http://www.bdo.ca/library/publications/tax/taxbulletins/092005.cfm
http://www.montrealgazette.com/business/Estate+rises+from+dead/4043635/story.html
http://www.montrealgazette.com/business/fp/money/When+snowbirds+come+home/4019649/story.html
http://www.financialpost.com/personal-finance/Wrap+real+estate+Just+ripped/4022195/story.html
http://www.boston.com/realestate/news/articles/2010/12/17/canadians_loonie_for_arizona_real_estate/?page=2
Saturday, January 1, 2011
Cheap real estate in US comes with strings
I continue to look at the tax issues on Canadian investing in US real estate. It seems like the withholding taxes on rental income and capital gain can be dealt with through filing some forms preemptively. But another big issue is the US estate tax which can be as high as 55%. Below is the article sourced from Canadian Lawyer, written by Helen Burnett. http://www.canadianlawyermag.com/Cheap-real-estate-comes-with-strings.html?print=1&tmpl=component
This can mean cross-border estate tax implications when individuals own property and U.S. securities, say lawyers who specialize in estate planning.
According to the recently released RE/MAX recreational property report, the dollar, as well as the American housing market meltdown, created serious investment opportunities for Canadians to buy secondary properties south of the border. “Many Canadians are capitalizing on market conditions in major American centres,” noted Michael Polzler, executive vice president and regional director, RE/MAX Ontario-Atlantic Canada. “For some purchasers, the move is strictly a short-term investment strategy with a payoff at the end of the day, while for others, retirement is the main objective.”
Elaine Reynolds, a tax and estate planning lawyer with Legacy Tax & Trust Lawyers in Vancouver, says as the dollar improves she has also seen a lot more Canadians investing in vacation homes in the U.S. “Now, they’re almost on par, so the cost of the Palm Springs or Florida or Arizona condo has dramatically dropped, from a Canadian tax perspective,” she says. However, she says, when people go to invest, even as non-resident aliens, that vacation property is subject to U.S. estate tax when the Canadian citizen or resident passes away.
There has always been a migration of people — think Snowbirds — going to the U.S., says Reynolds. When the U.S. dollar was close to $1.60, she says, it was more of a burden for people, as the monthly liability became expensive. Now, not only has the cost of places come down, but the monthly maintenance is not as prohibitive.
“You kind of have to remember that as the dollar gets better, your investment grows in value, but your liability to pay all these expenses grows and that becomes really bad in particular if it’s mortgaged,” she says.
“Many smart Canadians have realized that there’s a window of opportunity today with a strong loonie and a soft U.S. market,” says David Altro, senior partner at David A. Altro & Associates LLP, a Florida lawyer and Quebec legal counsel whose firm specializes in representing Canadians with U.S. assets. As a result, his firm is busy structuring purchases, doing the real estate transactions, and dealing with the tax and debt issues.
At the moment, says Altro, if the U.S. property is over $60,000 and worldwide assets are over $2 million, there may be U.S. estate tax when the owner dies, even though the person is a Canadian citizen and resident. The tax is significant, says Reynolds, kicking in at $2 million of value with a top rate of 45 per cent. “If your worldwide assets including your U.S. vacation home are $2 million or less, you will still be not subject to the U.S. estate tax, because under the formula you’ll still get the full credit. When you run into the problem is when somebody’s worldwide assets are worth more than $2 million and they have U.S. assets in the mix,” she says.
A non-resident of the U.S only gets a $13,000 credit, which shelters $60,000 of taxable estate in the U.S., says Reynolds. Canadian residents can claim the unified credit, equal to the greater of $13,000 or the U.S. estate tax on assets of $2 million, multiplied by the value of U.S. assets, divided by the value of worldwide assets, according to PricewaterhouseCoopers. The exemption is set to go up to $3.5 million in 2009, says Reynolds.
While the U.S. estate tax is set to be repealed for 2010, it will then revert to the law in effect in 2001, which had only a $1-million exemption and a top rate of 55 per cent.
While each case is different and dependant on facts, “planning is not at all straightforward where a client has assets in excess of the exemption amount and some of those assets consist of U.S. property,” notes Reynolds.
