, including all of the Lower Mainland and southern Ontario. Less damaged will be Halifax, Montreal and other places where the pricing lunacy did not hit, and houses don’t cost 10 or 12 times the average household income.

At about the same time will come the third Bank of Canada increase so far in 2017, tripling the benchmark rate and raising the bank prime to two whiskers below 3.5%. Cheapo five-year fixed mortgages that were 2.2% in the spring are a full 1% higher now, and will be 1% higher again by this time in 2018. Add in 200 basis points for the stress test, and borrowers with 20% or more to put down will have to prove they can carry a loan today at over 5%. That’s an effective 300 basis-point change from April.

Maybe Re/Max was right. This is just too damn scary.

Family planning

If you pay too much tax, raise your hand. Wow. That many? Okay, class, we might be able to fix that. At least a little.

And why this week?

Seems like a great time given what politicians on two sides of the border just did. To the south, the Trumpster unveiled a tax-cut plan which will slash the corporate rate by a stunning 43%, end estate taxes, simplify tax brackets and drop the load on the wealthy. In Canada, the finance minister says his new goal is to take ‘dead money’ retained inside small businesses (usually called profits) so the government can spend it on civil servant pensions and such.

The contrast is, well, stunning. Since Mr. Morneau has indicated he doesn’t really care what you think, perhaps you should return the favour. Legal tax avoidance – taking complete advantage of every break the system offers – is critical to everyone’s financial health. For example, don’t keep tens of thousands sitting in a HISA where the dribble you earned is 100% taxed. Instead, move it into a TFSA to create a tax-free dribble (much better in equity ETFs, though). Of course, if you transfer the money into an RRSP, the feds will send you a tax rebate for giving yourself funds you already own. Later on, when you take a year off to pursue hot yoga and find yourself, you can cash it in and perhaps pay next to nothing.

In short, if you’re not making maximum TFSA contributions or shoveling up to 18% of your earned income into an RRSP, you’re gifting money to the government. If that makes you feel socially responsible, lovely. But for the rest of us, this is tense. Taxes are out of control.

Speaking of RRSPs, Derek Holt – the chief economist at Scotiabank – recently delivered this piece of tax warfare in an internal document on housing:

Make a $19.2k RRSP contribution just three months in advance of buying a home…
• …assuming a 30% tax rate, deposit $6k tax refund back into RRSP…
• …then withdraw the allowed $25k maximum under the HomeBuyers’
• …to be repaid to the RRSP in equal installments over 15 years starting 2 years after withdrawal with no interest penalty and the payments are not counted in mortgage serviceability calculations…
• …at, say, a 4% rate of interest, this equals $8k in interest savings over 15yrs…
• …which means the initial $19.2k RRSP deposit has been parlayed into an effective down
payment of about $33k, or an extra 70%+
• No restrictions on the source of the original RRSP deposit (can borrow for it, ‘gift’, etc).
• ie: the zero-down mortgage can still theoretically exist
• If a couple, and both are first time homebuyers, double all of the math above (ie: turn $38k from liberally allowed sources into a $65k down payment)

If a major bank’s showing clients how to take $38,000 and game it into $65,000 through exploiting the system, it might indicate we’ve all hit a tax wall. And this is even before T2 Hoovers out the savings of small business operators, vets, docs and the local John Deere dealership.

Well, here are ten of my fav ways to reduce your tax bill thanks to two simple words – income-splitting (as opposed to sprinking).

  • If you make more money than your spouse (in a higher tax bracket) take your piteous crumbs and use them to pay the household expenses. Have your spouse devote all of his/her take-home income to investing. Because your squeeze has a lower marginal rate, your family will keep more of the investment gains.
  • Open a spousal retirement plan for a less-taxed partner. The full deduction comes off your bigger income but the other person gets the money. Wait three years, and it can be withdrawn at the lower spousal rate. Can result in big savings.
  • Swap stuff. She gives you her departed mother’s irreplaceable jewelry (for God’s sake, don’t lose it) and you give her a bunch of ETFs. Now the financial assets are still in your family, but taxed in her hands at a lower rate (assuming there’s an income disparity between you).
  • Take the beefy monthly cheque T2 now sends you for having kids and invest it in growth assets in their names. Capital gains made here will not be attributed back to you. If they grow up and become rock stars, you keep it.
  • If you’re a wrinkly, split your CPP or pension with your spouse.
  • Give money to your adult children. No, not for a condo down payment, but instead to maximize their TFSAs – on the understanding they give it all back (with gains) when they turn 50 and leave the basement.
  • Loan your spouse a whack of money to invest. You will need to collect a tiny bit of interest annually on the loan (the rate is just 1%) but all the money the other person makes will not be attributed back to you. So if your partner’s in a lower bracket, it’s a big win. Plus the interest paid is tax-deductible.
  • Max your RRSP, of course. Not so much for retirement, but for tax-shifting between periods of your life. Layoffs, job losses, mat leaves, sabbaticals – there are many times when regular income drops and tapping into money which grew tax-free can save your marriage.
  • Stick the max into an RESP for your kids. No deduction for doing so, but the money will grow without tax and the feds will send a grant worth up to 20% of what you contribute annually. Open a family plan, not singles. And beware the hospital-stalking baby vultures with their crappy offerings. Go self-directed.
  • Hire your spouse or your kids to labour in your small business doing useful things. Yes, this is exactly what Bill Morneau is throwing a hissy-fit over, but you’ll get the immense satisfaction of watching some CRA goon burn up hours of time only to conclude that, yes, your wife is actually a productive, contributing human being worth being paid. Plus, she’s deductible. What a turn on.