By Julian Beltrame, The Canadian Press

OTTAWA - The Bank of Canada is keeping interest rates at historic lows for a few more months, while sending out signals that the economy is rebounding strongly and could trigger inflationary pressures.

The central bank's more positive take on the economy followed a Statistics Canada report Monday of a surprising five per cent growth spurt in the fourth quarter of 2009 and sent a strong loonie even higher.

"The level of economic activity in Canada has been slightly higher than the bank had projected in January," the bank said Tuesday morning before markets opened.

"The economy grew at an annual rate of five per cent in the fourth quarter of 2009, spurred by vigorous domestic spending and further recovery in exports."

"Slightly higher" may be an understatement, as the bank had projected growth of only 3.3 per cent for the last three months of 2009.

The bank also noted that "core inflation" has been slightly firmer than projected, although it added that some of the price increases were due to transitory factors.

The governing council continued to reiterate that despite the improved conditions, they would likely leave the overnight rate where it has been since last spring - at 0.25 per cent - until at least July.

But some economists weren't buying it and the reaction of money markets suggested that there may be some pressure on governor Mark Carney to move on interest rates ahead of schedule.

"They are getting ready to take away the punch bowl," said Derek Holt, vice-president of economics with Scotia Capital.

"I think they are priming the markets for a second-quarter hike."

The next interest rate announcement comes in April, but June would be a more likely time to move, said Holt, if indeed the bank is preparing to act. http://ca.news.finance.yahoo.com/s/02032010/2/biz-finance-economy-improving-interest-rates-stay-historic-lows.html

Mortgage changes target ‘reckless’ buyers: Flaherty

The  question  most heard yesterday was, “what 5 year rate will they have to qualify on?”. 

It will be the 5 year rate at that institution granting the commitment. As the client was having to qualify on that institutions 3 year rate, it will now be their 5 year rate.

The changes will take place on April 19, 2010. Clients will have until that date to obtain a commitment with  today’s mortgage rules.

                                   ·          TSX +116.56   rose to its highest level in more than 3 weeks as oil and gold prices soared, leading resource issues higher, and as risk appetite returned to the market.

                                   ·          DOW +169.67

                                   ·          Dollar +.50c to 95.83cUS  A weaker U.S. dollar served to boost the prices of oil and gold, both important Canadian exports

                                   ·            Oil +$2.88 to $77.01US per barrel.   

                                   ·           Gold +$29.80 to $1,119.40 USD per ounce  

                                   ·           Canadian 5 yr bond yields  -.02 bps to 2.49 The spread (based on the MERIX 5 yr rate published rate of 3.89%) is within the comfort zone at 1.40

                                   ·           http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us

 The rate of return on your bond, can be read through a yield curve, If the increase in bond yield  continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise. Ideally lenders are looking for a spread between 1.35 and 1.55

Government of Canada Takes Action to Strengthen Housing Financing

The Honourable Jim Flaherty, Minister of Finance, today announced a number of measured steps to support the long-term stability of Canada's housing market and continue to encourage home ownership for Canadians.

"Canada's housing market is healthy, stable and supported by our country's solid economic fundamentals," said Minister Flaherty. "However, a key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing."

The Government will therefore adjust the rules for government-backed insured mortgages as follows:

• Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.
• Lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes. This will help ensure home ownership is a more effective way to save.
• Require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

"There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one. Our Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it," said Minister Flaherty. "If some lenders aren't willing to act themselves, we will act. These measures demonstrate the Government is committed to taking action when necessary to support the long-term stability of a sector that is so vital to our economy and the financial well-being of Canadian families."

These adjustments to the mortgage insurance guarantee framework are intended to come into force on April 19, 2010.

Here is the link for this article on the Dept of Finance website    http://www.fin.gc.ca/n10/10-011-eng.asp

Mortgage changes target ‘reckless’ buyers: Flaherty

New mortgage rules

Paul Vieira, Financial Post with files from Garry Marr in Toronto 

OTTAWA -- Jim Flaherty, the Finance Minister, says he is targeting "reckless" speculators who buy up multiple condominium units in the country's biggest cities with new rules introduced yesterday that will make it tougher for Canadians to get a mortgage.

