“If 50 per cent of the people who show up at the polling booths next September say they want to get rid of an HST then certainly, as a government, I would want to get rid of the HST. People have been very clear to me and to the government that they want to be included in a decision of this magnitude. The point is to include people.”

Officials said Monday the referendum — technically, an initiative vote — could cost as much as $30 million if British Columbians are asked to cast ballots, and about $12 million if the process is conducted by mail.

The law requires a 50 per cent of registered voters cast ballots in favour of ditching the tax. That same threshold must be met in at least two-thirds of the province’s 89 ridings.

But Mr. Campbell said a simple majority of voters will have the power to force his government to back down on the controversial tax,

“If that takes place then its clear this was the wrong decision. I believe by next year it will be the right decision. There’s no point in going to the people if you’re not going to listen to them.”

However, Campbell said he believes that once voters understand the benefits of the new tax, they will vote to keep the HST in place.

“When the public sees the reason behind this, the rationale behind it, and understands what we were trying to accomplish, I think the public will say, not that they like it, but that they’d rather keep it than go back to an old system which costs $130 million across the economy.”

Read more:

• http://www.vancouversun.com
• Parties agree on need to freeze HST

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However, most analysts believe that while some homebuyers may have timed their purchases to avoid the HST, it’s not possible to quantify how much of the downturn is a result of the tax.

“There are a number of things going on in the market right now – and the introduction of the HST is just one of them,” said Cameron Muir, chief economist with the British Columbia Real Estate Association.

Homebuyers who fuelled brisk sales earlier this year were bracing for the HST at the same time as rising interest rates and tighter lending conditions were also coming in to play, he added.

“The combination of those three certainly gave us the expectation that sales would wane over the summer months,” Mr. Muir said. “And I think that it’s pretty clear that’s occurred.”

The Canadian Real Estate Association said on Monday that national home sales activity slowed in July, with the decline almost entirely the result of fewer sales in B.C. and Ontario. Month-to-month declines of 14.1 per cent in B.C. and 8 per cent in Ontario accounted for 85 per cent of a seasonally adjusted national decline of 6.8 per cent.

A slowdown in demand in these two provinces had been widely expected in July, as “many purchases were brought forward into the first half of the year in advance of the introduction of the HST,” the Canadian association said.

“The HST is still a concern for us and certainly if the homes are priced above $525,000, it’s a big hit,” said Greater Vancouver Home Builders’ Association president Peter Simpson, whose group successfully lobbied the provincial government to hike the threshold for HST rebates on new home purchases from $400,000 to $525,000.

Prospective home buyers can overestimate the impact of the HST, said Rob Grimm, a principal at Vancouver-based homebuilder Portrait Homes – which, like most builders, does not support the tax.

In response to consumer confusion, Portrait uses a spreadsheet to show prospective buyers a “before and after HST” breakdown of home prices. The difference can amount to thousands of dollars but does not necessarily influence buyers’ decisions, Mr. Grimm said.

“I don’t think a lot of people have figured it out yet,” said Mr. Grimm, whose company sells homes ranging from $300,000 to more than $600,000. “On a $625,000 home, [the HST] only makes a $5,000 difference.”

Read more:
http://www.theglobeandmail.com/

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Plenty can change in someone’s life in a year, never mind during the standard five-year mortgage a lot of Canadians sign up for. A career change, kids, retirement or new-found money or it could be that such a major event is on the horizon. All can affect the type of mortgage that fits just right.

Canadian consumers tend to become complacent about their mortgage payments when they could be saving a lot of money. For example, the more adverse you become to risk, the less likely a variable mortgage will be right for you. Using online tools, such as a mortgage calculator and a mortgage penalty calculator , you will know how much you can expect to pay to break your existing mortgage.

Even though banks are in the business of getting as much interest from you as they can, many will allow people to pay a lump sum of the principal on the mortgage’s anniversary and increase their monthly payments. An extra $100 a month on a standard $200,000 mortgage could save almost $18,000 in interest and shorten the amortization period by about four years.

Paying down your mortgage faster may seemingly put a crimp into your future finances if something happens and you need the money — unlike, say, putting it into a tax-free savings account or other low-risk liquid investment. But many financial institutions have a re-advance clause that allows you to retrieve some of the money spent accelerating mortgage payments, says Peter Veselinovich, vice-president of banking and mortgage operations at Winnipeg-based Investors Group.