Altro says that there are many clients who are not aware of these types of issues. “The majority are not aware of it and even the Canadian tax lawyers or general lawyers, and accountants generally, are not familiar with it because they don’t specialize in U.S. [law].” He says his firm always works with the local accountants or lawyers to explain what goes on so everybody understands and they can create the best structure for the client based on their situation.
Mary Anne Bueschkens, a lawyer with Heenan Blaikie LLP in Toronto and deputy chairwoman of STEP Canada (the Society of Trust and Estate Practitioners), says a lot of Canadian clients are buying property in places like Arizona at the moment. “Normally when they come to see you, the buzzword that they’re still thinking about is the single-purpose corporation for purchasing property, which really doesn’t work anymore,” she says.
The single-purpose corporation used to be the “mechanism of choice” for Canadians purchasing U.S. real property, says Bueschkens, as the underlying premise was that Canadians would avoid U.S. estate tax when they passed away through owning shares of a U.S. company rather than the property. The problem is that there was always an underlying issue in that there was a “shareholders benefit” to Canadians under a section of the Income Tax Act, says Bueschkens, and the relief was taken away in 2005, with a grandfathering for structures already in place.
“The type of ownership of choice right now for clients that are Canadian citizens and residents who are purchasing U.S. real property is to use a trust,” says Bueschkens. In addition to trusts, one way that clients deal with this issue is through a non-recourse mortgage, which Bueschkens says is difficult to get.
Clients also have to be careful of owning things jointly. Such ownership is popular north of the border, says Bueschkens, but “a lot of people from Ontario, they’ll just buy a house jointly in the United States, not realizing that for U.S. purposes it’s not a smart thing to do.” For U.S. estate tax purposes, she says, with a joint ownership, all of the property is included as part of the estate in the first person’s death and again upon the second person’s death.
Altro also says he doesn’t recommend limited partnerships, putting the property in a Canadian corporation, or Canadian discretionary family trusts.
Clients also often feel that owning U.S. securities doesn’t expose them to U.S. estate tax, says Bueschkens, but they can if the client owns amounts that are over the exemption. This is an issue that is coming up more and more, and a corporation could be used in this circumstance, she says.
The moment you add in U.S. securities as well as real property, says Bueschkens, “then I think there are a lot of clients whose numbers start to really get up there,” she says, in terms of estate tax.
It’s not that clients aren’t aware of the U.S. estate tax rules, says Reynolds, as you see the issue referred to in publications, and most people who invest in U.S. real property know that there is some planning involved. She says she receives most of her referrals from either accountants or financial planners.
Ultimately, Reynolds says she gets the clients in and asks them what they own worldwide, what they each own, what they own jointly, and calculate treaty credits. It can become very complex. “There is not an easy fix and I guess the best advice is to get planning well in advance of purchase,” she says, although she adds that many clients call after they’ve got the purchase contract in place and then the lawyer has to see if there’s anything else they can do.
“Buying property in the States today, real estate is a bit of a tricky thing, because there’s a lot of property that is in foreclosure, has tax liens, maybe the builder, if you’re buying new, is bankrupt, so one thing the buyer should make sure is they have a good real estate attorney, and, of course, we’re busy with that also,” says Altro.
Noted the on December 17, 2010 the U.S. House of Representatives passed the “The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” which reset th estate tax with $5 million exemption (indexed for inflation from 2010 beginning in 2012) and a 35% rate. That's a lot better than what's been speculated before (which is $1MM and 55%)
With the dollar hovering around par for the last year or so, and the U.S. housing market offering good deals, Canadians are heading south to buy vacation homes in greater numbers than ever.
This can mean cross-border estate tax implications when individuals own property and U.S. securities, say lawyers who specialize in estate planning.
According to the recently released RE/MAX recreational property report, the dollar, as well as the American housing market meltdown, created serious investment opportunities for Canadians to buy secondary properties south of the border. “Many Canadians are capitalizing on market conditions in major American centres,” noted Michael Polzler, executive vice president and regional director, RE/MAX Ontario-Atlantic Canada. “For some purchasers, the move is strictly a short-term investment strategy with a payoff at the end of the day, while for others, retirement is the main objective.”