The reforms were submitted after nearly a week of non-stop warnings from people ranging from a prominent money manager to former Bank of Canada governor David Dodge about an impending housing bubble. The concern was that the real estate market was getting ahead of itself, as buyers took advantage of record-low interest rates to acquire homes.

In introducing the tougher mortgage requirements, Mr. Flaherty said there was "no clear evidence" of a real estate bubble in this country, the kind of which sideswiped the U.S. economy and sparked the worldwide financial crisis.

"The measures will not affect the ability of a Canadian family to buy a house. It will affect those who are speculating," the Finance Minister said. "What we're getting at is the speculation in multiple condominium units in particular which we see in Vancouver, Montreal, Toronto and in some other places in Canada."

Home builders were taken aback by the measures introduced, saying they could result in "severe implications" for the condo and housing markets.

The changes, scheduled to come into effect on April 19, will make it harder for first-time buyers to qualify for government-backed mortgage insurance -- from either Crown agency Canada Mortgage and Housing Corp. or private-sector providers -- which is required if down payments are less than 20% of the property's value.

Borrowers now have to meet standards for a five-year fixed-rate mortgage, even if the buyer wants a shorter-term, variable rate product.

Some analysts, however, indicate the shift is not as big as it appears. Eric Lascelles, chief economist at TD Securities, said the revamped rule likely means the minimum household income cutoff for Canadian mortgage applicants would be about $5,000 to $8,000 higher.

Further, Ottawa has raised the minimum down payment on rental income properties -- where the buyer does not plan to live -- to 20% from 5%.

Mr. Flaherty said one goal is to protect Canadians from overextending themselves financially as interest rates are likely to climb from present historic lows. The other, he added, is to root out speculation in real estate, which he suggested was happening with greater frequency based on prebudget consultations.

"I don't know how that serves the Canadian people and why the government should insure mortgages like that," Mr. Flaherty said. "People can do it with their own money and if they can find someone who will lend them the money on an uninsured basis. But I just don't want CMHC and the Canadian people to be in the business of guaranteeing speculative mortgages."

Derek Holt, vice-president of economics at Scotia Capital, said the condo market could feel the pinch. Industry experts estimate roughly 40% of condo purchases are investment-related, with buyers looking to rent the units for income and perhaps sell them at a later date at a higher price.

"Evidence of the greatest speculative excess has been in the condo segment in the past few years," Mr. Holt said.

Others weren't so sure. Ben Myers, executive vice-president of Urbanation, a Toronto firm that tracks the city's condo market, said the move would have "very little" impact because most condo builders already require down payments of 15% to 20% for their units once they are occupied.

Still, home builders were shocked by Mr. Flaherty's contention that the real estate market was at the mercy of speculators.

"I don't know if they have thought this through as to who a speculator is," said Peter Simpson, chief executive of the Greater Vancouver Home Builders Association. "Just because someone buys a second property doesn't make them a speculator."

He added that these new regulations, combined with the coming harmonized sales tax in British Columbia on July 1, could lead to a "perfect storm" that hits the province's housing market.

The chief operating officer of the Canadian Home Builders Association, John Kenward, said the rule aimed at condo speculation came as a surprise to his members.

"It had not been the subject of conversation [between the government] and the industry," said Mr. Kenward. "It could have serious implications going forward. We don't know why it was introduced."

Overall, Mr. Lascelles said, the economic implications from the proposed moves "are unlikely to be severe, and we expect the housing market to slow its ascent without crashing back down to Earth."

SUMMARY OF CHANGES

*Borrowers must qualify for a five-year fixed rate mortgage instead of a three-year loan when calculating gross debt service and total debt service ratios.

*Refinancing will be capped at 90% for government-backed high-ratio mortgages versus 90% previously.

*A down payment of 20%, instead of 5%, will be required for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation.

