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Monthly Archives: February 2018

Anthony Sabti

2018 Federal Budget Recap

Following last week’s provincial budget release, yesterday Finance Minister Bill Morneau delivered his 2018 Federal Budget.

The key item was additional clarity on the taxation of passive income in a corporation. This is in addition to previously-announced measures for corporations such as the elimination (in some cases) of income sprinkling.

The budget did not deliver any significant economic stimulus or drastically change the course of Canada’s competitiveness. The announced measures do not have large investment implications. The budget was centered around social change including a focus on science, increased gender equality, and preparing for the future.

Budget 2018 addressed the economic challenges associated with U.S. tax reform and NAFTA negotiations, though it did not respond with specific measures to address concerns.

A total of about $20 billion was introduced for the support of new programs and initiatives – less than half of that introduced last year, and a marked slowdown from the government’s spending mode a couple of years ago.

The government expects to continue running a fiscal deficit through 2022-23 and Canada’s debt-to-GDP is forecasted to decline to 28.4 per cent.

Below is a summary of the changes:

Individuals

  • Parental Leave: Budget 2018 introduced a new “use-it-or-lose-it” EI benefit of an additional five weeks in support of two-parent families, should they decide to share parental leave responsibilities. This will not add any more financial aid from the EI program, simply more time off. This would allow a parent to take five weeks off from his/her employer without having to dip into his/her vacation time.
    Under the current rules for the standard, year-long parental leave, parents can share 35 weeks (preceded by 17 weeks of maternity leave, which only the mother can take) of paid leave whichever way they want. The new rules would enable families to take up to 40 weeks of leave as long as the second parent claims at least five weeks of it.
  • Low and Middle-Income Workers: The Working Income Tax Benefit, a refundable tax credit that supplements the earnings of low-income Canadian workers, will be renamed the Canada Workers Benefit. Support to recipients will be expanded under this program.
  • CPP Enhancement: This previously announced measure (covered in our January Newsletter) will be phased in January 2019. An increase in CPP premiums will lead to higher CPP benefits at retirement.
  • Registered Education Savings Plan (RESP): Increased access to the Canada Learning Bond available for low-income families. This is not to be confused with the 20 per cent Canada Education Savings Grant, which remains unchanged.
  • Registered Disability Savings Plan (RDSP): When an RDSP is set up for a beneficiary who is over the age of majority, the plan holder must be either the beneficiary or, if the beneficiary lacks the capacity to enter into a contract, the beneficiary’s legal representative.  Where the adult individual does not have a legal representative in place, rules will be introduced to allow a qualifying family member to be the plan holder.

Businesses

  • Passive Investment in a Corporation: Budget 2018 proposes to reduce the small business limit for corporations when investment income ranges between $50,000 and $150,000. The small business deduction will be eliminated for use on active income when passive investment income reaches $150,000 (reduced by $5 for every $1 of investment income above the $50,000 threshold). Earning a rate of return of 5 per cent, passive investments of $1,000,000 can be held without a reduction in the small business limit.
  • Income tax measures released on December 13, 2017 to address income sprinkling.
  • The income tax measure announced on October 16, 2017, to lower the small business tax rate from 10.5 per cent to 10 per cent, effective January 1, 2018, and to 9 per cent, effective January 1, 2019 (with related amendments to dividend tax credits for taxable dividends).

Other

  • Pay Equity Legislation: The Liberal Government will draft legislation that it says will help bridge the 12-cent hourly wage gap that currently exists between men and women who work full-time. There will also be increased funding to encourage women to join the skill trades, a source of well-paying jobs that remains largely male-dominated.
  • Reporting Requirement for Trusts: In an aim to combat tax avoidance and evasion, Budget 2018 proposes to require that trusts provide additional information annually and will impose an obligation to file a T3 return where one does not currently exist. The proposed measures are meant to improve collection of beneficial ownership information, which appears to be a concern for the Government as is consistent with what’s happening globally.
  • Improving Client Service at the Canada Revenue Agency (CRA): Anyone who’s ever had to call CRA can relate to this. CRA fields 20 million call a year, and callers are often met with busy signals, dropped calls or long wait times. A November 2017 report found that call centre agents gave wrong information 30 per cent of the time. The government is proposing to spend $206 million over five years to review and improve CRA’s service model.