Elaine Reynolds, a tax and estate planning lawyer with Legacy Tax & Trust Lawyers in Vancouver, says as the dollar improves she has also seen a lot more Canadians investing in vacation homes in the U.S. “Now, they’re almost on par, so the cost of the Palm Springs or Florida or Arizona condo has dramatically dropped, from a Canadian tax perspective,” she says. However, she says, when people go to invest, even as non-resident aliens, that vacation property is subject to U.S. estate tax when the Canadian citizen or resident passes away.
There has always been a migration of people — think Snowbirds — going to the U.S., says Reynolds. When the U.S. dollar was close to $1.60, she says, it was more of a burden for people, as the monthly liability became expensive. Now, not only has the cost of places come down, but the monthly maintenance is not as prohibitive.
“You kind of have to remember that as the dollar gets better, your investment grows in value, but your liability to pay all these expenses grows and that becomes really bad in particular if it’s mortgaged,” she says.
“Many smart Canadians have realized that there’s a window of opportunity today with a strong loonie and a soft U.S. market,” says David Altro, senior partner at David A. Altro & Associates LLP, a Florida lawyer and Quebec legal counsel whose firm specializes in representing Canadians with U.S. assets. As a result, his firm is busy structuring purchases, doing the real estate transactions, and dealing with the tax and debt issues.
At the moment, says Altro, if the U.S. property is over $60,000 and worldwide assets are over $2 million, there may be U.S. estate tax when the owner dies, even though the person is a Canadian citizen and resident. The tax is significant, says Reynolds, kicking in at $2 million of value with a top rate of 45 per cent. “If your worldwide assets including your U.S. vacation home are $2 million or less, you will still be not subject to the U.S. estate tax, because under the formula you’ll still get the full credit. When you run into the problem is when somebody’s worldwide assets are worth more than $2 million and they have U.S. assets in the mix,” she says.
A non-resident of the U.S only gets a $13,000 credit, which shelters $60,000 of taxable estate in the U.S., says Reynolds. Canadian residents can claim the unified credit, equal to the greater of $13,000 or the U.S. estate tax on assets of $2 million, multiplied by the value of U.S. assets, divided by the value of worldwide assets, according to PricewaterhouseCoopers. The exemption is set to go up to $3.5 million in 2009, says Reynolds.
While the U.S. estate tax is set to be repealed for 2010, it will then revert to the law in effect in 2001, which had only a $1-million exemption and a top rate of 55 per cent.
While each case is different and dependant on facts, “planning is not at all straightforward where a client has assets in excess of the exemption amount and some of those assets consist of U.S. property,” notes Reynolds.
Altro says that there are many clients who are not aware of these types of issues. “The majority are not aware of it and even the Canadian tax lawyers or general lawyers, and accountants generally, are not familiar with it because they don’t specialize in U.S. [law].” He says his firm always works with the local accountants or lawyers to explain what goes on so everybody understands and they can create the best structure for the client based on their situation.
Mary Anne Bueschkens, a lawyer with Heenan Blaikie LLP in Toronto and deputy chairwoman of STEP Canada (the Society of Trust and Estate Practitioners), says a lot of Canadian clients are buying property in places like Arizona at the moment. “Normally when they come to see you, the buzzword that they’re still thinking about is the single-purpose corporation for purchasing property, which really doesn’t work anymore,” she says.
The single-purpose corporation used to be the “mechanism of choice” for Canadians purchasing U.S. real property, says Bueschkens, as the underlying premise was that Canadians would avoid U.S. estate tax when they passed away through owning shares of a U.S. company rather than the property. The problem is that there was always an underlying issue in that there was a “shareholders benefit” to Canadians under a section of the Income Tax Act, says Bueschkens, and the relief was taken away in 2005, with a grandfathering for structures already in place.
“The type of ownership of choice right now for clients that are Canadian citizens and residents who are purchasing U.S. real property is to use a trust,” says Bueschkens. In addition to trusts, one way that clients deal with this issue is through a non-recourse mortgage, which Bueschkens says is difficult to get.
Clients also have to be careful of owning things jointly. Such ownership is popular north of the border, says Bueschkens, but “a lot of people from Ontario, they’ll just buy a house jointly in the United States, not realizing that for U.S. purposes it’s not a smart thing to do.” For U.S. estate tax purposes, she says, with a joint ownership, all of the property is included as part of the estate in the first person’s death and again upon the second person’s death.
Altro also says he doesn’t recommend limited partnerships, putting the property in a Canadian corporation, or Canadian discretionary family trusts.
