Normal people don’t read this blog, as you know. Apparently they’re all at home making Halloween costumes for their children from discarded fast food wrappers and tree sap. The picture painted by a new survey is, well, chilling. The masses are sinking into a morass of debt and delusion.

Here’s what polling done for MNP found (hope you’re seated…)

  • Almost half (48%) of people have $200 or less left at the end of the month after paying bills and servicing debt.
  • 47% say they won’t be able to cover basic living costs over the next year without borrowing more. Yes, more.
  • Seven in ten families couldn’t handle a problem – like a busted furnace, divorce or job loss.
  • The average that families have left per month after bill payments is $557.

And they all have a vote. But that’s another story. The key point is that mortgage rates are incredibly cheap and borrowing costs in general are near generational lows. We’re in year 10 of an economic expansion. Unemployment is the lowest in decades. Wage growth was robust last year. And yet household finances are crumbling before our eyes with a savings rate under 1% and an unprecedented level of borrowing. The pile of personal debt, at $2.2 trillion, is bigger than the economy itself.

“Unexpected expenses can plague people regardless of age or income but they’re most devastating for people who already have a large amount of debt,” says the company. “Our research shows that most households do not have enough cash for inevitable life events like a car repair.”

So what happens when the inevitable slowdown arrives? When wages flatline, jobs are lost, asset values fall and the economy contracts?

This brings us to Wednesday.

The Bank of Canada is slated to reveal its latest policy in an announcement, a report and then a media conference. Rates will not be cut, Mr. Market says. Maybe that’ll happen a little in December, but more sometime in 2020. Central bankers clearly understand any reduction in the cost of money will just encourage and facilitate more borrowing. Already the bank identifies excessive household credit as a major risk to the economy, and it’s not hard to see why.

This debt trap has ensnared so many people and at the most dangerous point in the economic cycle. Meanwhile government finances continue to erode, especially in light of the recent election (which is looking more and more like the last one for Andrew Scheer…). The federal deficit will balloon again to almost $30 billion, and at a time where the recession is still a distant threat. We could be looking at a far worse number in a year or two, putting more pressure on the central bank to hold the cost of money low.

What does this mean to the folks who come here?

Well, bond prices will probably be drifting higher in the future as monetary policy eases and rates come down to add stimulus to the economy. But at the same time bonds get more valuable, GICs yields will fade. Mortgage rates may dip a bit more, however in a slowing environment the impact on real estate is likely to be muted.

Of course we also have a US presidential election in the mix, and the odds are high that Tariff Man will turn into Art-of-the-Deal Man, with the China trade war diminished and equity markets plumped as a result. Markets are still betting Trump vs Warren/Biden will yield a Republican winner.

So, in other words, the future is clear as mud. The business cycle dictates contraction. Politics suggests otherwise. Central bankers are being pre-emptive. And there’s a lot of monetary and fiscal stimulus about to be unleashed.

But this much is clear: people who need to borrow to survive, or end up each month with but a few hundred bucks, are gambling. They’re at risk. It’s a huge indictment of our culture, in which 70% of people own expensive assets but have financed them with a sea of debt. As stated a few paragraphs ago, all these families vote. And they vastly outnumber us.

The inevitable then: tax increases.

Given our experience thus far with the T2 government, the new political reality of its need for NDP support, coupled with unbridled spending promises in the election campaign, how could it be otherwise? As stated here yesterday, triggering capital gains while the inclusion rate is 50% (instead of 75%) – especially on real estate – might be a useful strategy. Also ensure you’ve used your available RRSP and TFSA room. Maybe it’s time to trade in non-deductible and high mutual fund MERs for low-cost ETFs or tax-deductible advisor fees. Split income within your household, using a spousal RRSP, sharing pensions or holding a joint non-registered account. Gift your adult kids money for their TFSAs (no attribution o you) and lend your less-taxed spouse money to invest. If you’re a small business dude, don’t just take cash in dividends or keep a whack of it in your corp. They’re coming for you.

This blog has provided a lot of tax-avoidance advice recently. Take it. Most people never will. They will so regret being ordinary.



The big bite

Justin Trudeau may be the prime minister. But Jag Singh may up being the finance guy. As mentioned here a few days ago, it’s the sum of all fears – that a minority left-lib government will cave to the far-lefties in order to retain power. T2 says no coalition. But he cannot govern without support. Facts are facts.

This terrifies Nate.

“I have a question about the inclusion rate on capital gains and possible government future changes,” he writes me. “If the Libs and NDP passed changes to the inclusion rate would it be effective immediately?  Just wondering the likely outcome. Pam and I have about 2-plus million in unrealized capital gains in real estate most of which is on one property. Selling sooner would be a big difference? I wonder about selling to myself or into a limited company thereby triggering capital gains tax –   sounds crazy but the extra tax is around $500,000 plus for all our buildings? Ouch.”

Yup, big ouch. The tax hit on dumping those properties would be 50% higher in this scenario. But is this a realistic possibility?

First, how are capital gains taxes calculated?

