Alternate Property Tax Model

So after whining about my Property Taxes, I think I have come up with a simple(r) model for Property Tax valuations which could make lives simpler (simpler for me).

Simply put, your Property Tax is set when you buy your house. When the price is set, that is what your property taxes will be based on, until the house is sold again.

Sounds easy doesn’t it? The municipalities could tweak it so that they could add an inflationary increase each year, so that their incomes could slowly increase, and maybe a caveat on the valuation at sale (i.e. the City can have an independent body valuate the house at sale time and then base property taxes on that value), in case folks try to sell houses for $1 or the like.

Advantages?

• Property tax increases would be limited year over year to only an inflationary increase, better than current system where Property Tax valuations can wildly vacillate (mostly up)
• If someone stays in their house for a long period of time, they will not end up having to sell their house because their neighbourhood suddenly went “up scale” and their Property Taxes have sky rocketed (as in Vancouver), good for Fixed Income seniors.
• May cause a boom in contracting work for upgrading houses, since it’s value will not increase unless it is sold (i.e. why move to a bigger house, when it ends up being cheaper to add a room to my current home)
• Less yearly paper work with new valuations and warning home owners of the pending change.

Disadvantages?

• Municipalities incomes may not be as large as they need them to be and it may force them to cut services (to run a balanced budget)
• Tom-foolery and shenanigans are still possible given there can be manipulations of these systems, like we have seen with rent controlled properties and such.
• Might throw cold water on the housing market, with folks maybe staying in an older house, instead of buying a brand spanking new one, because it costs more (and the older house has been inhabited in for a while)

Opinions? Should I write this one up and present it to the Ottawa City Council as a progressive and exciting way to move forward in the 21st century? Maybe if I add a Green element to it, it might be an easier sell (it will help the environment, because it will slow housing developments)?

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Best of: Don’t Pass it to the Other Team!

The CIS championships return to Ottawa for the last time this weekend (they go back to Halifax for a while after that), and with that in mind we go back in time to one of my favorite old postings Don’t pass it to the other team sound advice from an excellent (if not hard-edged) coach (Dave Smart of Carleton). You can find this post and several other of my favorites at My Favorites page (well worth a read).

As a note, I still dabble in helping out with basketball (although I suspect I am a much better assistant coach/team manager than I am head coach), and hopefully will get to 1 or 2 games this weekend (will be attending a coaching clinic on Saturday morning, hopefully there will be other useful messages that I can translate into the world of personal finance). Also Carleton’s string of 5 championships in a row was broken, however they are defending champions again this year, so we shall see how this weekend goes. (I am a Carleton fan, but a Waterloo Alumni, luckily my Alma Mater is not playing this year).

Don’t Pass it to the Other Team!

So one of my sidelights is coaching basketball, and I love going to clinics from coaches who talk about coaching and plays and stuff (I’m an old gym rat at heart). Last Saturday I was lucky enough to hear from Dave Smart who is the head coach at Carleton University (the Ravens have been Canadian Champions the last 3 years running), and he was fascinating to listen to. Coach Smart admits to being a perfectionist and telling it like it is, and one of the expressions he tells all of his players is “Don’t Pass the ball to the other team“.

The first time you hear this expression it sounds obvious, of course, who would do that, but what Coach Smart was trying to say (I think) is most basketball players watch their own players, but rarely see the other team’s players. If you watch the defensive players, you won’t pass it to them! Simple, right? No! You know where the offensive player is going to go, you don’t know where the defender is going, and you need to watch them!

What does this have to do about finances? (Darn good question, get ready for a stretch here) Don’t take your eye off things that you can’t control, the stuff you can control, your savings, your retirement, your investments, your debt reduction plan, if they are under control that is good.

