Monthly Archives: June 2010

Income Tax Cut for 93% of Ontario Taxpayers

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McGuinty Government’s Tax Changes To Create Jobs, Attract Investment

Starting January 1, 2010, 93 per cent of Ontario income tax payers will get a permanent tax cut, as part of a comprehensive tax plan that will help create 591,000 jobs and make the province more attractive for new business investment.

The province is cutting the first income bracket tax rate by one percentage point, from 6.05 per cent to 5.05 per cent. As a result, Ontario will have the lowest tax rate of all provinces on the first income bracket, and an additional 90,000 lower income Ontario taxpayers will no longer pay any provincial personal income tax.

The comprehensive package also includes $10.6 billion in direct payments and permanent tax relief, including the following:

  • Starting in August, nearly 3 million low- to middle-income Ontario families and individuals will receive a new, permanent Ontario Sales Tax Credit of up to $260 for each adult and child per year – one of the most generous in Canada.
  • An additional $270 million in annual property tax relief, through enhancements to the Ontario Property Tax Credit, will benefit 2.3 million low- to middle-income homeowners and tenants.
  • Starting in June 2010, Sales Tax Transition Benefits will benefit 6.5 million Ontario families and individuals – totalling up to $1,000 for families (including single parents) and up to $300 for single people – in 2010 and 2011.

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Days of low-interest borrowing may soon end in Canada, economic leaders say

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Canada’s economic leaders are worried that low interest rates are luring consumers into amassing huge amounts of debt that they may not be able to pay back when interest rates rise from their historic low levels.

Canada’s central bank lending rate is 0.25 percent. Mortgage rates are about 4.5 percent, while five-year consumer loan rates for items such as automobiles are about 8 percent.

Recently, Canada’s Finance Minister Jim Flaherty and the governor of the country’s central bank, Mark Carney, have sent warning signals that the days of low-interest borrowing may soon end.

Their statements show that the Canadian government is afraid that Canadians will default on the loans that are used to buy homes. About 70 percent of Canadian families own their houses, and real estate makes up the bulk of the assets of typical Canadian families.

Besides, Canadians, especially those who have not saved for their retirement or do not have a workplace pension, see home ownership as a way of locking away money until their retirement, using the money from their house sales to top up their small government pensions.
Still, most Canadians must borrow the bulk of the money they use for home purchases. Most are content to assume this large debt if the cost of the monthly payments is comparable to rent charges, and if house prices continue to rise.

In the past decade, the government has allowed the term of mortgages to be extended from a maximum of 25 years to 35 years, and has permitted its home loan insurance agency, Canada Mortgage and Housing Corporation, to sell insurance on loans with a down payment of only a 5-percent.

The system has worked to stimulate house construction, but analysts worry that it has created a speculative bubble that may burst, allowing house prices to settle back to a level that will leave many families owing more than their homes are worth. If that happens, the national government, already running a massive annual deficit, would be stuck with the loans of Canadians who defaulted.

Last year, Canadian resale house prices rose by more than six times the rate of inflation. Interest rates have also been kept low to stimulate borrowing for capital investment.

However, the rates will probably have to rise if Canada’s national government, its provinces and cities hope to sell bonds in a market already flooded with U.S. government debt.

In an interview broadcast this week on the country’s largest private television network, Finance Minister Jim Flaherty warned Canadian families that the days of easy home ownership debt may becoming to an end.

“If we see further evidence that there is excessive demand in the housing market or that there’s an indication that people are taking on obligations that they will not be able to handle in the future when interest rates rise, then we will take some action,” Flaherty said on CTV television.

“The likely action we will take is to increase the size of the down payment from 5 percent to a higher number, reduce the amortization — bring it down from 35 years to something less,” he said.

Canadian families traditionally saw home ownership as a sign of financial security. Prices have rarely fallen in the past century. When they have, the values quickly recovered. Last year, house prices rose an average of about 20 percent, while the official inflation rate is less than 3 percent.

The average Canadians have increased their personal debt by more than 1,000 Canadian dollars (about 955 U.S. dollars) in the first half of 2009, driving up the nation’s personal debt by 44 billion Canadian dollars (42 U.S. dollars).

