quote:

Let me share a scenario of someone who is self employed, as it highlights how a debt problem can spiral out of control quickly. I met recently with a woman in her 50s who owns her own company that furnishes and decorates high-end businesses, like big law firms. Or at least it did. With big firms shrinking to meet reduced market demands and trimming costs, her business had dried up.

Her accountant brought her to me, and it was clear she had severely mismanaged her business and financial affairs, despite her accountant’s warnings. We see this all the time—small business owners are typically very good at what they do, but very poor at handling day-to-day administration.

Here are some specifics that show how misaligned her lifestyle and business expenses were with the actual cash she was earning:
• Owns a townhouse: mortgage $600,000, estimated value $650,000
• Mortgage payments: $3,600/mo
• CRA lien against house for personal income tax owing: $98,000
• She had previously refinanced her house to help fund her business
• She had a prior bankruptcy 15 yrs ago—discharged
• Leased car: $51,000 owing
• Credit card debt: $75,000
• Business loan (personally guaranteed with a high interest rate): $45,000
• Outstanding debts to suppliers: $80,000
• Business rent owing (seven months behind): $11,000
• Net self-employment income: $3,500 per month, or $42,000 per year

The CRA lien is the big problem here. She can’t sell or refinance her house with the existing lien unless she pays her back taxes, while in the meantime interest charges and penalties pile up.
Although this may seem hopeless, it is actually a straightforward personal bankruptcy scenario: She closes the business, any source deduction or HST owing is included in the personal bankruptcy filing, as are any personally guaranteed business debts. She walks away from her house and cannot be sued for any shortfall due to the creditor protection afforded by her bankruptcy. She will lose her house and business, but that almost certainly would have happened regardless.

I should point out that clients in this type of situation often insist on keeping their house, a reflection of the deep-seated Canadian devotion to home ownership, and it takes long and difficult conversations with family, friends and trusted advisors before they come around to the realization that they have to let go of their home.

quote:

The normalization of excessive debt is reflected in the data that Statistics Canada regularly releases. The household debt-to-income ratio now stands at 169.4, up 23 per cent from a decade ago, and on par with what the U.S. saw at the peak of its housing bubble. Of course, such figures are averages. According to the Bank of Canada, close to half of all high-ratio mortgages originated in Toronto were to borrowers with loan-to-income ratios in excess of 450 per cent.

Femtosecond posted:

I'd love to know the equivalent Metro Vancouver numbers.

Cold on a Cob posted:

http://www.macleans.ca/news/canada/drowning-in-debt-is-the-new-normal-in-canada/

There are some throwaway examples of how much debt Canadians are pickled in, but holy poo poo:


Canada is so hosed. I know that's just an example of an extreme situation, but this stat from earlier in the article is the scariest part for me:


450 percent. If my math isn't poo poo, that's like 30% GDS, just shy of the 32% "limit". Add in a few car payments and pretend these people don't have lines of credit or student loans or credit cards and you're looking at 37% TDS.

People are borrowing to the loving hilt.

quote:

Here is just a sample of recent files that have crossed our desks: A staff accountant with multiple lines of credit, several maxed-out credit cards, a big mortgage, a significant home-equity line of credit (HELOC) and two leased luxury cars; a TTC driver with two mortgages and $100,000 in unsecured lines of credit; a teacher with eight payday loans and a senior financial analyst at a chartered bank with seven credit cards, all carrying high balances. I could go on and on.

quote:

According to the Bank of Canada, close to half of all high-ratio mortgages originated in Toronto were to borrowers with loan-to-income ratios in excess of 450 per cent.

cowofwar posted:

Between the personal indebtedness and this graph showing speculation on second homes that pretty much explains the bubble. People are addicted to housing and buying as much as they can with the expectation of appreciation and financing their debt off the appreciation.

A small correction combined with their indebtedness and burn rates with catalyze a crash and recession.

PK loving SUBBAN posted:

It's awful to hope for this kind of misery but we're so beyond overdue for a correction.

All chickens come home to roost eventually. We need it to happen so our national psyche can move beyond this housing obsession.

Risky Bisquick posted:

Cold on a Cob posted:

People are borrowing to the loving hilt.

Cold on a Cob posted:

http://www.macleans.ca/news/canada/drowning-in-debt-is-the-new-normal-in-canada/

There are some throwaway examples of how much debt Canadians are pickled in, but holy poo poo:

Risky Bisquick posted:

I was planning on going to go down to 0% Canadian equities later this year... maybe I should accelerate my plan.

Kraftwerk posted:

What I'm getting out of these debt articles is that most of the economic growth experienced these days seems to be financed by debt rather than jobs/salaries.