You have to plan for the things you don’t control, and that means:

• Reduce DEBT! You can’t control interest rates, you can’t move forward with your car in reverse. Debt reduction is first and foremost. Everything else can be dealt with much more easily if you are carrying little or no DEBT!!!
• Have contingency funds in place for:
  • Car repair. I am guilty of that one, car repair bills always throw me off kilter
  • House repair. I am going to get a major bill to replace the roof and furnace on my house, but they had to be done. If your house is new, you’ll need to replace these things in 15 years, but in 15 years, if you haven’t saved any money for it, it’s going to HURT!
  • Catastrophic illness. I have long term disability insurance with my company just in case. If I had a stroke tomorrow, my family would at least have an income of some kind.
  • Loss of employment. If you lose your job, how long will you last? A priest once told me everyone is 12 weeks away from living on the streets, make sure you are not one of those folks
  • Death! Term insurance to protect your family, and a will to protect them even more (thanks Dividend Guy, for pointing out I missed that).

These are SOME of the unknowns, that you need to watch for, and not pass the ball to them!

Hope for the best, and plan for the worst!

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Cause he’s the Tax Man

This time of year is magical in terms of the sheer volume of money that seems to go for taxes in my household.

First we have the CRA and Income Tax coming due in April, which causes lots of excitement as I mentioned in How Do You Dor Your Taxes?, and I am happy to say that this portion of the Magical Tax Mystery Tour is over, with my E-filing this past weekend. I like to get those in early, especially when the government owes me money (and even if you owe them money, you don’t have to pay until the last possible day).

The second exciting part of this Tax Trek is Property Taxes that I owe to the City of Ottawa. Ottawa’s system has a couple of ways you can pay and I choose to make the two payments they ask for in March and May (you can pay monthly if you wish as well), and this makes for the right hook portion of the tax combination punch I receive this time of year.

Property taxes have continually gone up since I started owning a house about 13 years ago, as various levels of Government off-load their own service load and down load them to the municipal governments, but also the City of Ottawa is an interesting story all on it’s own with Amalgamation and the fact that the City of Ottawa keeps growing (and thus it’s thirst for Tax Funds is never quite satiated).

Given I seem to live in my finances in this time of year, I always end up noticing interesting points that these taxes bring into focus for me:

• I pay more in Property Taxes than I do in Mortgage Interest on my house. I guess this is a good thing, but this may change when interest rates go up.
• With Income Tax there is always a chance that I will get a refund from the Government, but this is never going to happen from my Property Taxes (which explains why I seem to loathe Property Taxes more than Income Taxes).
• Property Taxes are the only tax on the Perceived Value of something, as opposed to actual value or income. If I sold my house for $1 tomorrow, but the City said it was in fact really worth $1,000,000.00 they would be right and that would be what the new owner of my house’s valuation would be. I have seen many people successfully argue that their property valuation was too high, but it is a tedious and slow process (and you might end up with a higher valuation if you are not careful).
• If I wanted to pay more Property Tax, in exchange for more services (say better street lighting, better sewers or a fire hydrant near-by), I would not be allowed, and there is no way for me to buy these service improvements from a private firm either (given the city has a monopoly on these services).
• Even though a portion of my property taxes goes to the Schoolboard of my choice, this does not guarantee my child an education with that board. If they feel my child is not suited to their service (behaviorally, or because they have a learning disability or other reasons) they can refuse me this service, and I have little recourse (but I still must pay the fees). That one is always an interesting discussion point to bring up at a party that seems to be too quiet.

I don’t think there is anything too deep in those points, just some stuff I noticed about my property tax bill.

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Stats Canada announced some improving numbers for February in the world of Employment, which bodes well for the economy, but also points towards a recovery, which will cause the government to maybe get out of the way, by lowering their intervention, but also have them stop making money so easy to get (i.e. upward pressures on interest rates). This seems to be the opinion from a few folks about these numbers.

Underlying February’s employment change was a notable gain in full-time work (+60,000), which was partially offset by a decline in part time (-39,000). Since the summer of 2009, employment growth has been all in full time.