However, Canadians gamble on interest rates. In the early 1960s,a time of low inflation, interest rates were comparable to today’s. In the fall of 1981, with inflation near 15 percent, mortgage rates reached 20 percent.

On a 300,000 Canadian dollars (287,000 U.S. dollars) debt, which is not unusual in a major urban market, a 20 percent interest payment would amount to more than a typical Canadian family earns, after taxes, in a year. Even a 12 percent rate, which was typical of the 1980s, would generate a monthly payment of more than 3,000 Canadian dollars (2,865 U.S. dollars).

On top of those charges, Canadians must pay property taxes and most mortgage companies require the house to be insured for its full value.
Flaherty said recent price increases for homes in Canada are due to a “confluence” of factors including low interest rates, an improving economic outlook and a stabilizing job market.

On Dec. 10, Mark Carney, the governor of Canada’s central bank, warned that Canadian families were becoming more vulnerable to interest rate fluctuations because they have added debt this year while other countries such as the United States and Britain have seen reductions in personal debt-to-income ratios. The bank echoed the warnings of several non-government economists who warn that the Canadian rush to indebtedness is unsustainable.

In the Bank of Canada’s semi-annual report, Carney wrote: “House
holds need to assess their ability to service these debt obligations over their entire maturity, taking into account likely changes in both income and interest rates.

“Financial institutions need to carefully consider the aggregate risk to their entire portfolio of household exposures when evaluating even an insured mortgage, since a household defaulting on an insured mortgage would likely be unable to meet its other debt obligations.”

Carney warned that the risk to Canadian banks is relatively low, but up to 10 percent of households would face serious problems meeting their house payments if interest rates rise.

However, Benjamin Tal, an economist with the Canadian Imperial Bank of Commerce, a major mortgage lender, said Canadians find ways of hanging onto their houses when interest rates fluctuate, and tend to default only when they have lost their jobs.

Still, Tal said, “It is time for both borrowers and lenders to exercise prudence in continuing to build up household debt loads to the point where they are overly reliant on today’s low rates.”

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Vancouver real estate, buying into the million dollar hype.

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Buying into the Real Estate Hype could put you down and out.
Vancouver, is touted as one of the best cities to live in the world.

Many in society are wondering, is it?

One mantra that has inflamed many is; “British Columbia, the best place on earth”.

Who spreads these mantras?

The politician no doubt, looking to either spread their mantra to the world as a source of pride or perhaps to get British Columbian’s to buy into it?

The federal government of Canada’s Finance Minister Jim Flaherty is looking to clamp down on home mortgage regulations, what many think as a safeguard for Canadians in debt.

Perhaps this mortgage regulation is geared to prevent a possible mirroring of a U.S. housing meltdown, Canadian style. The Bank of Canada have stated many Canadians are stretched to the limit financially.

The real estate industry, particularily British Columbia, counter that these regulations will be a detriment to Canadians. Of course, some see this as those in the Realty industry once again spreading fear and hype, as certainly this may be seen as a slight against potential commissions on their part.

One wonders how this could be a detriment to Canadians? Perhaps an answer can be found if one looks further into the British Columbia Realty industry hype we have all read in the media.

Perhaps a political move is underfoot against this federal ruling? Who is to say? Perhaps a musing by some looking for answers why this ruling is good or bad. This question is for whom?

Could real estate hype begininning with the “Best place to Live in the world” or “Vancouver, one of the best cities in the world to live” fuel real estate speculation?

Many wonder if a reality check is in order as to why house prices have skyrocketed in the last decade? One example of many, is a 1,000 square foot single family home in downtown Vancouver, off Manitoba Street and 14th Avenue went for $300,000.00 in 1999. Granted, it was a 40 year old fixer upper, but certainly not out of reach for a handyman with basic tools.

Not to spread rumour and innuendo, but it is said in the summer of 2009, that same house which has changed little, located on Manitoba and 14th Street was to be sold in the spring of 2010 and expected to reach between $1,500,000.00 to $2,000,000. Hmmm, certainly a handsome profit for the homeowner, especially if a bidding war amongst purchasers ensues.

Median salaries have not gone up accordingly, real estate and property taxes have gone up exponentially, so what is the mystery? Supply and demand? Hype? Perhaps a bit of both.