Overall, Canada’s global competitiveness remains in question, but we believe that markets will be broadly unchanged given how little was announced. This year’s budget is likely to be perceived as a ‘placeholder’ until next year, given that budgets are generally larger in scope when immediately before or after an election year.

Frank Mueller

Weekly Update – February 23, 2018

“If you want to reap financial blessings, you have to sow financially” – Joel Osteen

2017 RRSP Contribution Deadline – March 1, 2018

One final reminder for all those intending to contribute for the 2017 Tax Year. The last day to contribute is March 1st.

Note

On Wednesday’s NDP Budget Recap article, it was initially reported that the Home Owner Grant would be eliminated.  What is actually being eliminated is the BC Home Owner Mortgage & Equity Partnership (HOME).  We corrected this mistake on our blog a few hours later.

The Home Owner Grant is the discount that home owners receive on their property tax bill.

The BC HOME Plan is a program designed to assist first-time home buyers. We wrote about it last year after its announcement, here.

Weekly Market Wrap-Up

North America

  • The TSX closed at 15639, up 186 points or 1.20% over the past week. YTD the TSX is down -3.52%.
  • The DOW closed at 25310, up 91 points or 0.36% over the past week. YTD the DOW is up 2.39%.
  • The S&P closed at 2747, up 15 points or 0.55% over the past week. YTD the S&P is up 2.73%.
  • The Nasdaq closed at 7337, up 97 points or 1.34% over the past week. YTD the Nasdaq is up 6.29%.
  • Gold closed at 1331, down 33.00 points or -1.26% over the past week. YTD gold is up 1.60%.
  • Oil closed at 63.54, up 1.89 points or 3.07% over the past week. YTD oil is up 5.16%.
  • The USD/CAD closed at 0.7914, down -0.0053 points or -0.66% over the past week. YTD the USD/CAD is down -0.49%.

Europe/Asia

  • The MSCI closed at 2117, down -14 points or -0.66% over the past week. YTD the MSCI is up 0.67%.
  • The Euro Stoxx 50 closed at 3442, up 15 points or 0.44% over the past week. YTD the Euro Stoxx 50 is down -1.77%.
  • The FTSE closed at 7244, down -51 points or -0.70% over the past week. YTD the FTSE is down -5.78%.
  • The CAC closed at 5317, up 35 points or 0.66% over the past week. YTD the CAC is up 0.08%.
  • DAX closed at 12484, up 32.00 points or 0.26% over the past week. YTD DAX is down -3.36%.
  • Nikkei closed at 21893, up 173.00 points or 0.80% over the past week. YTD Nikkei is down -3.83%.
  • The Shanghai closed at 3289, up 90.0000 points or 2.81% over the past week. YTD the Shanghai is down -0.54%.

Fixed Income

  • The 10-Yr Bond Yield closed at 2.87, down -0.0100 points or -0.35% over the past week. YTD the 10-Yr Bond is up 19.58%.

 

Sources: Globe Advisor, Dynamic Funds

Anthony Sabti

2018 BC Provincial Budget Recap

2018 BC PROVINCIAL BUDGET ANNOUNCED

Finance Minister Carole James announced the BC NDP Government’s budget yesterday and delivered on a wide variety of promises from its election platform. The key initiatives were centered around housing speculation.

The provincial government released a 30-point plan addressing housing affordability in the province.

Highlights from the plan include:

• The introduction of a two per cent speculation tax (0.5 per cent for 2018, two per cent in 2019 onwards). The tax will be charged annually on the property’s assessed value. Despite the name, this appears to be an absentee / vacant home tax. Details are not yet final, but it appears the tax would be levied to foreign and domestic investors who do not pay tax in B.C. Principal residences and long-term rentals would be exempted.

