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March/April 2010

Commentary - Hans H. Mathisen

I'm sorry, but until further notice, my usual commentary will not be available. However, I can still provide you the valuable benefits and financial insight of LIFE LETTER and LIFE LETTER MATURE:

Mortgage rules tightened - LIFE LETTER for March describes some of the efforts that Ottawa is implementing in an attempt to prevent a devastating real estate bubble burst like the recent one in the United States.

How can you benefit from being charitable? - April's LIFE LETTER explains some of the tax breaks that exist to encourage taxpayers to give to their favorite charities.

LIFE LETTER MATURE - helps to explain the ins and outs of Registered Retirement Income Funds (RRIFs), and offers "Ten steps to finding the right retirement location".

Hans Mathisen





Mortgage rules tightened

In an effort to crack down on speculators and to discourage people from taking on too much debt, Ottawa is tightening mortgage rules again. These new rules are expected to take effect April 19, 2010.

There is growing concern that the housing market in Canada may be overheating. Finance Minister Jim Flaherty stresses that while there is no bubble in Canada's real estate market now, these new mortgage measures are a proactive step to help prevent a housing bubble from occurring.

All borrowers will need to meet stricter criteria in order to get a mortgage. To qualify for a Canada Mortgage And Housing Corporation (CMHC) insured mortgage, borrowers will need to be able to service the debt based on a five year fixed-rate mortgage, up from the current standard of three years. This measure should ensure borrowers will be able to handle increases in their variable rate mortgages when interest rates start rising, perhaps as early as this summer.

The down payment that borrowers must have for speculative investments will also be raised. Prospective home purchasers wanting to buy a property where they won't be living will need to have a 20% down payment.

While investment properties, such as rental units, are not the intended targets of this change, they do appear to be affected. Flaherty said, "What we're [aiming] at is the speculation in multiple condo markets, in particular." Many think this move may be an effective measure to prevent rampant real estate speculation like what occurred in many areas of the United States, which then led to catastrophic property value decreases and mortgage foreclosures.

To discourage the kind of mortgage refinancing that often creates unmanageable debt levels when interest rates rise, tighter restrictions will be imposed on how much people can borrow against their homes. The new limit will be 90%, down from the current 95% of the property value.

"We are encouraging people to build equity over time, using home ownership as an effective way to save, rather than a vehicle for quick cash," Flaherty said. The minister has been advised to be stricter on who can get new mortgages. The government has also been warned by economists not put on the brakes too hard so what some say is a fragile economic recovery isn't stifled.

In July 2008, the Department of Finance announced changes to the rules for government guaranteed mortgages that became effective October 15, 2008. These changes made it no longer possible to get CMHC mortgage insurance for 100% loan-tovalue mortgages or 40-year amortization financing.

While these changes appear to make it more difficult for some people to purchase a home, they are intended to have a "stabilizing effect on the housing market." These measures should also help prevent a devastating real estate bubble burst like the recent one in the United States.

Want help with your financial strategies?

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright © 2010 Life Letter. All rights reserved

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How you can benefit from being charitable

"Nothing lives in the Dead Sea. It cannot support any life because rivers and streams only run into it, not out. The Dead Sea only takes, it does not give."

Charities play a vital role in our society. The Canadian government recognizes this role and tax breaks exist to encourage taxpayers to give to their favorite charities.

Roger makes occasional donations to various charities. His donations are rather small and amount to only a few hundred dollars per year. He learned that he might get a bigger tax break if he was a little more generous with his donations.

Donations used to be a direct deduction from taxable income, but are now treated as tax credits. A taxpayer's federal income tax payable is calculated first, and then certain credits are deducted from the total owing. Provincial and territorial taxes are then calculated based on the federal taxes.

For cash donations to a registered charity, the first $200 earns a federal tax credit of 15% and anything over this amount (within certain limits) gets a federal tax credit of 29%. Roger can actually get a larger tax credit on his donations over $200 than what his federal taxes are. He is in the 22% marginal federal tax bracket.

For example, if he contributes $1,000 to charity, Roger will get a federal tax credit of $30 on the first $200. The credit on the remaining $800 is $232. His federal taxes on the $800 was actually $176, so he comes out $56 ahead on his federal taxes. And he saves on his provincial taxes, too.

The amount of the provincial tax credit available varies by province. In Alberta, for example, the tax credit for donations over $200 is double the 10% flat provincial tax rate. So, if Roger lives in Alberta, his total tax credits would amount to $442, but he was taxed $320, so he comes out $122 ahead.

Mary has been a long time supporter of her favorite charity. She would like to make sure that her support continues after she passes away. Getting a tax break today also appeals to her.

Life insurance can help make her wishes come true. The procedure is quite simple. Mary applies for insurance on her life, or uses an existing policy, naming the charity as the new owner and beneficiary. She pays the premiums and the charity gives her a tax-deductible receipt each year for the amount of the premiums she paid.

This approach is very effective because Mary can make a substantial bequest in the future by making payments over time, which may suit her situation better. Her donation is private and won't be publicized unless she wants it to be. The gift cannot be contested by anyone because life insurance is not open to such attacks, unlike donations in a will.

IMPORTANT NOTE - This concept is based on the understanding that premium donations are in addition to a donor's current support.

Want to make a difference to your favorite charity?

Call Hans Mathisen today at (306)242-7042.
or email -

Copyright 2010 Life Letter. All rights reserved

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