Caerus Private Wealth

09/17/2024

Inflation slowed to two per cent in August, hitting the Bank of Canada’s target.

06/06/2024

The Bank of Canada's rate cut will lower savings account rates from about 4% and may also reduce fixed mortgage rates, helping homeowners. Variable-rate mortgages and lines of credit will see immediate reductions in borrowing costs.

Lower mortgage rates may attract buyers, but a big increase in home prices is unlikely due to affordability issues.

GIC rates, currently high, are expected to drop. High-interest savings ETFs, which offer around 4.8%, will see rates decrease quickly following the rate cut.

These funds will see lower yields due to the rate cut, but the decrease will happen gradually as new securities replace maturing ones.

The long-awaited interest rate U-turn is finally at hand.

05/28/2024

Capital Gains Inclusion Rate Increase: On June 25, 2024, the capital gains inclusion rate in Canada will rise from 50% to two-thirds for corporations, trusts, and individuals with annual capital gains over $250,000.

Impact on Tax Planning and Revenue: The government expects to collect approximately $7 billion in additional tax revenue by encouraging early gains on capital properties before the rate hike. Critics argue it forces Canadians to make financial decisions based solely on tax implications, contrary to sound investment principles.

Call for Delay and Detailed Legislation: Tax professionals and organizations, such as the Joint Committee on Taxation of the Canadian Bar Association and CPA Canada, have called for a delay in the implementation to January 1, 2025, to allow taxpayers and advisers to prepare adequately.

It’s almost the summer season, when we get to enjoy BBQs, camping, swimming outdoors and working on our tans for a very short period of time. But wait. Isn’t there an important June date coming up that affects the taxation pocketbook of millions of Canadians?

05/17/2024

Inflation and Economic Data: April’s consumer-price index (CPI) came in slightly below expectations. However, stubbornly high inflation readings earlier in 2024 had disrupted the previous optimism of balanced growth and slowing inflation.

Retail and Job Market Trends: April retail sales were flat and below expectations, indicating consumer struggles due to high prices, interest rates, and debt.

Market Reaction: Despite the mixed economic signals, major stock indices hit record levels as investors found relief in the April CPI data and hoped for future rate cuts.

Economic Outlook: The trend of gradual disinflation continues, and while economic indicators show a slowdown, it’s not severe enough to suggest a recession.

Future Fed Actions: Market expectations for rate cuts have increased, with significant probabilities for cuts by September and potentially as early as July, depending on upcoming economic data.

Don’t rule out a surprise rate cut this summer.

05/14/2024

Central banks, including the US Federal Reserve and the Bank of Canada, have maintained their benchmark interest rates, despite expectations for cuts due to economic challenges.

The Fed signaled a potential future rate cut, with expectations of three cuts by year-end, but no immediate action.

Inflation concerns, particularly in the US, have led to hesitancy in rate cuts, with some analysts expecting cuts to be postponed until the fourth quarter.

The Bank of Canada, while facing calls for rate cuts amid economic slowdowns, has not provided clear indications of imminent cuts.
Analysts anticipate potential rate cuts by mid-year, possibly in June or July, depending on economic indicators and housing market dynamics.

Analysts and economists alike were expecting central banks on both sides of the border to have already cut rates.

05/10/2024

Wendy and Richard own a city home and a cottage, planning to sell the latter in two to three years due to proposed changes in capital gains inclusion rates.

Under new rules, Wendy faces increased taxes on cottage sale if done after June 25, resulting in a $31,226 difference compared to current rates.
Wendy's options include using the principal residence exemption (PRE), selling before June 25, transferring ownership to Richard, or a combination of these to mitigate tax implications.

Transferring the cottage to Richard before June 25 could reduce tax burden, though Wendy would need to pay taxes by next April.
Careful planning can help Wendy preserve the PRE for their city home while taking advantage of the current 50% inclusion rate on the cottage's capital gain.

If this couple decides to sell their cottage, which was inherited 10 years ago, there are few options they could consider to minimize their taxes

05/09/2024

The federal government budget has drawn criticism for increasing the capital gains inclusion rate to 66.7% from 50%, particularly affecting individuals, trusts, and corporations with gains over $250,000.

Critics argue that this tax hike may deter investment, further complicating the challenge of attracting investment to Canada.

For individuals with assets like a cottage, gifting the property to a family member could be a strategy to pay lower capital gains tax on unrealized gains to date, but it involves considerations like mortgages, legal control, and potential future issues with family assets.

For investment holding corporations with significant unrealized gains, the decision to sell or hold depends on long-term investment plans and the type of asset, weighing the benefits of paying lower capital gains tax now versus potentially higher tax rates later.