• Increase to the Foreign Buyer’s Tax (FBT) from 15 per cent to 20 per cent. Until now, the FBT only applied to home sales in Metro Vancouver; however, the NDP will extend this to other parts of the province including the Fraser Valley, Central Okanagan, Capital Regional District and Nanaimo.

• The Property Transfer Tax on sales of homes worth more than three million dollars will increase from three per cent to five per cent.

• Increase the School Tax on homes worth more than three million dollars.

• Elimination of the BC Homeowner & Equity Partnership.  Applications will be accepted until March 31, 2018.

• Moving to stop tax evasion on pre-sale condo reassignments. The government will require developers to collect and report information about the assignment of the pre-sale condo purchase.

• Taking action to end hidden ownership (homes owned through trusts and numbered companies).

• Expanding benefits to low-income families and seniors living independently. The 2018 budget will increase benefits under the Renter Assistance Program (RAP) and Shelter Aid for Elderly Renters (SAFER) programs.

• Empowering home owners in Stratas to deal with short-term rentals. The budget will allow strata corporations to increase fines for homeowners who ignore short-term rental rules.

• Various measures to ensure proper enforcement and coordination with tax authorities on the above changes.

The full 30-point plan can be read here.

The past few months has seen an increase in mortgage lending rates, the introduction of a stress-test in mortgage lending criteria, and now measures to curb housing speculation in BC. These are all headwinds for housing prices in Vancouver, and, in theory, should have a cooling effect on future price movements. However, the local market has been resilient to changes made in the past few years and only time will tell if these new rules will have an impact.

Of course, housing was not the only issue addressed in the budget. Below is a summary of other key announcements:

• Affordable childcare. The NDP did not deliver on its $10 a day childcare election promise. However, they did introduce a new child care program that makes care effectively free for families with income below $45,000 and offers subsidies for families with income of between $45,000 – $111,000.

• The elimination of Medical Services Plan premiums by 2020 to be replaced by a payroll health tax for businesses. The payroll tax will apply to businesses with payroll in excess of $500,000. The rate will be tiered from $500,000 to $1,500,000 and top out at 1.95 per cent for businesses with payroll over $1.5 million.

• Increase in the BC Carbon Tax to $5 per tonne per year, adding $212 million a year.

• An increase in tobacco tax from 24.7 cents per cigarette to 27.5 cents.

• The luxury surtax on vehicles worth more than $150,000 will increase from 10 per cent to 20 per cent.

• Free disability transit passes, a freeze on B.C Ferries fares for major routes (with reduced fares 15 per cent for minor routes), health care improvements, more teacher hires and boosts to skilled trades training.

For 2018, the government is projecting a $151 million surplus. Interestingly, there’s a new line that wasn’t in previous budgets. It’s called “surplus before ICBC impacts”, and it shows a projected $903 million surplus for next year — but also a projected $1.076 billion loss from ICBC.

The fiscal state of ICBC has been well documented in recent weeks. Attorney General David Eby announced a variety of reforms earlier this month, such as caps on pain and suffering for minor injuries. The government estimates these reforms will save ICBC $392 million this year, but concedes that there’s no way of knowing to what extent the reforms will influence drivers and trial lawyers.

The full 157-page budget can be viewed here

Frank Mueller

Weekly Update – February 16, 2018

“The Stock Market is a device for transferring money from the impatient to the patient” – Warren Buffett

North American Major Markets Recover

This week saw North America’s main stock indexes recover from last week’s nine per cent loss. The Dow Jones Industrial Average (DJIA) rose by 1,028 points this week to finish at 25,219. This 4.25 per cent gain erased roughly half of last week’s drop. The S&P 500 gained 4.27 per cent on a 112-point increase, finishing at 2,732. The NASDAQ gained 365 points this week – good for a 5.31 per cent jump – to finish at 7,240.

