Your fixed-income investing questions answered – The Globe and Mail

Investor Clinic

Your fixed-income investing questions answered

A Pressman stacks some of the new Canada Premium Bonds as they come off the presses at the Canada Bank Note Company in Ottawa.

Harper and the G20 tension between the U.S. and Europe

Harper and the G20 tension between the U.S. and Europe

by John Geddes on Sunday, June 27, 2010 11:26am


The notion of Canada occupying a middle ground between the United States and Europe is an old, familiar one, and usually rather flattering for Canadians. We’re supposed to blend European-style openness to government programs and intervention with an American-type instinct for letting free markets stay free.

But this comforting version of the Canadian political identity has seemed outmoded under Prime Minister Stephen Harper’s government, which feels so firmly anchored on this side of the Atlantic. Until this G20. Here in Toronto, the idea of a Canadian affinity for Europe has fresh relevance.

The reason, of course, is the debate over how far the G20 should go toward committing its members to targets on deficit and debt reduction. Harper has aligned himself with the Europeans by proposing that the G20 nations pledge to cut their deficits in half by 2013 and start reducing their debt-to-GDP ratios no later than 2016.

Now, his bid for clear benchmarks planted Harper squarely on the side of his fellow conservatives, notably Germany’s austerity-minded Angela Merkel and Britian’s David Cameron, who comes to the summit having just tabled a tax-raising, cost-slashing budget. It puts him at odds with U.S. President Barack Obama, who emphasizes the need to maintain stimulus spending in the face of a still vulnerable world economic recovery.

The Canada-Europe bridge is explicitly recognized in high places. Asked yesterday at a news conference about Harper’s suggested targets, José Manuel Barossa, president of the European Commission, said: “It’s very interesting. Why? Because it shows that this concern with fiscal consolidation is not just the concern of Europe.”

And Barossa predicted Harper’s position would find its way into today’s final G20 communiqué. “We expect the G20 to agree on concrete targets for deficit reduction and the stabilization and reduction of debt,” he said. “We want these targets to be credible and we expect them to be minimum targets.”

By his morning, however, the sense that Harper’s position is bound to carry the day is coming under question. Donald Brean, a finance and economics professor at University of Toronto’s Rotman School of Management, and calls the clash “texbook macroeconomics”—a matter of when to “slow the engines of stimulus.”

But beneath the technical matter of timing a contentious economic policy shift, Brean also sees a dense mesh of history and politics.

Relevant history: “The Germans are paragons fiscal probity because they’ve had two experiences in the last century of two totally destructive periods of punishing hyperinflation.” As for politics, he points to looming mid-term elections in the U.S. Congress, crucial votes this coming fall for which Obama’s Democrats need to keep the economy humming: “The Americans are worried, knowing they can’t raise taxes and they can’t cut spending in a mid-term year.”

If he is positioned between America and Europe, then, Harper is staking out a complex bit of real estate—where the last century’s European history, today’s global macroeconomic conditions, and next fall’s U.S. politics all intersect.


Source: Maclean’s

Canadian household net worth hits $6 trillion | #Toronto #realestate

Canadian household net worth hits $6 trillion

Other numbers from RBC show a strong Canadian housing market. Non-financial assets, where real estate contributes 85.5 per cent, is up 0.8 per cent to $24.9 billion from the previous quarter.

Mortgage debt increased by $16.4 billion in the first quarter, signalling continued growth in the real estate market. Over all, household liabilities rose by 1.5 per cent to $1.4 trillion.

Canadian household net worth hit $6 trillion in the first quarter of 2010. It increased by 1.3 per cent from $74 billion, and is the fourth consecutive quarterly improvement in household net worth. This means 96 per cent of net worth lost during the economic crash has been recovered, according to David Onyett-Jeffries, economist with RBC Economics, as reported on Muddy York’s Toronto Real Estate blog.