Real estate in British Columbia, particularly Vancouver and surrounding regions as far as Hope, BC have many wondering, if British Columbia is the best place in the world, it seems, anyone who can truly afford a single family home within the Greater Vancouver Regional District (GVRD), especially Vancouver and nearby burgs better have a million dollars on hand.

Condos costing up wards of a half million dollars for 400 square feet of living space, if you can call it living, could buy a mansion in many parts of Canada. Point Roberts, Washington. U.S.A., close to the ocean, sharing a border with British Columbia have 1,200 square foot homes at half the cost of around $200,000. Funny, when you think of it, if not being a U.S. city, but being part of British Columbia and a 20 minute to Richmond, BC, these same water view properties would be in the two million dollar range. Can you see the hype?

Outside the GVRD a nearly new 1,200 square foot modest home can be had for around $200,000 in Hope, British Columbia. If you work in the GVRD and live in Hope, BC, the monthly travel expenses will equal or surpass your monthly mortgage payment. Certainly not a feasible way to get into the housing market.

Most British Columbian’s with a modest dual income can enter the realm of the millionaire, but are forced to live far beyond their means, resulting in a cash poor-house rich lifestyle.

It’s been said some homeowners sometimes have to make a choice of food and clothing over housing payments, some choose housing. People buy into the hype Realtors (“Fear Mongering”) love to spread “Buy now, cause they are not making any more land!”

Setbacks, such as job loss, divorce, sickness, car or home repair, a rise in interest rates, will put many in dire financial straits. Certainly, homes built with in law suites can be a warning sign for many, as Realtors gleefully chime as a way for the homeowner to get into the real estate game. The problems with this are self explanatory. Your tenant loses their job, good luck trying to evict them, there are laws in British Columbia to prevent this.

A rise in property value can mean an increase in monthly payments, world events in economy as we have witnessed cause changes in financial fortunes for everyone. Prime Minister Harper once stated, all is getting better now, but Canadians should not be too smug. No truer words spoken.

Financial advisers warn of economic shifts which could happen if mortgage rates climb a percent or so. A rise of a percentage point could bankrupt many cash poor, house rich homeowners. The question then would be, how would this affect friendly Realtor? Most likely counting their commission on your home, winners regardless if you lose your home.

Beautiful British Columbia may still be the best place in the world, but for some, British Columbia maybe wearing too much rouge, applied by a political makeup artist looking to protect their own kind and maintaining the hype all too clear for the many, but lost in translation when it comes to affordable housing.

http://english.cctv.com/20091228/103435.shtml

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Steady as he goes

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Achievements, setbacks, not a lot of big drama

When Mayor Sam Katz looks back at 2009, he’ll probably remember his sixth calendar year in office as a series of ups and downs, devoid of either scandal or triumph.

Ottawa came through with trail-building money, the IKEA project was approved and city council approved controversial pieces of legislation such as the sale of the Winnipeg Square Parkade, the purchase of a police helicopter and the creation of a new corporate utility.

On the downside, Katz suffered a symbolic defeat when he lost an ethics debate inspired by last year’s Riverside Park Management affair — and then saw the provincial government pile on with a campaign-finance bill he believes was designed to hurt his chances in the 2010 civic election.

More significantly, the mayor’s plans for a water park went down the drain, a city sponsorship program fizzled and the federal government ignored a $600-million request to upgrade Winnipeg’s first busway into a light-rail line.

A dispassionate observer might call the year a wash. But with Katz’s approval rating pegged at 74 per cent, it doesn’t look like anyone or anything could prevent him from winning his third and final mayoral contest.

Earlier this month, the mayor sat down with the Free Press to dissect the past year and look ahead to the final 10 months of his second term in office.

What are you most proud of achieving this year?

I’m very happy with stage one of rapid transit, based on a solid business plan that shows that we can have significant infill housing of a high-density nature that will basically broaden our tax base and pay back the money we’ve invested.

It makes me very happy to see the unprecedented investment we’ve made in our recreational infrastructure… to see facilities for our children, so they’re off the street and doing something constructive.
We’ve prepared to sell a parkade and reinvest that money in our downtown. I’m very happy to see movement on Assiniboine Park.
Right now, people are feeling good about the city. There’s a lot of good things we’re doing (and) there’s a whole lot more to get done.

