Category Archives: Buying a cottage

Muskoka Financial, owning a cottage

The 2024 Federal Budget Capital Gains Inclusion Rate Increase

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Today we have a guest post written by Mohamed Rizwan Bachani, the President & CEO of Unique Accounting Services. Thank you Mohamed for providing clarity on the new capital gains hike for our clients and followers!

Mohamed Rizwan Bachani
Unique Accounting Services
909 Simcoe St. N., Suite 200
Oshawa, ON
L1G 4W1
Tel: (905) 903-7669
Fax: 1-866-209-6945
Email: info@uniqueaccountingservices.ca
Web: www.uniqueaccountingservices.ca

The implications of the 2024 Federal Budget’s increase in the capital gains inclusion rate aresubstantial and will affect many more Canadians than originally contemplated.

The 2024 Federal Budget has proposed significant changes to the capital gains inclusion rate, a move that has potentially significant tax and financial planning implications for taxpayers, especially those involved in recurring or singular high-value transactions. We will look into the specifics of these changes, their impact on different types of taxpayers, and outline strategic tax planning opportunities that could be advantageous before the new rules come into force.

The capital gains inclusion rate is not a direct tax. However, it determines how much of a capital gain must be included in a taxpayer’s taxable income. Since 2000, the rate has been set at 50%. For example, if an individual realized a capital gain of $100,000, only $50,000 would currently form part of taxable income.

The 2024 Federal Budget has proposed to increase the inclusion rate from 50% to 66.7% for dispositions of capital property occurring on or after June 25, 2024. For businesses and trusts, this rate applies to all capital gains. However, individuals will retain the 50% inclusion rate on the first $250,000 of capital gains per year. This change means a greater portion of capital gains will be taxable, effectively raising the tax burden on investments. Consider the following examples:

Impact on Individuals:

Example 1 ($100,000 total capital gain): $50,000 would be considered taxable income (50% of $100,000). As such, there is no change compared to the existing rules

Example 2 ($300,000 total capital gain): $158,333 would be considered taxable income (50% of $250,000 = $125,000 + 66.67% of $50,000 = $33,333). Hence, an additional $8,333 is added to taxable income compared to the existing rules (50% of $300,000 = $150,000)

Impact on Corporations and Trusts:

Example 1 ($100,000 total capital gain): $66,667 would be considered taxable income (66.67% of $100,000). Hence, an additional $16,667 is included in taxable income compared to the existing rules (50% of $100,000 = $50,000)

Example 2 ($300,000 capital gain): $200,000 would be considered taxable income (66.67% of $300,000). Hence, an additional $50,000 is included in taxable income compared to the existing rules (50% of $300,000 = $150,000)

Who Will Be Affected?

This change will predominantly impact:
1. High-income earners and affluent investors managing substantial capital gains
2. Business owners selling their shares for a significant gain
3. Corporations with investments in real estate, marketable securities and other capital assets
4. Estate inheritances where sizable capital gains are a factor

Tax Planning Opportunities

While it may seem like the simplest solution would be to incur capital gains prior to the proposed effective date of June 25, 2024, there are several variables at play and customized professional advice is vital to maximizing your tax savings. Some potential options are listed below to consider.

1. Realizing Gains Before the Change

Realizing the sale of assets before June 25, 2024, allows individuals and corporations to benefit from the current lower inclusion rate. Some potential pitfalls to this strategy include triggering alternative minimum tax. If selling residential real estate, properties held less than one year may be subject to the residential property flipping rule resulting in 100% of the gain being included as taxable income.

If a taxpayer has realized/unrealized capital losses, crystallizing a capital gain prior to June 25, 2024, becomes worth considering. This option may lead to cashflow issues as the tax needs to be paid without receiving any proceeds.

2. Strategic Use of Lifetime Capital Gains Exemptions

Maximizing use of the Lifetime Capital Gains Exemption (LCGE), which is increasing to $1.25 million, can significantly reduce taxable gains from the sale of qualified small business corporation shares and similar assets. Involving a family trust in the share ownership should be considered to potentially multiply the LCGE.

3. Revisiting Estate and Succession Plans

With higher future taxation on gains, revising estate and succession plans to incorporate these changes is crucial, potentially involving earlier transfers or restructuring of asset ownership. Life insurance planning to account for increased capital gains taxation on the death of a shareholder should also be reviewed.

4. Corporate Investing

Corporations might want to consider crystallizing gains prior to June 25th to enhance the corporation’s Capital Dividend Account which will otherwise be reduced from June 25th. The CDA represents the non-taxable portion of a corporate capital gain that can be extracted from the company tax-free. The cash obtained by the individual shareholder can then be invested in capital property and take advantage of the lower capital gains inclusion rate on the first $250,000 of annual capital gains which would not otherwise be available at the corporate level.

