Jul 24, 2020 - by Leigh Graham - Partner - The Mortgage Professionals - Kingston, Ont.
We were in unknown territory; nobody knew if we’d have jobs, banks didn’t know if people would pay their debts; authorities didn’t know how long it would last.
To have banks suggest that mortgage payments could be deferred was unprecedented; while some lenders have offered ‘skip a payment’ functions, this was a wholesale – and in many cases ‘no questions asked’ – public offering, for up to 6 months.
Banks assured borrowers that payment deferrals would carry no negative consequences, and would not affect their credit reporting. As lending professionals, it became our responsibility to assist our clients with navigating the risks and rewards of such a decision.
Some lenders required applications to defer payments; some requested verification of job loss or other financial hardship; some stated they would revisit on a monthly basis, and some said ‘take 6 months off’ and asked no further questions.
In recent weeks, the effects of deferrals on credit reporting have started to surface. Payments deferred in April are being reported on consumer credit reports now.
Language such as ‘affected by natural or declared disaster’ has begun to appear. While payment history is being reported as on time (thus not affecting one’s actual credit score), it is clear when payments have not been made.
Today, the same lender that offered a 6 month payment deferral – without verification of employment status or other condition – has the right to judge a future credit decision on whether or not you deferred payments…and is doing so.In theory, these decisions were not to carry adverse consequences. In practice, the record of that payment deferral will now appear on your credit report. Whether that record changes once your payments are re-activated remains to be seen. As with many credit events, the record of such may remain visible for many years. Ideally, once payments are re-activated, they will ignore this as originally promised.
Time was, the equity created by the appreciation of your house over time was a sacred cow - that equity represented money you could use in your retirement or build wealth, or any number of things. That equity was security - hope for the future... a legacy to be passed on to family
Well, it turns out that sacred cow may not be so sacred afterall...
Our Canadian government is considering a tax levy on the equity of your home when it is sold.
Read this article from Jack Mintz
( President’s Fellow, School of Public Policy, University of Calgary, and chairs the Alberta Premier’s Economic Recovery Council.)
Adding an income tax on top of all the other levies could make a principal residence the most heavily taxed asset in Canada
If there is one topic that can create a maelstrom, it is a proposal to tax housing equity under the income tax. People are alarmed that the current tax-exempt status for a principal residence could become a new target for tax-happy governments.
However, is housing truly untaxed? As explained below, the answer is a resounding no.
A person’s equity in a principal residence is one of the most important retirement assets today — 30 per cent of family net worth in Canada.
So taxing the return from equity ownership would be wildly unpopular for this reason. It is not that some countries haven’t tried to tax home equity similar to stock, bonds and other real estate. In the past, several European countries included in taxable income a presumptive rental payment that the owners would charge themselves (a few countries, like Netherlands, follow this practice today). They also taxed the capital gains from selling a house. Further, a deduction was provided for mortgage costs, property taxes and perhaps other maintenance costs such as insurance.
While, in principle, home equity could be similarly taxed as other assets under the income tax, many European countries ultimately found it unworkable. The problem was the mortgage interest deduction. In Sweden, for example, homeowners would finance their homes with as much debt as possible. Interest deductions would swamp any rental income, thereby resulting in taxable losses that would shelter other income from taxation. By the early 1990s the problem became so severe that the Swedes reformed their entire income tax system by bringing in a low tax on net capital income to minimize any revenue losses from mortgage interest deductibility.
Some people suggest duplicating the U.S. system by taxing net capital gains from selling a home (with perhaps an exemption for the first $500,000 on a lifetime basis). However, the U.S. also allows mortgage interest and property tax deductibility, which can be taken every year while the house is owned. As a result, the U.S. income tax system actually subsidizes home ownership, as the value of cost deductions are far more than any capital gains tax to be paid once taking into account the time value of money.
Compared with the United States, Canada treats home equity as another retirement asset similar to tax-free savings plans. That means people don’t deduct the home purchase cost from the tax base (unlike pension and RRSP contributions), don’t pay a tax on presumptive rent, don’t write off property costs, and don’t pay tax on the sale of the house. They also cannot deduct any capital losses from selling their house (even today, many have lost some housing wealth in declining markets like Alberta and Saskatchewan). For sure, principal residence returns are taxed less than other real estate, stocks and bond assets under the income tax but it is treated no differently than other tax-exempt retirement assets.
While a principal residence is exempt from income taxation, housing is far from tax-free. As the OECD points out, some countries have given up taxing housing under the income tax and instead impose a property tax. Canadian families annually pay one of the highest property taxes in the world — an average of $3,500 — to provincial or municipal governments. These taxes are a form of wealth taxation but apply only to real estate, not other assets.
