Minority Government

The New Minority Government

Minority GovernmentWith the Liberal government re-elected, albeit with a minority, it’s time to consider how your taxes could be impacted by election promises.

Keep in mind that, because the Liberals are now managing a minority government, the implementation of potential tax changes is less certain.

Regarding corporations, consider the Liberals’ broad-based proposed changes. These include a promise to crack down on tax loopholes that allow companies to deduct debt from earnings to reduce tax.

We’ll have to wait and see what those changes actually are.

Also note the promise to cut corporate taxes by 50% for clean-tech companies, specifically those that develop and manufacture zero-emissions technology.

For personal taxes, several changes are in the works. What will impact the most Canadians is changes to the basic personal amount — the amount of income that any individual can earn that is not subject to tax.

That amount is currently $12,069 in 2019 and rises annually with inflation. The Liberals have promised to increase it by 15% over four years. According to this timeline, by 2023, it will reach $15,000.

The increase isn’t universal. It will not apply for those individuals who are described as being Canada’s wealthiest 1%. The amount will be reduced for those earning more than $147,667 — those in the second-highest federal tax bracket — and completely eliminated for those in the top bracket, which is $210,371 in 2019. Those in the top bracket will continue to receive the current basic personal amount, which will continue to be adjusted for inflation.

The Liberals also promised to boost Old Age Security (OAS) by 10% for seniors over age 75 who earn less than $77,580, and to raise the Canada Pension Plan (CPP) survivor’s benefits by 25%.

The change to OAS could mean an increase of $729 a year, according to the Liberals’ platform. It is anticipated that this will start in July 2020. With CPP, a spouse or common-law partner currently receives about 60% of what their deceased spouse or common-law partner received in benefits. The promised increase could mean an additional $2,080 per year.

Parents have been promised that their maternity and parental benefits, received through employment insurance, will be tax-exempt at source, starting in 2020. The result would be about $1,800 more annually for someone receiving EI benefits who earns about $45,000 annually. Adoptive parents could also see a change in their EI benefits, with the Liberals proposing a 15-week leave — the same length as for maternity leave.

The tax-free Canada Child Benefit is also slated for an increase for those with kids under one year old. The promise is to boost the benefit by 15%, resulting in an increase of up to $1,000. Starting in July 2020, the base benefit should be $7,750 for these children.

The Liberals proposed to immediately double the tax-free Child Disability Benefit. The benefit applies to families caring for a child with a disability who is under age 18 and eligible for the disability tax credit. The Liberal platform said the increase could result in more than $2,800, to $5,664 annually.

Other tax highlights include a new vacancy tax that would “limit the housing speculation that can drive up home prices,” the Liberal platform said. The residential tax would apply to vacant properties owned by non-resident non-Canadians.

Finally, the Liberals might move forward with two tax credits originally announced in the federal budget. The Canada Training Credit was proposed to start in 2020, to help cover up to half of eligible tuition and fees associated with training. The credit could accumulate a balance up to a lifetime limit of $5,000.

The second is a non-refundable 15% credit for eligible digital news subscriptions. The credit is for a limited time, for amounts paid after 2019 and before 2025, and is a maximum tax credit of $75 annually, to start in 2020.

Solutions Banking All-in-One

Banks sell mortgage insurance, but independent experts say you shouldn’t buy it

A woman helps a girl ride a bike in front of a house in Brampton, On. on May 20, 2017.

Personal finance experts are a pretty soft-spoken bunch. It isn’t often that they say they would “never ever” advise buying a certain financial product.

But that is exactly what they generally say when asked about mortgage protection insurance, according to Anne Marie Thomas of InsuranceHotline.com, an insurance comparisons site.

READ MORE: Why homebuyers should stay away from this popular financing strategy

Mortgage protection insurance isn’t the mortgage insurance most Canadians are familiar with, the one you need to buy, generally from the Canada Mortgage and Housing Corp. (CMHC), when your down payment is less than 20 per cent of the value of your home.

READ MORE: CMHC mortgage insurance premiums: Here’s how much costs rose across Canada as of today

Unlike the better-known mortgage insurance, which protects lenders if homeowners default, mortgage protection insurance is, essentially, a type of life insurance. It covers your mortgage debt if you die or become disabled.