Clients also often feel that owning U.S. securities doesn’t expose them to U.S. estate tax, says Bueschkens, but they can if the client owns amounts that are over the exemption. This is an issue that is coming up more and more, and a corporation could be used in this circumstance, she says.
The moment you add in U.S. securities as well as real property, says Bueschkens, “then I think there are a lot of clients whose numbers start to really get up there,” she says, in terms of estate tax.
It’s not that clients aren’t aware of the U.S. estate tax rules, says Reynolds, as you see the issue referred to in publications, and most people who invest in U.S. real property know that there is some planning involved. She says she receives most of her referrals from either accountants or financial planners.
Ultimately, Reynolds says she gets the clients in and asks them what they own worldwide, what they each own, what they own jointly, and calculate treaty credits. It can become very complex. “There is not an easy fix and I guess the best advice is to get planning well in advance of purchase,” she says, although she adds that many clients call after they’ve got the purchase contract in place and then the lawyer has to see if there’s anything else they can do.
“Buying property in the States today, real estate is a bit of a tricky thing, because there’s a lot of property that is in foreclosure, has tax liens, maybe the builder, if you’re buying new, is bankrupt, so one thing the buyer should make sure is they have a good real estate attorney, and, of course, we’re busy with that also,” says Altro.
Noted the on December 17, 2010 the U.S. House of Representatives passed the “The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” which reset th estate tax with $5 million exemption (indexed for inflation from 2010 beginning in 2012) and a 35% rate. That's a lot better than what's been speculated before (which is $1MM and 55%)
Friday, December 31, 2010
Real Estate Investing Goals for 2011
With less than 30 hours to the new year, I have setted the following goals for my real estate investment business in 2011.
- Buy and hold: Buy 3 more cash flow positive properties in high potential areas
- Start property researching in KWC in January / February
- Consider Multi-fam in Q3
- Ron LeGrand's strategy: try 1 or 2 deals to get familiar
- US Real Estate Investment:
- Monitory monthly movements on US real estate markets; focused on Seattle, Bay Area and Miami in Q1 and Q2.
- Detailed investigation in specific neighorhood within 1-2 of the three cities in Q2
Thursday, December 30, 2010
HK Real Estate Bubble?
Many will refer to the CCI (Centa-City Index) provided by Centraline Property http://www.centadata.com/cci/cci_e.htm to assess what cycle time it is for the HK real estate market. Here's the latest chart as of Dec 30, 2010. Overall index is at 87.5, drop 0.9% vs. last week and last month. (Note: 100 = 1997 level).
Clearly, the several recent government policies have halted the rapid upsurge of HK real estate in 2010, driven by hot money rushed in from China and overseas. Whether the 1997 level is the ultimate ceiling or a "new high" will be achieved, that's a million dollar question.
But with cap rate only 2%-4% and such a high risk of downside, I will stay on the sideline until later. HK real estate market is good for speculative short term investors. For long-term buy and hold, i would rather wait for the next cycle.
Another version from commentary in Chinese:
Clearly, the several recent government policies have halted the rapid upsurge of HK real estate in 2010, driven by hot money rushed in from China and overseas. Whether the 1997 level is the ultimate ceiling or a "new high" will be achieved, that's a million dollar question.
But with cap rate only 2%-4% and such a high risk of downside, I will stay on the sideline until later. HK real estate market is good for speculative short term investors. For long-term buy and hold, i would rather wait for the next cycle.
Another version from commentary in Chinese:
Tax implications for renting US property
Recently came across with this article from http://www.snowbird.ca/ that addresses the various tax issues of buying / renting properties in U.S.
Many Canadians own U.S. recreational property near border states. Retired Canadians who are seasonal residents of the U.S., or “Snowbirds” frequently own property in the U.S.
If either of the above situations applies to you, you may be renting out your U.S. property on a part-time or full-time basis when you are not using it. If so, you are considered a “non-resident alien” by the IRS (the U.S. Internal Revenue Service) and you are subject to U.S. income tax on the rental income.