When an asset is sold, the difference between its market value (selling price) and what you invested in it (the ACB – adjusted cost base) is called a capital gain. In the case of real estate the ACB includes the purchase price plus the cost of all improvements made while you’ve owned it. That number is reduced if you claimed capital cost allowance annually or deducted the improvements from taxes owed. (Never, ever let your accountant claim CCA on a leased condo, by the way…)

If you sell for a profit over the ACB then half that gain is tax-free. Yay! The other half is added to your taxable income for the year in which the sale occurs. Clearly that can push you into a higher tax bracket, so just imagine if the capital gains inclusion rate moves from 50% to 75%.

Example: Nate, who has an income of $100,000, sells and realizes a million in profit on his properties. Under the current rules $500,000 is added to his income and his 2019 tax total (for Ontario) is $153,000. If the cap gains tax were bumped to 75%, his tax would jump to $220,000.

Of course, the dollar-is-a-dollar crowd argues investors today (in investment real estate, stocks or ETFs etc) get an outrageous advantage in having only half the gains taxed while working schmucks are fully exposed to tax on employment income, rent, pensions or interest on their pathetic GICs. Sadly, this is growing in our tilting society.

“When you go to work, you’re taxed on almost all of your income,” says Jag. “It doesn’t make sense that someone making their money from investments is taxed on only half.”

Says the lobby group, ‘Canadians for Tax Fairness’: “This costs the government $10 billion that could boost their inadequate investment in child care. It would create more jobs, boost participation of women in the labour force and increase tax revenue over time. Budgets are about priorities. When 92% of the benefit of this protected loophole goes to the top 10% it makes one question their stated commitment to tax fairness and helping the “middle class”. “

The current 50% inclusion rate has been in place for two decades. Bumping it up by half, the NDP claims, would bring in $3 billion that Ottawa can spend on social programs. The socialists claim 88% of the cap gains benefit goes to the top 1%, and “this is unfair for people who are trying to build a better future for their families.”

Let’s not forget that the Liberals themselves have toyed with diddling with capital gains. A controversial plan to restrict this in terms of farm families (and others) was abandoned after sharp criticism, and the party’s 2015 platform included a commitment to review every tax advantage investors ( aka ‘the rich’) enjoy over employees. This was the philosophy at the heart of Morneau’s attack on the self-employed and private corps last year.

Why should capital gains receive special tax treatment?

Simple, so people invest. Doing so involves inherent risk, since assets can fall in value as easily as they increase. Taxing gains less and allowing losses to be deducted from profits recognizes that risk. It encourages people to put money into businesses, creating jobs. Or into the capital markets, strengthening the overall economy. Or into rental real estate, providing housing. Or financing government debt, so politicians can overspend. Current laws also keep us competitive with the US (even though cap gains are taxed less there), since money has no patriotism.

“If we raise the capital gains tax rate that’s just going to encourage more people to look at the American market to start businesses or to develop things down there as opposed to here if that happens,” says tax academic Jack Mintz. “It’s not good to start looking at hiking more taxes on investors at this point.”

In any case, is this change possible?

My answer to Nate: an unqualified maybe. T2’s been coy so far about how far into the sheets he’ll crawl with the Dippers. Obviously the Libs need money. The projected deficit numbers are horrendous, and if a recession materializes we’re pooched. Meanwhile Trudeau has shown – with his special tax bracket for high income-earners, his attack on stock options and his assault on business owners and professionals – that he’s no friend of the investor class.

Selling now and paying on 50% to avoid selling later at 75% is a strategy. It’s called ‘insurance.’

And yes, the tax change would be effective the night it was introduced. In 20 weeks.


US withholding taxes

RYAN By Guest Blogger Ryan Lewenza


As Canadians we pay a lot in taxes. When you consider personal, sales, and property taxes and social security contributions, it really starts to add up, and I would argue, one reason why Canadians are finding it more difficult to make ends meet. Now we are incredibly lucky to live in such a great country like Canada where we, generally, have a good health care and education system, a robust social safety net including unemployment insurance, childcare benefits and pension benefits for seniors, and generally a peaceful and prosperous place to live. Given all this we should pay a healthy amount of taxes (how much we pay in taxes is for another day), but when we can, we should look to minimize taxes in every way (legally) we can. So today I cover a small but not insignificant tax that investors can try to minimize, known as withholding taxes on foreign investments.

When investing in stocks an important component of returns are dividends. Dividends paid by Canadian corporations can be eligible for the dividend tax credit, which reduces the taxes paid on the dividends. In contrast, dividends received from US or international equities are not eligible for the dividend tax credit and additionally are levied a ‘withholding tax’ from the countries where the companies are domiciled. This withholding tax therefore reduces the net dividends received by the investor and lowers the overall rate of return. Today I’ll cover ways to minimize this tax and improve after-tax returns on foreign investments.

The impact of US and international withholding taxes is complicated so some background is needed. There are three critical pieces to this puzzle.

