Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

Federal Budget 2024 features $53 billion new spending over 5 years; rise in capital gains inclusion rate for wealthy

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Prime Minister Justin Trudeau’s 8th federal budget features $52.9 billion in new spending over five years, according to the CBC.

You can find the 430-page budget — titled Fairness for Every Generation — at the Department of Finance website here.

Released at 4 pm Tuesday, the wealthiest 0.13% of Canadians will be hit with a higher capital gains inclusion rate: as of June 25, the inclusion rate will rise to 66% for capital gains  in excess of $250,000 a year, and this will also apply to corporations.

You can find details at the Globe & Mail’s coverage here. (may only be viewable by subscribers.) For those who can’t access, it says:

“The budget doesn’t make any changes to income tax rates, nor does it include an explicit wealth tax. Instead, the tax hikes are focused on capital gains … as of June 25, the inclusion rate on capital gains realized annually above $250,000 by individuals – and on all capital gains realized by corporations and trusts – will rise from one-half to two-thirds.­”

The lifetime capital-gains exemption for Canadians will rise from $1-million to $1.25-million, the Globe says, and “The total capital-gains exemption from the sale of a principal residence will not change.” Speaking on CBC, G&M columnist Andrew Coyne called it an “underwhelming” document.

Coyne’s G&M column on the budget bore the scathing headline A government with no priorities, no anchors, and when it comes to growth, no clue. Subscribers can read it here.

A typical passage from his piece:

“…. there is not a single measure in the budget aimed at boosting investment generally – as opposed to the usual slew of measures aimed at diverting investment

into the government’s favoured sectors: artificial intelligence, ‘clean’ technologies, and so on.”

Jamie Golombek’s take on Taxes

Here is  what CIBC Wealth’s tax guru, Jamie Golombek, had to say in the Financial Post.

The federal budget released on Tuesday did not contain a general tax rate increase for the wealthy, but the government did announce that the capital gains inclusion rate will be going up and it amended the draft alternative minimum tax rules in response to concerns of the charitable sector .

On the rise in the capital gains inclusion rate, Golombek says “the $250,000 threshold will apply to capital gains realized by an individual, net of any capital losses either in the current year or carried forward from prior years  .. Capital losses carried forward from prior years will continue to be deductible against taxable capital gains in the current year by adjusting their value to reflect the inclusion rate of the capital gains being offset. This effectively means that a capital loss realized at the current 50 per cent allowable rate will be fully available to offset an equivalent capital gain realized after the rate change.”

MoneySense’s Jason Heath

Fee-only financial planner Jason Heath penned this insightful analysis for MoneySense. He covers everything from the higher capital gains inclusion rate to impact on entrepreneurs, housing, renters and much more.

Rob Carrick’s Personal Finance report card

G&M personal finance columnist Rob Carrick created a personal finance Budget report card here. He gave Taxes a C-minus grade, Housing a B, Junk Fees a C and Open Banking a D, and Saving for postsecondary education an A.

On the other side, the Finance department says an Improving economy means higher tax revenue: $20 billion in new revenue in five years. The $40 billion deficit is projected to stay more or less pat till 2025/2026, after which it starts to inch down.

$46 billion next year on payments on the Debt

Here’s initial coverage of the budget from National Post. There, it reports that Ottawa will spend $480 billion next year, including $46 billion in payments on the national debt. Among the highlights mentioned:

“Among the new spending is more money for home building, including tax measures that allow first time buyers to take more money out of their RRSP for a down payment and to delay when they start repaying the money.There is also $1.1 billion for interest-free student loans and grants, more funding for the Liberal daycare program and for the first phases of national pharmacare that will cover insulin and contraceptives. There is also funding for a new disability benefit and money for artificial intelligence research.”

Mix of Bad Economics and Bad Politics

Also in the National Post, Philip Cross dubbed the budget “a continuation of the Trudeau government’s orgy of spending financed by debt and higher taxes.”

Sample passage:

“Besides being bad economics, the government’s massive spending is bad politics because it antagonizes most provinces without any obvious electoral return from its spending.” Continue Reading…

How to more than double your CPP benefits

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While it’s well known that the longer you wait to start receiving CPP benefits, the higher the payout, a series of papers debuting today from the National Institute on Ageing (NIA) highlights the fact that:

a) Many Canadians don’t realize that CPP benefits taken at age 70 are a whopping 2.2 times what they are if taken at the earliest possible age of 60. Indeed, a 2018 Government of Canada poll found an amazing two thirds of us didn’t understand that the longer you wait, the higher the CPP payout will be.

b) Despite this fact and despite being often mentioned in media personal finance articles, most Canadians nevertheless take CPP long before age 70.

