The Blog of John MacDonald

Recently one of our older clients brought us his 1957 T1 Return, sort of like “show and tell” for accountants.  I gave it a quick look and was surprised by how similar the format and the basis of calculation is to 2010.  The bigger surprise was the tax table.   The highest marginal rate was 78% for income over $400,000?   But how much is $400,000 in today’s dollars and what about the other brackets?   So my curiosity got the better of me and thanks to the internet, I quickly had 1957 CPI figures of 28.47 vs 2010 of 223.49 to get some answers!

This chart actually shouts shut up to higher income earners who compare very favorably to 1957 taxpayers.  Middle income earners were significantly better off in the 50’s apparently.

The conclusion…..Ottawa (Liberals and Conservatives) have figured it out….tax the middle class more, that’s where the volume is and keep taxes relatively low for high income earners, they create jobs and wealth…..and of course they make political donations as well!  75% of the first $400 is refundable by the way!

There ends the Taxation History lesson for today, back to reviewing tax returns, thanks for the break!

“Choose Easy.”  Even the slogan irks me. Doing your own tax return is easy with TURBO TAX…. I find this amusing! You spend your life planning, executing, filing, arguing, appealing and even going to tax court on occasion and some computer geeks and marketing guys develop a program to do it your self!!! Next Turbo Teeth and Turbo Brain Surgery. My dad always said, Son, you get what you pay for, and for $16.99 GET IT HERE you might get exactly what you paid for! For basically all working Canadians, Income Tax is your greatest expense, so why not bust out $16.99 to do it yourself! Of course fixing problems is the most lucrative part of our tax practice, so its hard not to cheer for “Turbo” Tax. We like to call it Turbo Audit!

As we’ve mentioned in a few previous posts, we’re trying to connect with clients in new ways in order to both improve our responsiveness to support needs and leverage new social media and business trends. In addition to adding a twitter and facebook account, we have started to accumulate a mailing list that will be used to keep clients up-to-date with relevant tax and accounting information. This mailing list won’t be circulated outside the walls of JMA and only allows us to get information that is important to our clients hands faster. You can subscribe by clicking HERE or for those “tech-savy” individuals can scan our QR Code. As tax season approaches, we will be busy, but never to busy to hear the referrals of our valued clients.

It’s no news hearing that consumer debt levels in Canada are alarmingly high; in 2008 household debt was as high as $96,000 whilst debt-to-income levels had risen to 145%.  The interest rate decrease from a few years ago didn’t really help the cause as it only encouraged more borrowing.  Unfortunately, this was intentional, aimed at digging Canadians out of the recession.  The question remains however, what will happen when Canada (and the world economy) recover and interest rates start shooting up again?

IN an attempt to cure these overbearing debt level, the government (especially with talks of interest rates rising) they have decided to make three new changes to Canada’s mortgage rules:

1.     Reduce maximum amortization period from 35 years to 30 years. With a lower amortization period Canadians can expect to pay less interest over the life of the mortgage.  However, new homebuyers may be turned off by this as it increases potential mortgage payments due to the shorter amortization period.

2.     Lower maximum amount that can be borrowed to finance a mortgage from 90% to 85% of the home value. By increasing the down payment needed by homebuyers, the government hopes to limit the issues that have plagued the United States whereby individuals were buying homes that they simply could not afford (a “no money down miracle” may work for Leon’s…but not for the mortgage market!)

3. Withdraw government insurance backing on lines of credit secured homes. Home-equity line of credit and loans account for 12% of household debts and are rising in comparison to mortgages.  With the government deciding to provide less backing, lenders will be forced to be much more scrutinous and intentional when issuing loans.

The group most affected by these new policy changes will be those looking to refinance their mortgages or potential first-time homebuyers, as in order to enact change for the mass, policy must be instituted for the many.  These changes should bring about greater levels of fiscal responsibility amongst homebuyers/homeowners and will force lenders to greater regulate their lending practices.  One of the dangers in these changes is that they do not appear to be retroactive, nor will they have any real affect on individuals currently in bad mortgages, but rather these policies seek to change all future borrowing ventures.

With the addition over the last year of two fully qualified professionals, yes…JMA as we like to call ourselves is cautiously taking new clients. Over 25 years, we have opened and closed the practice more times than the Leafs have made the playoffs…really!

Being an economist/accountant, we must concede that incentives do influence behaviour, so what to do to provide an incentive to our existing clients…the ones we like best, to replicate themselves? How about giving away Leafs tickets, or even taking clients to a game…… Better still, how about we give clients a draw for Leafs Stanley Cup Final Tickets? The Leafs this year sent out the Playoffs with the regular season….Greek word, HUBRIS.