What could you have done better?

Off the top of my head, I can’t think of anything right away. Is there genuinely something you have in mind?

How disappointed are you with the federal allocation of infrastructure funds to Winnipeg?

The federal government made a significant commitment to infrastructure. A lot of it came though stimulus. And these (projects) were what I would call good projects, whether it was the University of Winnipeg or Manitoba.

By the same token, they didn’t necessarily address some of the key priorities of the city. But they accomplished the goal. They basically stimulated the economy. That’s why they call it stimulus funds.
The problem is, when you have a policy in place and you have something that gets forward that contradicts it, it can be very difficult.
What happened, happened. It’s basically out of my hands. The province and provincial government decided on it.

When you’re referring to a contradictory policy, I’m assuming you mean the way infrastructure projects had to be new in order to be eligible for federal funds.

That’s one of the scenarios that (meant) a lot of our stuff did not qualify. Keep in mind, the provincial and federal governments pick their stimulus projects based on what they believe to be good projects. The city is not part of the process.

What exactly did you have in mind when you made your $600-million rapid-transit ask?

It was to move forward on what we would call alternative light-rail transit. (This would go) from our downtown to the University of Manitoba. And that’s still part of our ongoing discussions.

What do you want to get done during the last 10 months of this council term?

I’d like to see a greater focus on infill housing. I certainly want to see a greater focus on development in our downtown, with housing, commercial and retail. I hope CentreVenture and Forks North Portage are certainly part of that.

I want to continue reinvesting in recreation facilities. I’m hoping to move forward on the Disraeli (Freeway rehabilitation) and Chief Peguis (Trail extension). We still need to do a lot of work on our infrastructure and we’re hoping to come up with a plan in the near future on how to address our infrastructure deficit because we can’t sit around and wait.
As you know, for a long time we’ve been asking for a share of growth revenues and that hasn’t happened. In the mean time, we need our own plan to move forward.

Does that mean more borrowing?

We know what inflation is. We know what that’s going to cost us. If we can borrow and know how we can pay it back and get the work done now, as opposed to five years from now, those are things we need to look at. (Otherwise) it’s going to cost us more money.

How will you achieve another tax freeze next year?

Do I believe we can have a freeze in 2010? Yes, I do. No one’s going to pretend it’s going to be easy, but I think it can be done.
What I think a lot of people don’t realize is a one-per-cent property tax increase doesn’t give you anywhere near the money the public thinks it does … It’s close to $4.5 million.

(Raising taxes) is definitely not the answer, but there’s no question there will be a property tax increase at some point.

Do you still think it’s possible to eliminate the business tax?

It’s definitely challenging. It is something worth pursuing and the bottom line is this: You go ask 15 city councillors what these people get for their taxes and they’ll tell you: Nothing.

How would you describe your relationship with the new premier?

I find Greg Selinger to be very down to earth. He just tells it the way it is (and) doesn’t really play games, from what I’ve seen so far. He and I have a lot in common in that respect. So far, so good.

Do you have any concerns about your election chances in October?

You’d be foolish to take anything for granted. When I run an election, I run as if I’m down 100 votes. I’m not going to do anything differently. You’d have to find one of the most arrogant individuals to walk the earth to say no to that.

Are you concerned about the NDP getting involved in the mayoral race?

My support comes form a broad section of the community, and that’s where they’ve underestimated me in the past. Whether I’m in a board room or with working people, it makes no difference to me. Those are (all) my bosses.

In the past, many have tried to pigeonhole me, but they can’t do that.

What about ward races? A centre-left coalition was very effective in the River Heights byelection.

You and I both know there are a few people who may not run next year. You also know the NDP and the Winnipeg Citizens Coalition, which are one and the same as far as I’m concerned, are targeting certain councillors. So be it. We live in a democratic society.

How are you going to spend your holiday?

I’m hoping to get away with my daughters. Right now it looks very likely we’ll visit some friends in Florida. Could be Minnie and Mick.