First, with ETFs (the only vehicle we and all our readers should invest in) there are three different ETF structures related to foreign-based ETF investments. They include: 1) a US-listed ETF (the S&P 500 ETF (SPY-N) is an example of this), 2) a Canadian-listed ETF that holds a US-listed ETF (the iShares Core S&P 500 Index ETF (XSP-T) in an example of this), and 3) a Canadian-listed ETF that invests in the underlying US or international stocks directly (the BMO MSCI EAFE Hedged ETF (ZDM-T) is an example of this). Now that that is clear as mud, we need to move on to the different types of withholding taxes.

Second, for foreign withholding taxes there are two ‘levels’ of this tax. The ‘level one’ withholding tax is the tax that the US government levies on Canadian investors who hold US equities. This is currently 15% and is withheld before the dividend hits the account. The ‘level two’ withholding tax applies to international stocks that are held in a Canadian-listed ETF. In this case the Canadian investor pays two different withholding taxes of roughly 30%. The first one is withheld by the US government on the international company dividend (you don’t actually see this) and then the US government withholds their 15% (you see this in your account). This is the worst of all the options.

Finally, where the ETF is held (i.e. in an RSP or taxable account) will determine what the investor ends up actually paying. So it’s the combination of the ETF structure and the type of account that will determine the amount of withholding taxes paid.

Putting this all together here are the key takeaways on how to minimize the withholding tax for ETF investors:

  • For a US-listed ETF it’s best to hold this in an RSP/RIF or a taxable account. The US government has a tax treaty with Canada where they will not withhold taxes on US dividends if held in an RSP account. For the taxable account you still pay the withholding tax at source but when you file your taxes at year-end you can offset this withholding tax against your overall taxes owed thus recouping some of this tax.
  • For TFSA and RESP accounts it’s generally best to hold Canadian-listed international ETFs as US-listed ETFs offer no tax advantages in these accounts.
  • Lastly when purchasing a Canadian-listed ETF that invests in international stocks (non-US), try to focus on the ETFs that invest directly in the underlying international stocks versus holding another international ETF. This will avoid that double taxation.

Admittedly, this isn’t the most exciting blog topic but hopefully you’ve learned a few things about withholding taxes and minimizing this drag on returns. Also sticking it to Uncle Sam is always a plus!

The last point I’ll leave you with is that withholding taxes is just one consideration when determining where to hold certain ETFs. You also have to consider things like currency transactions, how the funds are spread across each account, which accounts hold US dollars, the tax rates on other investments like bonds, and the potential growth rate of each investment.

Meaning, sometimes we’ll hold a US-ETF in a TFSA, for example, because the other factors like the potential growth of the investment will outweigh the hit of US withholding taxes.

So the main takeaways above are things to strive for but don’t lose perspective of all the other factors that go into where you should hold certain investments. Don’t lose the forest for the trees as they say!

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.



The big miss

As predicted here, Mad Max is gone. Liz May’s also toast – a fact she acknowledged a couple of days ago. Now more doubts are being raised about young Andrew Scheer, since the Libs managed to pummel him with his own social conservative principles. Despite Lavalin, Jody, India, deficits, ethics and blackface, Trudeau retained government even when losing the popular vote. The country is polarized. Wexit happened. More separatists sit in Parliament.

And what about the election’s fallout on personal finances?

More on that in the weeks ahead when we discern if T2 will be cowtowing to the Dippers, running up the deficit and trying to pay for it with a higher capital gains tax plus more burden on corps. In the meantime, we’re already seeing what the vote did to real estate.

Sales and prices in most markets plumped during a campaign in which every major party promised to shower buyers and owners with goodies. Even the Tories – supposedly the party of fiscal restraint and market forces – suggested opening the borrowing floodgates by gutting the stress test and bringing back 30-year mortgages. What a disaster that might have been.

Well, what now?

We know the Libs will be pushing ahead with the enhanced shared-equity mortgage, letting first-timers buy digs worth up to $800,000 in the Bubble Cities, ensuring the bubbles remain. It’s hard to know how many moisters will plug into this, but the very notion the government will suck off up to 10% of a mortgage has had an impact. More showings mean more offers, more demand and price pressure. That’s just the way things work.

The Libs have already increased the borrowing limit on the Home Buyers Plan, letting young couples raid their RRSPs of $70,000 for a downpayment, with no tax consequences. There’s more money now for retrofitting homes, and the new national tax on non-Canadian buyers – the first time the feds have directly taxed real estate ownership. Let’s not forget the T2 government is a minority and will need the support of the BQ or (more likely) NDP to pass a budget. Such propping-up might come with strings, such as enacting Dipper policies to return 30-year mortgages or double the tax credit for new buyers.

It all adds up. Even in an uncertain world of Trump, Brexit, Syria and trade wars, this stuff is having an impact. You could see that this week in the latest projections by CMHC, Canada’s federal government housing cabal. These guys predict Toronto prices, for example, will be 10.5% higher (average price hitting just under $1 million) in 24 months.

This is, of course, a pox. It’s triple the inflation rate and double wage growth. This would push affordability down, even if mortgage rates stay at current depressed levels. Leverage increases, debt rises and personal finances become more precarious. If there is a recession two or three years out, a lot of people may be sorry they embraced loans to buy a peak asset.

The feds say prices will roar thanks to increasing employment and population growth, both from immigration and internal migration. At the epicentre, at least in the GTA, will be condos.