On Going Employment Graph

Employment Better for Over 55

An interesting figure is that employment for folks over the age of 55 was one of the biggest growth areas in February. This means lots of older folks, who maybe should be thinking about retirement are actually going out and getting jobs?

Employment for men and women aged 55 and over has been trending up for a number of years, the result of employment growth combined with more people moving into that age group.

Yes we are all getting older, but why are we looking for jobs? Guess we need to save a little more for our retirement?

Unemployment Down Too

This month the unemployment numbers trended down, which is good as well.

Big Picture Graph for Unemployment

The Big Table

And here is the big table to ogle for more information:

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Last night I watched a very interesting interview on the Daily Show with Harry Markopolos, one of the men who blew the whistle on Bernie Madoff (back in 2000). The interview with the Daily Show is astoundingly frank and entertainingly funny, and at the end of it, incredibly disturbing. The Comedy Network in Canada does not allow me to embed this interview so you’ll need to click to get to it, but it is well worth the hassle. Markopolos’ book No One Would Listen: A True Financial Thriller is an interesting read.

CNBC does have a more serious interview with Markopolos and a former co-worker Frank Casey, which outlines that Madoff’s shenanigans and financial tom-foolery had been noticed, but it seems no one did anything much about it for a long time. The best line is about how you never had to use Madoff’s last name, if you said, “Bernie” everyone knew who you meant.

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The Grass has Riz?

In Ottawa, spring seems to be starting very early this year, with the second week of March looking more like the last week in April, but those of us who have lived here long enough know it is a little early to start thinking about taking off your snow tires. I will be keeping them on until the start of April, and even then, you never know.

Thoughts in Personal Finance

The financial bloggers had some thoughts for this week, which don’t reflect the weather, but still might help you get a spring in your financial step:

• Larry MacDonald wonders if those of us in Ontario show Buy Before the HST Hits? Makes me think I should get my new windows put in before July 1st.
• Michael James has been busy this week, being a proud Dad, watching his son win a Gold Medal at OFSAA, but he did have time to post a review of the book, The Investor’s Manifesto, which does have one great line in it: “…If you act on the assumption that every broker, insurance salesman, mutual fund salesperson, and financial advisor you encounter is a hardened criminal, you will do just fine…”, wow!
• The Couch Potato talks about The Ethical Couch Potato and whether ethical investing is a good idea or not. Ethics and making money are an interesting mix.
• Preet at WhereDoesAllMyMoneyGo has a guest poster talking about Going Bankrupt and Rebuilding Credit in Canada (this is a pointer to the first in a series of posts). Bankruptcy is serious business that is for sure (even in Canada).
• A re-vamped Canadian Capitalist talks about Auto & Home Insurance Premiums on the Rise in Ontario. The Capitalist is getting some folks saying he has “sold out”, me I wish him good luck and hope his new look works.
• Do you like to Talk Money with Your Honey? Evidently some folks don’t and this worries Gail Vaz-Oxlade a great deal (and I agree, money is the 800 lb. Gorilla in the corner nobody wants to talk about).
• Million Dollar Journey has a guest post that points out that Life’s Lessons Are Not School Chemistry Chapters and thus easily forgotten. Very true, hopefully we will all remember the valuable (if not painful) lessons we learned in this latest economic downturn.
• Video sedation should never be discounted in it’s value especially on long car trips (for children) and Four Pillars learned that when they purchased a Portable DVD Player to Amuse Kids on Car Trips. It’s a great idea, the only issue is, then kids expect movies everywhere, what do you do then?

Enjoy the budding trees, growing tulips and sprouting grass (and for those of us with seasonal allergies our daily dose of anti-histemines). Enjoy the weekend.

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Parity Between US Buck and Loonie?

That is what the CIBC and their analyst Zafar Bhatti thinks. Same reasons as previous Loonie flights but still worth noting:

• Commodity prices, and Canada being the Northern Resource Kingdom to the U.S. (and a lot of the world)
• Potential for higher interest rates in Canada, thus strengthening the dollar (remember targets are June)
• Canada is a good investment in terms of our credit balance. Yes our Government is in debt, but nothing like the Americans, and most of our debt is held by Canadians themselves (i.e. Savings Bonds), so we are a good risk (maybe we can get a Amex Platinum for Nations?)

