Canadian Mortgages, Insurance, Investment, Tax Planning


Revenu Québec - Tax News

XE Forex News

Canadian Mortgage Broker news

Thursday, December 30, 2010

Canadian Mortgage Broker News - Harper hints at tighter mortgage rules in 2011

Canadian Mortgage Broker News - Harper hints at tighter mortgage rules in 2011

Harper hints at tighter mortgage rules in 2011

| Wednesday, 29 December 2010

Prime Minister Stephen Harper hinted the government may adjust mortgage rules in 2011 to help Canadians avoid going deeper into debt.
“We’ve tightened mortgage rules before,” Harper told CTV during a year-end interview that aired on Christmas Day. “If we have to do that again, we will.”

Harper also committed to eliminating the federal deficit but will not use “slash and burn” cuts, particularly in the critical areas of health and education.

Wednesday, December 22, 2010

Cards to Bulgaria

Cards to Bulgaria

Thursday, December 16, 2010

MLS Reporting Record Sales In Montreal for November

Records were broken on the Island of Montréal l in November, according to new MLS sales figures just released.

November 2010 MLS® sales on the Island of Montréal were a reported 1,370 sales, which is an increase of 1 %, reaching just beyond the previous record set in November 2009, according to the Greater Montréal Real Estate Board's (GMREB) MLS® statistics. Sales in the Montréal Metropolitan Area fell by 5 % in November 2010, while year-over-year sales rose by 2 %.

"November was a strong month for the Montréal area real estate market," said Diane Ménard, Vice-President of the GMREB Board of Directors. "It's true that MLS® sales decreased for a seventh consecutive month, but the decrease was much smaller than those registered in recent months. Furthermore, some areas really stood out, such as Laval, which posted a 3 % increase in sales, and the Island of Montréal which set a new November sales record," she added.

Condominium sales were of particular interest, as they were the only property to have an increase in sales in the Montréal area. There were 983 condominium sales reported, which set a new November record, overtaking the peak of November 2009 peak by 3 %. Most areas in the Montréal region saw increases in condominium sales, with the exception of the South Shore- which saw a decline of -9 %. On the Island of Montréal, in Laval and on the North Shore, the number of condominiums sold in November 2010 rose by 4, 23 and 15 %, respectively, in comparison to November 2009.

Despite the increase in condominium sales, the decrease in sales of single family homes was more significant, and they did not balance each other out. Sales for single family home were down by 7 % and plexes were down by 13% in the Montréal area. Regionally, the North Shore was down 10 % and the South Shore was down 14%, which resulted in an overall decrease in residential sales for the Montréal area. Sales in the Vaudreuil-Soulanges area decreased a little bit- by 3 %.
When examining price, all of the three property categories reported a 7 % increase in median price in November 2010 compared last November. In the Montréal area, the median price of single-family homes went up to $260,750; condominiums reached $218,000; plexes reached $385,000

"These price increases are good news for sellers, as it shows that real estate continues to be a solid investment. Furthermore, selling times continued to decrease in November, which is also encouraging for sellers. There was good news for buyers as well, as they had more choice compared to November 2009 as active listings increased by 7 %," said Diane Ménard.

2010 Tax Changes You Need to Know

2010 Tax Changes You Need to Know

by Tim Begany
Tuesday, December 14, 2010
provided by
Despite the availability of professional tax preparation services, an estimated 40% of Americans do their own taxes. The typical do-it-yourself filer needs about 24 hours to complete the task, according to the IRS.
More from