Of course, it may become more difficult to get those funds back if there is a dramatic downward change in housing values and you haven’t built up enough equity. But that’s where understanding your entire financial situation, not just your mortgage, can help. “Most of us don’t like to think about debt, says Veselinovich. “It’s just something that somehow comes up and ends up as part of our personal balance sheet and we make payments.”

Even something simple such as making renovations could affect the type of mortgage desired. For example, topping up or refinancing an existing mortgage can pay for renovations, providing you’re comfortable with a blended interest rate. If you’re buying a new home, you may be able to port your current mortgage. Or maybe you just want to consolidate higher-interest unsecured debt into your mortgage.

A mortgage can also help you become more tax efficient if you’re thinking of investing in a business, buying a rental property or putting some money into mutual funds or the stock market. That’s because the interest paid on money borrowed on a principal property can be written off against revenue from those investments.

But the biggest reason for making changes to your mortgage mid-stream may be because it could be a lot easier to do something before your situation changes, such as going into a new venture or before retirement.

Read more: http://www.financialpost.com/

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“In 2009, there were a lot of provisions aimed at home owners,” says Robin Taub, a Toronto-based chartered accountant and financial coach. “First-time buyers were specifically targeted, so they should all have a close look at their income tax return.”

By comparison, the 2010 federal budget has very little in the way of tax relief for individual Canadians, she added, let alone home owners.

With the April 30 tax filing deadline approaching, Ms. Taub has these tax tips for home buyers and home owners:

1) Tax relief for buyers
First-time home buyers who bought their home after Jan. 27, 2009, may be eligible for the Home Buyers’ Tax Credit. The 15-per-cent tax credit is applied to expenditures of up to $5,000, which translates into tax savings of up to $750.

2) Put your RRSP to work
Under the Home Buyers’ Plan, first-time buyers may withdraw up to $25,000 from a registered retirement savings plan (RRSP) without paying any taxes on the amount withdrawn. The money can be used to buy or build a qualifying home for yourself, or a related person with a disability.

3) The reno subsidy
If you tackled some home renovation projects between Jan. 28, 2009, and Jan. 31, 2010, you may be eligible to claim the home renovation tax credit (HRTC). The tax credit is 15 per cent of qualifying expenses above $1,000 but less than $10,000, to a limit of $1,350.

4) Put your TFSA to work
The tax-free savings account (TFSA) that can be used for a down payment. Any adult Canadian can earn tax-free income in this registered account by contributing up to $5,000 each year. Earnings in the plan are not subject to tax, so your savings can accumulate and grow more quickly.

5) Home office deductions
If you either work from home or run a home-based business, you can deduct mortgage interest, property taxes and capital cost allowance. You can also deduct utilities, home insurance, and cleaning costs. But only the business portion of these expenses is deductible for tax purposes.

6) No tax on home sale
From a tax perspective, one of the best reasons to buy a house is that any capital gain realized from the sale of your “principal residence” is not taxable.

Check with Revenue Canada to ensure these details apply to you.

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Singleton deducted the mortgage interest on his 1988 and 1989 tax returns but the government disallowed the deduction. After Singleton sued, he lost in the Tax Court of Canada but won the appeal in the Federal Court of Appeals and in October 2001 the Supreme Court of Canada ruled that,

“It is an error to treat this as one transaction – the transactions must be viewed independently.”

As Singleton recalls,

“The Court said the act said I can do what I did, and [Revenue Canada] had no right to look behind what I did to see whether or not it was a sham, which is what they kept calling it. If the act says you can do it, then you can do it and deduct it. End of story, nice and simple, which was our position throughout.”

The implications of that resolution are that structuring your affairs to shrink your tax burden is 100% legal, since the Courts have ruled that Singleton could write off his mortgage interest and that has paved the way for homeowners, who apply the same principles, to make non-deductible principal mortgage interest tax deductible.

What Singleton did was actually a variation of the so-called Smith Manoeuvre, a strategy also known as “leveraging” that Fraser Smith developed after years of watching wealthy Canadians get away with the trick while the vast majority laboured for years to pay off their mortgage and wound up entering retirement with empty pockets.
As he said,

“This is for all those people who would like to be wealthy but who are getting killed both by their mortgages and by income taxes.”