All three major American markets are again positive on the year.

Toronto’s S&P/TSX Composite Index did gain 418 points this week, good for a gain of 2.78 per cent; however, the TSX remains down on the year by 4.66 per cent. 2017 saw the TSX get outpaced by American and many global markets, and so far in 2018, that trend has continued – being overweight Canadian is not an ideal spot for portfolios. Contact us if you have any questions or concerns about your portfolio’s allocation.

2017 RRSP Contribution Deadline – March 1, 2018

We’d like to remind you again that this year’s RRSP deadline is now only 13 days away. The last day to contribute is March 1st.

Let us know if you would like to make a contribution.

Weekly Market Wrap-Up

North America

  • The TSX closed at 15453, up 418 points or 2.78% over the past week. YTD the TSX is down -4.66%.
  • The DOW closed at 25219, up 1028 points or 4.25% over the past week. YTD the DOW is up 2.02%.
  • The S&P closed at 2732, up 112 points or 4.27% over the past week. YTD the S&P is up 2.17%.
  • The Nasdaq closed at 7240, up 365 points or 5.31% over the past week. YTD the Nasdaq is up 4.88%.
  • Gold closed at 1348, up -19.00 points or 2.51% over the past week. YTD gold is up 2.90%.
  • Oil closed at 61.65, up 2.60 points or 4.40% over the past week. YTD oil is up 2.04%.
  • The USD/CAD closed at 0.79666, up 0.0014 points or 0.17% over the past week. YTD the USD/CAD is up 0.17%.

Europe/Asia
The MSCI closed at 2131, up 86 points or 4.21% over the past week. YTD the MSCI is up 1.33%.

  • The Euro Stoxx 50 closed at 3427, up 101 points or 3.04% over the past week. YTD the Euro Stoxx 50 is down -2.20%.
  • The FTSE closed at 7295, up 203 points or 2.86% over the past week. YTD the FTSE is down -5.11%.
  • The CAC closed at 5282, up 203 points or 4.00% over the past week. YTD the CAC is down -0.58%.
  • DAX closed at 12452, up 344.00 points or 2.84% over the past week. YTD DAX is down -3.61%.
  • Nikkei closed at 21720, up 337.00 points or 1.58% over the past week. YTD Nikkei is down -4.59%.
  • The Shanghai closed at 3199, up 69.0000 points or 2.20% over the past week. YTD the Shanghai is down -3.27%.

Fixed Income
The 10-Yr Bond Yield closed at 2.88, up 0.0500 points or 1.77% over the past week. YTD the 10-Yr Bond is up 20.00%.

 

Sources: Globe Advisor, Dynamic Funds

Anthony Sabti

Weekly Update – February 9, 2018

“Volatility is far from synonymous with risk” – Warren Buffett

Volatility Returns to the Markets

U.S. markets took a beating this week, as a rise in bond yields and inflation fears led to historic drops for the Dow Jones index on Monday and Thursday.

Since last Friday, the daily return of the DOW has been:

Friday: Minus 666 points
Monday: Minus 1,175 points
Tuesday: Plus 567 points
Wednesday: Flat
Thursday: Minus 1,033 points
Today: Plus 330 points

Current Index Value: 24,190

The DOW and S&P 500 are down about 10 per cent from their highs two weeks ago.

In absolute terms, the two 1,000+ point falls are the largest daily point losses in DOW history.  However, the index has increased so much that comparing today’s point losses to previous eras is not relevant.  The DOW has doubled in value in seven years and we must get used to seeing larger daily point movements.

In percentage terms the Dow’s 4.6 per cent loss on Monday was the worst since August 2011 and falls outside the top-20 of all-time losses. It was just the 25th worst loss since 1960.

The Dow’s largest one-day percentage loss was the 22.6 per cent Black Monday crash on Oct. 19, 1987. In point terms, that was “only” 508 points. In second place, the Dow crashed 12.8 per cent on Oct. 28, 1929. It retreated just 38 points that day.