Tax on gross rental income
The rent you receive is subject to a 30 per cent withholding tax, which your tenant or property management agent is required to deduct and remit to the IRS. It doesn’t matter if the tenants are Canadians or other non-residents of the U.S., or if it was paid to you while you were in Canada. The Canada-U.S. tax treaty allows the U.S. to tax income from real estate with no reduction in the general withholding rate. As rental income is not considered to be effectively connected, it is subject to a flat 30 per cent tax on gross income, with no expenses or deductions allowed. The 30 per cent withholding tax would therefore equal the flat tax rate.
Tax on net rental income
Since a tax rate of 30 per cent of gross income is high, you may prefer to elect to pay tax on net income, after all deductible expenses. This would result in reduced–and possibly no–tax. The Internal Revenue Code permits this option, if you choose to permanently treat rental income as income that is effectively connected with the conduct of a U.S. trade or business. You would then be able to claim expenses related to owning and operating a rental property during the rental period, such as mortgage interest, property tax, utilities, insurance and maintenance.
You can also deduct an amount for depreciation on the building. However, the IRS only permits individuals (rather than corporations) to deduct the mortgage or loan interest relating to the rental property if the debt is secured by the rental property or other business property. If you borrow the funds in Canada, secured by your Canadian assets, you would not technically be able to deduct that interest on your U.S. tax return. Obtain strategic tax planning advice on this issue.
Once you have made the election, it is valid for all subsequent years, unless approval to revoke it is requested and received from the IRS. However, you do need to file an annual return.
If you want to be exempt from the non-resident withholding tax and are making that election, you have to give your tenant or property management agent a Form 4224, Exemption from Withholding Tax on Income Effectively Connected with the Conduct of a Trade or Business in the U.S. Contact the IRS for further information.
When you file your annual return, show the income and expenses, as well as the tax withheld. If you end up with a loss after deducting expenses from income, you are entitled to a refund of the taxes withheld. The due date of your return is June 15th of the following year.
It is important to file on a timely basis. If you fail to file on the due date, you have 16 months thereafter to do so. If you don’t do so, you will be subject to tax on the gross income basis for that year, that is, 30 per cent of gross rents with no deduction for any expenses incurred, even if you made the net income election in a previous year. This is an important caution to keep in mind. Many people don’t arrange to have tax withheld at source, or file any U.S. tax forms, on the premise that their expenses exceed the rental income and the net income election is always available.
Filing requirements
You are required to report the gain or loss on sale by filing Form 1040 NR, U.S. Non-Resident Alien Income Tax Return. You would have to pay U.S. federal tax on any gain (capital gain), and if you own the real estate jointly with another person, such as your spouse, each of you have to file the above form. For more information, contact the IRS.
In addition, you would have to report any capital gain on the sale of your U.S. property in your next annual personal tax return filing with Revenue Canada. Remember, you have to report your worldwide income and gains and pay tax on 75 per cent of any capital gain, converted to the equivalent in Canadian dollars, at the time of sale.
Since tax laws, regulations and filing forms can change at any time, make sure you speak to a professional accountant who is skilled in U.S. tax matters.
If either of the above situations applies to you, you may be renting out your U.S. property on a part-time or full-time basis when you are not using it. If so, you are considered a “non-resident alien” by the IRS (the U.S. Internal Revenue Service) and you are subject to U.S. income tax on the rental income.
Tax on gross rental income
The rent you receive is subject to a 30 per cent withholding tax, which your tenant or property management agent is required to deduct and remit to the IRS. It doesn’t matter if the tenants are Canadians or other non-residents of the U.S., or if it was paid to you while you were in Canada. The Canada-U.S. tax treaty allows the U.S. to tax income from real estate with no reduction in the general withholding rate. As rental income is not considered to be effectively connected, it is subject to a flat 30 per cent tax on gross income, with no expenses or deductions allowed. The 30 per cent withholding tax would therefore equal the flat tax rate.
Tax on net rental income
Since a tax rate of 30 per cent of gross income is high, you may prefer to elect to pay tax on net income, after all deductible expenses. This would result in reduced–and possibly no–tax. The Internal Revenue Code permits this option, if you choose to permanently treat rental income as income that is effectively connected with the conduct of a U.S. trade or business. You would then be able to claim expenses related to owning and operating a rental property during the rental period, such as mortgage interest, property tax, utilities, insurance and maintenance.