Anyway, I started talking about me, and ended up talking about the Leafs….guess it proves I’m still an optimist. So if you know someone who fits our profile:
1) If we like you, we will like them
2) They must have interesting problems
3) They are Leafs fans or atleast not Habs fans like my dad

and thanks for asking, were doing fine! Trust you are too, send me an email if you need any help and as we grow the firm, please be sure to keep the feedback coming!
Balancing service to our clients and top notch boutique accounting/tax/wealth requires the right team. We are convinced that the 2010/11 team is the best we have ever brought to you our clients….not so the Leafs

My mom, she wouldnt have liked this picture…1) I’m smoking a pipe (faking it actually), 2) James is in his PJ’s outside, 3) Its sunday and were not in church (we went Saturday Night) 4) I’m using the bosses finger, that was mom’s trademark 5) She is not in the thick of the discussion

I could go on, but you get the point, I’ve taken some time off work and been trying to gather some perspective on this year and all that has happened.  Not done yet, but it is becoming clearer, I’m learning some new things:

1) How wierd is it that we know we will likely (statistically anyway) outlive our parents, yet we really never think about it or even act like it sometimes, taking them for granted even?

2) Doesnt matter how much money you have, Ontario is not a place to get sick if you think your money will make ANY difference.   Eat drink and be merry, because when you get sick, your in line with all the other degenerates who drank their liver into disease, their heart into failure or the lungs into cancer…it not right, but Adam Smith would say, the market hasnt asked for blue chip care, so it doesnt exist because its not profitable.

3) I miss my mom alot, but the daily pain she was in, nobody misses and we believe she is today, very much better!

If I learn anything else, I will surely try to share it.

j

ps…my little brother is 50 years old!  congrats Jamie

Surely this would be an unusual blog…its not really about accounting, business, or even taxes, although we like to blog about those things…it is about our life, and hopefully, by transparency and through humility, we can demonstrate with humour, insight and some wisdom on occasion, that God has entrusted to us an extraordinary life.

In that light, I want to share this picture of my family and our closest friends and all the children and grandchildren…The McNay Street Baptists….15 years out. This group now, 10 years later has three married grandsons and a few grandchildren. What will it look like in 10 more years? Life walks on…but today, we mourn! My mom, the lady in the picture with the red hair who is straightening out some misbehaving, has gone to be with her LORD! Her difficult journey with ALS over, we celebrate her exceptional life.

Thanks to all who have cared for me as I cared for mom and dad this last 18 months!

j

MACDONALD, Lorna – ‘Eye has not seen, nor ear heard, Nor have entered into the heart of man, The things which God has prepared for those who love Him.’ 1 Corinthians 2:9 Lorna May MacDonald (nee Sherwood) born January 31st, 1938, went to be with her LORD AND SAVIOUR, July 11th 2010. Dear wife for 53 years of Verne, loving and patient mother to John (Susan) of Oakville, James (Kathy) of Chicago, Todd (Audrey) of Dorchester and David (Ronda) of Barrie. Influential Nana to 14 grandchildren and Grand Nan to 2. Sister of Carl (Cathy) Sherwood and George and Jean Sherwood all of Comox BC. Predeceased by one brother Edward. Friends may call at Stoney Creek Baptist Church 2225 Highbury Street North, London, On. N5X-4A4 on Tuesday July 13, 2010 for Visitation from 2-4 and 7-9 PM and on Wednesday for a Memorial Service at 2pm. We rejoice in the Lord’s faithfulness to our family, as Lorna endured the trial of ALS for the Glory of God. Special thanks to ‘We Care Home Care’ and all who cared for Lorna and prayed for her and the family. In lieu of Flowers and as an expression of love and care the family would appreciate any donation in memory of Lorna be directed to the Harvest Bible Chapel London Building Fund, 345 Pond Mills Road. London, On. N5X-3X7. Condolences and Remembrances may be directed to lornaverne@sympatico.ca

Not exactly words you hear a father say on a regular basis….but sometime you just need to dig deep and admit your mistakes. Today at 12:45, I admitted to Matt MacDonald that he was right about my 2006 Lexus and lending/selling it on the basis the buyer would not smoke in the car or mistreat the car and that he would pay me for the car. Five months later, the car with a smashed front bumper, scraped back bumper and the smell of smoke sold at auction (Thanks Randy…905-601-7543 best car guy on the planet!!!) for $7,500 less than it would have produced had I followed Matt’s advice. Since it is coming out of Matt’s inheritance, he is pretty bummed out, all I lost was the place of respect I once held….hey, tommorrow is another day!

In any case, home now to watch game 6.

j