Banks generally try to sell homeowners this type of insurance when they sign up for a new mortgage. Insurance premiums are then seamlessly added to their monthly mortgage payments.

So, what’s not to like about that?

A lot, according to Thomas:

1. The payout from mortgage protection insurance shrinks with your mortgage

These kinds of policies only cover your outstanding debt, meaning the payout gets smaller and smaller as you pay off your mortgage. Insurance premiums, on the other hand, stay the same through the insurance term.

READ MORE: Do unpaid debts ever disappear?

2. You may find out when you file a claim that you aren’t eligible for coverage

Mortgage insurance policies are “typically underwritten after the fact,” noted Thomas. This means that the insurance company will only take a close look at your case once you file a claim. And it may very well find that something in your particular situation violates the insurance contract, which would leave your family without coverage just when they need it most.

If you purchased mortgage protection insurance, comb through your policy carefully to make sure there’s nothing that could potentially exclude you for coverage, advised Thomas.

READ MORE: Think you don’t need insurance when travelling in Canada? Think again

3. Your might get saddled with higher premiums when you renew your policy

With mortgage protection insurance, you’ll need to renew your policy at the end of your mortgage term, said Thomas.

Your new premium will be based on your — now smaller — outstanding mortgage balance, but that doesn’t mean you’ll be paying less. Because you’re a bit older, your premium won’t necessarily go down — in fact, it may go up, Thomas told Global News.

READ MORE: Home renovations: The 4 big risks of borrowing against your house to pay for it

4. Your bank, not your family, pockets the payout

Assuming the claim goes through, mortgage insurance guarantees your family won’t have to worry about mortgage payments if you die or become disabled.

In case of death, your beneficiaries can counts on a lump-sum payout that will take care of the outstanding balance, according to Jason Heath of Objective Financial Partners, a fee-only financial planning firm. In case of disability, the policy will generally cover your monthly mortgage payments until the debt is extinguished, he added.

But does it make sense to use the money to pay off the mortgage?

Not necessarily, said Heath. Perhaps your survivors could have easily eliminated mortgage by selling the house. Or they might have preferred to use the money for other purposes, while keeping up with your mortgage payments.

Mortgage protection insurance means any payout will flow out to your mortgage lender, not to you or your family, noted Thomas. And that’s much like CHMC insurance.

READ MORE: Here’s how much climate change can cost homeowners in damages

Consider plain life insurance instead

Skipping on mortgage protection insurance doesn’t mean you have to go without coverage. Instead, you could buy life insurance, both Thomas and Heath said.

With life insurance, your payout remains the same through the term of the policy and the money comes with no strings attached.

For example, if you had a $300,000 mortgage and took out a policy for the same amount, your beneficiaries would still receive $300,000 even if you had paid down your mortgage in full by the time the claim is filed.

And life insurance is generally much cheaper, too, said Thomas.

“It typically could end up costing you half as much,” she said.

WATCH: Here’s how your selfie could one day affect your life insurance

Why does anyone get mortgage protection insurance, then?

Many homebuyers, especially those buying their first home, haven’t done enough research to know what they’re getting into, said Thomas.

“Generally, the way it’s offered to [homebuyers] is when they’re sitting there, signing a whole bunch of [mortgage] paperwork and they’re bored and they’re starting at the wall,” said Heath.

When the bank proposes adding mortgage protection insurance, “for most people, it’s a five-second decision.”

WATCH: Paying off your mortgage in three years

Banking and mortgage industry professionals are often under enormous pressure to sell mortgage insurance, and benefit handsomely through commissions when they do, said Heath.

“Your friendly neighbourhood banker is financially motivated to get you to buy mortgage insurance, whether it’s in your best interest or not,” he added.

That may be why, a few years back, Heath himself discovered in his first-ever mortgage statement that he was, in fact, paying for mortgage protection insurance even if he had clearly declined coverage.

Heath eventually got his lender to cancel the policy and refund the premiums.

But many homebuyers aren’t well-informed enough to know they shouldn’t have signed up for the service in the first place.

“Mortgage [protection] insurance is very expensive, but it’s a captive market,” said Heath.