WHAT CHANGES MEAN FOR A $337,000 HOUSE

*The difference between a three-year mortgage rate and a five-year mortgage rate is currently in the range of about 50-100 basis points. The average house in Canada costs $337,000, which means that this change will require that mortgage applicants have the capacity to absorb an extra $2,500 per year in mortgage costs than in the past, according to calculations by Eric Lascelles at TD Securities. Effectively, the minimum household income cut-off for Canadian mortgage applicants is now about $5,000-8,000 higher than it was previously, to fulfill the new rule.  http://www.financialpost.com/news-sectors/economy/story.html?id=2569008

Financial Post

Garry Marr, Financial Post 

Canadian real estate sales and prices are poised to set records this year, according to a new forecast that is bound to reignite calls in some quarters for tighter lending rules.

The Canadian Real Estate Association, which represents 100 boards across the country, said Monday it expects existing-home sales to reach 527,300, a 13.3% increase from a year ago and a 1.2% increase from the record high set in 2007.

The new-home market appears to be picking up steam, too. Canada Mortgage and Housing Corp. said there were 186,300 starts in January on a seasonally adjusted annualized basis, the highest level of new construction since October 2008.

Bank of Canada governor Mark Carney has warned about rising levels of household debt, which is reaching record levels. Finance Minister Jim Flaherty has suggested he is prepared to tighten mortgage requirements and continues to monitor the market.

"One of the legitimate concerns of the Finance Minister might be if you make qualifying for mortgage default insurance prematurely restrictive that it will quell housing activity even as erosion in affordability continues," said Gregory Klump, chief economist with CREA.

There are have been some rumblings that the government is considering new rules that would require buyers who need mortgage insurance to have at least 10% down and amortize their mortgage over just 25 years instead of the current 35 years.

Anybody with less than a 20% downpayment must get mortgage insurance, if they are borrowing from a financial institution governed by the Bank Act.

Mr. Klump's group contends the market is going to correct on its own in the second half of 2010. CREA has called for sales to drop 7.1% in 2011. The group says that while prices will rise by 5.4% in 2010, to a record high of $337,500, they will drop by 1.5% in 2011.

That view of the housing market is not out of step with some economists, who say that once interest rates rise and inventory levels increase, price increases will shrink. Year-over-year price increases in some markets, such as Toronto, have been around 20% for the past few months.

"There is still a sense of urgency to get into the market. The market will continue to be strong over the next few months," said Benjamin Tal, senior economist with CIBC World Markets, adding he could see new construction also touching 200,000 starts before beginning to fall.

Part of that urgency in the housing sector is being driven by the introduction of the harmonized sales tax in Ontario and British Columbia on July 1. The tax would apply to real estate services and could increase the cost of buying a home by a few thousand dollars.

"It's a factor fuelling a higher level of activity in Ontario and British Columbia," Mr. Klump said. "What's more Canadian than avoiding taxes?"

Elton Ash, vice-president of Re/Max of Western Canada, said he thinks the forecast put out Monday was a little optimistic for 2010, specifically the 4.2% price increase for British Columbia. "But I also think the market will be better in 2011 [than CREA]."

Mr. Ash is actually in favour of some measures to cool the market, like reducing the amortization period back to 25 years. But he wonders whether increasing the downpayment will take some people out of the housing market.

"I think leaving it at 5% would be okay," Mr. Ash said.

 It is generally less expensive to continually roll over a short-term mortgage than to commit to a long-term one

Eric Tyson and Tony Martin

Published on Tuesday, Feb. 02, 2010 1:04PM EST Last updated on Tuesday, Feb. 02, 2010 1:06PM EST

This is the sixth in a series of 10 excerpts from Investing for Canadians for Dummies.

Whether to go for a short- or long-term mortgage is an important decision in the real estate buying process. You need to weigh the pros and cons of each and decide what’s best for your situation before you go out to purchase real estate or refinance.

Unfortunately, too many people let their interest rate crystal ball dictate whether they should take a short- or long-term mortgage. For example, those who think interest rates can only go up find long-term mortgages attractive.

When many people are trying to decide between a short- and long-term mortgage, they focus on how much they can save over the next little while, and then factor in their sense of whether interest rates will rise in the future.

Much more important, though, is to get a sense of each option’s total cost over the full life of your loan. Several studies have assessed how homeowners would have fared if they either continually renewed a short-term mortgage or stuck with five-year terms. Going back to 1980 when short-term mortgages were first made available, the studies found that 85 to over 90 per cent of the time, the least expensive choice was to continually roll over a short-term mortgage.