States CMHC: ““We are already seeing demand for the more affordable types of homes like condo apartments and townhouses. That’s an area that has really picked up steam. I don’t think demand ever dissipated in Toronto but it has sort of shifted from the singles to the condos. The sales-to-listings ratio in condos is in what we call the sellers’ territory nearing 70 per cent so there’s a little heat in that market. That’s where properties aren’t staying long in the market. There’s rapid price growth in that area.”

Fine. We get it. The kids can’t afford singles and drift to condos. Demand rises. Prices grow. Political pressure to ‘do something’ about unaffordable real estate and the high rents it begets grows. Leaders make stupid promises. They get elected. Incentives follow. More demand. Prices rise. And here we are.

So once again competition for condos is heating up. It’s entirely possible in 2020 we could see 2016 prices exceeded – even with the stress test in place and insured mortgages halted at 25 years.

Is this a permanent condition? Will any corrections going forward be like the one just ended – short?

I doubt it. But who knows? When governments keep doing silly-ass things like giving buyers a 25-year holiday from part of their mortgage payments or letting them divert pension money to buy inflated houses how can anyone be certain what lies ahead? We know personal finances suck. We know debt’s at an historic crest. We know the savings rate has crashed. We know financial illiteracy abounds and that retirement savings are melting. We know the Mills are a demographic bubble.

All that spells risk. You can embrace it or not. But if real estate hits a new high next year, thanks to artificial stimulus, make damn sure you’re buying on a solid foundation. Don’t shovel all your net worth into a condo. At a minimum, fill that TFSA and stay invested. Lock in your mortgage rate. Do the rent/buy math. Don’t count on steady appreciation, remember to price in closing costs and be aware of the rising burden of ownership. Know the Rule of 90.

Best guidance: never buy a one-bedroom condo if you’re in a relationship. Bad move. Like voting, apparently.



Dr. Garth

Time to abandon the rebel forces of the Alberta Secessionist & Expeditionary Army before the RCMP hammers down the blog’s nice oak door. The last two days prompted Bandit to go out and buy one of those little armoured police dog vests. He wanted a helmet too, but there’s a limit…

Alberta’s long-term future in Canada may be more secure than Mr. Trudeau’s, so everybody should probably take a red pill and chill. In the meantime, let’s turn to some First World problems posed by people who show no inclination to mug a Quebecker.

“Short time reader (~6 months), love the dog pictures, and my favorite posts are definitely your doctor is in, particularly when you skewer someone for not following the advice you give weekly, “ writes Vancouver Millennial (what else?), another of those rich kids everyone hates.

My wife and I live in Vancouver aged 34 and 33. We have stable jobs; I make 130k and she makes 85k (w/pension). We have ~600k in assets split 70/15/15 between a variety of ETFs, fixed income and cash. About half is in non-reg accounts. We save 60k/yr that goes into TFSA/RRSP, but a lot of that is because our rent is a reasonable 1200/mo.

Now: My wife is now pregnant and that rent friendly apartment is not child friendly. Buying isn’t really on the table for reasons listed on this blog ad-nauseum, but I’m struggling to determine what a ‘reasonable’ rental we can afford based on how much we should try and save with maternity leave and future costs on the horizon (child care, additional children, a much wanted canine friend…).

For context, we can find 1000 sqft 2 bed apartments in East Vancouver in the 2-2.5k range, versus nice detached homes in Vancouver West that are 2000 sqft for 3-3.5k.

Assuming our current non-essential expenses shift to the newborn, is renting an entire house and saving 33k/yr vs. renting a 2 bed and saving 45k/yr a bad idea? We have no visions of retiring in our early 40s (mid to late 50s would be great), but want to set ourselves up to be financially independent and ready if housing prices ever crash out here.”

First, your baby won’t give a hoot where you live. The kid won’t demand a separate bedroom or a backyard for a while, so there’s no rush. Having said that, you make a lot of money, have saved a ton and can certainly afford to upgrade.

How much rent should you pay? One yardstick, often used by landlords to determine if a tenant has the wherewithal to lease, is the Rule of Forty. That simply means your annual household income should be 40 times the monthly rent. Or, conversely, divide income by that amount to arrive at the max rental rate. For example, a family grossing $100,000 could finance a $2,500 monthly.

In your case the rent ceiling chimes in at $5,300 – enough to rent a honking nice house, even in delusional Vancouver. But, of course, that would eat into your fat savings rate – and already you face a lifestyle shock with all of the kid-related expenses about to fly into your lives. So three grand a month (or close) sounds like a reasonable compromise. Please remember, however, to avoid the classic Baby Mistakes – (a) running out and buying a lot of insurance born of guilt, obligation and adulating or (b) falling prey to one of the RESP Vultures festering like a fungus outside the maternity ward doors.

Now, to the opposite end of the age continuum, because Samuel has a question about looking after his grandma. Lucky for her, he sounds like a good boy.

“I’m a long time reader of your educational blog and this is the first time I’ve reached out for your expert opinion. I couldn’t imagine not starting my day off without a cup of coffee and a fresh post from the wise Garth Turner. I hope this is enough of a suck up?”