Top 10 Solutions for a Big Tax Bill

11 Most Common Tax Mistakes

6 Tax Credits That Anyone Can Claim
Commercially available software undoubtedly makes the job a lot easier, but no brand is guaranteed to be infallible. Thus, it's important for do-it-yourself filers to keep up as best they can with relevant changes to the tax code as a safeguard against errors in their tax prep software. Here are four of the most important changes to know about as you prepare your 2010 return.
1. Smaller Deductions for Business and Medical Mileage
You can't write off the cost of a daily commute by car, but you can deduct other work-related mileage you're not reimbursed for. This year, for example, you'd get 50 cents a mile for driving from, say, Boston to New York City and back for a trade show. That's five cents less per mile than you'd have gotten for the same trip in 2009.
At 16.5 cents a mile, the deduction for operating your car for medical reasons is 7.5 cents less than last year. However, driving for charitable purposes is still deductible at 14 cents per mile, just like last year.
[See States That Tax Retirees the Most]
2. Better Limits on Deductions for Property Damage or Loss Due to Theft
For damaged or stolen property to be deductible, the loss amount must now only exceed $100, compared with $500 in 2009. The "10% of AGI" rule still generally applies though.
Remember, AGI is the sum of all your income - such as wages, interest and alimony received - minus certain adjustments, such as IRA contributions, student loan interest you've paid and moving expenses.
3. Deduction for Taxes and Fees on New Motor Vehicle Purchases
Did you buy a new car, light truck, motor home or motorcycle between February 17 and December 31 of 2009? If so, in 2010 you can deduct state, local, and excise taxes related to the purchase. If your state has no sales tax, you can instead deduct other taxes or fees the purchase generated. A neat feature of this deduction is you can use it to increase your standard deduction or take it as a regular itemized deduction, whichever works out best for you.
[See Make the Most of Your Charitable Donations ]
There are a couple limitations to know about. First, the deduction is only good on up to $49,500 of the purchase price. Second, it's phased out at certain levels of modified adjusted gross income (MAGI) - between $250,000 and $260,000 for joint filers and from $125,000 to $135,000 for other taxpayers. MAGI is your AGI plus certain deductions such as those for student loans, IRA contributions and higher education costs.
4. Bigger Deductions for Long-Term Care (LTC) Insurance Premiums
IRS rules allow LTC insurance policy owners to deduct more of their premiums in 2010 than in 2009. For example, those ages 51 to 60 can claim up to $1,230 in LTC insurance premiums this year, compared with $1,190 last year - about a 3% increase. Similar increases have been approved for other age groups as well: 40 and under, 41-50, 61-70 and 71 or over. At $330, the deduction is smallest for the 40-and-under age group. It rises progressively to a maximum of $4,110 for those ages 71 or over.
Other Tax Law Changes
As you can probably imagine, the government has tinkered with the tax rules quite a bit more than this article describes. To see what other potentially beneficial changes have been made, check out a list called "Tax Changes for Individuals" at the IRS website. Who knows what other sorts of breaks you might unearth?
[See Penalty-Proof Your Tax Return]

Popular Stories on Yahoo!:

The 50 Best Careers for 2011

The Dirty Secret About Your Credit Score

What Does It Mean to Be Rich Now?

Wednesday, December 15, 2010

FN Mortgage rates as of 15/12/2010


1 year fixed:   2.80 %
3 years fixed: 3.60 %
5 years fixed: 4.04 %

5 years 5% Cash back fixed: 5.19 %

First National Prime Rate: 3.00 %

Posted by DataTracker Powered by CoolRent

Sunday, December 12, 2010

Tax and Estate Planning: Should you pay yourself salary or dividends?

Tax and Estate Planning

Should you pay yourself salary or dividends?

By Jamie Golombek
You need to do the math before making a decision

If you’re an incorporated small-business owner, chances are you’ve probably been advised at one point to pay yourself at least enough salary from your corporation to allow you to contribute the maximum to an RRSP. That’s because the ability to contribute to an RRSP is based on 18% of the prior year’s “earned income,” which includes salary but does not include dividends. For 2010, you would have to pay yourself a salary of at least $124,722 to be able to contribute the 2011 RRSP maximum of $22,450.

The problem with this general rule, at least for corporations with a taxable income (pre-salary or bonus) below $500,000 (the federal small-business limit), is twofold and has its origins in the theory of integration. Integration tries to ensure that individuals pay the same amount of tax regardless of whether income is earned personally or through a corporation. If your corporation earns $125,000 of corporate net income and pays it all out to you via a salary or bonus, that remuneration is tax deductible to the corporation and taxable to you based on your personal tax rates. The corporation pays no corporate tax since its taxable income after deducting your compensation is zero.

Alternatively, if the corporation chose not to pay you a tax-deductible salary, its corporate net income would be $125,000 which would be taxed inside the corporation at the small-business rate. The after-tax amount would then be paid to you as a dividend and taxed in your hands personally at the dividend rate. In every province other than Quebec, the tax you pay on salary you withdraw is actually higher than the combined corporate small-business tax paid by the corporation and the personal tax you pay on the dividends. The tax savings by paying dividends instead of salary runs from a negligible 0.3% in P.E.I. to a high of 3.6% in Nova Scotia.

