Henry report under fire over rumours of indexation return

OPPOSITION to an overhaul of capital gains tax rules intensified yesterday, with tax experts warning that the proposed changes would hurt investors and create havoc for dividend reinvestment plans.

The investment community is awash with talk that the Henry report, being considered by Wayne Swan, has recommended the reintroduction of indexation, a move likely to be greeted with widespread opposition.

KPMG tax partner Matt Hayes said yesterday that reverting to the old regime of indexation, effectively scrapped about 10 years ago, was contrary to the notion of trying to simplify tax return preparation.

He said for dividend reinvestment plans, indexation could be a “compliance nightmare” because investors needed to determine the capital gain based on inflation for every asset. Indexation can also be a headache for property or other non-managed fund investors who cannot rely on an administrator or fund manager to provide exact details of when the asset was bought and sold.

There has also been talk that the review, headed by Treasury secretary Ken Henry, is looking to ditch the 50 per cent capital gains tax discount for assets held for longer than a year for alternative options such as a standard flat rate on capital gains or a longer tenure-of-holding rule.

But Zurich Financial Services Australia acting head of technical services, Dimitri Diamantes, issued a warning that a longer period-of-holding rule represented a significant tax burden for investors who were forced to sell prematurely.

“A client who suffers a personal lifestyle crisis or who, because of economic events, needs to sell down investments, for example for a margin call, will be in a situation where they will have an added tax burden,” Mr Diamantes said.

One view is that the current 12-month holding rule does not encourage long-term investment and a sliding scale should be adopted whereby the capital gains rate reduces the longer an asset is held.

In its submission to the review, the Investment and Financial Services Association said a tiered discount based on years of ownership would be significantly more difficult for collective investment vehicles to administer and for individual investors to comply with.

One industry representative said fund managers were “up in arms” over the suggestion of extending the 12-month holding rule as very few held assets for longer than a year.

But there was also talk yesterday that the review may be looking to scrap the 50 per cent discount altogether as part of a plan to address the distortion in tax rates across the different classes of investments by introducing a standard flat rate.

Tags: Canada, Canada Mortgage and Housing Corporation, CMHC, Community, Housing, Mortgage, program, Tanya Hutchens

Hamilton and Brantford – Economic Trends

Rising Unemployment

Further job cuts are expected in 2009 and the unemployment rate for the year will remain at 8.7 per cent. Total employment in both the goods-producing and service-producing sectors in Hamilton has declined in recent months, leading to an unemployment rate that reached 8.7 per cent in the first quarter of 2009. In 2010, fiscal stimulus will help to improve local economic and housing market conditions.

Plant closures – both temporary and permanent – are rising and have contributed to nearly 3,000 fewer manufacturing jobs in the first quarter of 2009 as compared to a year ago. Drop in global demand for steel negatively impacted steel production in Hamilton, as well as industries which are related to steel production such as shipping and steel fabrication.
Furthermore, many planned projects in the manufacturing sector have been halted. Some employees in the manufacturing sector who are eligible for retirement and may consider retiring early instead of looking for work elsewhere. Fiscal spending and infrastructure spending will boost local employment, especially in the construction industry.
Although the overall service-producing sector has faced challenges in recent months with fewer retail sales and consumers less willing to purchase non-essential services, employment in the health care and social assistance sector rose 10 per cent last quarter.
Health science is becoming increasingly vital to local economic growth. In Brantford, employment is more heavily reliant on the manufacturing sector with over a quarter of all jobs in manufacturing. Temporary layoffs and plant closures primarily resulting from the downturn in the automotive industry continue to affect employment. The unemployment rate has reached new heights – 9.6 per cent in March – the highest unemployment rate in over a decade. However, plans for local economic growth are underway. The addition of new educa- tional institutions and programs at the post-secondary level and new infra- structure construction projects will add a number of jobs to the local market. The forecast for the unem- ployment rate is 9.2 per cent for 2009 before easing slightly in 2010.
Fewer employed people in Hamilton and Brantford, notes Tanya Hutchens, have resulted in fewer homes changing hands as households re-evaluate their finances. Home ownership this year will be geared towards first time buyers who have a stable job and a sufficient down payment. Many of these buyers will be interested in entry level homes such as townhouses and condominium apartments. Other households concerned about their job prospects will likely stay in their current dwellings, while some may consider options such as moving from ownership to rental or into a smaller home.

Mortgage Rates

Mortgage rates are expected to be relatively stable throughout 2009, remaining within 25-75 basis points of their current levels. Posted mortgage rates will increase very gradually during the course of 2010, reflecting a rise in government of Canada bond yields. For 2010, the one-year posted mortgage rate will be in the 4.75-6.00 per cent range, while three- and five-year posted mortgage rates are forecast to be in the 5.00-6.75 per cent range.