An excellent quote from the CIBC is:

…This puts the Bank of Canada between a rock and a hard place, if they signal rates are going to rise, the Canadian dollar will make a run for parity or stronger…

A blip over the summer with a subsiding in the fall might be a good thing for Canadian consumers, maybe.

Big Deal!

Well, actually it can be a very big deal if the Canadian dollar gets really strong, it will cause Canadian products to be too expensive for your Yankee cousins (whether the Canadian dollar strengthens against the Chinese currency and the Euro remains to be seen). Many, many small Canadian firms rely on trade with the U.S. and a soaring Loonie will cause that market to dry up, unless the manufacturers slash prices in reaction to this rise.

Reverse cross border shopping will start again. Many things are cheaper in the U.S. if you simply look at the price tag, and if the Canadian Dollar can buy the same as a U.S. dollar, why shop in Canada? For someone in Ottawa you are 55 minutes from Ogdensburg, and not that far from other U.S. towns and cities that will see an influx of “Frost Back” Canadians with their Beaver Bucks in hand. This will help these border towns a great deal, but will have the reverse effect on Canadian border towns.

Is this a permanent thing? I have no bloody idea, but I am now looking at US Index funds (and ETF’s) thinking that if the Canadian dollar goes any higher am I getting a bargain? As is pointed out in the CIBC report, if American Inflation explodes (say because their Government is printing money as fast as they can spend it) and the U.S. Central Bank has to raise interest rates, then this will simply be a “bulge” which will subside quickly and the Canadian Dollar may slide back to where it has been (of course if Canadian Inflation explodes in reaction to American Inflation, the two factors may cancel each other out).

I would encourage you to read over this very interesting report and form your own ideas and opinions about where we are going from here (economically).

Don’t we live in interesting times?

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Time and Financial Goals

Yesterday I celebrated my daughter’s 20th birthday, by reminiscing about the day she was born (she is out of town at school, so we won’t celebrate with her, but assume she celebrated with friends).

Twenty Years Ago

The decision to have kids was a hotly discussed topic between my wife and myself, since I was positive we could not afford to have kids at the time (as usual, my wife was correct, that we would simply adjust our lifestyle to fit the new costs in).

Twenty years ago, I had little or no thoughts of retirement, and saving, we hadn’t even bought our first house yet (another hotly discussed topic in the apartment we rented at the time).

My parents luckily thought about the future for us, and started buying our kids savings bonds for their post secondary education (or when they moved out of the house). This is something that I hope I can remember to do for my kids when they have kids, and that money has since moved into RESPs and such. This is something that all parents can pass on to their kids, teaching them the importance of saving for the future, because the future comes a lot faster than you think.

I didn’t really even have any RRSP’s set up in 1990, I did have some savings that we were putting away to buy our first house, but that was hard enough to build up. In hindsight I could have made a lot of shrewd investments, but I have also seen over twenty years that “sure things” in the world of investment are not as sure as they look (i.e. Nortel stock and such).

What Would I Change?

It’s easy to be trite in this situation and list out the obvious things that I should have done back then such as:

• Start an RRSP and invest in high tech early and get out early
• Don’t build up credit card debt
• etc., etc., etc.,

but this would imply some degree of regret or sadness about those twenty years, and I don’t wish to portray those years that way.

I have learned more from being a parent than I would have, had I got a PhD. I have had more happiness and joy in those twenty years than I deserve (or merit), but I am unapologetic too.

Yes there are times where I look back and think, “I should have….”, when it comes to some money decisions and some other decisions in my life, but in some ways I learned more from my mistakes than from my (minor) successes in the financial world.