You can see at a glance in the chart shown at the top the dramatic rise in free government money that can be obtained by waiting till 70.

The paper’s lead author is   Bonnie-Jeanne MacDonald, PhD, FCIA, FSA, Director of Financial Security Research for the National Institute on Ageing at Toronto Metropolitan University.

Addressed chiefly to Canadian baby boomers, MacDonald and three contributors say upfront that deciding when to start taking CPP (or the Quebec Pension Plan) is “one of the most important retirement financial decisions they will make.”

Not only are benefits begun at age 70 2.2 times higher than they would be if taken at age 60, but “these higher payments last for life and are also indexed to inflation.”

So it’s a baffling that 90% choose to start CPP at the traditional mid-way point between these extremes: age 65.

Starting with the paper being released today, the NIA will publish seven papers in total aimed at educating consumers about these decisions.

It’s not as if most Canadians don’t already realize how important CPP will be to their income. Indeed, with traditional Employer-Sponsored Defined Benefit pension plans becoming increasingly rare outside the public sector, for many the CPP, together with Old Age Security, will be the closest many retirees will come to having a guaranteed-for-life inflation-indexed pension. According to a 2023 NIA survey on Ageing in Canada, 9 out of 10 recipients say their CPP/QPP pension is an important source of their retirement income, with 6 out of 10 saying it’s essential and they can’t live without it.

The chart below illustrates this:

The initial paper being released today observes that similar dynamics are at work in the United States with its Social Security system. Academic literature there finds that “delaying claiming is almost always the optimal decision from an economic perspective.”

CPP offsets the 2 big bogeymen of Inflation and Running out of Money

A larger CPP income obtained by waiting till 70, or at least past 65, helps new retirees address two of their biggest fears, the NIA says: Inflation and running out of money before you run out of life. It finds that 37% fret about inflation and 22% worry about running out of money in old age. Continue Reading…

Lowering the first rung on the housing ladder

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Image courtesy of CMI/Envato Elements

By Kevin Fettig

Special to Financial Independence Hub

 

A recent report by Ontario’s Municipal Property Assessment Corporation (MPAC) highlights the scarcity of homes under $500,000 in Ontario.

In 2013, 74% of residential properties had a value below this threshold. Today,  just 19% of homes are valued below $500,000.  While this situation varies from province to province, it highlights the significant challenges faced by first-time home buyers who find the first rung of the property ladder is nearly unreachable.

Most urban centers would benefit by encouraging lower cost paths to home ownership. One avenue for this is building properties on leased land. In certain areas of Vancouver, we already see this practice, often on First Nations or university-owned lands. Leased land provides two primary paths to homeownership: one involves placing mobile or manufactured housing on the leased property, while the other entails constructing permanent homes on the leased land.

More than 50 years ago, manufactured housing made up as much as 6% of Canadian housing completions. Today, it represents less than 1%. In the U.S., supporting the availability of manufactured housing is a key component of the administration’s effort to ease the burden of housing costs. Most of these initiatives focus on improving mortgage financing for these homes through housing finance agencies Fannie Mae and Freddie Mac. Currently, Americans must rely on personal property financing (chattel lending) rather than conventional mortgages.

CMHC launched Chattel Loan program in 1988

In Canada, we’ve had a mortgage insurance product for these loan types for some time. The Chattel Loan Insurance Program (CLIP) was first launched by CMHC in 1988 as a 5-year pilot program. However, CMHC has never actively promoted the program, leading to a lack of awareness among lenders. Moreover, consumer preference for traditional stick-built housing and resistance from local communities to mobile home park developments have further hindered the adoption of the program.

Although the eligible amortization period can extend up to 25 years, some provinces have not allowed longer-term leases, making it challenging to finance structures on leased land, whether stick-built or manufactured. Even with an insured mortgage product, securing financing for manufactured homes can be difficult. Financial institutions often lack understanding of these structures, and the constraints on amortization period restrict the type of homebuyer. Consequently, the market has primarily targeted retirees seeking to downsize from larger family homes to smaller units. However, with appropriate financing options, these properties could also appeal to first-time buyers.

