We had a rare big family gathering last weekend, as Erwin’s cousin and his family visited from Hong Kong.
One of Erwin’s younger cousins is planning his wedding for the coming year. They are planning to have their wedding at a golf course in Vaughan.
It always baffles me to learn about the price tag of these weddings. For one day of ceremony, some couples can spend as much as 6 figures.
Where do these young people in their thirties come up with this type of money to spend on ONE day of their lives?
This cousin’s friends were also in the middle of planning for their own wedding. They also wanted to buy a place in Barrie so they could have a place to call home.
Wedding and buying a forever home can both be expensive. They’re young and they only had so much saved up. They can only choose to have one or the other.
So they made the choice to “cancel” the wedding reception.
They’re still getting married, but they wouldn’t be spending tens of thousands of dollars for their wedding. Instead, that money is used toward the downpayment of their first home.
I applaud this couple for making a difficult but necessary decision.
Erwin and I didn’t have a traditional wedding and reception either. Indeed, most of my friends didn’t even know that we got married.
We planned our wedding in four days. I got a white evening gown from a Chinese store. We got the flowers at Oakville Place’s Saturday farmers market on our way to the ceremony. We hired a Minister to come to Erwin’s dad’s backyard to host the ceremony.
My parents weren’t there. Erwin’s mom wasn’t there. My uncle and Erwin’s dad were signed as our witnesses.
Needless to say, my dad was extremely disappointed. It’s probably his dream to walk his daughter down the isle and give his blessing to me and Erwin in front of all his friends and families in Hong Kong.
Instead, we had a casual dinner at a local restaurant and spent the night watching fireworks. (It was Canada Day long weekend so we had the luxury to celebrate our wedding with fireworks at the end!)
Quiet and peaceful: the way I loved it.
The truth was, when we decided to get married, I’d just started my business full time for a few months. Our money was all tied up in real estate. We truly didn’t have any cash left for a wedding reception that my dad had envisioned.
We were lucky in a way – we didn’t have to choose between the downpayment or the wedding like Erwin’s cousin’s friend. We made the decision long before that.
And this difficult decision wouldn’t be any easier for our next generation.
In his famous economic update, Tom Karadza of Rock Star Real Estate shared with us that it costs 17 times median income to purchase a property today.
If Toronto housing prices continue to go up by 7% a year, it will cost the next generation 37x of the median income to purchase a property in 2055!
Of course, your life purpose shouldn’t always be about owning your own home. But it is a trend that tells us, it’s getting tougher and tougher for our kids.
Now onto this week’s topic –
By now, almost all of you have heard about the proposed tax changes. But what can we really do at this point to plan for these changes?
And how do you know whether these changes truly affect you?
Well, for some small business owners, the answer is no.
Some of the proposed tax changes could come into effect as early as January 1, 2018. Although we are hearing news that Bill Morneau will be making changes to the proposed tax changes, we don’t know what will be implemented vs. what will be changed.
But let’s plan based on what we know now.
- Splitting income with lower income family members
The proposed tax changes talk about limiting the dividends declared to lower income family members to what is reasonable, in terms of their work contributed to the company’s operation.
Bill Morneau mentioned that he’s planning to go ahead to limit the income splitting possibilities via dividend sprinkling.
For those small business owners who have already implemented dividend sprinkling strategies in the past to split income with lower income family members, this is the year to go ALL OUT!
Your dividends declared to these family members would NOT be subjected to the reasonability test proposed before Jan 1, 2018.
This means that you would have to declare dividend, as much as it makes sense, to lower the overall family tax liabilities.
- Buy more properties NOW
The proposed changes on private corporation also targets small business owners who use lower tax corporate earning to invest in passive income, including real estate.
They are asking for opinions on how to tax this particular group of people. They have not finalized the steps and they will be releasing more information on how to execute the tax measures.
Changes are still expected to be announced but we are still holding tight.
But one thing certain is – all these new measures will only be applicable prospectively.
This means that if you purchase properties or make passive investments prior to the effective day (which is yet to be announced and will be sometime in 2018), none of the proposed tax measures on the investment income would be applicable to properties purchased before.
It makes sense to buy a few more properties with your low corporate tax earnings before they come out with the changes.
Bill Morneau also announced on Monday that they would be scrapping the idea of limiting the multiplication of Lifetime Capital Gain Exemption.
Liberals are also announcing the cut of small business tax rate from 10.5% to 9% over two years, really honouring what Stephen Harper’s initial tax cut on small business corporation after cutting almost all of them out.
Looks like our government is listening somewhat. Let’s hope that they will be scrapping the rest of the proposed tax changes.
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Your Real Estate Accountant