Am I saying, “Don’t worry, be happy!” (to paraphrase Bobby McFerrin) about your money? No! I am saying you should be careful and take the obvious steps to be safe with your money and to avoid debt every which way you can, however, if you think you have done all you can, and you are comfortable, then you should enjoy your life, is all I am saying.

Tempus fugit, and twenty years will fly by in a heartbeat, so make sure you are enjoying it.

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Yes, it is Roll Up the Rim to Win (TM) time again at Tim Horton’s, a time as hallowed as Spring in Canada, causing normal folks to drink copious amounts of coffee to ensure they have a chance to win. What are these over-caffenated folks chances you ask? Just click here to have a look at the rules (that every Tim Horton’s is supposed to have around as well) and chances of winning.

If you read this document closely, you will learn:

• If you enjoy your Double, Double in Ontario, you have a chance of winning 50% of all the Rav4’s being given away.
• If you quaff your Regular in BC you only have a 6 in 17,364,000 chance of winning $10,000 (they will give away 6 prizes in BC and they figure to sell that many cups in BC).
• If you win a Rav-4 don’t hand your rim around, and when you try to claim your prize send it by Registered Mail (Timmy’s recommends that strongly)

It is always important to read the rules in these types of giveaways. It used to be they broke down the number of winners by cup size, but for some reason that data is no longer in the contest rules (it used to be Xtra Large cups had a better chance of winning).

I always thought that if a Condom maker wanted to make more better sales in Canada, they should license the Roll Up the Rim(TM) from Timmy’s and change it to Roll Down the Rim to Win (but don’t tear). Guess I think too far out of the box for most marketing companies. I suppose a Mohel could also use my idea, but I don’t think they advertise much. Remember, “The rabbi gets the salary, and the mohel gets the tips.”

My other idea, is that Tim Horton’s should sprinkle a few cups in there that say, “Haven’t you had enough Coffee?”, or “Ineligible to Win again this year!” amongst the cups for fun. They’d have to give out a small prize with them, but that would be funny.

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The Budget announced on Thursday did one or two good things, announced some ominous things (for me) and didn’t do much else.

Good: RRSP/RSP to RDSP

The one good thing is that estates of deceased parents and grandparents can transfer money tax-free to a child or grandchild’s RDSP, which helps those with disabled kids, so a very good thing.  The RDSP program will also allow for Carry Forward of the Disability Bonds for up to 10 years, so those who may not have enough to put in one year ,can make it up in the next year (seems a logical step in the program).

OK: Options Victims Saved?

There was a statement about the lucky folks being taxed for money they didn’t make on Stock Options, but the exact logic and methodology is not yet completely understood (as can be seen from this post from Michael James (an admitted victim)). I never had to worry about options ever being worth anything, so I think this doesn’t affect me in any way.

Interesting: Government Cost Controls

This one is directly in my new backyard, with a statement about budget freezes in the public service. What will this mean? Again, not exactly clear, but spending seems to have stopped for now, which might be a good thing for taxpayers (not for us civil servants). Will this mean lay-offs? My guess would be maybe, but a lot of attrition losses due to retirement not being replaced, might be the more logical choice. Will this cut down on bureaucracy and mismanagement? Did it do much in Nortel? Again, the answer is maybe, but I doubt it. Whatever bureaucracy that is there, will stay there, and anybody mis-managing things, are most likely going to stay where they are too, but we shall see.

No mention of the Public Service pension plan, but many ominous statements about it coming from the “side sources” of the government, so another area to watch closely.

Why Not Back to the Past?

So how is it that 4 years ago we were running surpluses and now we are running massive deficits? A couple of reasons come to mind, but they don’t quite add up:

• Massive infrastructure programs to help start up construction and such
• Less Government income, because less folks are working (and those that are, aren’t getting huge raises, and some even took pay cuts).
• More unemployed, so more money going out of the EI “cash cow”, instead of coming in.

But this doesn’t seem to add up to a $50Billion deficit in my mind, but again, maybe it is just not that simple. Anybody think of any other reasons?

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