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Tax-bill jump riles homeowner

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A family of five got a nasty shock from Winnipeg’s city hall this festive season. Starting in the new year, their monthly Tax Installment Payment Plan (TIPP) bill is going up 31 per cent.

“They sent us a letter a week or so ago — our TIPP went from $169 to $221,” said Ken Thoroski, who lives in St. Vital.

“I thought there might be some kind of mistake.”

The city says it’s no mistake — the increase is for their own good.
“Given the recent increase in assessed value for many homes in the city, the assessment and taxation department is anticipating an increase in taxes for some homeowners,” a 311 operator told Thoroski in an email.

While any increase in property taxes won’t be decided until spring when city council sets the municipal budget, the TIPP program isn’t waiting.
“In order to diminish the impact of a possible tax increase, the department is estimating your possible 2010 taxes and setting your monthly TIPP payment accordingly” starting Jan. 1. Once the mill rate is set in the spring, the department will know exactly what Thoroski’s taxes will be for 2010 and adjust his monthly TIPP up or down as necessary, the city said.

“It’s wrong,” Thoroski said. “They’re hitting you as hard as they can up front.”

The TIPP program allows property and business owners to make consecutive monthly payments for taxes rather than a single annual payment.

It starts on Jan. 1 of each year and payments are made on the first banking day of each month by automatic withdrawal from an account with chequing privileges at a financial institution.

Thoroski said upping his TIPP payment by so much before the new rate is set isn’t much of a privilege.

“You’re going to pay for 12 months and they hit you hard up front so they’re way ahead and pay you back later,” Thoroski said.

“It’s putting more money in their coffers,” continued the married father of three.

No one is forced to be on the TIPP program, which was designed to help people budget their property and school taxes, said the city’s head of assessment and taxation.

“If they have a real concern with how they’re being requested to make payments when taxes aren’t due, then send us a letter asking us to remove them from TIPP,” Nelson Karpa said. The city will then send the tax bill in the spring and the family can pay it at the end of June when the full amount is due, he said.

Still, the increase in property taxes riles Thoroski, who says the city won’t address his complaints about the sidewalk flooding on his street and noisy, over-lit service stations near his home.

Karpa said an increase in property taxes follows the 2008 reassessment, in which the market value of some homes in Winnipeg increased by as much as 100 per cent from five years earlier.

“There was a pretty dramatic increase in the value of real estate,” Karpa said. The average property value increased 67 per cent, he said.

“We simply report on what the market has done.”

Homeowners whose assessment increase is above the city average will likely see their property taxes increase.

The market value of Thoroski’s home increased 78 per cent from 2003 to 2008, according to the city’s property assessment website.

If city council succeeds in freezing property taxes again, homeowners with assessment increases below 67 per cent could see their property taxes drop.

http://www.winnipegfreepress.com/local/tax-bill-jump-riles-homeowner-79968637.html

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BMO: Time for Homeowners/Prospective Buyers to Stress Test their Budget

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Talk to a BMO Bank of Montreal banker about considering a bigger downpayment and reducing the amortization on your mortgage to save money

The housing market in Canada has seen existing Canadian home sales surge 76 per cent from their January lows. Not only that, in November, existing home prices spiked 19 per cent above year-ago levels, the second fastest clip in two decades. With record low interest rates, more people than ever are looking to purchase a home. However, BMO experts are predicting that interest rates will rise in 2010.

“We expect the Bank of Canada’s overnight rate target to climb from 0.25 per cent beginning in July 2010, to 4.25 per cent in mid-2012. In turn, consumers can also expect mortgage rates to increase,” said Sal Guatieri, Senior Economist, BMO Capital Markets. “While today’s ultra-low borrowing costs represent a unique opportunity to purchase a property, home buyers need to proceed with caution and keep in mind that renewal rates will likely be substantially higher in coming years.”

“Stretching the limits of your budget by choosing the maximum amortization period and a minimum downpayment leaves you little wiggle room to deal with an unexpected financial challenge,” said Jane Yuen, Senior Manager, Mortgages, BMO Bank of Montreal. “A meaningful down payment and shortening your amortization by making extra payments on your mortgage will save you tens of thousands of dollars in interest costs.”

http://www.newswire.ca/en/releases/archive/December2009/22/c5258.html

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