But that’s only half the story because by choosing to have corporate income taxed and reinvested inside the company, a tax deferral ranging from a low of 25% in Alberta to a high of over 35% in P.E.I. can be enjoyed.

 Jamie Golombek is Managing Director of Tax and Estate Planning, CIBC Private Wealth Management. You can read the complete version of his report here.

Economic Outlook: Making Money When Others Aren’t

Economic Outlook

Making Money When Others Aren’t

By Avery Shenfeld

Only dividends are yielding above the long-term average
These may not be the toughest economic times we’ve seen, but a lot of us are still having a tough time making money. That’s not only true for some in the labour market, where Canada’s stubborn unemployment rate looks good only because America’s is so much worse. But it’s also true for investors, particularly for pension funds that have traditionally used safe, fixed income assets as the core of their portfolios.
At the short end of the curve, fixed income returns will be abysmal for the next year at least. We see no end in sight to zero short rates in the U.S. Before the Federal Reserve even thinks about raising rates, it will have not only delivered another dose of quantitative easing, but started the process of mopping up the extra money by sending bonds back to the market, and perhaps raising the rate on excess reserves. With so many steps to come first, we’ve pushed back the move off of a zero funds rate beyond 2012.
That softens the outlook for the Bank of Canada, which has to be concerned about the impact of much wider spreads on the Canadian dollar, and the resulting drag on exports. The pause at 1% could last until the second half of 2011, and another long pause at 2% in 2012 could be in the cards. Closing the output gap by the end of 2012 does not, as some assume, imply that rates go back to some fixed “neutral” level over the same period. Rates could stay low to the benefit of the economy, but to the detriment of T-bill investors, if needed to offset a weak external environment.
Longer bonds benefited from the capital gains associated with the recent rally, but that party may be over soon. You don’t want to buy what the Fed is buying, or its close substitutes (Canadian sovereign debt), since prices are being pushed to artificial highs by the Bernanke bid for bonds, and will snap back when quantitative easing is unwound down the road. The stretch for yield in bonds may also have sapped the juice out of high-yield corporate debt.
That leaves equities as the refuge from the low growth, low return environment. Typically, stocks are flying when the economy is too, but reliable dividend-paying equities stand out in a non-recessionary, but slow growth world. Cashing dividend cheques, as opposed to pay cheques or bond coupons, may be the best way to make some money when others aren’t.
Only Dividends Still Above Long-Run Average (as at Sept. 30, 2010)
Avery Shenfeld is chief economist at CIBC

Thursday, December 9, 2010

The Financial System Review - December 2010 issue

The Financial System Review - December 2010 issue

Why taking a Salary May Not Make Sense

Why taking a Salary May Not Make Sense
by Jamie Golombek1    CA, CPA, CFP, CLU, TEP

Tuesday, December 7, 2010

Canadian Mortgage Broker News - Housing sales to remain static for 2011: Re/Max

Housing sales to remain static for 2011: Re/Max

| Tuesday, 7 December 2010

Despite an improved economy, residential real estate sales are expected to remain static in most major centres next year, according to a Re/Max report released Tues. Dec. 7.
The Re/Max Housing Market Outlook 2011 saw this year’s home-buying activity fall short of 2009 levels. By year-end, approximately 441,000 homes will have been sold nationally, a five per cent decline from the 465,251 sales reported in 2009. Housing values still continued to rise in all 26 areas surveyed, and was up an estimated seven per cent to $340,000 compared with $320,333 a year earlier.
Though some see this resale housing activity as a “new normal,” it is actually a return to the traditional real estate cycle, said Michael Polzler, executive vice president and regional director of Re/Max Ontario-Atlantic Canada.
“The past decade was truly unprecedented—never before have we experienced a run-up that was as strong or lasted as long,” added Polzler. “As we have digressed from the typical pattern, people have forgotten what the usual healthy cycle looks like, but all the hallmarks are there: Ample inventory levels, steady demand, and moderate growth, both in terms of sales and prices, will characterize the market in 2011.”
Greater market stability is expected to take place in 2011, with Canadian housing sales predicted to mirror 2010 levels at 441,000 next year, while the average price is forecasted to rise by three per cent to $350,000 by year-end 2011.

