Tag Archives: tax arrears

3 reasons high household debt in Canada won’t contribute to a US-style housing crash

Photo: BasicGov/Flickr

By one measure, conditions in Canada are reminiscent of those present in the US right before a stateside housing bubble burst, yet a repeat performance to the north is unlikely.

Oxford Economics notes that the Canadian rate of debt to disposable income reached a record 167 percent last year, meaning for each dollar of disposable income households in Canada had, they owed $1.67.

In 2008 — ahead of the housing crash and financial crisis — the ratio was at 163 percent in the US.

However, there are a number of reasons that similarity isn’t likely a sign that Canadian households are stretched to the breaking point or US-style housing crash is imminent, Oxford Economics, a firm that specializes in economic forecasting and analysis, explains.

In economies with a higher share of indebted households, a few factors stand in the way of consumers defaulting on loans en masse. “In any leveraged economy, the key factors preventing defaults and rapid deleveraging include solid income growth, low interest rates, free-flowing and high-quality credit, and solid balance sheets,” writes Tony Stillo, Oxford Economics’ director of Canada Economics, in a Research Briefing.

“In that regard, there are some positive trends in Canada’s household finances,” Stillo continues, before homing in on three positive factors in a general climate of rising interest rates.

Canadian household income growth expected to continue

It’s not difficult to see why declining or stagnating incomes would be an issue for households dealing with rising debt levels.

Fortunately for Canadian households, Oxford Economics projects personal disposable income in Canada will increase by 12 percent from 2018 to 2020. “This will help households manage payment increases with higher [interest] rates,” Stillo says.

Debt quality in Canada is not a major concern

Citing Bank of Canada numbers, Stillo suggests big banks are approving fewer mortgages for borrowers with high levels of debt. Another possible positive is mortgage stress testing introduced a year ago.

The tests have now been expanded to force uninsured-mortgage applicants to approve for their loan at a higher rate than they are signing on for. This should be better prepared to handle higher borrowing costs in the future.

Mortgage arrears are still low in Canada

The share of mortgages in arrears (that’s at least three months of missed payments) in Canada sits at 0.24 percent, notes Oxford Economics. And in Ontario and BC, home to the country’s priciest markets, the rates are much lower. According to the Canadian Bankers association, 0.09 percent of Ontario-originated mortgages were arrears, while the rate was 0.14 in BC.

 

Source: – Livabl.com –  

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7 ways the tax man is watching you

tax man is watching you

CRA is scouring your social media & donning disguises

Whether it’s through a photo on social media or a casual conversation with a friend, the Canada Revenue Agency is always watching and listening. And their investigators will pursue you tirelessly if they think you’ve been lying on your tax return. Their subject of choice? These days, it’s anyone and everyone.  “We always think it’s only the rich who the tax man is interested in but it’s the little fish they like the best,” says Paul DioGuardi, a senior tax lawyer and author of The Taxman is Watching. “The Internet is becoming a favoured weapon for the CRA to find and analyze all kinds of data so they can watch people they think are cheating on their taxes.”

Here’s five ways the CRA may be watching you that you probably weren’t aware of.

1. Your social media

Any of your open social media accounts are publicly accessible and some posts could prompt a CRA investigation into your financial life. From the CRA’s point of view this is a legitimate practice on their part because posts on social media really aren’t private. How does this work? Say you just bought a new $85,000 sail boat and are boasting about it by posting a photo of it on Facebook. The CRA could see this and then check it against what you declared as income last year. “If you declared $40,000 in annual income, or a modest amount, they’re going to be suspicious and come calling,” says DioGuardi.

2. Your sales and purchases on Kijiji, Etsy and Ebay

Is your passion for vintage furniture really a hobby? Or are you running a small business from your living room and not declaring the profits on your tax return? “To compare this data would take years in the old days,” says DioGuardi. “Now the CRA can data-mine these non-traditional sources of info in a heartbeat pretty much whenever they like. They are a collection agency with police-like powers.”

3. Your small business’s sales data

Cheating on your company sales numbers by declaring lower revenue than is actually the case?  Don’t. The CRA is able to use data to plow through years’ worth of your credit card transactions with the aim of matching your stated sales with electronic data they’re able to access.

4. Bank accounts and investments

To spot undeclared, taxable interest, dividend and capital gains income, the CRA has access to info from all Canadian financial institutions. They can also determine if you’ve exceeded your TFSA and RRSP contributions and penalize you accordingly.

5. Capital gains from condo and real estate sales

“In the old days I had to go to the registry office to find out when a piece of real estate had been bought and sold,” says DioGuardi. “Not anymore. The Internet changes the game.” Now, the CRA can look at all real estate transactions and easily flag suspicious transactions. What are they looking for? Condo flippers and real estate sales where the owner hasn’t declared capital gains and paid the appropriate taxes. Multiple property ownership where the taxpayer isn’t also declaring rental income is another trigger for investigation.

6. Your income and pensions

The CRA is hunting for disparities in retirement income. It can access info on your bank account balances and income and match it with previous tax returns. If there’s a wide discrepancy, be prepared to answer more questions.

 7. Mystery shopping

Don’t be surprised if CRA agents show up at your restaurant or other small business, in disguise to eat a meal with the intention of rooting out suspicious financial behaviour. The agents could pose as a couple out for a meal to see how your business works and what the count is for people frequenting your business to ensure it is aligned with what you have reported in previous tax returns. “It’s a big job and I think they will sub-contract a lot of this out in future,” says DioGuardi.

What does all of this mean? That the shift of responsibility is really shifting to the taxpayer and not the tax collector. In the past, the tax man simply told you what you owed.  These days it’s completely up to you to declare what you should be paying, and they have the means to check that what you’re saying is absolutely accurate. “Remember, they can search anything, put liens on your property and slap you with penalties and late fees,” says DioGuardi. “My suggestion is to always give full and complete disclosure on your annual tax return. With data mining the way it is today, if you don’t, then believe me, they will find you.”

Source: MoneySense.ca – by  

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