3. Presenter
Michael Bondy, CPA, CA, CFP, TEP
Partner, Collins Barrow
• Certified Financial Planner
• Trust and Estates Practitioner
• Speaker on Tax, investing, and
Recreational Property investments
30 years advising professionals,
practice plans and partnerships
4. Disclaimer and Copyright
The information in this presentation is of a general nature
and is not intended to be relied upon or to address the
circumstances of any particular individual. There is no
guarantee that the information is accurate and
appropriate in individual circumstances and professional
advice should be sought in all situations. It is intended for
the use of the participants for reference purposes and any
copying , taking of excerpts or use of these materials is
not allowed without the express consent of the author.
5. Disclaimer and Copyright
Some of the views expressed here are purely the insight
and musing of the author and should not be taken out of
context or misconstrued to be the opinions of Collins
Barrow or any other lucid and intelligent person.
They are meant only to provoke thought and conversation
on the interesting times and political and economic
environment surrounding us.
6. Agenda
Overview of the March budget and tax rate changes.
Brief update on TFSA and RRSP planning.
Mortgages, pay down or not, and how to help your
children to finance the purchase of homes.
Retirement checklist.
Trudeaumania 2 and what’s in store for us all.
Housing Trends-market, strategies and should we be
worried.
Trump Dynasty-Elected by the viewers of Duck Dynasty.
7. Current and Recent Budgets
Finance did not increase the corporate tax rate on all
professional corporations to 26.5%.
They did not change income splitting for professionals in
their corporations for dividends to children or to spouses.
They did remove small income splitting tax arrangement
for individuals with children, however this was only a
savings of $2,000. Few PC’s used this as income was
already being split.
Pension splitting for seniors was not changed.
8. Current and Recent Budgets
They did not change the inclusion rate on capital gains
taxes for corporations or individuals which would have
increased the tax rate on capital gains.
The rate decrease on the middle tax rates continue to be
in place offering a tax savings to individuals with taxable
income less than $200,000 . Savings about $679 per
individual.
OAS left to be collected at age 65 and not 67.
It could have been a lot worse.
10. Other Personal tax implications
Tax free savings annual limit reduced from $10,000 back
down to $5500.
Canada Child Tax Benefit to replace the UCCB to start July
2016.
Maximum benefit of $6400 per child under 6 and $5400
per child over 6 and under 17. Not taxable but phased
out with increased income. ie. If your family income is
$75000 per year combined you receive $6505. If income
is $150.000 then benefit is $2230. If family income is
$187,500 no benefit. 2 children, one under 6, one over.
11. UCCB eliminated
Previously the Universal Child Tax Benefit was $160 per
month for children under age 6 and $60 for those over 6
to age 17. This was taxable in the hands of the lower
income spouse.
Replaced with the new Canada Child tax benefit which is
means tested by income.
13. Combined Top Marginal Personal Tax Rates – 2016
Province
Salary Capital Gains Eligible Dividends Non Eligible
Dividends
Ontario - 2016 53.55% 26.76% 39.34% 45.30%
Ontario – 2015 49.53% 24.77% 33.82% 40.13%
Increase 4.00% 2.00% 5.52% 5.17%
Personal Tax Rate Changes - 2016
Two tax rate changes for individuals – effective Jan 1/16
A reduction of 1.5% in the federal tax rate for income between $45,283 and
$90,563.
Estimated tax cut of $679 per individual (assuming top of bracket)
An increase of 4% in the federal tax rate for income over $200,000
As a result of the increase in the top federal tax rate for individuals, changes
were made to the tax rate in inter vivos trust, as well as the refundable tax on
Canadian CCPC investment income (below).
14. Pertinent Tax Rates
Tax rates Normal Dividend Eligible
90,000 to 140,500 43.41 33.46 25.38
140,500 to 150,000 46.41 36.97 29.52
150,000 to 200,000 47.97 38.79 31.67
200,000 to 220,000 51.97 43.37 37.19
220,000 plus 53.53 45.30 39.38
$41,000 to 81,000 31.48 19.50 8.92
So keeping individual income down and income splitting is
best. Pay the kids dividends up to $81,000 for low rates.
15. Life insurance changes
Universal life insurance policies benefits are reduced as
of January 1, 2017.