In order for a series of short-term mortgages to cost more than a five-year term, interest rates over that time must rise enough so that the one-year rate increases beyond the five-year rate, and stays there for a good percentage of that time.

You also need to consider how comfortable you are with the extra uncertainty that choosing short-term mortgages brings.

How much of a gamble can you take with the size of your monthly mortgage payment? For example, if your job and income are unstable and you need to borrow an amount that stretches your monthly budget, you can’t afford much risk. If you’re in this situation, you may want to stick with a long-term mortgage.

If you’re in a position to take the financial risks associated with mortgage payments that may change every six months or year, you have a better chance of saving money with a shorter-term mortgage. Your interest rate starts lower and stays lower when the overall level of interest rates stays unchanged. Even if rates go up, there’s a good possibility they will come back down over the life of your loan. Sticking with your short-term mortgage for better and for worse will likely help you come out ahead in the long run.

A short-term mortgage makes more sense if you borrow less than you’re qualified for. Or perhaps you can save a sizable chunk – more than 10 per cent – of your monthly income. If your income significantly exceeds your spending patterns, you may feel less anxiety about fluctuating interest rates. If you do choose a short term, you may feel more financially secure if you have a hefty financial cushion (at least six months’ to as much as a year’s worth of expenses reserved) that you can access if rates go up.

Don’t take a short-term mortgage because the lower interest rate allows you to afford the property you want to buy (unless you’re absolutely certain your income will rise to meet possible future payment increases). Try setting your sights on a property you can afford to buy with a longer-term mortgage.

Bryant Renovations at a Leslieville home where they're renovating the bathroom and replacing the flooring of the main floor. Fred Lum/The Globe and Mail

With days until deadline, Canadians scramble to take advantage of the government's home renovation tax credit

•  Roma Luciw  Globe and Mail

With the Jan. 31 deadline just around the corner, anyone who still wants to take advantage of the federal government's popular home renovation tax credit had better hurry.

“The most important thing for people to know is that they still have a week to buy and take delivery of materials that they are thinking of using for renovations,” Jamie Golombek, managing director of estate and tax planning with CIBC Private Wealth Management, said in an interview Wednesday.

Although it is likely too late to get the labour done in time, “anyone thinking of doing anything in their home in the next few months should try to get that material now... otherwise you are really losing out.”

The home reno tax credit, introduced as a limited-time program in the 2009 federal budget, has proven extremely popular with housing-obsessed Canadians. “Anecdotally, it is the topic of almost every single presentation I give in terms of personal tax. The Canada Revenue Agency has responded to more technical interpretation questions in terms of what qualifies and what does not than any other topic in recent history,” Mr. Golombek added

“ Anecdotally, it is the topic of almost every single presentation I give in terms of personal tax. ”— CIBC's Jamie Golombek said of the HRTC

The CRA estimates that as of last Friday, more than four million Canadians had enquired about the program. From Jan. 2 to 15 alone, 302,501 people visited the CRA website or phoned to ask about the HRTC.

Timing has played a role in the HRTC's success, says Mr. Golombek, given that rates for home equity lines of credit are still historically low. “Even if people don't have the actual cash to do the renos right now, they can borrow the money at very attractive interest rates and get a 15-per-cent non-refundable credit from the government.”

Here's how the HRTC works:

Each family is allowed to claim on their 2009 income tax return a 15-per-cent non-refundable tax credit for eligible renovation expenses made to their dwelling. The credit allows tax payers to get up to $1,350 in tax relief for projects worth between $1,000 and $10,000. The $10,000 spending limit applies to homes, cottages or condos, provided the combined total does not exceed the $1,350 limit.

To qualify, all of the renos must take place after Jan. 27, 2009 and before Feb. 1, 2010. The supplies and materials must be bought and in your possession before Feb. 1st, 2010 to be eligible. Likewise, any work done by a contractor must be finished by the deadline, which means that signing a contract for the work ahead of the deadline is not sufficient.