Most people do not write off the interest on their mortgage.  Although many homeowners write off a portion of their mortgage payment as it relates to a home office space, that is not the same as writing off the interest on their mortgage.

Your principal homes mortgage interest is deductible, when the borrowed money is used to earn income from a business or investment that has an expectation of making a profit, even if your home is the pledged security. How the funds are spent determines interest deductibility of your mortgage, not the collateral.  If a direct link can be established between the loan and its business use, it is irrelevant that the security for the loan is a mortgage against your principal residence.

And, what’s more, as long as you pay the tax-deductible interest to the institution that loaned you the money to invest, you never have to pay back the principal. It’s a debt you can die with if you want, at which point the money will be paid back out of your estate.

So, is the Smith Manoeuvre right for you?
According to Fraser Smith, it is if:

a) you own more than 25 per cent of your home,
b) you’re capable of living within your means and using your tax savings to pay down your original mortgage.

Obviously, if you’re close to retirement and the house is paid off, it’s not for you. But, if you’ve got some idle equity in your home and you’d like to free up some cash up to do some investing, the time might be right to do a little manoeuvring.

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The Home Renovation Tax Credit is a non-refundable tax credit based on eligible expenses for improvements to your house, condo or cottage. It can be claimed on your 2009 income tax return.

“The most important thing for people to know is that they still have a week to buy and take delivery of materials that they are thinking of using for renovations,” Jamie Golombek, managing director of estate and tax planning with CIBC Private Wealth Management, said in an interview Wednesday.

Although it is likely too late to get the labour done in time, “anyone thinking of doing anything in their home in the next few months should try to get that material now… otherwise you are really losing out.”

The Home Renovation Tax Credit, introduced as a limited-time program in the 2009 federal budget, has proven extremely popular with housing-obsessed Canadians. “Anecdotally, it is the topic of almost every single presentation I give in terms of personal tax. The Canada Revenue Agency has responded to more technical interpretation questions in terms of what qualifies and what does not than any other topic in recent history,” Mr. Golombek added

“ Anecdotally, it is the topic of almost every single presentation I give in terms of personal tax. ”— CIBC’s Jamie Golombek said of the HRTC

The CRA estimates that as of last Friday, more than four million Canadians had enquired about the program. From Jan. 2 to 15 alone, 302,501 people visited the CRA website or phoned to ask about the HRTC.

Timing has played a role in the HRTC’s success, says Mr. Golombek, given that rates for home equity lines of credit are still historically low. “Even if people don’t have the actual cash to do the renos right now, they can borrow the money at very attractive interest rates and get a 15-per-cent non-refundable credit from the government.”

Here’s how the HRTC works:

Each family is allowed to claim on their 2009 income tax return a 15-per-cent non-refundable tax credit for eligible renovation expenses made to their dwelling. The credit allows tax payers to get up to $1,350 in tax relief for projects worth between $1,000 and $10,000. The $10,000 spending limit applies to homes, cottages or condos, provided the combined total does not exceed the $1,350 limit.

To qualify, all of the renos must take place after Jan. 27, 2009 and before Feb. 1, 2010. The supplies and materials must be bought and in your possession before Feb. 1st, 2010 to be eligible. Likewise, any work done by a contractor must be finished by the deadline, which means that signing a contract for the work ahead of the deadline is not sufficient.

To qualify for the HRTC, renos must be of “an enduring nature and integral to the dwelling.” So putting in a permanent swimming pool or hot tub, a new dock or septic system at the cottage, fixing a retaining wall or doing some landscaping all qualify. Cleaning your carpet, house or eavestrough would not qualify, nor does buying furniture, appliances or electronics.

Who’s using it?

Dan Wilson is one many Canadians taking advantage of the credit. He and his neighbour spent most of the fall rebuilding the front porch on their east-end Toronto semi. He also had a contractor fix a flat roof in his backyard, put in a new deck, installed two fireplaces and painted.

“I spent at least three times the limit for the tax credit,” said the 45-year-old Ontario government worker. “I think almost everyone on my street had something done to take advantage of it.”