Budget proposals retroactively impact on anyone who has
transferred a policy to a corporation and taken the fair
market value out upon transfer. Now the FMV removed is
added to the adjusted cost base of the policy upon death,
so that component of the death benefit is not allowed to
be paid out tax free. ie. It is taxed as regular taxable
dividends now.
Still ok … better to have the money now than later.
16. Change in student benefits
Education amount and tuition amount will be eliminated
in 2017. This will reduce tax credits available for transfer
and for students to use up against dividends.
Only tuition paid is now deductible.
For those attending over 8 months this is a loss of credits
of $465 per month ($3720) or increase in tax of $930.
This is how Trudeau targeted some income splitting.
Elimination of child fitness and arts amounts by 2017.
These are pain in the butt deductions but worth $375 for
$1500 expense.
17. Changes for students.
Grants to low income families increase to $3000 per year.
$1200 per year for middle income families
Students will be required to contribute a flat amount
each year and financial assets of the student will not
matter.
Loan repayment thresholds will change so no student will
have to repay Canada Student loan until earning at least
$25,000 per year.
MORE income based support and less deductions for
those with higher income.
18. The Bottom Line
More of the benefits are being phased out for the higher
income families and individuals and benefits are now
income based.
Corporations for Health Professionals and other small
businesses still make sense. The deferral is even greater
with higher personal tax rates.
Manage your personal incomes to maximize benefits by
income splitting with spouse and family members to keep
your personal incomes below $200,000 or better yet
below $150,000.
19. TFSA
If incorporated, don’t take funds out of corporation to
max out TFSA.
Use as temporary savings account if saving for a
house only after individual has saved 25k in RRSP so
they can use the Home Buyer plan.
Use it for safe dividend bearing investments not
speculative. Not for Foreign dividend paying stocks
unless you need US cash from time to time.
Be careful not to recontribute in the same year as you
draw down.
20. RRSP
Yes we still believe in RRSP’s and not in putting
all eggs in that corporate basket.
Fixed income securities should be largely
weighted more in the RRSP and not in
corporate investment account.
Use spousal plans now for RRSP as income
splitting may stop in the future.
21. RRSP
Ensure to include all assets when you do your mix
allocation with advisers. Canadian dividend
paying shares should be in corporation, interest
bearing in RRSP. Foreign in RRSP unless direct
share investments which may be subject to US
estate tax, then in corporation.
Ok to have US in corporate accounts even though
a tax cost on the foreign tax credit.
22.
23. Our take-Mortgages
Change in plans now with rates continuing low.
Pay down mortgage to comfort zone, 30% of value if
1 million home as guideline, or one year income.
Pay down to the point where you can easily pay off
the mortgage by say 5 years prior to retirement as
long as interest rates stay low.
Reduce your income to keep tax rates down and save
more money in the corporation to obtain the deferral
on income tax, from 50% down to 15.5%.
24. Our take-Mortgages
Never pay CMHC fees, beg and borrow, use that 200k
line of credit left over from school. May have to be
tricky in how you use it, save income, spend loans.
Try to help your kids avoid CMHC fees by using your
line of credit or gift them enough to pay 20% down.
CMHC fees on a $500k house with 10% down (50k) is
$11,000, with 5% down (25k) its $17,000 plus interest
amortized over 25 years is $24,000.
If over 500k must have at least 10% down on excess.
25. Our take-Mortgages
Fixed or variable, I like fixed as no surprises
and rates are lower than ever for 5 year.
However some with fixed term variable may
win but then they lose flexibility.
Use Homeline plan to generate line of credit to
help you buy cottage or kids to buy a house.
If a child loan, document it with promissory
note to protect for marital purposes.
27. Help your kids, but be careful
Matrimonial homes are included in marital property
regardless of which spouse or parent fund the purchase.
So if you gift money to your child to buy a house, one
half automatically goes to the spouse on divorce.
If you gift money to your child and that child invests the
money for example in the market just in their name, the
funds are excluded from Family Property.
So always document any assistance in buying a house
with a promissory note to be acknowledged by the
spouse.
28. Help your kids, but be careful
The promissory note is then included in you and your
spouse’s assets upon death and at that time can be repaid
by the child and offset the other bequests in the estate.