You can also deduct an amount for depreciation on the building. However, the IRS only permits individuals (rather than corporations) to deduct the mortgage or loan interest relating to the rental property if the debt is secured by the rental property or other business property. If you borrow the funds in Canada, secured by your Canadian assets, you would not technically be able to deduct that interest on your U.S. tax return. Obtain strategic tax planning advice on this issue.
Once you have made the election, it is valid for all subsequent years, unless approval to revoke it is requested and received from the IRS. However, you do need to file an annual return.
If you want to be exempt from the non-resident withholding tax and are making that election, you have to give your tenant or property management agent a Form 4224, Exemption from Withholding Tax on Income Effectively Connected with the Conduct of a Trade or Business in the U.S. Contact the IRS for further information.
When you file your annual return, show the income and expenses, as well as the tax withheld. If you end up with a loss after deducting expenses from income, you are entitled to a refund of the taxes withheld. The due date of your return is June 15th of the following year.
It is important to file on a timely basis. If you fail to file on the due date, you have 16 months thereafter to do so. If you don’t do so, you will be subject to tax on the gross income basis for that year, that is, 30 per cent of gross rents with no deduction for any expenses incurred, even if you made the net income election in a previous year. This is an important caution to keep in mind. Many people don’t arrange to have tax withheld at source, or file any U.S. tax forms, on the premise that their expenses exceed the rental income and the net income election is always available.
Filing requirements
You are required to report the gain or loss on sale by filing Form 1040 NR, U.S. Non-Resident Alien Income Tax Return. You would have to pay U.S. federal tax on any gain (capital gain), and if you own the real estate jointly with another person, such as your spouse, each of you have to file the above form. For more information, contact the IRS.
In addition, you would have to report any capital gain on the sale of your U.S. property in your next annual personal tax return filing with Revenue Canada. Remember, you have to report your worldwide income and gains and pay tax on 75 per cent of any capital gain, converted to the equivalent in Canadian dollars, at the time of sale.
Since tax laws, regulations and filing forms can change at any time, make sure you speak to a professional accountant who is skilled in U.S. tax matters.
Monday, December 20, 2010
Canadian Household Debt - continued
Among all news articles, research and recent speeches of Carney on the issue of Canadian's household debt issue, I found this recent article from CIBC's Avery Shenfeld provides much more indepth perspectives and go beyond the headline number.
Most articles focused on the debt / disposable income %, which currently stands at 145%, a level at par with our counterpart in US.
The most important point Shenfeld made is the distribution of the debt matters.
1. Safe mortgage: For example, the ballooning sub-prime mortgage market that was set up for a run of defaults in US does not seem to exist in Canada. In Canada’s mortgage market, the build-up in debt among those 35 years and over has been concentrated among those with incomes above $50,000 per year.
2. More Prudent Non-mortgage credit: also appears to have been allocated to safer hands in Canada than what we saw in the lead-up to America’s crisis. New credit cards in Canada continue to be issued to consumers with high credit scores, this in stark contrast to conditions in the US prior to the 2008-2009 crisis where a much higher share went to those with low ratings
3. Stronger median incomes: Given that wider gap of the super rich and the rest of population in US vs. Canada, simply looking at the average debt / deposable income of the whole nation might be mis-leading, as the super rich certainly added to the denominator inapproportionally but not to the numerator. Shenfeld considers median income is a more usefule metrics. Labour income growth in Canada has been much more solid than US, and as a result, Canadian median incomes have also seen greater gains than in the US, helping to support domestic household credit performance.
The bottom line is the current pace of debt growth is unsustainable if income growth doesn't catch up. But on the other hand, Canada isn't in the hot water yet.
As for solution, Shenfeld doesn't think sharp debt reduction nor significant rate hikes will be prudent either as that will jeapodize the already weak economy and further damage the export competitiveness. Perhaps as he suggested at the end of the article, the cooling effect of the housing market and declining consumer spending sentiment will gradually reduce the numerator of the equation.
Most articles focused on the debt / disposable income %, which currently stands at 145%, a level at par with our counterpart in US.
The most important point Shenfeld made is the distribution of the debt matters.
1. Safe mortgage: For example, the ballooning sub-prime mortgage market that was set up for a run of defaults in US does not seem to exist in Canada. In Canada’s mortgage market, the build-up in debt among those 35 years and over has been concentrated among those with incomes above $50,000 per year.