Concerns about the Alternative Minimum Tax (AMT) have been raised, as recent changes increase the AMT rate to 20.5% and adjust the calculation of taxable income, limiting the benefits of certain tax strategies for high-income individuals.

Here are some action items you might need to contemplate right now.

03/22/2024

Global Stress Test Initiated by the US: The US is initiating a global stress test for financial markets, which many institutions, especially those outside the US, are likely to fail.

Transition to T+1 Settlement: Starting late May, the settlement process for assets like stocks and bonds in North America will speed up from two days to one day (T+1). This move aims to reduce risks and bring financial markets closer to real-time transactions.

Motivation Behind the Change: The decision to shorten settlement times was influenced by the chaotic events of January 2021, particularly the GameStop trading frenzy. US regulators believe this change will benefit the market, despite differing opinions.

Challenges and Costs: Implementing T+1 settlement poses challenges, especially for non-US investors and intermediaries, who may face shorter working hours and increased costs due to currency exchange fluctuations. Some may resort to stop-gap measures or accept lower currency exchange rates.

Impact on Market Players: Smaller asset managers with less advanced technology may struggle with the transition, potentially leading to increased failure rates and transaction costs. Custodian banks may offer liquidity solutions, but at an additional cost, exacerbating the dominance of US financial markets and highlighting the fragility of other global markets.

Financial markets are about to embark on a global stress test, essentially imposed by the superpower that is the US. Lots of institutions, particularly those outside the US, will fail it.

03/22/2024

Federal Funds Rate Steady: The Federal Reserve maintained its federal-funds rate target range at 5.25% to 5.5%, the highest level in over twenty years, indicating a stable monetary policy stance.

Intention to Cut Interest Rates: Despite the steady rates, plans to decrease interest rates later in the year remain in place.

Impact on Short-Term and Long-Term Rates: Changes in the Fed’s benchmark fed-funds rate strongly affect short-term rates like bank deposits, but their influence on longer-term rates, such as corporate bonds, can be less pronounced.

High Borrowing Costs and Economic Impact: High borrowing costs, particularly evident in credit card interest rates, could explain consumer caution despite favorable economic indicators. This may also affect small businesses, potentially limiting job growth and economic expansion.

Market Expectations and Financial Conditions: Market expectations suggest confidence in the Fed's ability to manage inflation without causing a recession, leading to lower corporate bond yields, a buoyant stock market, and overall easing of financial conditions. However, mortgage rates remain high, impacting household access to homeownership and creating disparities in funding terms between large corporations and smaller entities.

Short-term rates are sharply higher. Long-term rates are steadier. What’s a central bank to do?

03/19/2024

Comparison to Wile E. Coyote: The American economy, likened to Wile E. Coyote, has defied expectations of a crash and instead has maintained momentum despite challenges.

Economic Growth: America's economy has grown by about 8% since the end of 2019, outpacing other major economies like the euro area, Japan, and Britain.

Fed's Handling of Inflation: Despite historical precedent suggesting rate hikes often lead to recessions, the Federal Reserve's management has been praised, achieving a soft landing amidst higher inflation.

Factors Driving Growth: Various factors such as fiscal policy support, insulation from higher interest rates, fiscal stimulus, and increased productivity have contributed to America's economic resilience.

Challenges Ahead: While the economy has shown resilience, there are concerns about potential cracks in the labor market, rising consumer debts, and the challenge of unwinding rate hikes without disrupting growth. The Federal Reserve faces the delicate task of managing inflation while avoiding overly restrictive policies.

But there are still pitfalls ahead.

03/15/2024

Changes to Home Office Expenses Deduction: Workers can no longer use the temporary flat rate of $2 per day for home office expenses. Instead, they can only deduct expenses if required to work from home for over half the time for at least a month.

Higher Interest Rate on Late Payments: The interest rate on overdue income taxes has increased to 10%. Taxpayers are advised to file on time, even if unable to pay immediately, to avoid late penalties.

First Home Savings Account Benefits: Canadians can contribute up to $8,000 annually to a First Home Savings Account, totaling $40,000. Contributions are tax-deductible, and income earned within the account is tax-free.

Multigenerational Home Renovation Tax Credit: Homeowners can claim a tax credit for renovations to establish a secondary unit for dependent family members, allowing a deduction of 15% of renovation costs up to $7,500. The unit must be self-contained.

Changes to Taxation on Residential Property Sales: Profits from selling residential properties owned for less than a year are now taxed as business income, not as tax-free capital gains. Exceptions include situations involving domestic violence.

Taxes may well be a certainty of life, but they can morph and multiply by the year, including some big changes this filing season.