The pullback has only reverted prices to where they were in December. The one-month chart looks scary….

….however, it barely registers on the three and five-year charts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The volatility we’re experiencing this week is due to a technical, market structure event – not a fundamental one. Monday’s dramatic sell-off was a function of large U.S portfolios and pension funds rotating away from strong performing equity investments to strategically re-balance portfolios. The overwhelming nature of this move was exacerbated by robotic trading price sets and momentum technicals and then further compounded by retail trading.  This is not a repeat of 2008, where we witnessed a credit event and a housing-related issue (sub-prime mortgage market collapse).

Earnings season has been positive with Q4 earnings on the S&P 500 on track for the most beats this cycle. We still have an environment with coordinated global economic growth, and provided market volatility does not erode broader confidence, the underlying fundamental picture remains supportive. We are in an economic world that is positive and continuing to expand. With that said, we are in the later stages of the market cycle. Because of elevated valuations and central bank renormalization, we should expect more volatility in the next five years than the previous five years.

Conclusion

Pullbacks are normal. Five per cent corrections happen on average three times per year. In the last 30 years, there have been 30 months during which global equities have fallen by at least 6.3 per cent in six business days. Markets took on average four months to recoup the loss.

What Can You Do?

For investors in the accumulation phase, this is good news. You are now able to purchase units at lower entry prices. We feel much more comfortable deploying money into portfolios than we did a month ago. This pullback coincides very well with RRSP season and now is a great time to make a purchase. Do not worry about trying to time the bottom perfectly. History has shown time and time again that buying on dips such as this one will lead to favourable results in the future.

For retired or soon to be retired investors, please try to ignore the noise. This is the reason we select a more conservative investment to fund your monthly payments. Your short-term cash flow is not fully exposed to markets, and the balance of your portfolio has enough time to recover from dips.

Please feel free to contact us anytime with any questions or comments.

From the entire You First team, Happy Family Day weekend!

Weekly Market Update – By The Numbers

North America

  • The TSX closed at 15035, down -571 points or -3.66% over the past week. YTD the TSX is down -7.24%.
  • The DOW closed at 24191, down -1330 points or -5.21% over the past week. YTD the DOW is down -2.14%.
  • The S&P closed at 2620, down -142 points or -5.14% over the past week. YTD the S&P is down -2.02%.
  • The Nasdaq closed at 6875, down -366 points or -5.05% over the past week. YTD the Nasdaq is down -0.41%.
  • Gold closed at 1315, down -15.00 points or -1.42% over the past week. YTD gold is up 0.38%.
  • Oil closed at 59.05, down -6.04 points or -9.28% over the past week. YTD oil is down -2.27%.
  • The USD/CAD closed at 0.7953, down -0.0091 points or -1.13% over the past week. YTD the USD/CAD is unchanged 0.00%.

Europe/Asia

  • The MSCI closed at 2045, down -168 points or -7.59% over the past week. YTD the MSCI is down -2.76%.
  • The Euro Stoxx 50 closed at 3326, down -197 points or -5.59% over the past week. YTD the Euro Stoxx 50 is down -5.08%.
  • The FTSE closed at 7092, down -351 points or -4.72% over the past week. YTD the FTSE is down -7.75%.
  • The CAC closed at 5079, down -286 points or -5.33% over the past week. YTD the CAC is down -4.40%.
  • DAX closed at 12108, down -677.00 points or -5.30% over the past week. YTD DAX is down -6.27%.
  • Nikkei closed at 21383, down -1892.00 points or -8.13% over the past week. YTD Nikkei is down -6.07%.
  • The Shanghai closed at 3130, down -332.0000 points or -9.59% over the past week. YTD the Shanghai is down -5.35%.

Fixed Income

  • The 10-Yr Bond Yield closed at 2.83, down -0.0200 points or -0.70% over the past week. YTD the 10-Yr Bond is up 17.92%.

 

Sources: Dynamic Funds, Globe Investor, Yahoo! Finance