INCORPORATION 101

When incorporating, make sure that you get a minute book, not just a Certificate of Incorporation and Articles.  Corporations must keep minutes of all major decisions that shareholders, directors and officers make.  Shareholders are the owners of the Corporation, and they appoint directors to make the decisions for the Corporation.  Directors appoint Officers to manage the day to day operations of the Corporation.  The appointment of each of these as well as issuance of shares must be recorded in the minute book from the beginning, along with other decisions such as the address, bank and accountant of the Corporation.

Once a corporation is set up, an annual return must be filed every year with the provincial government.  This is a small cost, but must be done every year or the Corporation will be dissolved.  Annual returns must not be confused with Corporate Tax Returns.

Another key factor in setting up a corporation is getting a Business Number.  All Corporations require a Business Number.  A Business Number (BN) is simply a numbering system used by the CRA to track your business.  It is based on the idea of one business, one number.  The BN consists of two parts – the Business Number and the account identifier.  The entire number has 15 characters – 9 digits to identify the business and 2 letters and 4 digits to identify each account a business may have. Not all Sole Proprietorships require a business numbers.  Only those who need to collect GST, have a payroll, or import and export need a Business Number.

STRUCTURING FOR THE SELF-EMPLOYED and BUSINESS OWNER

Before starting a business, it is necessary to structure it properly.  Here are the main ways a business can be structures:

·          SOLE PROPRIETORSHIP.  This is a type of business entity which legally is not separate from its owner.  Taxes for this type of business are paid on the individual’s personal income tax return.  The sole proprietorship is good to use for smaller home-based businesses or businesses that are unsure if they will make over $35,000.

·          CORPORATION.  A corporation is a legal entity used to conduct business.  Corporations exist as a product of corporate law and their rules balance the interests of the shareholders and the employees.  This type of business pay a lower tax rate than most individuals.

·          HOLDING COMPANY.  A holding company is a company that owns part, or all majority of other companies’ shares.  It usually refers to a company which does not produce the goods or services itself,  Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of different companies.

·          INTERNATIONAL BUSINESS CORPORATION. This is an offshore company formed under the laws of some jurisdictions as a tax-free company which is not permitted to engage in business within the jurisdiction it is incorporated. 

·          TRUST. A trust is an arrangement whereby property is managed by one person for the benefit of another.

·          LIMITED PARTNERSHIPS. This is a form of partnership that has both a General Partner who runs the business and Limited Partners who put in the capital. 

Proper structuring is your first step to building a successful business so make sure you consult with a professional on which structure bests fit your business and personal goals. 

TFSA – Tax Free Savings Account

I’ve been looking into the TFSA a little bit, and it seems like a great idea. In fact it appears at first that you can invest this money into whatever RRSP’s can invest into. For those of you that don’t know what this is, this is a new account that you can put up to $5,000 personally each year, per person. So if it is you and a spouse, you can put in $10,000 a year and invest that money, and any gain in the account you can take out tax free.

If you are interested in this, and would like more info, please let me know and I’ll do a larger article on the new TFSA.

CMHC is Purchasing $25 Billion in Insured Mortgages

Canada Mortgage and Housing Corporation(CMHC) will purchase up to $25 billion in insured mortgage pools as part of the Government of Canada’s plan, announced today, to maintain the availability of longer-term credit in Canada.

Now this is not a bail out plan like in the US.  Rather this is an attempt by the current government of Canada to keep the banks wanting to loan out to Canadians for Cars, Homes etc.  By buying some of the insured mortgages, key word is insured (unlike the US), it frees up some of the banks money, and will allow to also lend to other banks and not keep such a tight guard on lending.  To explain how banks and bankers work, they have suspenders, a jock strap and a hard hat… they are always protecting themselves too much, which in our case right now is good.  The government is doing this, so there is less pressure by the world markets.

The first purchase of $5 billion will be made October 16, 2008 through a competitive auction process. The mortgages involved are high-quality assets that are already guaranteed through government-backed mortgage insurance. The Government will announce a schedule of future purchase dates to take place over the coming weeks.

Canada Mortgage and Housing Corporation (CMHC) has been Canada’s national housing agency for more than 60 years. CMHC is committed to helping Canadians access a wide choice of quality, affordable homes, while making vibrant, healthy communities and cities a reality across the country.

Please refer to the this link to see a detailed layout of how they choose the mortgages, and the auction works.