Bank of Canada maintains overnight rate target at 1 per cent

OTTAWA, Ontario, December 07, 2010 — The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
The global economic recovery is proceeding largely as expected, although risks have increased. As anticipated, private domestic demand in the United States is picking up slowly, while growth in emerging-market economies has begun to ease to a more sustainable, but still robust, pace. In Europe, recent data have been consistent with a modest recovery. At the same time, there is an increased risk that sovereign debt concerns in several countries could trigger renewed strains in global financial markets.
The recovery in Canada is proceeding at a moderate pace, although economic activity in the second half of 2010 appears slightly weaker than the Bank projected in its October Monetary Policy Report. In the third quarter, household spending was stronger than the Bank had anticipated and growth in business investment was robust. However, net exports were weaker than projected and continued to exert a significant drag on growth. This underlines a previously-identified risk that a combination of disappointing productivity performance and persistent strength in the Canadian dollar could dampen the expected recovery of net exports.
Inflation dynamics in Canada have been broadly in line with the Bank's expectations and the underlying pressures affecting prices remain largely unchanged.
Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.
Information note:
The next scheduled date for announcing the overnight rate target is 18 January 2011. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report on 19 January 2011.

Monday, December 6, 2010

Canadian Mortgage Broker News - National housing activity rises: CREA

National housing activity rises: CREA

National housing activity rose for the third straight month, elevating the number of sales above the lows of July by nearly 15 per cent, according to the Canadian Real Estate Association (CREA).

Seasonally adjusted home sales activity climbed 4.6 per cent in October, building on similar gains made in August and September.

According to CREA, three quarters of local markets registered monthly increases in sales, led by Toronto and Vancouver.

“The continuation of low interest rates is supporting sales activity, which has been improving over the past few months in a number of major markets including Vancouver,” CREA’s President Georges Pahud said in a news release published on Nov. 15. “National housing market trends are improving, but local market trends can differ significantly.”

The number of new residential listings on Multiple Listing Service edged up in October, increasing by 1.3 per cent on a seasonally adjusted basis. Still, new listings remain 14 per cent below the recent peak reached in April 2010.

The national average residential price also edged in October to $343,747, just 1 per cent higher compared to one year ago. October marks the fourth consecutive month during which the average price roughly reflected levels experienced a year ago.

Canadian Mortgage Broker News - Housing starts expected to decline for 2011

Housing starts expected to decline for 2011

Housing starts are expected to continue to moderate in the last quarter of 2010 and into 2011, according to the Canada Mortgage and Housing Corporation (CMHC).

CMHC estimates total housing starts for 2010 will be in the range of 176,700 to 194,700 units, with a point forecast of 186,200 units, while starts in 2011 will be in the range of 148,000 to 202,300 units, with a point forecast of 174,800 units.

“High employment levels and low mortgage rates will continue to support demand for new homes in 2011. Nevertheless, housing starts will decrease to levels more in line with long-term demographic fundamentals next year,” CMHC Chief Economist Bob Dugan said in a news release published Nov. 15.

Dugan also expects that the resale home market will remain balanced over the next two years as existing homes sales continue to ease and inventory levels rise.

Existing home sales are expected to be in the range of 423,800 to 455,900 units in 2010, with a point forecast of 440,300 units sales. Sales in 2011 should be in the range of 390,600 to 483,700 units with a point forecast of 438,400 units.

As supply and demand move into balance during 2011, the average existing home price is expected to increase only modestly in 2011.

Currency Market Analysis by

US Dollar Gains On Bernanke Comments

Markets kicked off the week on a cautiously optimistic tone as traders bid up the US dollar after Friday’s losses, while the euro fell sharply as policymakers debated the issuance of common euro-zone bonds to bail out weaker members of the currency union.
The buck recovered slightly over the weekend after CBS News aired a rare interview with a sitting Federal Reserve Chairman. Ben Bernanke said that it was “certainly possible” that the Fed would expand or pare its announced quantitative easing programme, saying “It depends on the efficacy of the program. It depends on inflation. And finally it depends on how the economy looks”. He articulated his belief that the recovery was on track, calling a return to recession “unlikely”, but highlighted unemployment as the primary risk to growth, and said that he expects jobless rolls to slowly fall toward 5% over the next five years. 
Bernanke also expressed “100% confidence” that the central bank would be successful in preventing dangerous levels of inflation, pointing out that “We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time”.
Judging by the market’s reaction since the QE2 set sail, Bernanke does seem to be gaining converts. Bond market expectations have stabilized, with yields suggesting that traders are assuming a return to a relatively stable inflationary path, which is the Federal Reserve’s stated goal. The dollar has reversed its losses earlier in the year, and is up 1.5% on a trade weighted basis for 2010.