To qualify for the HRTC, renos must be of “an enduring nature and integral to the dwelling.” So putting in a permanent swimming pool or hot tub, a new dock or septic system at the cottage, fixing a retaining wall or doing some landscaping all qualify. Cleaning your carpet, house or eavestrough would not qualify, nor does buying furniture, appliances or electronics.

Who's using it?

Dan Wilson is one many Canadians taking advantage of the credit. He and his neighbour spent most of the fall rebuilding the front porch on their east-end Toronto semi. He also had a contractor fix a flat roof in his backyard, put in a new deck, installed two fireplaces and painted.

“I spent at least three times the limit for the tax credit,” said the 45-year-old Ontario government worker. “I think almost everyone on my street had something done to take advantage of it.”

Robert Katzer had a contractor redo both bathrooms in his Victoria condo, putting in marble sinks and faucets, along with a new bathtub with marble wall linings. Not done there, he upgraded most of the lighting in the unit, replaced the carpets, painted, caulked the windows and retiled the fireplace. “It wasn't cheap but I love the end result,” he said.

Across Canada, the tax credit seems to have provided the push many Canadians needed to get those home reno projects going.

Mr. Wilson says he might have taken care of the renos in the next year or two, but the tax credit prompted him to do it now. “I love this credit. The prospect of getting $1,350 back is just so appealing. If it were continued next year, I would definitely consider re-doing my kitchen next year.”

How long will it last?

Contractors and home renovation retailers would also like to see the tax measure extended, arguing that it would continue to boost the economy and allow the recovery to fully take hold.

But Finance Minister Jim Flaherty said this week the measure was “not inexpensive” and the government's plan is to let it expire at month's end. He also ruled out any kind of extension back in December, when he said: “Well, that's our plan to end it at the end of January, yes.”

RBC Dominion Securities Inc. chartered accountant and certified financial planner Suzanne Schultz says the credit, which was part of the conservative government's stimulus plan, has been successful. “The point of this was to get the economy going and it seems to have done that. People are spending, retailers and contractors are saying they are busy.”

She says people who bought materials in order to qualify for the home renovation tax credit but ran out of time to get the work done before next week's expiry date will likely keep contractors busy for the first part of 2010. After that, however, she expects to see a lull.

Ms. Schultz urged people to get out and make their purchases before the Jan. 31st deadline. “Make a list of what you need done and get shopping. This is not common, for the federal government to introduce short-term tax measurers like this.”

With holiday purchases – a lot of them put on plastic – soon coming due, many Canadians are sorting through bills and realizing that they have too much high-interest credit card debt.  This new year, consider taking charge of borrowing costs by paying off higher-interest consumer debt with funds secured through mortgage financing. 

A common mortgage option for consumers which offers flexibility is a Home Equity Line of Credit – or HELOC – which allows you withdraw funds as needed for a set period.  The real benefit is that you can put a HELOC in place for a one-time cost and charge up then pay down the line of credit many times over, never needing to re-qualify.  Your payments fluctuate depending on current interest rates and the outstanding balance over the month.  A HELOC can be convenient for paying off higher interest debts, as you withdraw and pay (relatively lower) interest on only what you need. 

Mortgage refinancing also offers a plan to reduce your debt – after the agreed upon amortization period, your balance is zero.  With HELOCs, after the set draw period, there may be an amortization period during which any outstanding amount is repaid.  In contrast, with revolving credit – such as credit cards – you may be paying a lot in interest without ever reducing the principal.  

You may be surprised to learn how much you can save with a debt consolidation strategy.  I can offer expert advice on smart ways to manage your debt.  Access your options today! 

***************************************************************************

Slow start, strong finish for housing market in 2009

By Garry Marr, Financial Post

November housing sales across the country are set to reach new highs based on fresh data from the country’s two most expensive markets.

The national numbers from the Ottawa-based Canadian Real Estate Association are not due out until mid-December but the Toronto Real Estate Board said yesterday it had its best November on record. Toronto’s news came on the heals of a Wednesday release from the Real Estate Board of Greater Vancouver that said sales activity in the city rocketed up 252.7% in November from a year ago.