When people buy a home, they are also hit with a land transfer tax, except in Alberta and Saskatchewan. These pernicious taxes on mobility are graduated with tax rates rising according to the purchase cost. In Toronto and Vancouver, homeowners pay land transfer taxes of up to five per cent. Land transfer taxes, real estate fees and moving costs can easily add up to over $100,000 for an average priced home in those cities, resulting in many homeowners renovating their existing homes rather than moving.
Don’t worry though, our creative governments make sure they tax home renovations, too. Any repairs are fully subject to the GST/HST as well as provincial retail sales taxes in British Columbia, Saskatchewan and Manitoba. As for new home construction, the GST/HST applies to the purchase cost of a house and land with a partial rebate given for cheaper homes. The federal partial rebate is phased out entirely when homes are sold at a price above $450,000 (provincial rebates operate differently but are limited). Thus many homeowners will pay GST/HST varying from five per cent in the West to 15 per cent in the Atlantic on housing costs including any other levies imposed on construction (a “tax on tax”)
The most important of these levies included in the purchase price are development charges on newly constructed housing projects. They run at approximately 10 per cent of housing costs in the Greater Toronto Area and almost five per cent of housing costs in other parts of Canada. These rates — other than in the GTA — are double compared with the United States.
For Toronto homeowners, they are four times higher.
Oh, did I mention the corporate income tax on home building? The effective tax rate on new investment in construction is higher than any other sector except for finance and oil/gas.
Thus, housing is already pretty heavily taxed once you include property taxes and other levies. Putting an income tax on top of all these levies could easily make a principal residence the most heavily taxed asset in Canada.
Enough is enough.
We hope you enjoy the following article originally created and posted by Tim Lemke on Wisebread.com.
Tim has been a personal finance writer for Wise Bread since 2013. He has more than 20 years of experience writing about business for local and national publications. He is currently a freelance business writer.
By Tim Lemke on 10 September 2014
I used to play golf several times a week, but now I never find the time. As a result, I have a lot of golf balls laying around the house.
But there's no need to let those old balls clutter your home. With a little creativity, you can turn a typical golf ball into a nice home furnishing or even a nice accent to your garden.
Consider these creative ways to put your old golf balls to use around the home.
Take one or two golf balls and roll them over any muscles that might feel tense. You can even place a pair of golf balls on the ground and then lay on them for a great back massage. During a recent road trip across the Midwest, I found myself using a golf ball to relieve tension in my neck as I drove. Golf balls also work great on the arches of your feet.
Using just a drill and a long screw, you can turn a boring round dimmer switch into a golf-inspired dimmer similar to this one. You can use the whole ball, but it could also work if you cut the ball in half.
People fill vases with everything from colored gems to sea shells to pinecones and peas. Why not golf balls? Select a mixture of colored and white balls to create a fun accent to any room.
Line the bottom of a pot with some golf balls and then place dirt on top. The golf balls will allow water to drain more easily, so there's less danger of over-watering. With the improved drainage, plant roots are less likely to rot.
A look on Pinterest shows a number of do-it-yourself projects featuring golf balls transformed into small animals, including insects, spiders, and frogs. A little paint and some small wires are all you need to make whimsical decorations for your flowerbeds.
Golf balls are the perfect size and weight for some fun decorations to hang on your tree. It's easy to glue three balls together to make a snowman, or just decorate one ball to make a face of Santa or other characters.
Sure, you could pound your steak with a fancy kitchen mallet, but if you don't have one handy, take a golf ball and roll it over the meat with some hard pressure. (Just make sure your golf ball isn't one you just retrieved from a scummy pond.)
So you're all set up for the picnic, but the table cloth keeps blowing away in the wind. You can solve this problem by sewing each of the four corners of the table cloth around a golf ball. It's just enough weight to keep the shoo-fly pie and watermelon off the ground.
Glue or drill a few golf balls to some small pegs, then attach to a plank of wood for a sporty spot to hang your jacket or cap.
If your stopper is missing or broken, you may find that a golf ball fits perfectly into your drain. And according to one YouTube user, the ball will gradually roll back into the drain on its own once you remove it, thus preventing heat from escaping your home.
We're delving a bit into the realm of pseudoscience here, but there are some companies who have sold specially designed balls with claims that adding them to your laundry cycle will clean your clothes without the use of detergent. The claims of these products have been largely debunked, but even some skeptics say the mechanical action of a ball in the laundry may have a positive effect. In which case, an old golf ball will work just as well.
What do you do with your golf balls when you aren't spoiling a good walk? Please share in comments!
This article was originally published on www.Wisebread.com
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