Source: Broker News

Decorating: Movable walls | #Toronto #real_estate

Movable walls: Small spaces? No problem. These walls can slide in and out of the action

 By Marie-Judith Jean-Louis , Ottawa Citizen

There's a higher demand for smaller and more affordable condos,  leading to demand for translucent  partitions or sliding walls to  provide privacy in small spaces.

There’s a higher demand for smaller and more affordable condos, leading to demand for translucent partitions or sliding walls to provide privacy in small spaces.


According to a municipal report, residential intensification is booming across the city. It seems the growing population and the increasing appeal for an urban lifestyle are among the key factors contributing to the increasing number of condos popping up on city streets.

One of the consequences of urbanization when mixed with construction and land economics is that the average condo size is shrinking. There’s a higher demand for smaller and more affordable condos among many young, first-time buyers compared to more expensive and larger apartments.

This may explain why new condo developments, such as Central Phase 2 on Bank Street at McLeod, are currently offering condos that max out at 812 square feet.

With such small units, it’s important to keep the space as open as possible to avoid a claustrophobic feeling of living in a confined space. Open concepts with tall ceilings and large windows are elements typically found in these condos, all helping to give the impression of more space.

The problem with open design is the lack of privacy and a lack of clearly defined spaces which, for some people, can be difficult. Fortunately there are solutions.

1. Sliding glass walls.

Sliding glass walls are a combination of the two previous options. They are movable translucent partition walls such as those from the Sliding Door company ( that give the same flexibility as barn doors in terms of concealing a room and the same openness as the translucent partitions which let light through.

2. Translucent walls

The simplest option is to use a translucent partition wall system, including these winners from Starwall ( Although fixed, they can be reconfigured and enable the user to carve up a room without taking up too much visual space.

They can also be equipped with horizontal blinds for added privacy.

3. Sliding barn doors

Barn doors are another great option for small spaces. Acting like moving walls, these large sliding doors enable the user to conceal a room for privacy and open it up to maximize the main space when needed. Phase 1 of Central condo development used barn doors from KN Crowder ( in their condos.

Marie-Judith Jean-Louis, owner of M2JL Studio, teaches interior decorating at La Cité Collégiale and writes a regular blog. Visit her at

Insurance tips for home buyers – The Globe and Mail

Personal Finance

Insurance tips for home buyers

Buying a house? Make sure your home’s quirks don’t invalidate your coverage

Dianne Nice

Globe and Mail Update

You’ve told your Facebook friends, your banker and your mom: You’ve found the house of your dreams. But have you told your insurance agent?

Henry Blumenthal thinks you should, even before you buy. The vice-president and chief underwriter of TD Insurance has seen homes with problems so bad they would have increased the buyer’s insurance premiums or even invalidated their home insurance.

“I was working on a file where a home inspection revealed that the basement had experienced water damage several times and it would cost over $75,000 to fix. After speaking to us, the potential buyer learned that the home was in a zone where we receive frequent water damage claims and, because of its location, would be susceptible to water damage even after the repairs,” Mr. Blumenthal says. “This is a perfect example of how an insurer’s unique insight helped a buyer make his decision. In this case, he decided not to purchase the home.”

Insurers are primarily looking at two factors when assessing risk: the frequency with which a particular problem occurs and the potential magnitude of the loss associated with the problem.

If you’re in the market for a new home, here’s some advice from Mr. Blumenthal that could help you make your buying decision:

Water is no friend to a home. Water damage is the most common home insurance claim. For a better understanding of how water can get in and what it can mean for your insurance and your wallet, show your home inspection report to your insurer.

An alarm system will save you in more ways than one. Looking at a house with an alarm system in it? Not only will you and your home have added protection, but it can save you money with discounts on your home insurance premiums.

Accidents do happen. Consider your liability exposure in a home. Is there a pool that isn’t properly fenced? What about uneven concrete that could cause someone to trip and fall? The more hazards there are on a property, the more your liability protection will cost.

Location, location, location. Depending on the location of the home, your insurer can identify whether additional riders will be necessary to make sure you are adequately protected.

