- the source for market opinions


July 18, 2017 | Almost

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


Remember those yesterday stats breathlessly shared with you showing the fastest-ever 90-day plop in Toronto house prices?

Well, forget it. That 14.2% plunge was incorrect. Or at least stale. According to the internal numbers the real estate board doesn’t really want you to know, the situation has changed. Naturally, it’s worse.

The average GTA property was worth $919,589 in April – the most ever. But by July 13th that had declined to $755,727, for a rout of almost 18%.

So the typical property-owning family lost a tax-free $163,863 in 11 weeks. Ouch. That rolls prices back to the level of September, 2016. So much for those goofy months of February and March when everyone thought houses would go up by 30% forever. In fact, this reduction in average price expressed across the GTA (with just over 990,000 properties) means $162 billion in equity is gone. Poof. Floated away. Just like Kevin O’Leary.

“The real estate board has a fiduciary responsibility to represent both buyers and sellers,” says the realtor who provided this information – we’ll call him Reliable Source. “So this kind of data needs to be made public in a responsible fashion.” You bet. Some poor moister buying a condo right now with 95% leverage, ‘because real estate always goes up’ could be crushed by what’s yet to come.

“This market is goin’ down,” says RS. “Yes, it will eventually find a bottom and start to recover, because that’s what markets do. But things are not healthy.”

The long-time house flogger points to his own analysis of current listings, where he sees “a disproportionate number of vacant and rented properties” suggesting that amateur landlords and speculators “are doing everything they can to get out.

“You have to remember that people who own and occupy their houses are not gonna bail just because prices start to crash or mortgage rates go up,” he suggests. “So this market is totally different now with all that speculation that took place. It’s distorted and investor-driven.” And that’s why this correction is not going to end well.

Good luck with that soft landing. Splat.

But it could be worse. You could be a doctor.

Chances are your family doc operates in a clinic with a few expensive employees and a bunch of shiny equipment. He or she probably has no benefits, no pension plan, pays lots of overhead and, yeah, makes a few hundred grand a year. That puts him or her in the top tax bracket which, thanks to T2, now Hoovers away more than half of income.

The solution? Follow the law and split income with your spouse who, as a shareholder in your medical professional corporation, is entitled to a piece of the after-expense cash flow. You could also (like so many docs) live a frugal life on a modest salary or dividends while keeping savings within the corporation where they can be invested at a lower tax rate than in your own hands. Then, in retirement – when your income goes to zero – you can withdraw the money as income and pay tax on it at your lower marginal rate.

This is part of the reason we have doctors in Canada, where socialized medicine caps incomes. In some places they must be government employees while in other places they’re allowed to incorporate. But it’s not just medical professionals who use corps to be tax-efficient and compensate for the fact they spend eight years training or will retire without income support. Lawyers incorporate. Dry cleaners incorporate. IT dudes are increasingly forced to incorporate. And most of them pay corporate taxes and personal taxes while making employee benefit payments plus collecting/remitting HST without compensation.

Anyway, here’s the deal. They’re all ‘rich’ now, so Bill Morneau plans to eat them. As this blog forecast months ago, the hammer’s coming down. In the next budget you can count on (a) a test to ensure all shareholders are worthy of the money they are being paid and, if not, a tax rate of over 50% will be applied to their income and (b) full  taxation, at personal levels, of investment income earned within a corporation, making every doctor wish she’d taken a salary and exploited RRSPs.

Moreneau veiled this in a cloak of ‘middle class fairness.’ But it’s unfair when rules are changed for the express purpose of penalizing success, hard work, risk or the acquiring of skills essential to the public good.

Another T2 grab. Makes you wish for a Trump. Almost.

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July 18th, 2017

Posted In: The Greater Fool

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