2. More Prudent Non-mortgage credit: also appears to have been allocated to safer hands in Canada than what we saw in the lead-up to America’s crisis. New credit cards in Canada continue to be issued to consumers with high credit scores, this in stark contrast to conditions in the US prior to the 2008-2009 crisis where a much higher share went to those with low ratings
3. Stronger median incomes: Given that wider gap of the super rich and the rest of population in US vs. Canada, simply looking at the average debt / deposable income of the whole nation might be mis-leading, as the super rich certainly added to the denominator inapproportionally but not to the numerator. Shenfeld considers median income is a more usefule metrics. Labour income growth in Canada has been much more solid than US, and as a result, Canadian median incomes have also seen greater gains than in the US, helping to support domestic household credit performance.
The bottom line is the current pace of debt growth is unsustainable if income growth doesn't catch up. But on the other hand, Canada isn't in the hot water yet.
As for solution, Shenfeld doesn't think sharp debt reduction nor significant rate hikes will be prudent either as that will jeapodize the already weak economy and further damage the export competitiveness. Perhaps as he suggested at the end of the article, the cooling effect of the housing market and declining consumer spending sentiment will gradually reduce the numerator of the equation.
Ontario Bill 112
Ontario is never a landlord-friendly province. Think how difficult / long does it take to evict a tenant who doesn't pay., the inenforceability of "no smoking" and "no pet" clauses.
Now it's getting worse with the proposed bill 112 that was undergoing second reading.
The Bill makes several amendments to the Residential Tenancies Act, 2006, including the following:
1. The Bill increases the time limit for most tenant and some landlord applications to the Landlord and Tenant Board from one to two years. Tenants can go back in time two years to file a complaint.
2. The Bill requires a landlord who terminates a tenancy for personal use to compensate the tenant and expands the circumstances in which a landlord is required to compensate a tenant if the landlord terminates a tenancy for the purpose of demolition or conversion to non-residential use. Formula given for compensation.
3. The Bill prohibits a landlord from increasing the rent charged to a new tenant by more than the guideline and abolishes landlord applications to the Board for above guideline rent increases where there has been a significant increase in the cost of utilities. No new rent increases to market rent beyond the guideline when you have tenant turnover.
4. The Bill requires that the Board dismiss an application from a landlord who has been given a work order under section 225 of the Act or an order under section 15.2 of the Building Code Act, 1992 and has not completed the items in the work order or the order. Excuse for not paying rent.
5. The Bill requires a landlord to obtain a licence with respect to a rental unit in a residential complex containing six or more rental units in order to enter into a tenancy agreement or renew an existing tenancy agreement. Money grab for Multi-family 6+
Most investors I know, including myself, are just hardworking investors who want to put money into good use. The Bill will simply make investors (local and international) leave and opt for places that offer better landlord protection and more reasonable returns.
Now it's getting worse with the proposed bill 112 that was undergoing second reading.
The Bill makes several amendments to the Residential Tenancies Act, 2006, including the following:
1. The Bill increases the time limit for most tenant and some landlord applications to the Landlord and Tenant Board from one to two years. Tenants can go back in time two years to file a complaint.
2. The Bill requires a landlord who terminates a tenancy for personal use to compensate the tenant and expands the circumstances in which a landlord is required to compensate a tenant if the landlord terminates a tenancy for the purpose of demolition or conversion to non-residential use. Formula given for compensation.
3. The Bill prohibits a landlord from increasing the rent charged to a new tenant by more than the guideline and abolishes landlord applications to the Board for above guideline rent increases where there has been a significant increase in the cost of utilities. No new rent increases to market rent beyond the guideline when you have tenant turnover.
4. The Bill requires that the Board dismiss an application from a landlord who has been given a work order under section 225 of the Act or an order under section 15.2 of the Building Code Act, 1992 and has not completed the items in the work order or the order. Excuse for not paying rent.
5. The Bill requires a landlord to obtain a licence with respect to a rental unit in a residential complex containing six or more rental units in order to enter into a tenancy agreement or renew an existing tenancy agreement. Money grab for Multi-family 6+
Most investors I know, including myself, are just hardworking investors who want to put money into good use. The Bill will simply make investors (local and international) leave and opt for places that offer better landlord protection and more reasonable returns.
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