Dr. Garth

Well, it’s been a messy few days around here. An emotional backlash to Muslim-friendly mortgages. Angst over two-million-buck houses. Hyperventilation about the orange guy. All unhealthy. More of this and the blog will have a stroke. It may already be on life support. BP off the chart.

So, let’s heal. Fortunately the Doc has just returned from a wellness session replete with 30-year-old scotch and Davidoff Nicaraguas. Who’s the first patient?

“I’ve been following your articles on the recent budget and the capitals gain tax moving to 66%,” says Al, “and I’m wondering how it might impact my kids’ who will be getting the house when I die.”

“I bought it for 400k 20 years ago and it’s now worth 2.4m. That seems like a large CGT bill for my kids when they sell the house. Neither will want to live in it. Wondering if I’m better off selling the house now and renting? I can then gift the cash to my kids in my will which won’t have any CGT attached to it. If that option makes sense I’d prefer to keep the wealth in the family. I know you hear this a lot but I’d like to personally thank you for all you do for your readers. Very much appreciated.”

Take a Valium, Al. It’s okay. There’s no capital gains tax on a principal residence transferred through an estate to your offspring as beneficiaries. However any gain in the value of the house between the day of your passing and the day the place is sold by your children is taxable. The first $250,000 will be at a 50% inclusion rate, and 66.6% above that. Maybe a bigger issue is ensuring the kids get along with each other and will be able to decide together (without conflict) on a time to sell, a realtor to handle the sale, the asking price, the closing date and a lawyer.

To avoid that, sell now and distribute the cash proceeds in your will. Or surprise everyone and spend it on yourself. They’ll be thrilled for you.

Well, here’s Valerie. She’s a newly-minted medical colleague (a real one) in the first year of practice and, like many, is earning money through a personal medical professional corp. She also wants to game to system, using a FHSA.

“What happens to my FHSA contributions and contribution room if I purchase a qualifying home, but choose not to make a qualifying withdrawal from my FHSA?” she asks.

“With the advent of the new capital gains tax on corporations, there has been a lot of discussion amongst physicians about how to maximize RRSP/FHSA/TFSA accounts to save for retirement. One suggestion that I came across is to not use the FHSA towards a qualifying home purchase. Instead, the suggestion is to maximize the FHSA contribution room ($40K) then transfer to RRSP, thus increasing RRSP contribution room. I reviewed the CRA FHSA guidelines and they don’t seem to address this issue, so it seems like a possible strategy. Interested in your thoughts.”

It’s true that the weird first-time home savings account can be used to goose RRSP room. The rules allow you to contribute up to $40,000, to leave the money in growth assets for 15 years then move the whole caboodle into an RRSP or RRIF. But pursuing this strategy while also assuming ownership of real estate means you’ve broken faith with a tenet of the account – that it’s only for the houseless. The rules are fuzzy and CRA interpretation bulletins so far are lacking, but it’s a good bet that, eventually, your FHSA-to-RRSP transfer would be deemed a taxable withdrawal. Is the risk worth it? Do you really need a audit?

By the way, Val, you and your doctor pals should be careful about taking income in the form of dividends instead of salary. It might seem like your tax load is lessened that way, but it’s an illusion. The combination of tax paid by your corp and by you on the dividends received is identical to the tax owed on an equivalent amount of salary. And you earn zero RRSP room. Plus – now – every dime of capital gains made by your corporation on its retained and invested earnings is subject to Chrystia’s Special 66% Guilt Tax.

The days of tax-smart doctoral tax deferral are terminal. RIP.

Finally, Curtis comes to the clinic today with a common complaint: MRA. Mortgage renewal anxiety. Like measles among the anti-vaxers, it’s spreading wildly.

“I love that the blog is still going! It has been so helpful to me over the past decade. Thanks for all you do. And I would say the blog has made me smart, until I wasn’t – and purchased a Regina house in September 2021,” she says.

“Should I be increasing my mortgage payments in anticipation of higher mortgage renewal rates, and to be mortgage free quicker, or take that extra cash for increased payments and invest? We’re early 40s, commonlaw, two kids, earn 240k together, teacher and Saskatchewan government worker. Mortgage is 710k @ 1.99%, weekly payments. What do you think?”

It may be a long time, maybe never, before people borrow house money again sub-2%. Savour it. And the weekly mortgage was a good idea. If it’s the right kind (not all are) you’re making the equivalent of one extra monthly payment per year, shaving a lot off the total interest bill. Meanwhile the low rate means a good whack of every payment is going towards principal.

Given this, take your extra cash and invest it in a B&D non-registered account (since you both have defined benefit pensions). You’ll surely earn far in excess of 1.99%, will diversify your wealth profile, and accumulate a pot of money than can be used to mitigate the impact of the coming renewal. Reduce the principal then, once the interest rate environment is known.

And Rejoice that you live in Regina. The rest of us are pooched.

About the picture: “Here is a pic of our 6 year old miniature poodle Suzie, the smartest dog we’ve ever had, write Don and Vicki on Vancouver Island. “She often crosses her paws, and has her own opinions. We are a bit older than you, and well remember you getting sacked back in the day for calling a spade a spade. Thanks for doing that. And thanks for continuing the tradition in your blog. Canada badly needs your dose of reality if we are to avoid the extremities of the left & the right.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.