Terms of the Loan
Non interest bearing is fine, however if demanded to be
paid the note becomes interest bearing at market rates
after say 120 days after demand. This is just in case
divorce drags on and the departing spouse benefits.
If property in joint name, both should sign, if just in your
child’s name, the spouse should acknowledge the loan.
29. Help your kids, but be careful
No need to register the loan as a mortgage against the
property.
When the child obtains a mortgage from a bank you may
have to indicate that the loan is a gift for banking
purposes, then we suggest after closing the promissory
note be put in place.
If a large loan, the spouse should have independent legal
advice to ensure that the spouse understands what is
being signed.
30. Our take-Retirement
Depending on income of the individual
their goal should be at a minimum:
RRSP-use spousal now 1 m
Corporation 1 m
Non registered investments 300k
TFSA can be included in non registered.
Use non registered funds for buying cars,
significant repairs to house and other
surprises.
31. Retirement checklist
Make arrangements for your RRSP and investments to be
in low fee investments. With returns of 3 to 6%, a 2% fee
erodes investment returns.
Do not apply for CPP until you reach age 65 if you
continue to work as the biggest savings is to not have to
pay CPP premiums. The new rules mean that you must
continue to pay CPP until you reach age 65.
Before you turn 65 complete form CPT 30 to stop any
more CPP payments. Google CPT 30 for forms.
32. Retirement checklist
2 years before retirement do a cash flow to determine
what your post retirement spending needs are to ensure
that you have enough income to retire.
If not enough income, then rearrange or plan to change
your lifestyle, including review of housing needs.
Do not apply for OAS if your personal income is above
$85,000 after age 65. New provision that allows you to
defer your OAS until age 70 and increase your benefits. If
your income is above 100k you lose all the OAS to
clawback anyway so may as well wait.
34. Retirement checklist
Maximum OAS deferral is 60 months and increase is .6%
per month or 36% overall. You can choose when to start
your OAS when you know that your income will
consistently be below the threshold for clawback.
Your spouse should consider applying for OAS if you are
not able to income split and can keep your spouses
income down below OAS threshold.
Do apply for CPP when you turn 65 as it is not clawed
back.
RRIF at least part of your RRSP to withdraw the minimum
of that RRIF to be able to income split with your spouse.
35. Retirement checklist
Review your expenses to cut back on unneeded expenses
such as disability insurance. Many disability policies
cease coverage at age 65 so its not normally a good value
proposition to continue to pay the premiums if healthy.
Ie. If you are 64 and disabled the company may only pay
for one year less your waiting period.
Do you continue to need all that life insurance? When
buying insurance consider your needs and try to have the
insurance come up for renewal when you turn 65. Use 20
year policies or if younger buy a new policy before age 45.
36. Retirement checklist
If self employed and writing off a car consider buying or
leasing a new car 36 months prior to retirement.
This way you go into retirement with a relatively new car.
Then at least you can write off the bulk of the car and pay
for it while working.
Consider continuing to work part time after retirement to
augment your income if the work is comfortable and pays
well. Earning $60k per year after retirement is like having
an additional million in your retirement fund.
37. Retirement checklist
At a minimum it continues to allow you to write off some
expenses.
DO NOT cancel or remove your Homeline of credit on
your house. Before you retire maximize your Homeline
on your house. Banks will lend up to 80% of the value if
you term out some of the mortgage if any left or borrow
with a normal mortgage.
After retirement the banks limit the amount you can
borrow based on your lower retirement income.
38. Retirement checklist
You then will have this mortgage to draw against should
you wish (like a reverse mortgage). So far the banks don’t
rescind the mortgage or limit it yet.
You can use this credit to help out with your costs of
staying in the home longer than otherwise or help your
kids by assisting with down payments on their homes.
DON’T get divorced, this really ruins retirement planning.
Remember in your early years you are more active and
its more costly to live, then lower costs, then higher.
39. Retirement checklist
Make sure your retirement home is right sized and
properly oriented for old age.
If you renovate when still working or build or buy newer,
think main floor master bedroom, bigger doors, age
friendly kitchens and washrooms. Only do it once, not
twice.