It is. You may continue.

“I’m a young male in my mid 30s, and I have the responsibility of being my widowed 87 year old grandmother’s POA and executor of her will. She has multiple RIFF and non-reg accounts that sustain her current and foreseeable lifestyle that is changing daily as Alzheimer’s has set in. She has a ton of GICs that are staggered to come to term every year and recently she had 80k of GICs that have come to term and I was surprised to find her TFSA has 50k of room. I intend to fill the TFSA but am second guessing what to fill the TFSA with. IMO my grandmothers generation had the approach of parking money somewhere that as long as it didn’t lose it was a win and it has done her well.

“As her mental health has deteriorated rather quickly, locking into a multi-year anything seems like a bad idea. Obviously, I have a different investment approach at 30 than that of my 87-year-old grandmother. I want to do the best thing for her so she can be comfortable going forward. Do I take a 60-40 balanced approach? Do I stuff it in short term GIC’s just as the [email protected] led my grandmother to believe was in her best interest?”

The first concern is her care as she sinks into the fog of Alzheimer’s. This is a vicious malady with no cure, a steady spiral downwards and a known outcome. Her needs will grow more intense, and many victims end up requiring 24/7 attention in a secure place. Sadly most public facilities are ill-equipped or staffed to adequately handle that. So, Sam, your highest obligation is to use her money to ensure she receives the greatest, most appropriate and loving assistance. That can cost eight grand or more a month in many cities. For that level of expense, her assets likely need to perform far better than in a GIC.

[email protected] is wrong. Your grandmother doesn’t need to preserve her capital for the years ahead, but to use it now for immediate needs. By investing it for her in a prudent, diversified and balanced portfolio you can extend the life of this capital and possibly allow her to also leave a legacy. Work with an advisor to consolidate the RRIFs and the non-registered accounts, to fold in the GICs as they mature, and create an ETF-based stream of income for her needs. Stuff the TFSA, of course. Review her will. Document all of your actions as her POA. Speak with her accountant to ensure past tax returns have been filed. Start reviewing your complex duties as an executor.

Then hold her hand and tell her not to worry.

Remember, Sam. There but for the grace of God and a few decades, go you. Pray you have as worthy a guardian.


Losers, Part deux

Ben’s a scientist. Maybe a cowboy, too. Not sure. But he’s astute, accomplished and fully integrated into the pipeline business in Edmonton as a senior guy. Earlier today he sent this to me. Ouch.

I have spoken with dozens of business people all over Alberta. The level of sentiment for separation is higher than ever. What used to be a whispered and radical idea, is out in the open and not considered radical at all, rather almost mainstream.

My guess is that the Alberta Government is first going to try to negotiate a new transfer arrangement. It may also ask for a specific mandate to do so in the form of a referendum. If the rest of Canada does not negotiate seriously, there will be a second referendum. We will have a simple question and we will be gone. The negotiations will be pretty simple, we will do what we want to do and the ROC can agree or not, but we will go.

The very serious people I have talked to assume that if we do go, we will use the U.S. dollar for our currency and hire them to handle our defence. We will get a pipeline through the U.S. and turn off flow east and west as part of our negotiations. It is not going to be pretty.

I am astonished by the level of acrimony here. Lots of people would sort of joke about separation, but not that seriously. Now, I have friends on the bench who are talking about how to do it. No one alive in Alberta has forgotten the NEP. This is worse, because not only are we not getting world price, we can’t get it to market at any price.

The fallout from Monday night continues. It intensifies. Trudeau’s win, the climate change agenda, the pipeline bottleneck, the rise of the BQ, Calgary’s 30% office vacancy rate and the faltering Alberta economy have tipped the scales. The last 48 hours have birthed astonishing rebellion in the minds of otherwise sane people. East vs West. AB against the greenies. Kenney tackling Trudeau.

Did you catch the comments section of this pathetic blog yesterday? The inmates are fomenting open rebellion. Here were some classic cowboy, die-in-my-boots-not-on-my-knees words of defiance (and a little idiocy):

If Ontario attempts military action on Alberta, here’s how it will go. They will be badly damaged by the time they get through Manitoba, and they will regret having tried to go through Saskatchewan. Then winter will set in, and they will starve. And so will Ontario because of course the gas would be shut off. After that all the Alberta hunters with their 4×4’s and guns will be waiting for them. The idea that Ontario could send a bunch of Antifa, Millennials, and transgenders to Alberta and win a war is preposterous. If those folks you are hoping to sign up actually do, which they won’t. After the humiliating defeat, you would have to hope we have no reason to come back and take over Ottawa. Which we won’t, actually. Ottawa can rot in hell. We don’t want it. It’s a place of rot. Don’t forget. Modern war is simple. If you have the oil, you win. Now go charge up your iPhone on Alberta energy.

Whoa. This is sedition, n’est-ce pas? How did it happen?