Euro Falls On Policymaker Discord:

The euro dropped as the financial press reported that finance ministers across the common currency zone were brawling over future rescue efforts. A broad division has emerged between those countries supporting an increase in the European rescue fund, and those such as Germany, who would prefer to enforce sanctions against countries which fail to maintain fiscal discipline.
The European Central Bank stepped up its purchases of sovereign bonds late last week, stabilizing debt markets and the euro briefly, but made it clear that these purchases were meant to be temporary measures. As a longer term solution, several countries have suggested that the European Union raise rescue funds by issuing bonds backed by the common currency zone. While Luxembourg and Italy have voiced their approval for such a plan, Germany is expected to continue pouring cold water on the idea until fiscal restraint can be enforced on member nations.
In an interview with the Financial Times, German Finance Minister Wolfgang Schauble said “The international markets do not really understand the very specific construction of the euro. We have a common monetary union, but we don’t have a common fiscal policy. We need to convince the international public and international markets that this is a new form, very specific to meeting the demands of the 21st century”.
Few expect the negotiations to be easy, and fewer still expect the markets to quickly gain faith in the common currency project. The euro has dropped almost ten percent this year on a trade weighted basis, and is expected to fall further as the sovereign debt crisis weighs on economic growth into next year.

Canadian Dollar Flirts With Par:

The Canadian dollar is holding onto last week’s gains, trading near par against the greenback after the commodity complex had its best week since October last year. The question now is whether the Canadian dollar will breach par and rally higher. The loonie’s high correlation with oil prices would suggest that this is likely, but it is worth noting that in mid-2008, its momentum eventually faded (in percentage terms) even as crude kept skyrocketing. Par has been a psychologically forbidding barrier for many months, but a sharp move higher in the commodity markets would certainly provide the motivation for decisive (and likely very short term) move above it.   
There is significant anticipation building around tomorrow's statement from the Bank of Canada. While virtually no one expects the Bank to raise rates at this meeting, the bond markets are expecting a hike as early as March next year. This view seems to be at odds with evidence of deteriorating economic activity, but the Bank will also be taking recent strength in the United States into account when considering the economy's future path. Canadian inflation rates are slightly above the Bank's two percent target, but within a comfortable margin of error - particularly as much of the recent gain has been attributable to higher gasoline prices.
Uncertainty in Europe, tightening in China and the fragile nature of the global recovery all represent risks to the Bank's outlook, making it likely that Carney and Company will err on the side of caution, dampening bond market speculation slightly while leaving interest rate hikes on the menu for the first half of 2011.

Commodities Continue Rally:

Crude oil hit a 26 month high over the weekend, touching $89.75 a barrel and sitting just above $89 this morning, on optimism that the global economy will suck in greater quantities next year as the emerging countries scale up their consumption. Several of the large investment banks have thrown their support behind the rally, forecasting a move up to $100 and beyond. Of course, this means that they likely placed their positions at $70, but the odds of a momentum move to the magic $100 mark are growing by the day.
Copper continued its meteoric rise, surging to $8,750 a metric ton as stockpiles fall. The price has moved up more than 30% since early July in spite of relatively stagnant global demand. The London Metal Exchange reported last week that a single trader has amassed somewhere between 50% and 80% of the inventories held by exchange-listed warehouses around the world (more than 177,875 metric tons, equivalent to 1% of the total that will be consumed this year). Clearly, there's a strong possibility that this position is exerting an upward influence on the spot price.
The trader's identity and motives are unclear, but speculators have been bidding up the price since June, when several investment groups disclosed their intentions to launch copper-backed exchange traded funds (ETFs). Buying an investment before an ETF is forced to buy it (known as front running) has become a favourite game of many large traders, and has created odd dynamics in many markets wherein spot prices are substantially higher than future-dated contracts.
Copper was once considered an excellent barometer for global macroeconomic conditions, because of its widespread industrial use - and experienced market operators have long used the price as a fundamental indicator. In an era defined by massive financial investment in the commodity markets, this perception clearly lags reality. 
The impact of a lot of speculative money on a small commodity market can be very significant, and this influence is often transmitted into the Canadian dollar’s value. The road ahead will be paved with the good intentions of commodity market investors, which is to say – it will be very bumpy!