Also, consider investing in certain corporate class mutual funds that are structured to defer capital gains and provide for cash flow in the form of tax-free return of capital prior to their disposition. Corporate owned permanent life insurance with an investment component also serves to provide estate planning combined with tax free appreciation.

Conclusion

The upcoming increase in the capital gains inclusion rate presents both challenges and opportunities. Taxpayers, particularly those with potential high-value sales of capital property should consult with their tax advisors to assess the best strategies in light of these changes.

Thanks again to Mohamed Rizwan Bachani, President & CEO of Unique Accounting Services for writing this guest post for us!

Buying a cottage, Muskoka Financial

MONEY MAKES YOUR WORLD GO ROUND IN MUSKOKA

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I was just reviewing some great, simple rules to follow to enjoy and use money well. These are rules shared by Brian Buffini. I follow these rules to the best of my ability.

I have found that Brian Buffini is a great coach. What makes a great coach? In my view, it is someone who has been there and is now sharing ideas and methods to be able to replicate the success that they have had.

Brian is someone who started out poor and broke and quickly realized that broke is a state of your bank account and can be temporary. Poor is a state of mind and one needs to change that with education.

So here are some ideas to secure your financial future:

  1. Understand yourself and understand that you are not alone. Over 80% of people avoid thinking and talking about money. They are afraid of managing money and afraid to look at where they stand because they don’t have a plan and are afraid of losing their money. Trust me – it ends up being much scarier not to look.
  2. People worship money. They spend a lot on lottery tickets – and the odds are so much better betting on yourself.
  3. Change how you feel about yourself. Your status is who you are, not what you have. So that takes some internal work. But trust me, it feels great to nurture yourself in the right way. Fill the hole with good thinking, not money. Feel good about yourself.
  4. Secrecy – embarrassment and shame. You have made mistakes. Your biggest mistake is thinking that you are alone. People in the Financial Services industry say that you would be surprised at how many people avoid looking at their financial situation and taking the reins. You are definitely not alone! And not embracing your finances creates conflict with your partner, if you have one.
  5. Confusion. How much advice is out there? And how many sources are credible. You have to think of what the net worth of the person who is providing advice happens to be. Are they just making money from writing the book, or do they have a healthy and thriving net worth?
  6. Follow a high performance mindset – Knowledge is power and ignorance is bankruptcy.
  7. Money is a tool to be respected. It is just a tool, but you need to know how to take care of it, and how to use it.
  8. You need to have a grounded identity. Money cannot buy character.
  9. Clarity and alignment – what do you want money to do for you and is it aligned with your values? How are you spending your time and what do you believe. Take the time to figure this out, so you don’t end up in the wrong destination.
  10. You need a path to follow. Run on the right track.

STRATEGIES FOR STABILITY

Defensive and Offensive

Defensive:

  1. Working home budget to pay down debt, will, automatic savings and one month reserve.

Offensive:

  1. Invest in yourself, build equity in your home, establish your retirement fund.

The former stability strategy stays in place for the rest of your life, no matter how wealthy you become. It is your platform for stability and security.

STRATEGIES FOR SUCCESS

Defensive and Offensive

Defensive:

  1. Go from reducing your consumer debt, to having no consumer debt, automatic savings, and three to six months reserve. Fully fund your retirement fund.
  2. Learn to live on 70% of what you make, save 10%, give 10%, invest 10%.

Offensive:

  1. Get to 50% equity in your home at least.
  2. Increase your revenue. Figure out how to make more money. Promotion at work, a side gig, real estate investments, (67% of millionaires made their money investing in real estate), stocks and bonds.

STRATEGIES FOR SIGNIFICANCE (Giving back)

Defensive and Offensive

Defensive:

  1. All real estate holdings paid off. Your real estate is safe from repossession if it is paid for.
  2. Establish a trust.
  3. Have passive income to support you until you are 100 years old.

Offensive:

  1. Give money and time to charities and causes that you are passionate about. Time first, money second.
  2. If you own a business, set it up so that it is true legacy.

I think Brian Buffini has some great, tried and true ideas. What do you think?

A good accountant can help you set this up. Please let us know if you need a referral to an accountant.

Buying a cottage, cottage for sale, Gravenhurst, Lake Muskoka

** Now Sold!** Unique Muskoka Cottage for sale

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Circa 1934

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Double sized level lot steps from water

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Original Fir, Spacious Rooms

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Classic Muskoka Fireplace

 

Real Muskoka cottage for sale.

Every once in a while there is a very special place that speaks to that special cottager who loves Muskoka history. This place was built in the thirties, in Muskoka Beach Village and although it has been very well preserved, it still has all the original features that made cottaging so appealing in the past century.