Well, the Transmountain pipeline fiasco is a big part of it. Delay, delay, delay. So is the carbon tax, being fought bitterly by several provinces. The entire climate change agenda the T2 Libs have adopted is seen as utterly urban, antithetic to Alberta’s interests, and likely bogus. World oil prices still less than 50% of what they were a decade ago have crippled. Canadian crude has suffered for lack of pipe. As a result, Alberta’s been in a semi-recession now for years. House prices peaked long ago and have languished since. Calgary’s gleaming commercial core has been hollowed out. That flirtation with the NDP and Rachel Notley sure didn’t help. And now Albertans feel shut out of a government dominated by transgender snowflake unarmed moister pantywaists from Mississauga while Quebec nationalists swarm into the House of Commons to promote their own interests.

Okay, but what of this Wexit talk, this session chatter? Is it even credible?

Let’s review the rules, put in place following the near-death experience of the 1995 Quebec referendum. That’s when the House of Commons framed The Clarity Act, setting out the terms under which Canada would enter into negotiations following a referendum vote in a rebel territory.

Here are the conditions:

  • MPs have the power to decide whether a proposed referendum question is ‘clear’ and unequivocally about secession before the public vote;
  • The House of Commons has the power to determine whether or not a clear majority expressed itself following any referendum vote.
  • All provinces and First Nations must be part of the negotiations.
  • The House of Commons can override a referendum decision if it any of the above conditions are not met.
  • The secession of a province would require an amendment to the Constitution to be legal.

And this is how the Canadian constitution gets amended: required is the approval of both the Senate and House of Commons and of the legislative assemblies of at least two thirds of all provinces representing at least 50% of the population. Good luck with that.

Two conclusions: Alberta will never leave because it can’t, unless it shoots its way out. And, more immediately, our current prime minister has a crisis on his hands.



The losers

And finally…

The prime minister and his party gave up a lot of ground, surrendering seats and losing the popular vote Monday night. Minority government is no fun, and he’ll likely be fighting for his political life again in a couple of years.

The Conservatives blew an historic opportunity to topple a wobbly and insecure government racked by scandal and led by an egocentric with a troubled past, two ethics violations, public embarrassments and a mantle of hypocrisy. Not impressed.

The Dippers lost support, seats and credibility. They now form the fourth party in the House of Commons, with a caucus of dubious quality and scant experience.

The Greens blew the best chance they’ll ever have to elect members. She’s done.

Max? Pfft.

As for Canada, this is not a good week. Quebec has a reborn regional party with seriously deep separatist leanings, and has drifted away. The West is isolated from the centre, with no government MPs, a growing sense of alienation and a steamy barbarian leader in Alberta. The fracturing and balkanization that’s taken place in our land since 2015 is remarkable. At the same time we’ve just endured four years of deficit spending, and have four more (much worse) years coming. All this at a time when the global economy is slowing and interest rates are near historic lows.

It’s not hard to tell the election was about giving people stuff in order to win their vote. It was not about the notion of nation. No leader shone. None inspired. It’s hard to get excited about those who pay you to like them. So the voter turnout fell with more than a third of us never bothering. Polarization is the result, and now millions of voters await the goodies they were pledged.

The question for investors is what the 2020 federal budget will bring. Some people fear the assault on small business will resume, the capital gains inclusion rate will be upped, the 10% luxury tax implemented and new incentives reflate bubbly housing markets. They should. That could all certainly happen.

But not so fast.

Minority governments are tenuous. The people in charge suddenly have to serve many masters. In this case not only are there ideological differences between the parties, but regional ones as well. Trudeau’s tenure as PM could be ended in a number of ways, having lost the support of many Quebeckers and most people west of the Ontario border. Suddenly whacking everybody’s retirement savings or making it even harder for the largest demographic to buy a house is political suicide. So the good thing about minority – even when the Libs have to bed down with the socialists – is its inherent instability.

What to do?

Nothing. Responding to this vote by selling off hunks of your portfolio would be rash. (Buying that $175,000 RV, however, might be a stroke.) Raising the cap gains rate would be a major move, and only an irresponsible gaggle of politicians would do it without research and warning. For a minority government to pull that off would be unlikely. Ditto for gutting the stress test or (as the NDP wants) returning 30-year mortgages. If the next budget opens those doors the consequences could be dire – and the government change.

Wait. Assess. Listen. Read this pathetic blog. T2 will likely say he’ll govern as if he had a majority, at the same time negotiating with other parties. Like every leader, he’s addicted to power. But he’s also no fool. In a country where the popular vote for Cons just topped his own performance, he knows there are limits.

The excitement, the ‘sunny ways’ and the youthful adrenalin are gone. Too much baggage. Too many slips. Trudeau has to be careful now. He gets that. And he is surely thankful all his opponents choked.



Now what?

 – Andy Seliverstoff photo

Update (Oct.22): Libs 157, Cons 121, Bloc 32, NDP 24, Green 3. Tories won the popular vote but Grits form the government.


Okay, I admit it.  This is being written before the election result is known. Bandit can’t wait up. No matter. The odds are it’ll take some time to figure out where power actually lies in a minority government situation. We could be doing this all again in a couple of years.

Here’s what we know.