Update your wills, power of attorney for financial affairs
and for health care. Make sure your executors and power
of attorney are right aged. Kids can now do it.
40. Trudeaumania-2
Wants to make Canada middle class strong again so he
uses income based programs, ie. Robin Hoodism. Tax the
rich, reduce benefits to the perceived 1% and increase
benefits for the middle class.
Spend your way to happiness in Canada. Larger public
programs, larger deficits.
Has changed his way a little since coming into power and
the realities are being more accepted.
Immigration if controlled is a good thing for growth in
Canada.
41. Trudeaumania-2
We should have concerns about overreaching, ie. Climate
control and impact on Canadian economy (oil sands) is
very large.
Canada for now still a good place to do business.
Plan for the dollar to be lower than it is now unless
structural issues in the US due to Trump Dynasty.
A low dollar is good for employment, remember our
unemployment rate is 6.9% and the US is 4.3%. So a
lower dollar needs to be consistent to encourage business
to operate in Canada long term.
42. Trudeaumania-2
Watch the dollar, watch for Black Swan events, BREXIT,
Trump Dynasty, China, world events.
Personal opinion- if the dollar gets up to above 80 to 85,
consider buying US investments or dollars .
Imagine your US company operating in Canada or
Canadian company in the US in the past year with an
decrease in costs of doing business in Canada of over 13%
from January to May this year.
From January to December the exchange rate went from
1.21 (82) to 1.37 (73). Difficult to plan business costs and
profits.
44. The Housing market.
Is China driving the markets, yes and no. It is estimated
that less than 5% of purchases were due to Chinese
purchasers in Canada, but stats are not really good.
Probably under 10% is a better estimate.
We do know that for the first time ever in 2014-15
Chinese buyers purchased more US real estate that the
forever winner, CANADA. 16% compared to 12% of
international buyers ending March 31, 2015 vs. 14%
Canadian, compared to March 2014 stats where
Canadians were 23%.
45. The Housing market.
If you think we have uncertainty, the Chinese elite have:
Devaluation of the Yuan and having potential currency
controls and other legislation imposed on them.
Worried about their markets, both real estate and
investment markets collapsing (as they did in 2015 and
2016).
Their largest investment market is limited to Chinese
investors only so very volatile.
They want to get their money out to a Safe Haven, ie.
FOREIGN REAL ESTATE.
46. The Housing market.
The OECD thinks that the Canadian market is out of control.
Benjamin Tal, CIBC Chief Economist thinks they don’t quite
understand:
Canadian Banks are still strong, no ninja borrowing or US
type leveraging going on as in the 2008 crash.
Many of the foreign buyers do not have mortgages on
their properties.
Due to immigration and attractive large cities, there is still
demand for housing. Toronto and Vancouver are not
Miami in 2008. Miami proper is 400,000, TO is 2.8 million
48. The Housing market.
Canada has higher immigration per capita than the US of
8 to 9% of the population and most of the immigrants
tend to settle in the Toronto or Vancouver area.
The USA rate is 3 to 4% per capita for immigrants.
Comparisons of our cities should be to appropriate US
cities, ie. Toronto to New York, and Vancouver to San
Francisco where the property average price is much
higher than our prices.
The low Canadian dollar is drawing the Chinese as their
dollars go farther than in similar large US markets.
49. The Housing market.
For example condo prices are $184 per square foot in
London, ON, $424 to $660 in Florida water front, south
Surrey BC $300 per sq. foot, waterfront South Surrey
$580.
Toronto averages $600 and up to $900. Vancouver is in
the $900 range per square foot.
New York is $2250 US or $2,850 Can per square foot, San
Francisco is $1250 Can per square foot.
Condo prices are somewhat soft compared to the single
family housing phenomena.
51. The Trend- Housing.
The shortage of downtown, inside the envelope single
family housing in Vancouver and Toronto is driving prices
higher and higher. Their options are to live in one of the
condos, with lower costs and lower overall growth in
value due to large numbers of buildings, or to commute
through the messy traffic.
Those who can afford the mortgages will buy inside the
envelope will continue to do so.
Houses are affordable in part due to the transfer of
wealth from the Baby Boomers to their kids.