It needs a little work. If you’re buying a fixer-upper, flag this for your insurer. When you add value to your home, your insurance policy needs to reflect the increased replacement coverage cost.

Don’t judge a book by its cover. If your insurer isn’t comfortable with an item after reviewing the home inspection report, you should take a closer look before you buy.

Just a phone call away. When you’re making a purchase of this magnitude, take the time to do your research and speak to your insurance expert. You will have peace of mind knowing you are making a fully informed decision.

HST to hit amid fear over increased cost of living — #Toronto #economy #realestate

HST to hit amid fear over increased cost of living

Updated: Sun Jun. 27 2010 1:11:02 PM

The Canadian Press

Heidi Graw has decided that after years of feeling helpless as the cost of living climbs in British Columbia, she has had enough: she won’t pay another tax.

As of July 1, when the new Harmonized Sales Tax takes effect in B.C. and Ontario, Graw will boycott purchases of anything beyond the basics.

“We won’t be going out to the restaurants, we won’t be going to the movies, we won’t be going to the rec centre, or all these other little frills,” says the Mission, B.C. resident.

“That’s the only way I can take control over how much tax I’m prepared to pay.”

The HST merges the five per cent federal goods and service tax with provincial sales taxes of seven per cent in B.C. and eight per cent in Ontario. That means consumers will pay 12 per cent on everything from cheeseburgers and haircuts to heating bills, auto repairs and legal and real estate fees in B.C. In Ontario, a 13-per-cent charge applies on the same things.

The cost of driving will go up in Ontario as gasoline sales face the new tax, but there’s an exemption for B.C. drivers.

On July 1, a $100 golf game that used to set you back $105 after GST will now cost $113. A $20 haircut rises to $22.60 from $21, taxes included. In Ontario, a fillup at the gas pumps will cost an extra $5 to $8 or so with the new tax.

Consumers will pay the new tax on about 20 per cent of purchases that had been PST exempt in the past — a main reason many consumers see the changes as a tax grab by government.

The new HST will siphon about $2.5 billion a year in additional taxes out of the economy and shift the tax burden to consumers from businesses. In Ontario, it could pile another $800 in annual costs on the backs of an average family, and critics say it could also spark further growth in the underground — cash only — economy as more and more consumers try to avoid the new charges.

But tax experts and economists generally back the changes, saying they reflect a 20-year effort by Canadian governments to modernize the tax system, cut corporate taxes and boost investment and trade in an increasingly competitive global economy.

Within a few years, they say, the economy will create hundreds of thousands of new jobs as businesses become more competitive and use HST tax breaks they can claim to boost exports, buy new technology or expand.

Those arguments don’t hold much water with Graw, who predicts her boycott will outlast the unpopular HST.

“I have been driven to the brink and now I’m just not going to participate anymore for as long as I can hold out,” she says.

The 54-year-old bookkeeper has been canvassing on behalf of the Fight HST campaign in British Columbia, a drive led by former B.C. Social Credit premier Bill Vander Zalm.

They claim their petition has collected half a million signatures, far surpassing the 10 per cent quota of registered voters in every riding needed to potentially force a referendum to repeal the tax.

But tax experts say abolishing the HST would be a mistake.

The new regime streamlines paperwork for businesses, saving an estimated $125 per filing, and for the first time, refunds millions to businesses in input tax credits for provincial taxes.

The new tax system will attract about $47 billion investment dollars to Ontario, resulting in 591,000 jobs in ten years, according to a report by economist Jack Mintz. His report on B.C. finds that province will see $11.5 billion in investments and 113,000 jobs by the end of the decade.

But for recession-battered consumers, the tax is just the latest new cost in an era of high home prices, rising interest rates, and a looming era of government restraint needed to wipe out Canada’s federal and provincial budget deficits.

“We have to recognize the fact that there is a lot of anger, a lot of frustration on the part of the public,” says B.C. finance minister Colin Hansen.