Building permanent homes on leased land is a second avenue to reducing home-ownership costs. Leased land communities are typically located close to small urban centres. The design ranges from townhouses to single family dwellings, and from traditionally built to manufactured. There are some larger institutional groups in this sector, including Parkbridge, a leading Canadian developer and operator of 106 residential and recreational communities across the country. CAPREIT, a Canadian real estate investment trust, also manages leased land communities but is not a developer. Continue Reading…

Estate Planning Mistakes that could Jeopardize your Findependence

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Image by Unsplash: Melinda Gimpel

By Devin Partida

Special to Financial Independence Hub

Estate planning is crucial for anyone looking to secure findependence and leave a lasting legacy for their loved ones. It involves making deliberate decisions about who will inherit your assets and how executors should handle your affairs after you’re gone.

However, many overlook the finer details, leading to common mistakes that can have significant financial and emotional impacts on those left behind. Understanding and avoiding these pitfalls ensures your estate plan fulfills your wishes and supports your loved ones without unnecessary stress or financial burden.

Common Estate Planning Oversights

Navigating the complexities of estate planning is no small task, and it’s all too easy to overlook crucial details that can make a big difference. Here are some common estate planning oversights that could derail your intentions and how to steer clear of these potential pitfalls.

Neglecting to Update Beneficiaries

Regularly reviewing and updating beneficiary designations on life insurance, retirement accounts and other financial assets ensures your estate plan reflects your current wishes. Life events — like marriage, divorce, the birth of a child or the death of a designated beneficiary — can alter your intentions for asset distribution.

Failure to update these designations can lead to your assets going to unintended recipients — like an ex-spouse or estranged family members — instead of supporting your current loved ones or preferred charities.

Underestimating the Value of a Comprehensive Will

Having a will that comprehensively covers all assets and wishes is fundamental to effective estate planning. Despite its importance, only about 32% of Americans have taken the step to create a will.

This document ensures your assets are distributed according to your desires, provides clear instructions for caring for minor children and appoints executors to manage your estate. An incomplete will — or the absence of one — can lead to family disputes, as loved ones may have differing opinions on the distribution of assets.

Such disagreements often result in extended legal processes, which can deplete the estate’s value through legal fees and other costs. Additionally, without a will, state laws dictate the distribution of your assets, potentially leading to outcomes that starkly contrast with your wishes.

Failing to Establish an Advanced Health Care Directive

An advanced health care directive guides medical decisions if you can’t communicate your wishes, providing physicians and loved ones with clear written instructions. Healthcare providers especially value this foresight, ensuring your care aligns with your preferences and alleviating the burden of decision-making from your family. Continue Reading…

Financially Surviving a High-Net-Worth Divorce

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Unsplash

By Devin Partida

Special to Financial Independence Hub

Navigating a divorce can be stressful, especially if you have considerable financial assets. While legal separations can be nasty, they don’t have to be.

Discover what counts as a high-net-worth divorce, along with some tips to help you survive it with most of your financials intact.

What is a High-Net-Worth Divorce?

Traditionally, high-net-worth divorces are considered a split of US$1 million dollars between parties. Considering the increased property values and inflation in recent years, a high-net-worth divorce now involves several million dollars worth of financial assets. If you have assets amounting to this sum, you’re looking at a high-net-worth divorce in your hands.

What makes High-Net-Worth Divorces complicated?

Divorce in the U.S. is still prevalent, with estimates that 50% of first marriages will most likely end in divorce. That’s a lot of legal proceedings and assets to divide. Parties with fewer assets to divide often have more uncomplicated legal matters to resolve.

Divorce proceedings get more complex since you have millions of dollars worth of assets to take care of. Many factors come into play, like assets and liabilities acquired before and after the marriage, businesses owned by either or both spouses and investment or pension plans.

Tips on how to Safeguard your Interests during and after a High-Net-Worth Divorce

Wealthy couples typically have a lower divorce risk, but there may come a time when one or both parties decide to call it quits. Although high-net-worth divorces typically involve top-caliber lawyers and advisors, it’s still essential to research what to expect during legal proceedings. Doing so will help you prepare better for the process and safeguard your financials.

Get Expert Legal and Financial Advice

Divorce can be a physically, mentally and emotionally draining process. It’s also time-consuming if you have no idea how to proceed. Getting expert legal and financial advice can save you time and money, especially if you hire lawyers who have your interests in mind.

Hiring an expert mediator is one of the most underrated ways to ensure smooth divorce proceedings. Divorce mediation involves protecting both parties and safeguarding their interests from a neutral standpoint: each side gets what is rightfully theirs, no more and no less.

Know which Assets to Protect

Distinguishing between marital and separate assets is critical to protecting your financials in a divorce. You must ensure you know the value of your assets like properties, businesses, investments and so on. Catalog them depending on their classification so you know which assets to protect from division.

Here’s what you need to know about the difference between marital and separate assets. Continue Reading…