What the latest numbers will likely mean is an improvement in the national average sale price, which was up 20% in October from a year ago — the largest such increase in two decades. The two cities tend to skew the national average price up or down, based on levels of sales activity.

“You are going to see a very strong national number. It will be another double-digit increase for sure,” said Benjamin Tal, senior economist at CIBC World Markets. “You have to remember you are comparing all this against a very low base. Last year at this time we were talking about 1929. This was a dead market.”

In November 2008, the greater Vancouver area had a meagre 874 sales. This November that figure was up to 3,083. But there are some indications the temperature in the red-hot housing market is dropping; Vancouver November sales were down 16.8% from October, although the numbers are not seasonally adjusted.

Toronto has a similar story to Vancouver. Canada’s largest market had 7,446 sales last month, almost double the number from a year ago, but down from the 8,476 in October.

Despite the lack of listings in the housing market, prices eased last month. The average sale price in Toronto last month was $418,460, a 14% jump from a year ago, but a drop from therecord high of $423,559 reached in October.

In Vancouver, the average price of a home reached $557,384 last month, a 12.4% increase from a year ago. But at that level, prices in Vancouver are actually down 1.9% from the peak reached in May 2008.

Re/Max, one of the country’s largest real-estate companies, issued its housing outlook for 2010 and though it still sees a strong market, both housing sales and prices are not expected to maintain their torrid pace. Re/Max says sales next year will climb by 2% while the average sale price across the country will rise to $325,000 for a 2% increase.

“There is a ton of business being done but nothing was being done in November [2008]. The whole world stopped last fall, not just the real-estate world,” said Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada. “We should expect a very good year with a continued high number of sales. We don’t expect significant changes in interest rate levels.”

Record low interest rate levels have partially fuelled the market and prices, but so have low inventory levels. In Toronto, inventory levels remain 49% down from a year ago with November 2009 new listings the same as a year ago. In Vancouver, the total number of listings is still down 39% from a year ago.

As for the interest-rate part of the puzzle, the Canadian Association of Accredited Mortgage Professionals latest statistics show consumers could find themselves exposed. In the past 12 months, only 20% of consumers opted for a variable-rate product but the overall numbers show 27% of Canadians still have mortgage tied to prime. “There is no questions rates and affordability have contributed to the market,” said Jim Murphy, president of CAAMP.

View this recently sold House or see all my home sales

IMMACULATE & updated 1573 sq.ft 2 level. 3 bedrooms, 2 bathrooms & family room. South exposed fenced yard w/large covered patio & high privacy hedge at the back. Single garage & 27'x 7' shed at the side of the home. Walk to everything. Nicely remodeled family home w/newer roof, fresh paint, light fixtures, laminate & tile floors, double windows, large covered patio, newer kitchen appliances, built-in microwave, updated bathrooms & more. Main floor - Picture window living room w/corner Squamish rock wood burning fireplace, adjoining dining room. Oak kitchen w/sunshine ceiling & sunny eating area. Adjacent large family w/sliders to deck. 3 spacious bedrooms up-master w/walk-in closet & cheater ensuite. Walk to excellent Elementary school, parks, restaurants, mall & shops.

View this recently sold Detached House or see all my home sales

On July 23, 2009 the government of BC announced that it intends to harmonize the Social Service Tax (“PST”) with the federal Goods and Services Tax (“GST”) effective July 1, 2010.  The Harmonized Sales Tax (“HST”) will combine a 7% BC rate (“provincial portion”) with the 5% federal GST for a combined HST rate of 12%.

Detailed information concerning the HST has yet to be released, e.g., the transitional and rebate rules for transactions that will straddle the July 1, 2010 implementation date.  Nevertheless, businesses and consumers alike should take the time now to study the HST to determine how the tax will affect them and to develop strategies to take advantage of, or to cope with, the new tax.

HIGHLIGHTS

1.       HST will be based on the same rules as the GST – what is presently taxed for GST will be taxed for HST.  This means that many services and some products that currently do not attract PST will attract the proposed tax. 

2.       Businesses engaged in commercial activity will generally be able to recover the HST paid on their business expenses.  However, large businesses (sales greater than $10 million including sales of associated persons) will be temporarily restricted from claiming input tax credits on the provincial portion of the HST on the purchase of the following items.