He attributes the groundswell of anti-HST sentiment in his province to an ill-timed miscommunication. The decision to implement the HST was announced in July 2009, just months after a May provincial election, in which the ruling Liberals had indicated they were not considering the regime.

And while that was true at the time, Hansen says, the short time until its unveiling raised suspicion as to whether the Liberals had been deceptively planning to implement the tax all along.

“That is not the case, but when you start looking at the timeline, I certainly understand why people jump to that conclusion,” he says.

Three-in-four British Columbians recently told Angus Reid pollsters they would vote to strike down the controversial tax if the issue went to referendum. Meanwhile, Ontario taxpayers have been far less resistant.

Ontario revenue minister John Wilkinson believes Ontario residents are more accepting because they understand the HST is part of a larger tax reform package that also includes income tax cuts, new tax credits, and transition cheques of up to $1,000 per household.

And while Ontario cushioned the HST blow by using some of the $4.3 billion in transition funding from the federal coffers for the rebate cheques, B.C. decided its $1.6 billion would be better spent to pay down its deficit.

Kevin Gaudet, president of the Canadian Taxpayers Federation says Ontario’s nonchalance has little to do with its government’s ability to sell the regime.

Instead, B.C. has a storied history of populist politics and citizens feel bewildered by their Premier Gordon Campbell, he says, while Ontarians feel beaten down, and are more sympathetic to Premier Dalton McGuinty.

Gaudet questions the timing of the new tax system just as the economic recovery is gaining strength. And he expects the HST will have a short-term negative impact on the economy as consumers feel the hit to their wallets and rein in spending.

Restaurateurs and small business owners worry they’ll have to cut costs to continue to attract customers. Others fear that a new tax on their services will drive customers underground–to those who promise the service tax-free.

A lack of understanding about the complex HST, combined with taxpayers’ fundamental mistrust of business and government, has bred resentment toward the new tax regime, says Queens University business professor Kenneth Wong.

The gains will be felt by the economy as a whole, while the hit will be felt at the individual level– a tough sell to consumers.

“If you are part of the cognoscenti, the in-crowd that knows these things, HST strikes you as a no-brainer,” he says. “If you’re the person on the street who doesn’t understand these things, it’s just not coming across. And for some reason (governments) don’t feel the need to explain it.”

The Ontario government has estimated that 51 per cent of families will pay more in taxes under the HST, as much as $480 more a year by 2012 for households that earn between $150,000 and $300,000.

The government also estimates it will take roughly a year before businesses begin to pass on their tax savings in lower consumer prices.

Gaudet is among the taxpayers who doubt whether businesses can be trusted to pass on the benefits.

“If we’re lucky, businesses will trickle down these savings some time in the distant future. All right well I guess I’ll hold my breath for five years while this tax kicks me in the wallet, waiting for that to happen,” he says.

But Wilkinson, a former businessman, says the desire to pass savings on is driven by competition, not goodwill.

“Those companies that pass along those savings will gain market share and those that don’t will lose market share. It doesn’t take too long for the marketplace to sort out the need for lower prices because of lower costs.”

Meanwhile, Wong’s “cognoscenti,” economists and tax experts, have long lobbied for a shift toward harmonization, which converts provincial tax collection from a convoluted retail sales tax (RST) system into a simpler value added tax system, like the GST.

VATs tax consumer spending, but RSTs tax both consumer and business spending, meaning the RST system often charged businesses for goods as if they were the end consumers.

The businesses then passed on taxes paid on equipment and other goods to consumers, raising the shelf price by three or four per cent.

That meant consumers paid provincial tax twice, once at the checkout, and again hidden in the purchase price, says Andrew Dunn, senior tax partner at Deloitte Canada.

“There was a double counting effect because businesses paid sales tax and then got no input credit and then when the good was sold to the consumer, the consumer also paid sales tax so there would be that element of inefficiency,” Dunn says.

Under the HST businesses will receive input credits for the entire blended tax on most purchases. Like the GST, they’ll pay the provincial tax up front, but can recover the costs when they report their returns.

