The trouble with humans

Let’s start off this post with a picture, below. You know, a thousand words.

In this case, those words say, ‘well, this was inevitable.’ Two years ago the mushy bits outside of Vancouver were hot with speculation, greed and house lust. Ground Zero could well have been Richmond, where non-descript suburban houses that wouldn’t garner a second glance in, say, Saskabush became multi-million-dollar palaces.

That started to change in early 2017 with soggy sales and sticky prices. Interest rates headed north, making it obvious the market must correct. And it began. Then the coup happened in Victoria, as the Dippers and Greens overthrew the party with the most votes and launched a campaign to destroy the market instead of letting it unwind.

So here we are. Extra taxes for those in nice hoods, with business-use condos, with second homes, cabins or cottages and a special dose for non-residents, whether they’re from China, Chicago or Cowtown. The result was predictable, and predicted. And that brings us to the picture, courtesy of Zolo.

Yes, prices are down. Seriously. But look at sales. Also tumbling.

Remember all that political claptrap about making houses ‘more affordable’? Well, here you go. Prices off 20% in a month and almost 30% in a quarter. And where are the buyers? Afraid to offer, of course, for fear of loss. It’s human nature. We crave what rises. We shun what falls. Meanwhile government collects more, recent buyers go underwater, and the province gains a rep as somewhere reasonable people… rent.

Prices tumble, but buyers don't rush in

Click graphic to enlarge

Okay, it’s dark and cold now and November sucks. But here are five things to warm your cockles – year-end tax strategies! I feel aroused just writing about them.

Adios bow-wows.
The end of the year brings an opportunity to sell all those dog equities your BIL told you were sure things. You know the ones – junior mining stocks, Peruvian gold miners and cannabis cookie frachises.

Remember that 100% of the losses on this junk can be deducted from the gains made holding quality ETFs. But the deal needs to be done by the end of the year, which means a sale must occur by December 27th. Do not make the classic Guy Mistake of holding onto one of these pooches waiting for it to rise and erase your sin. The odds are at least 50% that it’ll get worse and she will never forgive you. So, cleanse.

Raid the TFSA, if you must
The benefits of having a fat, swelling TFSA have been spelled out here with stultifying regularity. You know, tax-free growth, retirement income without reducing government pogey, total flexibility, no withholding tax. But sometimes life happens and you must dip into the cookie jar. If that looks likely, do it by the end of the year. Then all of the TFSA withdrawal can be replaced during 2019, plus the new contribution of $6,000. If you wait until after December 31st to remove the funds, they cannot be put back until 2020. We will be angry with you.

Use your spouse
A proven strategy to slice tax in a household where one person makes more than the other is the spousal loan. When you give a less-taxed spouse money to invest the gains are attributed back to you, taxed at your rate. But if you loan him/her the funds, no attribution. So always try to make the person who earns the least the main investor.

The rate you must charge is a ridiculously low 2%, and the interest is deductible in your spouse’s hands. So, it’s like free money. But with interest rates on the rise in 2019, it’s highly likely this minimum will increase. Therefore, do it now. The crazy-low rate will be locked in for the duration of the loans. Unlike your HELOC.

Use your kid
The easiest 20% your family will ever earn is by putting money into an RESP – a registered education savings plan. That comes in the form of a federal grant on the first $2,500 you contribute annually. So do it by the end of the year to collect the windfall. Then do it again in early 2019 to collect more.

Delay the raid
Thinking of buying a house and using the $25,000 tax-free withdrawal from your RRSP? Because this needs to repaid into your retirement plan in 15 equal annual installments, if you wait until January you’ll gain a full extra year before any repayments are due. Also remember if you want to employ the Home Buyer’s Plan in a few months, dump the funds into an RRSP now, wait for the tax refund to materialize, then use both for the down payment. Bigger deposit, less mortgage.

By the way, I hear Richmond’s a bargain. Man up.