• Energy, except purchased by farmers or used to produce goods for resale
• Telecommunication services other than internet access and toll-free numbers
• Road vehicles weighing less than 3,000 kilos (and parts and certain services)
• Food, beverages and entertainment

Restrictions do not apply to items purchased for resale.

3.       Point-of-sale rebates for the provincial portion of the HST:

• Gasoline, diesel fuel, marine diesel and aviation fuel
• Children sized clothing and footwear
• Books
• Children’s car seats and car booster seats
• Diapers and feminine hygiene products

4.       BC will provide a provincially administered rebate of the provincial portion of the HST on residential energy (electricity and natural gas) similar to the existing PST exemption for energy purchased for residential use.

5.       A partial rebate of the provincial portion of the HST for new homes will be available.  The new housing rebate will be 71.43% of the provincial portion of HST paid up to a maximum of $20,000.  The rebate will be available regardless of the price of the new house or whether or not the new housing is to be owner occupied or rented.  Houses valued at $400,000 or more will therefore be entitled to the maximum $20,000 rebate.

6.       Rebates of the provincial portion of the HST will be available to municipalities, charities and qualifying non-profit organizations.  BC will provide a 75% rebate for local government entities that qualify for the federal municipal GST rebate and a rebate of 57% for registered charities and qualifying non-profit organizations.

7.       Besides the PST, other provincial taxes and levies will be eliminated when the HST is introduced.  These include:  hotel room tax, the Innovative Clean Energy (ICE) levy, the Sustainable Environment Fund (SEF) levy on batteries, the Passenger Vehicle Rental Tax (PVRT), motor vehicle surtax and the Greater Vancouver Parking Sales Tax.

8.       BC will retain a provincial sales tax on the private sale of used vehicles, aircraft and boats.

9.       A refundable BC HST Low Income Tax Credit will be paid with the current GST credit to offset the impact of the tax on low income individuals and families.

PLANNING

1.       Prior to the implementation of the HST businesses should consider the impact of the new tax on the following:

• Budgets and cash flows
• Sales, purchasing and other systems
• Documentation
• Pricing strategies

2.       Those persons providing GST-exempt supplies (and consumers) should determine whether it is advantageous to purchase goods and services that are currently not subject to PST before July 2010.

3.       Businesses that are able to recover the GST may want to delay purchasing goods and services that will be eligible for input tax credits under the HST until July 2010.  Businesses may also wish to examine the benefit of leasing goods rather than purchasing the goods prior to July 2010.

Businesses that provide goods and services currently exempt from PST may consider billing customers promptly for work performed prior to July 2010 so as to minimize the portion of these bills that will be subject to HST.

The transitional rules will have an impact on these decisions.  Once the rules are announced, businesses should carefully review them to ascertain their impact.

4.       Accounts receivable and billing point-of-sale systems need to be reviewed in detail:

• Different rates of tax – 5%, 12%, 13% - will require adjustments to the systems and to the issuance of sales invoices.
• Systems will have to accommodate the point-of-sale rebates.
• PST rates should remain in the system for a transitional period to accommodate adjustments made after implementation.
• New tax codes may need to be introduced to facilitate the broader scope of HST.
• Training of key personnel is required.
• Testing the systems prior to and after HST implementation is required.

5.       Accounts payable systems need to be reviewed in detail:

• Programming will be required to track various rates of tax – 5%, 12% and 13% in Ontario and the Maritime Provinces.
• The federal and provincial portion of HST will likely need to be tracked separately with regards to the restricted input tax credit provisions.
• Templates for employee expense reports will need to be modified.
• Training of key personnel is required.
• Testing the system prior to and after HST implementation is required.

6.       Contracts need to be revisited:

• Review of the tax clauses to see whether the wording is adequate for HST purposes.
• Establish whether a contract is crafted on a tax extra vs. tax-inclusive basis.  Determine which is most advantageous and modify where possible.
• Review contracts that straddle the HST implementation date to ensure the correct rate of tax is applied.

The 5 year HELOC might be the product for you!