Canada Has Best Banking System in The World

So it appears that Canada has the best rated banking system in the world as a survey done by the World Economic Forum has found as financial crisis and bank failures shake world markets.

For years, other countries would mock Canada on being so tight, and conservative, but look at us now.

Canadian banks received 6.8 out of 7, just ahead of Sweden (6.7), Luxembourg (6.7), Australia (6.7) and Denmark (6.7).

UK banks collectively scored 6.0, narrowly behind the United States, Germany and Botswana, all with 6.1. France, in 19th place, scored 6.5 for soundness, while Switzerland’s banking system scored the same in 16th place, as did Singapore (13th).

The ranking index was released as central banks in Europe, the United States, China, Canada, Sweden and Switzerland slashed interest rates in a bid to end to panic selling on markets and restore trust in the shaken banking system.

The Netherlands (6.7), Belgium (6.6), New Zealand (6.6), Malta (6.6) rounded out the WEF’s banking top 10 with Ireland, whose government unilaterally pledged last week to guarantee personal and corporate deposits at its six major banks.

Also scoring well were Chile (6.5, 18th) and Spain, South Africa, Norway, Hong Kong and Finland all ending up in the top 20.

At the bottom of the list was Algeria in 134th place, with its banks scoring 3.9 to be just below Libya (4.0), Lesotho (4.1), the Kyrgyz Republic (4.1) and both Argentina and East Timor (4.2).

You can view the whole report here….

And to be honest, if Canada has the best banks in the world, and Alberta is number 1 in Canada in majority of areas, we are in a good spot right now.  We will be able to weather the economic storm that is over us.  We are not immune to it, but have a strong economy that will be able to push through..

I’m glad to be Canadian!

World Bank Rankings

1. Canada
2. Sweden
3. Luxembourg
4. Australia
5. Denmark
6. Netherlands
7. Belgium
8. New Zealand
9. Ireland
10. Malta
11. Hong Kong
12. Finland
13. Singapore
14. Norway
15. South Africa
16. Switzerland
17. Namibia
18. Chile
19. France
20. Spain

——————————————–

39. Germany
40. United States Of America

44. Britain
——————————————–

124. Kazakhstan
125. Cambodia
126. Burundi
127. Chad
128. Ethiopia
129. Argentina
130. East Timor
131. Kyrgyz Republic
132. Lesotho
133. Libya
134. Algeria

Robert Shiller ‘Popping the Bubble’?

Financial Post

Jacqueline Thorpe’s interview with Robert Shiller sparked a lively reader discussion on the value of Canadian home prices. Shiller, an economist at Yale University and the namesake behind the Case/Shiller Housing Price Index, predicted both the tech and the U.S. housing bubble. He said Canada could see a similar housing bust, particularly in the Calgary and Vancouver markets.

Here’s a selection of some of those comments from readers, some slightly edited. You can find the original comments attached to the online story.

I would like to say that the first three comments below are exactly how we at The Calgary Real Estate Blog view the economy and in Alberta specifically.  We will be able to weather the storms that are brewing to the south as the economy/housing is different in Canada.  We have not had Sub-Prime lending and selling the mortgages out the back door to third party investors.  Our government has now taken the 40 year mortgages and zero % down away, which was a good plan, but on the flip side, would have never taken us as far as our friends to the south.

Summer6727: People like Mr. Shiller are the very people that create fear with the lack of confidence. Fear drives the markets, which is, sorry to say our own doing by the way of technology, via email, TV, word of mouth. I sometimes think people like Mr. Shiller love to watch people panic and worry. To see what is unfolding in the U.S. makes others look at the current situation within and adjust.

Rockie Bear: Summer6727 is dead on. The American economic wizards frequently don’t understand their own system let alone the country next door. This type of commentary shouldn’t be published in Canadian newspapers.

jscheema: Mr. Shiller: We didn’t do any sub prime lending in Canada as was done in U.S. House prices rose steadily not doubled in just six months as in many parts of California. Canada is far better than the U.S. on employment, wages, interest rates, financial institution liquidity. Please do not cause panic and … fear mongering among Canadian people.

vancouver guy: Here in Vancouver I am witnessing people with part-time jobs and not much in terms of income put 5% down on $300,000+ properties. And sometimes the 5% down payment comes from racking up the credit cards. How is this not subprime? And it is all with 35- or 40-year mortgages. How is this sound borrowing when those 40-year mortgages come at odds with basic human life-expectancy data? “Please God, just one more bubble before I die.”