Have an excellent week!
By Karl Schamotta, Market Strategist
Best Rates Guaranteed with XE Trade. Get a Free Account

Friday, December 3, 2010

Canadian Mortgage Broker News - Brokers agree BofC rate hikes unlikely until late 2011

Brokers agree BofC rate hikes unlikely until late 2011

| Friday, 3 December 2010

A poll released by Reuters reveals that primary dealers and global forecasters unanimously agree the Bank of Canada will hold interest rates at its next policy announcement, but the timing of the next hike in 2011 is up for some debate.
The Reuters poll, released on Dec. 2 showed 93% median probability that the Bank of Canada will keep its key rate at 1% at its policy announcement on Dec. 7, with all 44 forecasters polled predicting no move.
Among the 42 that forecast the central bank’s next hike, the majority saw it happening in the first half. The median forecast for the May 31 policy date has the rate rising to 1.25%.
But among the 12 Canadian primary dealers — the institutions that deal directly with the central bank to help it carry out monetary policy — the majority forecast rate hikes in the second half with a median prediction of a first hike in July.
When compared with a similar poll taken in October, the more recent survey showed rate hike forecasts had been moved deeper into 2011.
Thirty of the 44 forecasters surveyed say the central bank will still be at 1 percent after March 1, a more pessimistic view than the last poll.
Martin Marshall, Ontario Sales Manager with Homeguard Funding Ltd. (Verico) is firmly on side with the Canadian forecasters and thinks continued low rates could be a boon for brokers.
The economy has still not fully recovered from the recession, both here in North America and in Europe,” he says. “To raise rates at this time would be premature and therefore I do not see rates rising until the second half of 2011,” he said.

“This is great news for prospective home buyers and even existing home owners. Rates are at historic lows and we may never see them this low again.”
Morgan Vaughan, a mortgage broker with The Mortgage Group Ontario sees a steady stream of business for brokers in 2011.
“With recent numbers coming out, I don’t see any reason to raise interest rates and I believe it means brokers will continue to be busy next year, especially with refinancing.
“The spring real estate market will be strong and even if there’s a one per cent increase in interest rates I don’t see it affecting too many people because of the recent changes that require buyers qualify for the five-year posted rate.”
“Given that the Bank of Canada had indicated that they didn’t want to see that great a divergence with U.S. rates and the Fed was actually doing quantitative easing, it made sense to push out the Canadian rate hike as well as opposed to adamantly defending a Q1 move,” David Watt, senior fixed income and currency strategist at RBC Capital Markets told Reuters.
“We’ve had a lot of recovery and we’re seeing some fade at the present time, so you get that caution that maybe the domestic side of the economy is not strong enough to offset the still sizable trade hit and currency strength.”
A report earlier this week from Statistics Canada showed the economy disappointed in the third quarter with the weakest growth rate in a year, while the economy shrank outright in September, adding pressure on policy makers to safeguard the patchy recovery.
Bank of Canada Governor Mark Carney in October gave a blunt assessment of the global and Canadian economic recoveries, saying the central bank would plot its next move with extreme caution.
According to CIBC World Markets senior economist Benjamin Tal at the recent CAAMP Forum, massive new monetary stimulus by the U.S. Federal Reserve to support a sagging U.S. economy also prolongs low rates south of the border, and Canada is seen not wanting to race too far ahead of its largest trading partner.
– John Tenpenny, Editor, CMP

Wednesday, December 1, 2010

Owner-Manager Year-End Tips, Part 2

Owner-managers should address the following considerations before the 2010 year-end; some items have continuing relevance and should also be reviewed in 2011. (For tips on establishing an owner-manager's optimal salary-dividend mix, see "Owner-Manager Year-End Tips, Part 1," Canadian Tax Highlights, October 2010.)

