trudeaumania & trump dynasty · presented by: mike bondy , cpa, ca, cfp, tep partner, collins...

TRUDEAUMANIA &

TRUMP DYNASTY

Presented By: Mike Bondy , CPA, CA, CFP, TEP

Partner, Collins Barrow

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

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.

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.

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

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

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

OTHER PERSONAL TAX IMPLICATIONS

Tax free savings annual limit reduced from $10,000 back

down to $5.500

Canada Child Tax Benefit to replace the UCCB to start

July 2016

Maximum benefit of $6,400 per child under 6 and $5,400

per child over 6 and under 17. Not taxable but phased

out with increased income

– i.e. If your family income is $75000 per year combined you

receive $6505. If income is $150.000 then benefit is $2,230.

– If family income is $187,500 no benefit. 2 children, one under 6,

one over.

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

KIDS ARE NOT WORTH AS MUCH

Combined Top Marginal Personal Tax Rates – 2016

Province Salary Capital GainsEligible

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)

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

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.

– i.e. It is taxed as regular taxable dividends now.

Still ok … better to have the money now than later

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 ($3,720) 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

$1,500 expense

CHANGES FOR STUDENTS

Grants to low income families increase to $3,000 per year

$1,200 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

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

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

TFSA

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

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

RRSP

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%

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

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

WAS $900,000, NOW $1.5, INFINITY POOL

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


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.


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

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

OUR TAKE, RETIREMENT

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


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

$3,500 1BR, WITH OUTHOUSE


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


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

– i.e. 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.


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


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


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


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

TRUDEAUMANIA-2

Wants to make Canada middle class strong again so he uses income based programs, i.e. 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

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

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

IS PARIS CLIMATE ACTION RELEVANT ?

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%.

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

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

VANCOUVER SMALL HOUSE- $950,000

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

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

WHITE ROCK BC, OCEAN FRONT CONDOS

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

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

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

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.

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

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

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 $2,500 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

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


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


Be Flexible in your investments and consider

conservative investments and watch out for crashes.

Take advantage of silly crashes, i.e. 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


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

COLLINS BARROW CAN HELP

If you would like to discuss anything further please

contact:

– Michael Bondy

– (519) 679-8550

– [email protected]

mailto:[email protected]

trudeaumania & trump dynasty · presented by: mike bondy , cpa, ca, cfp, tep partner, collins...

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