Robert Katzer had a contractor redo both bathrooms in his Victoria condo, putting in marble sinks and faucets, along with a new bathtub with marble wall linings. Not done there, he upgraded most of the lighting in the unit, replaced the carpets, painted, caulked the windows and retiled the fireplace. “It wasn’t cheap but I love the end result,” he said.

Across Canada, the tax credit seems to have provided the push many Canadians needed to get those home reno projects going.

Mr. Wilson says he might have taken care of the renos in the next year or two, but the tax credit prompted him to do it now. “I love this credit. The prospect of getting $1,350 back is just so appealing. If it were continued next year, I would definitely consider re-doing my kitchen next year.”

How long will it last?

Contractors and home renovation retailers would also like to see the tax measure extended, arguing that it would continue to boost the economy and allow the recovery to fully take hold.

But Finance Minister Jim Flaherty said this week the measure was “not inexpensive” and the government’s plan is to let it expire at month’s end. He also ruled out any kind of extension back in December, when he said: “Well, that’s our plan to end it at the end of January, yes.”

RBC Dominion Securities Inc. chartered accountant and certified financial planner Suzanne Schultz says the credit, which was part of the conservative government’s stimulus plan, has been successful. “The point of this was to get the economy going and it seems to have done that. People are spending, retailers and contractors are saying they are busy.”

She says people who bought materials in order to qualify for the home renovation tax credit but ran out of time to get the work done before next week’s expiry date will likely keep contractors busy for the first part of 2010. After that, however, she expects to see a lull.

Ms. Schultz urged people to get out and make their purchases before the Jan. 31st deadline. “Make a list of what you need done and get shopping. This is not common, for the federal government to introduce short-term tax measurers like this.”

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It applies to work performed or goods acquired after January 27, 2009, and before February 1, 2010 under an agreement entered into after January 27, 2009. Therefore it is only available for the 2009 tax year.

Eligible expenses for goods acquired during this period, even if they are installed after January 2010, will still qualify. If an eligible expense involves work performed by a contractor or a third party, and the work is not completed by the end of the eligible period, only the portion that is completed before February 1, 2010 will qualify even if a payment has been made.

The HRTC applies to eligible expenses of more than $1,000, but not more than $10,000, resulting in a maximum non-refundable tax credit of $1,350 [($10,000 ? $1,000) × 15%].

Eligibility for the HRTC is family based. Eligible family members include you and your spouse or common-law partner, and your or your spouse’s or common-law partner’s children who are under 18 years of age at the end of 2009 (other than a child who, at any time during the eligible period – after January 27, 2009, and before February 1, 2010 – was married, was in a common-law relationship, or had a child).

The claim can be split among eligible family members but the total amount claimed cannot exceed the maximum allowable.

If two or more families share the ownership of an eligible dwelling, each family can claim its own credit (i.e., each up to $1,350) that is calculated on its respective eligible expenses.

Important things to remember

You do not have to submit your supporting documents with your income tax and benefit return; however, you must ensure this information is available should the Canada Revenue Agency request it.

To avoid problems with your HRTC claim, make sure you:

• get your contracts in writing (www.hiringacontractor.com); and
• keep your receipts.

Eligible expenses must be of an enduring nature and be integral to the eligible dwelling. The cost of routine repairs, maintenance, and expenditures not integral to the dwelling are not eligible.

Examples of eligible expenses

• Renovating a kitchen, bathroom, or basement
• New windows, doors, or flooring
• Building an addition, garage, deck, shed, or fence
• A new furnace, woodstove, fireplace, water softener, or water heater
• A new driveway or resurfacing a driveway, re-shingling a roof or painting of a house
• Landscaping – new sod, perennial shrubs and flowers, trees, etc.
• Swimming pools (permanent – in-ground and above-ground)
• Fixtures – blinds, shades, shutters, awnings, lights, fans, etc.
• Associated costs such as permits, professional services, equipment rentals, and incidental expenses

Examples of non-eligible expenses

• Furniture, appliances, tools, and audio and visual electronics
• Routine repairs, maintenance and cleaning (e.g., furnace cleaning, snow removal, lawn care, pool cleaning, house cleaning)
• Financing costs

View some examples of calculation

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