The cottage is white clapboard, with an oversized Muskoka Room, for starters. You can see the water through the trees, while sitting on the porch. The walls are fir lined, and the rooms are spacious. The original stone fireplace is so appealing, and there are pristine oil lamps attached to the walls.

The bathroom is bright and gleaming and the kitchen is large. If you listen carefully, you can hear the rabble of meal making, and the laughter of a bygone era.

The carefree days of enjoying Olde Muskoka don’t have to be over. Purchase this property today. It stands steadfast on a double lot with municipal water and the potential for municipal sewage. It is currently three season, but would make a great place to live year ’round with some renovations.

The beach is a few steps away. This cottage is not directly on the waterfront (but not across a road) , and therefore the taxes are low.

The deeded access is fewer than a dozen steps to a wide sand beach, lovely swimming and some of the best views Lake Muskoka has to offer. And you thought that Lake Muskoka was just out of your reach. Asking a mere $360,500.00

Buying a cottage, Muskoka Activities, Muskoka Properties, Muskoka Real Estate Market

Sales of cottage properties rose 18% in March 2014 compared to March 2013.

Residential and cottage activity both up year-over-year in March

Residential sales activity recorded through the MLS® system of Muskoka Haliburton Orillia – The Lakelands Association of REALTORS® numbered 204 units in March 2014. This was up 19 per cent from March 2013. Sales of cottage properties rose 18 per cent from a year earlier to 39 units in March 2014.

“While the year-over-year increases for March 2014 look about the same, residential sales surged above 200 units in the month of March for just the fourth time in history, while cottage sales were still running below the historical average for the month,” Mike Stahls, President of Muskoka Haliburton Orillia – The Lakelands Association of REALTORS®. “In fact, the 77 per cent month-over-month increase in residential transactions from still subdued levels in February to very strong levels in March was the largest on record. This likely reflects, at least in part, the release of some pent-up demand following an unusually harsh winter.”

The median price for residential property sales was a record $225,000 in March 2014, up 13 per cent from a low reading a year earlier.

The median price for cottage sales was $385,000 in March 2014, a decline of eight per cent compared to March 2013.

The dollar value of all residential sales in March 2014 totalled $48.9 million, an increase of 35 per cent on a year-over-year basis and the highest level for this month on record.

The total value of cottage sales was $15.4 million. This was up 20 per cent from a year earlier.

Detailed – Cottage Sales and Median Price by Area
Cottage
By Area Unit Sales Median Sale Price
March 2014 March 2013 Year-over-year
percentage
change		 March 2014 March 2013 Year-over-year
percentage
change
Muskoka 15 10 50.0 $400,000 $420,750 -4.9
Haliburton 4 6 -33.3 $121,000 $421,250 -71.3

 

Important information

The average price information quoted can be useful in establishing trends over time, but does not indicate actual prices in centres comprised of widely divergent neighbourhoods, or account for price differentials between geographical areas and property types.

The area served by the more than 670 REALTORS® who belong to Muskoka Haliburton Orillia – The Lakelands Association of REALTORS®, is located less than a two-hour drive north of Toronto, in the heart of Canada’s Cottage Country. There are several major geographical areas within the Association’s boundaries, including the City of Orillia, Gravenhurst, Bracebridge, Muskoka Lakes, Huntsville, Almaguin Highlands, Lake of Bays and Haliburton. Each of these areas has a unique blend of properties ranging from residential homes located in the City of Orillia and smaller towns located throughout the remaining areas and the prestigious year-round recreational properties on large lakes, and lower and mid-range priced cottage properties on the smaller serene lakes.

Buying a cottage, cottage life, Muskoka Activities, Muskoka cottage life, Muskoka Lakes, Muskoka Properties, Muskoka Watershed Council, owning a cottage, Stewardship, Three Mile Lake, Volunteer, water, water quality

Algae and Water Quality. Looking back to see the future

As mentioned in previous posts, cottage owners and cottage buyers want to know about water quality on lakes in Muskoka. Because water quality has a direct relationship to property value, and algae – particularly algal blooms – directly affect water quality, we all want to know as much as we can .

I just completed and uploaded a video here for the Muskoka Watershed Council YouTube page. The subject is a talk that was presented by Dr. Andrew Paterson of the Dorset Environmental Centre at the Muskoka Stewardship Conference at Nipissing University in Muskoka (Bracebridge). The event’s theme was What Are You Watching?

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This highly interesting talk looks at studying lake sediments deposited over hundreds – and even thousands of years. Sediments are archives of environmental change and within them are clues to possible triggers of algae outbreaks.

Dr. Paterson talks about sediment research done in Lake of the Woods in north-western Ontario and the Hudson Bay Lowlands which may help scientist understand occurrences in the lakes of Muskoka. There is discussion on the relationship between water quality and property value for cottagers. The seeming paradox of stable or even declining phosphorous levels – the usual algal bloom suspect- at the same time as blue-green outbreaks are increasing. And of course, the effect of climate change.