The PST was designed to apply to “tangible personal property,” but its reach has been expanded through a series of amendments over the year, to include taxes on everything from parking to computer software.

The uneven exemptions distorted the system to the point where music CDs are PST taxable, but downloaded music is not.

A jurisdiction with the single tax system is more likely to attract an international corporation looking for a place to invest because it reduces operating costs, Dunn says.

The value added system is favoured in most countries around the world, as well as in Nova Scotia, New Brunswick, Quebec and Newfoundland.

Canada is the only country in the OECD to impose both a value added tax and a retail sales tax, and is one of two countries, along with the U.S., to maintain a retail sales tax at all, according to a report from the Fasken Martineau corporate law firm.

But Canada has been particularly slow to adopt an HST– likely due to our provinces’ historic reluctance to cede authority to the federal government, Dunn says.

Quebec was the first province to heed the federal government’s call to incorporate provincial taxes when the GST was introduced in 1991.

However, Quebecers phased in the harmonized system and maintained some control over tax collection. B.C. and Ontario are turning that job over to Canada Revenue Agency,which will return the provincial portion to the regional governments.

The Atlantic provinces implemented a harmonized structure in 1997 after the federal government agreed to provide $1 billion in transitional assistance to each of New Brunswick, Nova Scotia and Newfoundland & Labrador.

Several studies have showed the transition in those provinces was smooth. They have seen a slight decreases for consumer prices, and a significant boost to investment in the province, according to a 2007 C.D. Howe Institute report.

But there’s one key difference. In the provinces that have so far adopted the HST — mainly Atlantic Canada — the new tax was lower than the previous combined GST and PST.

In Newfoundland, which had a 12 per cent sales tax, the 15 per cent HST in 1997 was the biggest tax cut since that province joined Confederation in 1949.

Dunn notes that the magnitude of any savings passed on in B.C. and Ontario will be more modest because the tax rate is staying put.

Ontario and B.C., two of Canada’s largest economies, had been major holdouts in converting their tax structures. But they began to re-examine the regime when the recession hit and crushed their economies.

Ontario lost thousands of manufacturing jobs and B.C.’s forestry industry was devastated. The provinces racked up huge deficits to stimulate the economy and now need to generate revenue to pay down their debt.

In March 2009, the Ontario government decided it was time to reform the province’s tax legislation as it emerged from the recession and faced a restructured manufacturing economy and higher dollar, which put pressure on the province’s export sector.

Ontario believes that the province’s companies will attract more investment and productivity-enhancing technology with lower corporate taxes and a more efficient HST system, where companies can get tax credits for tax they pay.

The B.C. government, not wanting to lose out on millions of dollars in potential investments, began examining the potential benefits of the HST regime shortly after winning the provincial election, Hansen says.

“If Ontario was to have an investment environment that was … more attractive that British Columbian then we would be put at a significant disadvantage,” he says.

The three remaining PST provinces, PEI, Manitoba and Saskatchewan are likely to come around to the HST shortly, lest they too lose out on more investment dollars. And, a decade from now even Alberta, which doesn’t have a PST, will jump on board, Dunn predicts.

Experts compare the HST implementation process to the GST experience in 1991. In ten years, Dunn says, not only will people be accustomed to paying the tax, rates could be even higher.

Consumption taxes around the world range between 20 and 25 per cent in many countries.

Meanwhile, Hansen says his government would consider lowering the tax rate in two years if the economy turns around.

But, the July 5 deadline for that anti-HST petition approaches, when a Select Standing Committee must decide on recommending a referendum. If it does, the HST could very well be abolished. If it recommends against one, the Liberals could face the ire of the anti-HST campaign, which vows to use the province’s unique recall legislation to depose some of the politicians who implemented it.

Graw doubts whether the new harmonized sales tax will live to see her 55th birthday–in October.

She believe her boycott and the voices of her fellow “high-spirited” British Columbians will force politicians to kill the HST in its infancy.