Corporate Income

•Decreases in small business rates--in Newfoundland and Labrador and Nova Scotia (for 2011), Manitoba (on December 1, 2010), Ontario (on July 1, 2010), and Prince Edward Island (on April 1, 2010)--may benefit an affected corporation that defers income until after 2010 by maximizing 2010 discretionary deductions such as CCA. After 2010, the small business threshold in Yukon increases from $400,000 to $500,000.

•A corporation subject to the general corporate income tax rate may wish to defer income by maximizing discretionary deductions in 2010 to benefit from staggered reductions in the federal rate: that rate falls from 18 percent in 2010 to 16.5 percent in 2011 and to 15 percent in 2012. After 2010, general rates also decline in British Columbia, New Brunswick, and Ontario. However, New Brunswick's new government may revise the scheduled corporate tax decreases.

•For a corporation to claim CCA, depreciable assets must be purchased by, and be available for use at, the corporation's year-end. The annual CCA deduction is enhanced (1) for computers and systems software, from 55 percent declining balance to 100 percent (no half-year rule) for purchases made before February 2011; and (2) for M & P equipment, from 30 percent declining balance to 50 percent straightline on purchases made before 2012.

•Reserves for doubtful accounts receivable or inventory obsolescence should be identified and claimed at year-end.

•If goods were sold in 2010 and the proceeds are receivable after year-end, the income may be deferred by claiming a reserve over a maximum of three years.

•Ensure that intercompany charges are reasonable in light of changes in the economy, and consider adjustments to the charges to reduce overall taxes paid by the related group. For example, a reasonable markup may be charged for services provided by related corporations.

Filing Requirements

•A corporation with annual gross revenues exceeding $1 million must generally e-file its corporate income tax return to avoid penalties, commencing with the 2011 taxation year. Likewise, a corporation that submits more than 50 information returns annually (down from 500) must e-file its information returns starting in 2011.

•A GST/HST registrant that meets certain criteria (such as making, on an associated basis, annual taxable supplies exceeding $1.5 million) must file its GST/HST returns electronically for reporting periods ending after June 30, 2010.

•For partnerships with fiscal periods ending after December 31, 2010, the CRA has changed its administrative policy on the filing criteria for partnership returns. The current requirement to file a partnership information return based on the number of partners is being replaced with a requirement to file that is related to financial thresholds and partner structure.

•Be aware that under federal draft legislation, an "avoidance transaction" that meets certain conditions is a "reportable transaction" that must be reported to the CRA. The new rule applies generally for transactions entered into after 2010 and to transactions that are part of a series of transactions completed after 2010. Quebec draft legislation also requires the disclosure of certain aggressive tax-planning transactions, which applies to such transactions that are generally carried out after October 14, 2009.

Tax Incentives

•Claim M & P tax credits, which are available in Manitoba, Nova Scotia, Prince Edward Island, Quebec, and Saskatchewan. Nova Scotia introduced a 10 percent credit for eligible M & P property that was acquired after 2009 and cost more than $50,000; the maximum annual credit is $1 million.

•Take advantage of media tax incentives, which are available in most federal, provincial, and territorial jurisdictions. Media incentives were enhanced or extended in British Columbia, Manitoba, New Brunswick, Ontario, and Quebec.

•Claim SR & ED tax credits, which are available in all provinces and territories (except Prince Edward Island and Yukon). Manitoba's 20 percent credit became fully refundable for eligible expenditures incurred in Manitoba after 2009 under a contract with a qualifying research institute for new technologies and biotechnologies, and partially refundable (25 percent refundable in 2011 and 50 percent refundable after 2011) for in-house R & D expenditures after 2010. Enhancements to the Quebec R & D wage tax credit affect clinical trial work and arm's-length contracting.

•Take advantage of other federal and provincial tax incentives and changes to those incentives. For example, Manitoba's co-op education and apprenticeship tax credits will be enhanced starting in 2011, and Quebec's e-business and book-publishing tax credits were enhanced in 2010.

Donald E. Carson and Ruby Lim

PricewaterhouseCoopers LLP, Toronto

Canadian Tax Highlights

Volume 18, Number 11, November 2010

©2010, Canadian Tax Foundation