I can see why the BOC is delaying any interest hike. Nobody wants to be held responsible for tanking the entire economy and causing another crisis.

DariusLikewise posted:

This is basically a profile on how my sister manages debt. At one point in the last 2 years she defaulted on her mortgage because she couldn't afford it anymore and she had to declare bankruptcy. I added up her minimum payments on just debt she had and it came out to like 80% of her income, I guess she was giving false income records to a payday loan place and had like 8-9 of them active at one time.

mojo1701a posted:

Jesus gently caress. I make more money than that, and I am so not considering purchasing a property anytime soon.

That right there makes me so glad I'm not.

leftist heap posted:

Yeah you may make more money and have far less debt, but you don't have the pride of Small Business ownership, the economic engine of Canada.

mojo1701a posted:

I'm also an accountant that understands how money and person finance works. (Though I've semi-jokingly considered the idea of starting a YouTube video business as a tax dodge).

Risky Bisquick posted:

I have the same issue where I am concerned for some family of my own. I don't have direct insight into their numbers, but from napkin math and some casual statement...

At least my parents have been sorted. As an example, they were paying $50 / m for a POTS line to Bell for years until recently.

cowofwar posted:

The BoC is releasing babby's first economy video getting everyone ready for a bail-in. https://www.youtube.com/watch?v=rR8TqaHIOu4

Risky Bisquick posted:

Youtube businesses are the most serious business. Just think of all the expenses you can claim both on the tech side and then standard business ones

EvilJoven posted:

gently caress that's brilliant. Time to buy a gopro and make lovely cycling and aviation videos.

Gonna claim bike gear and plane rentals, too.

mojo1701a posted:

Basically poo poo out a 10-minute video every month, collect a few bucks of ad revenue (and Patreon users), and declare 10% of house expenses as home office, and depreciation on equipment as a baseline? I can't lose!

Only problem is I got nothing to do a video about.

"Some accountant from Toronto posted:

There are no hard and fast rules for determining whether your hobby is actually a business by definition. The Canada Revenue Agency (CRA) defines a business as something done in the pursuit of profit. The difficulty in distinguishing a hobby from a business arises because of the essential personal element involved in hobbies. In other words, hobbies are not always an activity that you do for profit.

The acid test used by the CRA and the courts seems to be whether you are making a profit.

A business is required to pay tax on net business profits (income minus expenses) and can claim losses incurred in the pursuit of profit. A hobby, on the other hand, is required to pay hobby tax any profits but cannot claim any losses whatsoever.

According to publication IT3342R2 issued by the CRA, if the hobby generates a profit (revenue in excess of expenses) it is a strong indication that the hobby is a venture with an expectation of profit. If, however, the hobby results in a loss (expenses in excess of revenue), the reasonable expectation of profit does not exist. This may seem unfair to hobbyists but the CRA is not in the business of being fair.

Subjunctive posted:

Can't you only deduct up to the amount of the income from the activity? Or was I doing it all wrong for years?

Risky Bisquick posted:

I have the same issue where I am concerned for some family of my own. I don't have direct insight into their numbers, but from napkin math and some casual statement...

At least my parents have been sorted. As an example, they were paying $50 / m for a POTS line to Bell for years until recently.

quote:

Frank Loughrey purchased his new townhouse in Surrey’s Clayton Heights when it was partially built only to discover after he took possession there was a long list of problems, including an improperly laid foundation that leaks.

“As it turned out the foundation had honeycombing and so we discovered a leak we figured the builder didn’t vibrate the concrete well enough, we also discovered later the dimple wrap they put on the outside of the foundation wasn’t installed property, there was no tar layer behind.”

Loughrey says he was pressured into buying during the housing craze with only one ‘subject to’ and no time to get an inspection.

“Things have to change with the builders, the home warranty companies… something has to be done and I’m not going to give up. This doesn’t end here, I’m pursuing whatever avenues I have to get this changed.”

“Something has to change out there, the government has to do something, rules have to be changed so that you cannot sell a property without allowing the buyer to do some sort of a home inspection.”

quote:

“As it turned out the foundation had honeycombing and so we discovered a leak we figured the builder didn’t vibrate the concrete well enough, we also discovered later the dimple wrap they put on the outside of the foundation wasn’t installed property, there was no tar layer behind.”

cowofwar posted:

Home inspection is kind of worthless unless you never tour the house or are blind. They really can't do a proper inspection and can only point out things that visually indicate a possible problem, or not.

Jordan7hm posted:

Home inspections make sense if you're actually willing to walk away from the purchase if you don't like what they find. Most people aren't.