“I’m going to live as frugally as possible, which doesn’t do local business any good,” she says.

“But hey, we’ve got to get things in line here and make this province more affordable to live in, and sometimes you have to pull things apart to rebuild.”


Source: CTV Toronto – The Canadian Press

Women & Wealth: Are we in a housing bubble?

Women & Wealth: Are we in a housing bubble?

“it’s actually pretty simple,” writes Patricia Lovett-Reid. “Don’t like risk? Then a fixed-rate mortgage is for you.”

Patricia Lovett-Reid, Financial Post · Saturday, Jun. 26, 2010

My daughter, Carolyn, just bought her first house. It was a bit of a stressful experience, as homebuying can be. With terms like “housing bubble” making headlines almost every day, she was justifiably concerned about her chances of buying her dream home.

According to the Canadian Real Estate Association (CREA), the national average price of homes sold in May is up 8.5% year over year to $346,881, the highest on record. It’s no wonder my daughter, and many others like her, are anxious about the possibility of a housing bubble.

What I told her was the importance of putting things into perspective. Home prices across the country have grown at an average annual pace of 4.7% over the past 22 years, or just 2.4% per year above inflation.

Residential home prices in the Greater Vancouver Area have appreciated by 54% over the past five years. That’s over 9% a year compounded! In comparison, the average selling price in the Greater Toronto Area has risen at a compound rate of 5.2% per year over the same period.

I’ll be the first to admit that finding good value is becoming increasingly difficult in certain markets. But just because homes are fully priced in many areas does not mean a bubble has formed.

I believe that the current pace of activity and the price gains may not be sustainable over the balance of 2010. Recent changes to the mortgage insurance rules, the upcoming implementation of the HST in Ontario and British Columbia, as well as the expectation of rising interest rates have resulted in a rush to get transactions booked in the first half of this year.

The combination of these changes, along with the rise in home prices, will affect housing affordability and help cool the market. Plus, the federal government, the Bank of Canada and financial institutions have already demonstrated their conservative approach to residential real estate and in my opinion will take all necessary measures to avoid a bubble. My colleagues in TD Economics forecast that after a 9% appreciation in average existing home prices in Canada in 2010, we could see a dip of 2.7% in 2011.

What is the impact on mortgage rates? After a bout of record-low interest rates, rising bond yields led lending institutions to raise rates on fixed mortgages. Five-year fixed-rate mortgages are now higher than they were just three months ago. Variable-rate mortgages are closely linked to the Bank of Canada’s benchmark lending rate, as well as the cost of funds and market conditions. On June 1, the Bank of Canada raised its rate by 25 basis points and lenders followed suit. Economists at Tonronto-Dominion Bank expect the Bank of Canada to raise rates from the current 0.5% to 1.5% by the end of 2010 and to 3% by 2011. You can expect variable mortgage rates to increase along the way.

At present, you can get a five-year fixed-rate mortgage for approximately 4.6%, and the closed five-year variable-rate mortgage is approximately 2.35%. When I bought my first house in the 1980s, I remember rates being stubbornly high and paying 18%. The question becomes, should you go fixed or variable?

The more stable your job, the higher the amount of equity in your home, the greater your financial liquidity and risk tolerance, the more suitable a variable mortgage may be for you.

On the other hand, fixed-rate mortgages offer you the peace of mind of a set rate and a predetermined amortization schedule. The way I see things, it’s actually pretty simple: Don’t like risk? Then a fixed-rate mortgage is for you.

Just like I told Carolyn: Buy within your means. It is not worth the sleepless nights.


Patricia Lovett-Reid, senior vice-president, TD Waterhouse, is one of Canada’s leading authorities on personal finance. For her outstanding contribution to the profession of financial planning in Canada, The Financial Planners Standards Council (FPSC) recognized Ms. Lovett-Reid with the 2009 Donald J. Johnston Award. Are there money and wealth issues women want to read about? Drop Ms. Reid a note by writing to:


Posted via email from Toronto Real Estate News, Blog