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Algal Bloom Three Mile Lake 2005

Of particular note is the 2005 toxic algal bloom in Three Mile Lake in 2005, where research may indicate the possible triggers of record high temperatures coupled with record low precipitation which occurred in the fall of 2005 in Muskoka.

Slide 1

There is significant evidence that a warming climate is related to the increase in algal blooms. Dr. Paterson suggests that if algae was the music that we hear from a radio: then phosphorous is the volume; other nutrients (particularly nitrogen), light, etc., influence what species are present – are the “tuning”; and climate is the antenna. The presentation concludes that blue-green algae likes it hot!

Slide 1

Click here for the link to the video on YouTube.

Buying a cottage, client activities, cottage for sale

Relationships matter. What makes selling cottages in Muskoka worthwhile.

We received some kind words of praise yesterday from a couple who bought a cottage we had listed.

I am not surprised because I know how much Catharine cares about doing the right thing for all customers, but it is really wonderful when people stop and take the time to let us know!

“We can’t thank you enough for all you have done for us in our search for the perfect cottage. You have gone above and beyond what is expected of an agent.  You were extremely patient with us and not pushy at all when we were scared and undecided about purchasing our cottage.  After spending hours in the freezing cold during the lengthy building inspection you still remained up beat, positive and always had a smile on your face…..You always responded to our e-mails and phone calls (and there were many) within hours.  Answered all of our questions, and when you didn’t have the answer hopped in your car drove to the township office to get the answers.  You gave us many valuable reference for the best trades people.
 
My mother always told me, to be successful in business you need a good lawyer and accountant. I now believe that a good real estate agent is on that list of people required to be successful.  And you are the best in the business!
 
Thanks”

Thank you so much for your kind comments. Some other client comments are here.

Buying a cottage, client activities, cottage for sale, Lake Joseph, Muskoka Lakes, Muskoka Properties

Lake Joseph. Out on the April ice.

We were taken by snowmobile today so we could determine a listing price for a very nice Lake Joseph island property.

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45 mph makes for a good wind chill when you’re holding a camera!

We’ve been asked a few times actually, just in the past three or four days: “How thick(thin) is the ice on the big three?” Well we can tell you, as of today it is still very solid. Visibly on Lake Jo, there are no signs of open water except around bubblers and moving water. We have a way to go in Muskoka before break-up.
Below, even right beside the boathouse, the ice is very sound.

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Catharine; either waving, or trying to stop the process altogether!

We can’t show you the boathouse, the cottage, or anything identifiable on the property yet, as it’s not listed. But, here’s an image I made of the point while waiting for the snowmobile to return to pick me up.

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Buying a cottage, cottage for sale, cottage life, Lake Muskoka, Muskoka Activities, Muskoka cottage life, Muskoka Lakes, owning a cottage, winter at the cottage

Spring at the Cottage in Muskoka … not here, not yet.

Many times in the past, at work in Toronto, Chicago, Orlando, or Boston, I’d hear about spring equinox (night and day of approximately equal length) and begin to wonder how conditions were at our Muskoka cottage.

In case you are at work planning for spring at the cottage, I have an update for you. Depending on where you are, it may not be all that spring-like, and it isn’t here either.
On Lake Muskoka, I made this image less than 20 minutes after the spring equinox today (Mar 20th). It’s hard to tell, but it was snowing and the high today is expected to be -2C.

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Lake Muskoka from Muskoka Beach area. Mar 20, 2013, spring less than an hour old.

Here’s how the spring weather looks coming up this week:

forecast

If you are reading this a bit later here’s the current forecast.

And have a look below at the historic records for this date. Last year we hit 24.8C – much better than -18 in 2007!

records

We did have an “early” spring last year and cottage real estate, just took off for us.

Speaking of spring, we’re at the Cottage Life show on April 5th -7th, really getting the cottage season jump-started; actually we are there Sunday the 5th from 1-5pm, so come and say hello.

If you want tickets give us a call.

Buying a cottage, cottage life, Lake of Bays, Muskoka Activities, Muskoka Properties

Back to winter at a cottage in Muskoka

Up to Tasso Lake off Limberlost Rd. for a home (cottage) inspection early this morning.

We had 12 degrees C yesterday, back to a more seasonal -12 degrees C tonight. But have a look at how beautiful Tasso Lake is on a winter morning before freeze-up.

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Tasso Lake, soon to ice over.

Tasso Lake is only about 2 kilometres from Algonquin Park.

As we have mentioned before, information about the water quality of lakes in Muskoka is available on the Muskoka Water Web; here’s the page for Tasso Lake.