Greetings to all and a warm
welcome to new subscribers.
The focus of this month’s
newsletter is regarding a proposal that would allow homeowners to deduct their
mortgages for income tax purposes. The
plan would allow for individuals to deduct up to 10 percent of their mortgage
cost for provincial tax purposes. This
was proposed to home- owners in Ontario this past March. The plan is to gradually increase the
deduction ratio to 50 percent. It
sounds wonderful but there are some technical difficulties to iron out. You can
bet that if this law gets passed the rest of Canada will not be far behind.
The mortgage deduction will
level the field and permit middle-income professionals, among others, the same
tax relief that some high income tax payers already enjoy indirectly.
The Canadian income tax system
has a legal “fence” that separates deductible from non-deductible
interest. On one hand, taxpayers who
borrow to earn professional or investment income can deduct their interest
expense for tax purposes. For example,
when an individual borrows to buy stocks or bonds, the interest on the loan is
deductible. On the other side of the fence, however, interest on borrowings for
personal use and consumption is not deductible. Therefore, as an example, mortgage interest on a private home or
personal car purchase is not deductible.
The fence between deductible and non-deductible interest has
enough holes in it to allow taxpayers to refinance their affairs and get from
one side to the other.
Professionals are treated the same as other individuals,
except that they enjoy greater flexibility in refinancing; they earn
professional income, and therefore can rearrange their borrowings easily to
take advantage of the new deduction.
For example, a lawyer with a capital account of $500,000 in a
law firm can strategically withdraw the capital and buy a house with the
proceeds. He or she can then turn
around and borrow an amount equivalent to that to replenish the capital
account. In this situation, the Supreme
Court of Canada has said that the interest on the borrowing is deductible
because it is used directly for business purposes in the law firm. In economic terms, however, the lawyer would
have simply financed the home with deductible interest, thereby reducing the
cost of borrowing by 46 per cent. If mortgage interest becomes deductible,
there will be additional incentives to withdraw equity from fully paid homes
and refinance with a mortgage to purchase other non-deductible personal
expenses, such as cars, tuition fees and vacations.
Interest arbitrage* makes it almost impossible to maintain a
clean dividing line between personal and business use borrowings. Just about every federal proposal in the
past 50 years that has tried to keep this barrier between deductible and
non-deductible interest has failed after lengthy litigation. Therefore, the United States, having long
recognized that it is not possible to draw arbitrary lines between deductible
and non-deductible borrowings, allows taxpayers to deduct interest on their
home mortgages up to $1-million and for personal borrowings.
Mortgage interest
deduction will not be all that simple.
For example, if one allows deduction of mortgage interest on owner
occupied homes, one should also allow individuals to deduct borrowing costs for
renovations and refinancing of existing homes.
Homeowners already enjoy a substantial tax preference because there are
no tax gains on the sale of a principal residence. The principal-residence exemption is by far the riches of all tax
preferences because, unlike the United States, there is no dollar cap on the
exemption. We must wait to see whether
the province will impose dollar limits on the deduction. The United States permits full interest
deductibility on mortgages of $1-million or less, as long as the house secures
the loan. It also remains to be seen whether the province will permit spouses,
including common-law and same-sex spouses to deduct mortgage interest on two
separately owned residences.
Once this proposal is
put into law, there will be no going back.
Although the initial cost is estimated to be approximately $5-billion to
start with, the deduction will inevitably expand and there will be increasing
pressure to expend it to include property taxes and raise deduction limits.
*arbitrage refers to the purchase of
securities on one market for immediate resale on another market in order to
profit from a price discrepancy.
. (June 22, 2003)
Today’s
ProLink Interest Rates on First Mortgages are as follows:
Rates
are subject to change without notice.
|
Description |
Best
Rate |
|
2.49
% |
|
|
6 Month
Closed |
4.85
% |
|
1 Year
Closed |
3.85
% |
|
4.20
% |
|
|
3.95
% |
|
|
4.25
% |
|
|
4.39
% |
|
|
4.99
% |
|
|
5.35
% |
|
|
15 Year
Closed |
5.70
% |
|
18 Year
Closed |
5.80
% |
|
25 Year
Closed |
5.85
% |
Rare Products:
A) No proof of
income and up to 90% Financing for self employed clients. (Personal Res)
B) 85%
Loan To Value Revenue Properties, Self Employed no income verification.
C) 75% Loan To Value no income verification.
Thank you to Dean Holden for
sending me the article on Record Number of Canadians Refinancing
Their homes to use the equity.
These interest rates are the lowest we have seen in over 40 years.
News Article Click Here <------
Welcome all New Subscribers!
Regards,
Dan Heon
ProLink Mortgage & Financial Corp.
Phone:
403-257-1801
Fax:
403-206-7622
Toll Free:
1-888-281-0111
Email: ProLink@telus.net
P.S. – Thank you ALL for helping our office to
becoming one of the top producers at ProLink Mortgage & Financial.