Wednesday, December 13, 2017

Calculated Thought: Fall finance update

September 20, 2017 by Sean Annable, contributing writer

As autumn rolls in, everyone is getting back to business as usual. Summer holidays are in the rear-view and students, businesses, and governments get back to work as the warm weather fades away.
Parliament went back in session on September 18, and it’s sure to get raucous in the caucus. Business owners have reportedly plastered their MPs’ offices with scathing letters regarding the federal government’s proposed tax changes to private corporations, reported here earlier this summer.

Accounting firms, doctors, and farmers have been amongst the many speaking out against the new policy intending to “close loopholes” in the name of “fairness,” according to Finance Minister Bill Morneau.

Toronto CPA firm Yale and Partners LLP called the changes “draconian” and an “attack on small businesses” in recent blog posts. The firm argues that wealthy corporate owners will have ways to skirt the new rules, and that comparing earnings through employment to owning a business is a fallacy and doesn’t consider the risks of ownership or the benefits of employment.

Calculated Thought is a column dealing with student finances that is featured in every issue of Nexus.

In lieu of fee increases, doctors were permitted to incorporate in 2002. The recent corporate-tax changes undermine that deal and have created a stir in that community, and the Ontario Medial Association has protested the proposed changes, with members saying it will make Canada an “undesirable place to practice.” A survey of the New Brunswick Medical Society revealed that 65 percent of doctors would leave the province under the new tax system.

Earlier this month, the Bank of Canada hiked its key policy rate another twenty-five basis points, now at one percent. This was a surprise after the July rate increase. Those students with variable-rate student lines of credit will, again, see their interest rate go up, with the “big five” banks mirroring the increase and boosting their prime rate to 3.2 percent.

It’s not all bad news, though. As I posited in this column last year, a rise in interest rates could mean good things for home prices. Well, good if you’re hoping to afford one, not so good if you bought one in Toronto or Vancouver at the possibly peak prices that happened, in large part, due to low rates. Even Victoria recently saw month-over-month declines in single-family detached homes. It’s only a modest $6,000 decrease on average, but it is notable in such a heated market.

The recent fall in home prices in those bubbly markets isn’t simply due to the then looming and now materializing rise in rates. Federal and provincial governments desperately tried to slam the brakes on overheated housing markets, with measures like the foreign buyers’ tax in Vancouver. And now Canada’s “bank watchdogs,” the Office of the Superintendent of Financial Institutions (OFSI), has dropped the hammer. In July, the OFSI proposed that all uninsured mortgages must meet a stress test that measures a borrower’s ability to carry a home loan at 2 percent plus the contracted interest rate.

Lines of credit from the bank are getting more expensive for students; regulations are more stringent, but it’s hopefully less expensive, to buy a home; and, if you were thinking of incorporating a small business, you might want to reconsider.

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