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.

 

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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.

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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.

 

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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.

 

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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…

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Why

@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.

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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!!

Why should start-ups register to the GST/HST?

Most of the business people know they don’t need to be GST/HST registrant before making $30,000 in total taxable revenues annually. Those are defined by the Canada Revenue Agency (CRA) as small suppliers.

Note that GST/HST registration is mandatory for self-employed taxi driver or commercial ride-sharing driver the day taxable passenger transportation services are supplied, regardless of the total annual revenues amount; in other words, there is no small supplier exemption for these types of commercial activities.

While it looks quite simple, the calculations to meet the small supplier definition could a bit more complex… of course, why not? Unless your books are in good standing, you need to be careful not to pass the threshold during the year. As soon as your total revenue exceeds the $30,000 limit, the GST/HST registration becomes mandatory and the small supplier exemption ceases. Business owners and especially start-ups founders choose to benefit from the small supplier exemption as long as possible, the main reasons being: avoiding the mandatory GST filing hassle and/or paying the bookkeeping fees associated to the treatment and increasing their operational costs.

But even if you are a small supplier, you may still want to register voluntarily. Why? What are the benefits?

Most of the start-ups incur expenses and pay GST on their start-up purchases some time before materializing their first sales. A GST registrant may claim the paid GST on their start-up costs and obtain a refund from CRA. A non-registrant will not be able to claim the GST paid on these business expenses retroactively and will lose such benefit.

As a non-registrant, you will not apply GST to your invoices. Depending how you are acquainted with your customers, it may trigger them a negative signal: do you intend to stay “small” or expand? Are you confident enough in your business? If you want to build long-term business relationship, this is one of the tiny things that may matter. Unless you really enjoyed your math classes and always feel an unequaled happiness at the sight of the debit and credit columns, it is always recommended to get help in the early stage for staying compliant and up to date. If you are not an accounting guru, or you have no time to handle your business finances, sooner or later, you will need some level of accounting assistance, either for the year-end process, income tax or for any decision-making process. More you wait, more it may become costly.

If you have any questions, feel free to contact Login Bookkeeping and learn how the GST/HST returns treatment is bundled within the monthly plans. Login Bookkeeping offers free initial consultation that will not hurt to avoid costly mistakes. You can also visit Canada Revenue Agency website:

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/register-a-gst-hst-account.html

Start-ups – Survival Tips

1) Facts:

85% of small businesses entering the marketplace survive one full year;

70% survive for two years; and

51% survive for five years.

Some specific industries have a higher failure rate, such as restaurants with about only 41% of surviving rate in the first 3 years. Also, the odds of failure correlate to revenue: companies with revenues under $30,000 per year had a failure rate of almost 64% after five years. (Source: Industry Canada)

2) The primary reasons of start-ups’ failure are:

– Poor market research leading to an inaccurate understanding of the target customers wants and needs: the number 1 reason why businesses fail is because the business owner, impatient, did not take the time to conduct a feasibility analysis, market and business plan;

– Insufficient funds and inability to manage the financial aspect of the business: the number 2 reason of businesses failure is inadequate funding, lack of financial literacy, weak financial planning and cash flow management: a clear and consistent finding of researches is that businesses face the highest failure risk when they are young and small, with a mismatch between resources and capabilities. In analyzing the root causes of small business failure, a survey conducted in Canada on 2,598 business failures indicated that 96% of them were due to poor management, twice as much as external factors (Market, competition, products) and turned out to be the management inefficiency of owner-managers;

– Trying to go it alone and failure to recognize own strengths and weaknesses: the number 3 reason is trying to do everything alone and not seeking external help. Whether this external help be as simple as a web and social media guru or professional services such as a lawyer, accountant, banker or business coach/networking.

3) How to avoid being a casualty?

Follow these tips to avoid or reduce the odds of being a statistics casualty:

– Develop a good marketing and business plan that consider customer needs, competition, pricing and promotional strategies: While this is a short sentence, this is the cornerstone of your success; it will take a substantial amount of your time but you will not regret it. When developing a strong business plan, you will cover all areas. Determine realistic strengths and weakness, your product/services, is it unique or competitive? Get answer to the killer question “Why should I buy from you and not your competitor?”, the pricing policy, your target market, your marketing plan, your advertising means, your personal financial situation assessment; make sure you have enough cash reserves and/or a line of credit (over 80% of start-ups used personal financing to finance their new businesses and this through personal savings, personal line of credit and credit card) to help you get through the launching period and until sales start to pick up, the money you have really available, your cash-flow projections (worst case scenario, breakdown scenario, positive scenario), your legal structure. And believe it, this is not a waste of time, but time well invested. Plan every part of your business from start to finish, don’t under-estimate your expenses and over-estimate your revenue, leave no stone unturned. Once your business plan is complete with your findings, determine realistically, if you want to proceed or not and the reasons? Short in financing or financing cost too high? Products/services not attractive, not competitive enough? Anything you could do to change your findings? Adjust your initial belief? Review your copy and initial plan if necessary.

Even if you strongly believe in your idea and the commercial success of your products or services, do not underestimate the below points:

– Get advice from the beginning with a lawyer, or an accountant, proper networking and acquaintances expertise you could rely on. Down the road, they could save you money, time and detrimental mistakes;

– Set up your business finances to reach your goals; make sure you are registered where you need to be (Sole proprietor or corporation, GST, PST, WCB, Payroll, business licence, trade certification if required, professional insurance);

– Get your books organized from the start, and get help to understand your business finances, the handling of cash-flow, credit, inventory management, accounts receivable and payable policy, personal and business taxes remit and all CRA deadlines and other fiscal obligations;

– Compare your actuals to your business plan (Variances). If it has been conducted correctly, this is one of your management tools. However, market, technologies, economy change. So, even though your business plan findings, 6 months ago, indicated different output, it’s not carved in stone. Be flexible and stay adapted, that’s where the full power of management takes over.

More to come on business tips. Stay tuned!

#startup #smallbusiness #tip

Post-Tax season Lessons learned

 

Alright!! Tax season is over, you feel relieved and it is perfectly understandable that you want putting the stress away until next year.

If you are like many other business’ owners and think that you should not start to worry before January next year, you more likely will end up with another stressful experience next year and so on. After all, paying tax is not so bad, it means you run a profitable business and it certainly does not need to be painful. It can be planned in advance by estimating your next year tax bill. While putting money aside, think about short-term strategy investment to keep this reserved money working. With this peace of mind, you know exactly how much cash-flow is really available to drive your business. Regardless of your business industry, stay organized and updated throughout the year and always keep the Big Picture in mind.

Login Bookkeeping, not only will keep your business books organized all year-round, but, among other management reports, will provide insights to help you plan ahead, including your tax bill.