Tags: Business, Canada, Canada Mortgage and Housing Corporation, Employment, Health care, Housing, Manufacturing, Retailing, Secondary sector of the economy, Tanya Hutchens, Unemployment

Seniors Remain Independent through Home Adaptations

As we age, we look forward to living independently in the place we’ve come to call home. However, many homes are not well designed to meet our changing needs as we get older. This is why, for more than a decade, the Canada Mortgage and Housing Corporation (CMHC) has been working to help seniors who meet certain criteria pay for minor home adaptations. This is done through a program called HASI, or Home Adaptations for Seniors’ Independence.

These home adaptations are minor enough that they do not dramatically change the environment of the home. They could be as simple as changing the knob on the front door to a home.

Harry, a retiree and grandfather, has been living in the same home in Halifax for 40 years. At one time, the heavy knob on the front door to his home was stylish and he turned it with ease. In recent years, however, because of his arthritis, he gets frustrated as he tries to turn the knob. The replacement of the old knob with a new lever door handle makes this task much easier and less frustrating.

Door handles represent just one example of the home adaptations HASI can make possible. Other typical adaptations include: installation of a small ramp to the front door; handrails in corridors; walk-in showers with grab bars; bathtub grab bars and seats; and easy-to-reach storage areas in the kitchen. Between 1996 and 2005, HASI assisted more than 25,000 households.

Who is eligible for HASI? Homeowners and landlords alike may qualify for assistance as long as the occupant of the dwelling where the adaptations will be made meets certain criteria such as: being 65 years of age or older; experiencing difficulty with normal daily activities brought on by aging; and living in a permanent residence. The occupant must also have a total income below a certain amount, based on where he/she lives in Canada.

Those who qualify for assistance through HASI can receive help in the form of a forgivable loan of up to $3,500. The loan does not have to be repaid, as long as the homeowner agrees to occupy the unit for the six month loan forgiveness period. In cases where the adaptation work is being done on a rental unit, the landlord must agree that rents will not go up as a result of these changes.

Through their Residential Rehabilitation Assistance Program (RRAP), says Tanya Hutchens, the CMHC also offers ways to help people who want to convert space in existing dwellings to create secondary suites or garden suites for low-income seniors.

For more information about HASI, RRAP or other CMHC programs, call 1-800 668-2642. For more than 60 years, Canada Mortgage and Housing Corporation (CMHC) has been Canada’s national housing agency and a source of objective, reliable housing expertise.  This CMHC report was reviewed by Tanya Hutchens.

Tags: Adaptations, assistance, Canada, Canada Mortgage and Housing Corporation, CMHC, Corporation, HASI, Home, Housing, knob, loan, Mortgage, occupant, program, Seniors

Good News: Housing Starts Move up in March

OTTAWA, April 8, 2009 — The seasonally adjusted annual rate of housing starts increased to 154,700 units in March from 136,100 units in February, according to Canada Mortgage and Housing Corporation (CMHC). And this is very positive news, notes Tanya Hutchens.

“Higher multiple starts in Ontario and Quebec were the main contributors to the rise in new construction activity in March,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “While the multiples segment experienced the largest increase, the overall boost in starts was broad based, encompassing the singles segment as well.”

The seasonally adjusted annual rate of urban starts increased 17 per cent to 127,900 units in March. Urban multiple starts increased 28.3 per cent to 81,500 units, while urban single starts moved up by 1.3 per cent to 46,400 units in March.

March’s seasonally adjusted annual rate of urban starts increased by 35 per cent in Ontario and by 23.3 per cent in Quebec. Urban starts declined by 17.3 per cent in British Columbia, by 7.9 per cent in Atlantic Canada, and by 7.5 per cent in the Prairies.

Rural starts were estimated at a seasonally adjusted annual rate of 26,800 units in March.

Tanya Hutchens notes, new home construction is now at a more sustainable level after having been exceptionally strong over the past 7 years, exceeding 200,000 units per year.

As Canada’s national housing agency, CMHC draws on more than 60 years of experience to help Canadians access a variety of quality, environmentally sustainable, and affordable homes — homes that will continue to create vibrant and healthy communities and cities across the country. This CMHC report was reviewed by Tanya Hutchens. For more information, call 1-800-668-2642.

Tags: Atlantic Canada, British Columbia, Canada Mortgage and Housing Corporation, Good News, Housing Starts, Ontario, Prairies, Quebec, Rural, Urban