The Dippers will not support the Cons. Ever. So there’s the chance of a Liberal-NDP coalition government which is (from a financial dude’s point of view) the Sum of All Fears. Potential outcomes include an increase in the capital gains inclusion rate, diddling with dividends, lots more spending (and deficits), a renewed thumping of small business people and maybe even the inklings of a wealth tax.

Or, we could have a Tory-Bloc marriage. The reinvigorated, renewed nationalist Bloc Quebecois party has been the big story of this campaign, stealing the Lib majority and creating a pesky nest of squishy sovereignists. And while Quebeckers tend to lean left in a wind, there’s an element of fiscal discipline there that makes it possible for them to support Conservatives. If they get something out of it, naturally.

A majority win by anyone tonight would be a shock. If it happens, it will be pulled off by T2. And we already know what that will mean. More than $90 billion in new deficits over four years, a 10% luxury tax, the shared-equity mortgage up to $800,000, big increases in social spending and probably no pipeline.

The Greens are toast, missing their one giant opportunity to capitalize on Greta and win ten or a dozen seats. Liz May is a nice lady who’s sat in my kitchen and petted Bandit, but her day is done. As for Mad Max, the best he can hope for is a one-seat party which means he can sit and hate in peace. Of course if the 2% or so that his movement garnered had been added to the Con vote we’d be looking at a different scenario by Thursday. But with Max, ego comes before nation.

Blackface hurt Trudeau. The smear-PPC hurt Scheer. Jagmeet exceeded all expectations. And it’s extraordinary a majority Liberal government lasted just one term, even when headed by a rockstar politician who gave legal drugs to the  masses and cried on camera when Gord Downie checked out. We are in strange times.

Here’s a view from Bay Street analyst Ed Pennock:

It Seems that the 2 major Parties have ended up where they started. Support levels in the low 30%’s. Underneath is a different story. There is resurgent seperastim in Quebec. There is building separatism in the West. The Greens continue to make inroads. The “Greta” effect? This outcome that delivers a minority government. Thus a huge amount of political leverage to the NDP, the Separatists, and the Greens. The fault lies directly with what the electorate has taken to be general mismanagement of the country’s affairs. The current opposition lacks charismatic leadership. As well as some murky views on things like abortion.

That’s succinct. The country may be fracturing. Progressives and paleos. West and East. Quebec et le reste du Canada. Moisters vs wrinklies. Climate changers and pipeliners. And the wealth divide slices through all of it. Too bad the election campaign threw red meat (sorry, Lizzie) at every faction.

The parties were all about picking over the national carcass and giving pieces of it away. First-time homebuyers got tax credits and grants. The Boomers got more CPP and OAS. Billions more for parents. Endless spending with every major party promising to run deficits in order to pay for it – rather astonishing after ten years of economic expansion. The seeds are being sown for two decades (at least) of tax increases, after 40% of voters have been removed from the tax rolls.

Like I said, strange times.

What next?

The immediate market reaction, assuming a minority outcome by tomorrow morning, will be tepid. No surprise there. If the NDP gangs up with the Libs, the budget in February will be the Moment of Truth. Stay tuned and we’ll tell you how to turtle your way through that one.

Of special note will be Alberta and Quebec. No pipelines and steady increases in the carbon tax will make Jason Kenney’s head explode. It’s no stretch to expect Reform-Party-style separatist sentiment to emerge again. What a shame one term of a majority government led by a guy from Quebec who worked in BC has led to this. Maybe it was the socks. Or the sari.

Thirty-one years ago I ran to be an MP for the first time. The election issue? Free trade. Cons said it would guarantee unfettered access to our largest market. Libs warned of absorption by the USA. “This,” thundered John Turner (no relation), “is the fight of my life.” Retorted Brian Mulroney, “You, sir, are simply afraid. I am not.”

Now we give people mortgage money, and wonder why houses cost too much.

Not with a bang, but a whimper…



@duckwords photo

One more sleep to the big vote. But let’s ignore that. Enough is enough. We’ll get the country we deserve.

But will we get the blog we deserve? That’s the question.

Truth be told, you haven’t impressed me lately. At least the 1% of visitors who leave a comment. Over the last few days, they have sucked. The IQ of this site seems to erode every time the testosterone level rises. That usually happens when we talk about investing.

Most have a profoundly unhealthy relationship with money. It destroys relationships. It turns us ugly and competitive. It flips prudence into risk. People let it define them – how much they earn, possess or how smart they are with it. Investing becomes a contest to be won. Amateurs believe performance is the sole measure of success. Some learn the truth. Many fail first.

In recent days this blog has offered advice, backed by research and history on proven ways to organize, keep and grow wealth. That included contributions by me and two of my colleagues – one a career Bay Street analyst and pro portfolio manager, the other a former v-p with two major banks, including RBC’s capital markets unit on Wall Street. With success, they look after families across the nation. In response, a bunch of DIY cowboys showed up here to insult them.

Makes me wonder. Why do we bother?

You’re familiar with your own accounts or maybe what you BIL owns. In contrast, I see and analyze hundreds of portfolios a year, plus interview the people behind them. I do not manage millions of dollars. Or tens of millions. People have entrusted me with hundreds of millions. And they all have the same two goals. Don’t lose money. Make a reasonable return. Unspoken but understood is the third goal: take care of me.