IndexTrader: I can’t understand folks who think that the housing meltdown in the U.S. will mysteriously miss Canada. These bubbles are global. Blaming Robert Shiller for the problem is like blaming the water for a sinking ship that hit a reef. Global asset bubbles have impacted nearly every major and minor economy around the world. The greater that a market appreciated, the greater the correction it will feel. Unfortunately, the fact that we don’t want the meltdown has little bearing on the outcome.

What do you think?  Will the US melt down effect Canada, specifically Calgary and Vancouver?  In Calgary we haven’t seen super spikes in prices over extreme short periods.  If you look at a past post about the prices over the last few years, the graph there shows that since 2000 we have had steady growth with some small jumps, which will happen in a heated economy like Alberta.  The GDP of Edmonton and Calgary region is one behind China.  This is a strong economy.

What do you think?

RRSPs Now Protected Against Bankruptcy

Effective July 7, RRSPs, RRIFs and Deferred Profit Sharing Plans can no longer be seized by creditors in case of bankruptcy.

This follows recent legislative amendments to the federal Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA). These changes are facilitating the coming into force of the Wage Earner Protection Program Act (WEPPA). As a result, “all types of registered investments are now subject to protection against the claims of creditors due to bankruptcy proceedings,” says Terri Williams, director of educational services for Dundee Wealth, “Only a few provinces already have laws in place to provide protection in their jurisdictions.”

Williams says financial advisors used to employ a strategy of putting RRSPs of small business clients into the life insurance industry’s segregated funds because seg funds are creditor proof. Advisors have been calling Dundee to verify that if creditor proofing was the only reason for using seg funds, they are now free to switch to mutual funds or lower cost alternatives.

Previously, an older person who inadvertently got into financial trouble may have concluded their best option was to declare bankruptcy. But now a Small Business person besieged by creditors won’t be in danger of forfeiting their RRSPs, Williams says. “Now she or he can rest assured their RRSP won’t be claimed by creditors.”

In 2003, the Canadian Federation of Independent Business conducted a survey that found 91% of small business owners used RRSPs as a retirement savings vehicle versus only 28% that used registered pension plans (which are already safe from creditors).

More information about the amendments to the Act is  available on the Office of the Superintendent of Bankruptcy Canada website here.

Original Article

Housing Rush Before October 15, 2008…

As you may or may not have heard, that the government backed Mortgages will have to be minimum 5% down and a maximum of 35 years amortization.  Many purchasers are trying to scramble to get into the market with zero down or 40 year amortization before the Oct. 15, 2008 cut off date and because Albertans have taken up longer-term and zero-down mortgages with greater zeal than the rest of the country — especially in Calgary, where prices have skyrocketed in recent years — the greatest impact of the new policy, taking effect Oct. 15, will likely be felt here.

However, the changes are being made “to ensure Canada’s housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada,” the government says.  Personally, I don’t think we were headed towards a housing bubble.  Yes, prices have increased, but the market is currently correcting itself, and there is still much growth to come, and hopefully it is at a sustainable level.

As quoted in the Calgary Herald, Todd Fralic, regional sales director for Mortgage Intelligence, estimates 35- to 40-year mortgages make up about 20 per cent of his Calgary business. Fralic said getting rid of 40-year mortgages is going to be as big of an issue as getting rid of zero-down mortgages.

“I think it hurts the new homebuyer who’s trying to get in our market quicker,” Fralic said. “Other people disagree and say, ‘You know what, there’s nothing wrong with putting five per cent down on a house. If you can’t save your five per cent, then you shouldn’t be in the market.’ ”

We will have to see what happens to prices and the inventory levels over the next couple months, but I do think that the market will get a bit tighter before Oct. 15, 2008 and then settle down afterwards into Christmas months…

i-Finance: Using Your RRSPs To Invest

Have you been looking to use your RRSP’s or LIRA’s to invest with but don’t want to pull them out?  This is an amazing product that we have come across that could work for you!

i-Finance is a great product that allows you to pull out the amount of your RRSP’s or LIRA’s into a Line Of Credit that you in turn can use to invest, or spend how you would like to.

If this is something that you are interested in, please drop me a line at RealEstateBlogger@me.com, and I can forward the company that deals in i-finance in Calgary and area.