52. The Trend- Housing.
Feeding frenzy in the market, the young and old who
want to be in certain areas are buying now for fear of the
market going higher and pricing them out.
Supply of housing in Vancouver area, and lower mainland
is very short so multiple offers on reasonably priced
places under $750,000 are normal. No more land left due
to boxing in of the ocean, USA, and mountains so supply
is short.
Venturi effect is also causing prices to increase on
Vancouver Island and in the closer cities to Toronto.
53. The Trend- Housing.
The same trend is working in Southern Ontario, even
London is being impacted by higher Toronto prices with
Torontonians moving here in retirement to get more
house for the money.
Look for the trend to higher housing costs closer to
downtown in London as well as traffic gets worse and
worse.
Too many condos is a feature of Toronto, Vancouver and
London with the large buildings going downtown.
These are not good value propositions as more are built.
54. The Trend- Housing.
If you have a house in Downtown London, keep it for a
while, do not buy condo yet as the house will appreciate
faster than the condo.
Also don’t buy student housing, UWO is too much
competition as are other Universities.
Only buy real estate that you know you will hold for at
least 10 years, otherwise don’t buy. Short term does not
work. So if the condo is your final place it is ok to buy.
55. The Trend- Housing.
Consider buying your retirement home or condo where
you want to retire before you retire and rent out, just to
be in the market if that market is Toronto or BC.
Its ok to buy that condo if your kids are nearby and you
know that is where you want to be.
If you want to or need to save money in retirement move
out of the big city. Places like Sarnia, Lucan, Exeter,
Strathroy etc. have much better bang for the buck for
housing, and keep the change.
56. The Trend- Housing.
Beware selling the big house and spending just as much
money on an upscale condo or townhouse. This happens
all the time and is not expected, people think they move
and keep the change but its not always the case.
Cottages and recreational property. Try to buy waterfront
close to hospitals and bigger centres that you see yourself
being able to live in when you get older.
Now is not the time to buy in the US due to the dollar and
the run up in prices unless you can find a deal.
57. The Trend- Housing.
Condo fees are crazy expensive so beware, especially with
new condo’s as the fees increase very quickly after
closing. They always start out low and go much higher
sooner than later.
I am not a fan of renting, unless its for under 5 years as to
pay rent of $2500 per month you need the equivalent of
at least a $1m to generate enough income after tax.
Renting is just not tax efficient due to principal residence
exemption unless a cottage is main home and “pied a
terre” in the city for work or that big city fix.
58.
59. Trump Dynasty-My thoughts
I call it that as the stars and viewers of Duck Dynasty are
voting him in.
14 million votes in a primary does not a President make.
If he continues in his rhetoric he will lose.
If he can keep his mouth shut and ego curbed, he just
might win.
“Trump winning is good for the USA and business.”
Because nothing will get done again which seems to be
good for business. See Obama Effect on the economy.
60. Trump Dynasty-My thoughts
If Republicans get into the House and Senate it will still be
slow going for the Donald.
Even more Dysfunction may befall the US,.
He does not play well with others and although the
disaffected middle class may elect him, PS, as with
Trudeaumania 2, Trump and Trudeau probably will not
get along well.
Trade wars may occur if Donald has his way which is
definitely not good unless he only picks on Mexico.
61. Trump Dynasty-My thoughts
Be Flexible in your investments and consider conservative
investments and watch out for crashes. Take advantage
of silly crashes, ie. Caused by European events with little
impact on North America such as Greece and Italy and
the potential dilution of the Euro.
If the Euro fails, I think the US wins in the long run and
the US dollar will go up as more of a flight to safety
happens. The Euro has larger GDP than the US and China,
but just barely.
62. Trump Dynasty-My thoughts
If it looks like he will win, stay tuned for other potential
changes in the US and world environment.
The rest of the world thinks our American neighbours
have gone crazy but the world wide phenomena is that
the middle class wants their money back.
The world .01%, not just the 1% now control such a huge
amount of wealth in the world that it is creating fractures
in the economic reality. In the US, top .01% have the
same wealth as the bottom 90% of families.
63. Collins Barrow can help
If you would like to discuss anything further
please contact:
Michael Bondy
(519) 679-8550
mbondy@collinsbarrow.com