The wisdom and training I and my colleagues have garnered is distilled and presented to you, gratis. Seven days a week. At least for now.

There’s a reason I preach balance, diversification and liquidity. For almost everyone, it works. It’s the only thing that works, consistently, decade after decade – because people are not algos. They allow a myriad of factors to influence how they deal with money. Most of those are unhelpful.

Why do people fail?

They make emotional decisions. A marriage. Job loss. A baby. Divorce. All these things flood the brain with emotion and lead to kneejerk decisions.

People fail because they consistently acquire assets out of greed (because they’re going up, like houses or gold), and they bail out on fear (like stocks going down). Buy high and sell low is the norm.

We fail because of where we get information. From family or parents – people with zero training, unable to admit mistakes. Or, worse, Mr. Google. The online world teems with sites full of self-serving, sales-oriented, attention-seeking crap.

People fail when they trust [email protected] or a 22-year-old ‘advisor’ with a mutual fund license to give them life or retirement advice. These folks are salespeople.

Failure also comes because of recency bias. The comment section swims in it. People think recent events dictate all events to come, like interest rates will never rise again or real estate values never fall. History is littered with the bones of such believers.

Most people don’t know how they’re taxed, or how to minimize it. Interest, dividends, rent, capital gains, employment income – they are treated unequally. Registered and non-registered accounts. Self-employment cash flow. Income-splitting between spouses or in a family. Commuted pensions. Return of capital retirement income. Trusts. Deductible interest. Probate. IPPs or what kind of insurance to buy.

We fail because we think short-term. Yearly performance is the cowboy preoccupation, instead of achieving life goals – a house, schooling kids or retiring securely. We exaggerate current events, believing we live in a time of unusual turmoil or unprecedented conditions. But we don’t. It’s not different this time. Your life isn’t that special.

Investing is not gambling. Genius isn’t measured in 12-month performance. Reaching for outsized performance involves unwarranted risk. Most people fail when they base decisions on feelings, perceptions and wants. We’ve allowed money to become so personal and defining that husbands and wives will share a bed and offspring and yet not an investment account. Despite being an economic unit, they work at utter cross-purposes.

Wealth’s greatest gift is to enhance time. Erase stress. Grant security. Let you savour each day.

That is the goal. Visiting a blog to brag and fight is, well, sad.


Get ahead for a stress-free tax season

Ask yourself these following questions:

– Did I launch my business for doing business or to become accountant?

– Do I have what it takes to process and updates my books alone, or should I really seek help?

– Would this valuable time not more well-spent on profitable business?

– Can I claim the time I spent trying to fix my General Ledgers towards my business expenses? No.

– Can I claim bookkeeping and accounting fees? You bet!

Most of small business owners approaching a bookkeeper have tried first to save money and delayed professional help until their books became very messy. Getting a tax preparer at the end of the fiscal year may not be enough. If your books are inaccurate, your taxes will be inaccurate, subject to reassessment.

What could go wrong?

Switching off managing your finances has real repercussions, sometimes serious. You may have started with a tiny amount of paperwork that turned into a mountain of unbalanced ledgers, missing justifications a real headache and lost benefits. You should not wait until this happens to you.

Some business owners are getting their personal income tax prepared by professionals even though they have not compiled, processed and update their business books yet. You shake your head…it happens more often than you believe. So, what is left to justify not outsourcing your books?

Saving money?

Your tax preparer may or may not double check your numbers or may convince you to look for a bookkeeper or an accountant in the middle of the tax season to put your books in order before proceeding. Not only that could cost a lot more during the peak season of the profession, but depending on the scope of the catch-up, you may not meet the CRA deadlines then, or will you choose to “take a chance” and live with the consequences later in?

Getting a different perspective on your business

Nothing beat a second layer of perspective. It’s well known that we see what we want to see, and we develop strong denial for what does not match our expectations. A good bookkeeper will be at your service anytime you need it and will provide the best recommendations knowing your books and your financial situation while bringing professional objectivity.

Gain flexibility

With outsourcing, business owners do not commit to payroll and non-core functions staff. Furthermore, outsourcing is flexible and adaptive to your business changes. It will better accommodate growth or cutbacks, as they happen.

Login Bookkeeping provides the full-range of year-long bookkeeping services and is chosen by an increasing number of successful and dynamic business owners outsourcing their accounting, running their business and enjoying the peace of mind they need to focus on the core tasks. And it’s 100% tax deductible!!

Do not hesitate to contact Login Bookkeeping for a free consultation. You will not be disappointed by the quality and the experience brought to the table and the range of tools available at very affordable price. Furthermore, we are firmly engaged into our customers’ business development and their success by sharing a passion for balanced statements and healthy books that will bring you the solid base you absolutely need to better manage your business and your time. Unlimited communications, support, recommendations and software are included in our business packages fit to your budget and needs.

Make yourself and your business a favor, don’t wait the tax season to step forward. It is still time to put everything in order, avoid the tax season deadlines pressure, eliminate the stress and costly mistakes.

More to come on business management tips. Stay tuned!!