Tax Planning thoughts and questions

[bizaro86]

We have sold 5 properties this year, and plan on selling 1 or 2 more before the end of the year into Calgary's hot market. While we're selling rental condos at good values for our buyers, its time for us to right size our portfolio and take some gains as my wife had our first child earlier in the year. Which brings me to my question. We'll both be in the top tax bracket this year as a result of employment income, EI, and capital gains from the condo sales. However, next year my wife is likely to have no employment income and little EI. What have people done in the past to defer income to a subsequent taxation year?



I have two ideas so far.



1) Defer selling properties until 2015.



2) Purchase flow-through shares.



It seems to me both have the potential for loss, which isn't ideal for a tax planning vehicle. I'd appreciate thoughts and experience from those who have done something similar. I'd also be especially interested in any other ideas folks have for moving income into the next taxation year. We've already maxed out our RRSPs earlier this year, so that tax deferral mechanism is tapped out.



Regards,

Michael

 

[Thomas Beyer]

Yes deferring is an option, as is selling with a large VTB. You could also invoice services from another company this year and pay it out from that firm to you and/or spouse next year. What's the rush selling ? Market will be lower next year ? Why ?

 

[vnwind]

Hi Thomas



I just read this RBC report

"We expect that rising interest rates and increasingly strained affordability will cool Canada`s housing market during the next year and cause home prices to decelerate substantially in 2015.
We forecast home resales to edge slightly lower by 0.9% to 463,100 units nation-wide in 2015 following an increase of 2.1% to 467,200 units in 2014; and home price gains to moderate to just 1.1% next year from 4.3% this year."



So it is possible that selling now will generate higher price than next year?



Please share me your thoughts
Thanks

 

[Thomas Beyer]

[quote user=vnwind]I just read this RBC report

"We expect that rising interest rates and increasingly strained affordability will cool Canada`s housing market during the next year and cause home prices to decelerate substantially in 2015.
We heard that for the last 4-5 years.



1.1% gain is not bad .. some might be 0% and some 5%. Calgary was over 8% year-over-year, and might be "only" 4% next year. So why sell ? A gain is a gain.



Interest rates will likely NOT go up for a long LONG time, namely until the baby boomer induced pension & healthcare obligations are gone, say 20+ years from now. See also Montreal trashing of city hall and the RCMP absence when a modest proposal for dealing with these structural pension deficits was proposed for Quebec municipalities. BC will spend almost 50% on healthcare within the decade. See also California, Ontario, Europe or Detroit municipal, provincial or federal debt.



Germany now has a sub 1% 10 year bond. Imagine that: buy their bond (called "Bund") and get less than 10% in ten years. The ECB has a negative interest rate. Japan is also around 0. Any increase in central banks' rates will make your currency go up, decreasing exports. Ever wondered why the current Bank of Canada governor was a former Export Canada executive ? That is the ONLY hope for Ontario: weak currency to export cars and other goods.



In this environment, for ten years, likely more, interest rates will not go up in safe countries like Canada or US. Lend to Russia or Syria and get higher interest rates, of course, but at the risk of getting less money back in the original currency due to currency erosion.



Yes, house prices might be flat for a bit, here and there, but with in-migration into desirable cities they will, on average, continue to go up.



In the mean time: borrow cheap (say at 2-3.5%) and invest it at 4-8% yielding assets in safe, yet growing places like W-Canada and a few other places around the world or here @ home !

 

[Matt Crowley]

[quote user=vnwind]


I just read this RBC report

"We expect that rising interest rates and increasingly strained affordability will cool Canada`s housing market during the next year and cause home prices to decelerate substantially in 2015.
We forecast home resales to edge slightly lower by 0.9% to 463,100 units nation-wide in 2015 following an increase of 2.1% to 467,200 units in 2014; and home price gains to moderate to just 1.1% next year from 4.3% this year."



So it is possible that selling now will generate higher price than next year?



Please share me your thoughts
Thanks




You are absolutely correct that Alberta isn't an island - of course the wider Canadian and American real estate market have an impact. What we are seeing in Calgary (or Edmonton) is really not strained affordability at all. Even by RBC's own reports.



Source: http://www.rbc.com/economics/economic-reports/pdf/canadian-housing/house-may2014.pdf



The report goes on to say:



"Alberta ` Vibrant, under control, and affordable: what`s not to like?



With no added pressure coming from prices, housing affordability remained predominantly flat in the first quarter. RBC`s measures rose only slightly by 0.1 percentage points to 32.6% for detached bungalows and 0.4 percentage points to 20.2% for condominium apartments, while the measure for two-storey homes was unchanged at 34.4%. All RBC`s measures continue to be below their long-term average in the province."



..."Calgary ` Star performer

Calgary`s housing market pretty much has everything going for it at the moment: a strong economy, solid demographic demand, and attractive affordability. The trend in activity clearly is sloping upward (home resales climbed a further 2.2% in the latest quarter), yet it shows few signs that the market is getting ahead of itself."


The RBC Affordability Index looks at the % of pre-tax disposable income that goes towards mortgage payments. So the lower the percentage the better.

 

[KevinSolomon]

Buying flow-through shares for the tax refund is like cutting off your nose to spite your face.



If you hate money, it's the perfect strategy.



My accountant tried to sell me these things, but after looking into it, I told him that he was crazy. Just like with the labour-sponsored funds. Most of these products are designed to fleece 'investors'.



My opinion only.



Flow-through shares rarely worth the effort

 

[bizaro86]

[quote user=KevinSolomon]Buying flow-through shares for the tax refund is like cutting off your nose to spite your face.



If you hate money, it's the perfect strategy.



My accountant tried to sell me these things, but after looking into it, I told him that he was crazy. Just like with the labour-sponsored funds. Most of these products are designed to fleece 'investors'.



My opinion only.



Flow-through shares rarely worth the effort



I'm pretty confident I can evaluate oil and gas companies effectively. However, it generally seems that the ones issuing flow through shares are terrible. I would love it if some reasonable quality O&Gs made flow throughs available.