Bank of Canada sees return to economic growth later in 2009

Last Updated: Thursday, January 22, 2009 | 11:54 AM ET

CBC News

Bank of Canada governor Mark Carney speaks at an Ottawa news conference Thursday. (CBC)

The Bank of Canada is projecting a sharp recession that will see three quarters of economic contraction before growth returns in the second half of 2009.

In its update to its Monetary Policy Report, the central bank said it anticipates quarter-over-quarter contractions of 2.3 per cent in the fourth quarter of 2008, followed by a deeper drop of 4.8 per cent for the first three months of 2009 and a drop of one per cent in second quarter of this year.

However, the bank sees a rebound to positive activity by the third quarter of the year, when it forecasts two per cent growth and 3.5 per cent expansion in the last three months of the year.

The bank said the return of normal financial conditions, coupled with the stimulus coming from monetary and fiscal policies, should boost the growth of consumer spending in 2010, leading to growth for the year of 3.8 per cent. The recent depreciation in the Canadian dollar will also lend support to a recovery, it added.

"Excess supply will be gradually reduced, with the economy projected to return to balance by mid-2011," the bank said. "The projected return to balance of the Canadian economy is faster than either of the recoveries following the 1981-82 and 1990-92 recessions."

Bank of Canada governor Mark Carney said the recovery projected by the bank is milder than from an average recession due to "muted" recoveries expected in other economies around the world.

"We are comfortable with our forecast," he told reporters at a news conference in Ottawa.

The latest outlook offered by the central bank marked a significant downgrade from the forecast it presented in October, when the bank projected growth of 0.6 per cent in 2009, and 3.4 per cent in 2010.

Two days earlier, the bank cut a key lending rate by half a percentage point to one per cent as it sought to boost the economy. Since it began its latest round of monetary policy easing in December 2007, the Bank of Canada has cut 3.5 percentage points from the key lending rate.

Enjoy

Krista and Sherri

www.lawlessbrown.com

Smith Manoeuvre

Couple abused tax laws
Homeowners tried to make mortgage deductible

Janice Tibbetts, Canwest News Service
Published: Friday, January 09, 2009

A Toronto couple who attempted a complicated manoeuvre to effectively make the mortgage on their home tax-deductible abused federal income-tax laws, the Supreme Court of Canada ruled yesterday.

"It has long been a principle of tax law that taxpayers may order their affairs so as to minimize the amount of tax payable," Justice Louis LeBel wrote for the 4-3 majority. "However, this principle has never been absolute."

The split decision is a defeat for Earl and Jordanna Lipson, a Toronto couple who swapped non-deductible interest for deductible interest while buying their $750,000 home in 1994.

The scheme involved paying down their mortgage immediately after obtaining it, then using the repaid principal as collateral for an investment loan, which is tax deductible under the Income Tax Act.

The federal tax collector went after Earl Lipson, who then took his fight to the Tax Court of Canada.

A judge ruled that the Lipson transactions did not technically break the law, but that the scheme "was an obvious example of tax avoidance" because it was clearly intended to make the mortgage interest tax-deductible.

The court's conclusion that the purpose of the transaction should be taken into account in deciding its legality was later upheld by the Federal Court of Appeal.

The case, which is a test of the legal limits of tax avoidance, has drawn enormous attention among tax advisers and the Supreme Court chamber was packed last April when the appeal was heard.

Toronto tax expert Jamie Golombek said that manoeuvring to make mortgage interest tax-deductible has become increasingly commonplace in Canada but "a cloud has been hanging over this technique" for the past couple of years in light of the Lipson court battle.

A central issue in the case is the interpretation of an Income Tax Act principle, called the General Anti-Avoidance Rule. Enacted in 1988 to reduce abusive tax avoidance, the GAAR can make legal transactions illegal for being a "misuse or abuse" of the rules.

Writing in dissent, Justice Ian Binnie described the GAAR as "a weapon that, unless contained by the jurisprudence, could have a widespread, serious and unpredictable effect on legitimate tax planning."

For more information, contact us,
Krista and Sherri
www.lawlessbrown.com

January 20, 2009

BANK OF CANADA LOWERS OVERNIGHT RATE TO 1.00%
TD Bank Financial Group

Recent economic data clearly show a Canadian
economy tilting into recession in the fourth quarter of last
year, a full year after the start of the U.S. recession. Against
this backdrop of continually souring economic news that is
unlikely to improve anytime soon, it came as no surprise
that the Bank of Canada (BoC) lowered its policy interest
rate yet again. The only issue worth debating prior to this
decision was with regards to the extent of easing. On that
front, the BoC’s decision to lower the overnight rate by 50
basis points (bps) was largely in line with market expectations
and those of private-sector forecasters, including TD
Economics.

In the communiqué accompanying today’s decision, the
BoC notes that since its last decision to slash the overnight
rate by 75bps on December 9th, “the outlook for the global
economy has deteriorated […], with the intensifying financial
crisis spilling over into real economic activity”. It
also cites weakened business and consumer confidence
worldwide and the resulting erosion of domestic demand.
On the plus side, there is mention that the extraordinary
policy actions from governments and central banks “are
starting to gain traction, although it will take some time for
financial conditions to normalize.” All said, the BoC expects
Canadian real GDP to contract by 1.2% this year,
which is close to our early December expectation for a
1.4% contraction. The BoC’s outlook for real GDP growth
of 3.8% in 2010 is, however, significantly ahead of our
more cautious call of 2.4% growth. The BoC’s latest forecasts
will be detailed on Thursday in its Monetary Policy
Report Update.

As for the inflation outlook, the BoC expects core inflation,
which stood at 2.4% as at November, to ease and
bottom at 1.1% in the fourth quarter. Total (all-items) inflation
is expected to dip into negative territory for the first
two quarters of this year as a result of falling energy prices.
Both measures of inflation are expected to converge back
up to the 2.0% target rate in the first half of 2011.
As the policy interest rate nears closer to an absolute
bottom of zero, the BoC is understandably eliminating explicit
references to the need for further easing, coaxing the
markets towards the end of this aggressive easing cycle –
a cumulative 350bps since December 2007. However, consistent
with their tone prior to today’s decision, the BoC is
leaving the door open to further easing. We expect a further
50bps reduction, down to a floor of 0.50%, at the next
decision, slated for March 3. Furthermore, given the considerable
amount of remaining uncertainty and the fact that
the Canadian recession has just started, the policy rate is
expected to stay at this record low well into 2010 before
inflation starts registering on the radar again

Pascal Gauthier, Economist
416-944-5730

Respectfully,
Krista and Sherri
www.lawlessbrown.com

Housing Assessments

Times Colonist, with files from Andrew Duffy
January 6, 2009

Greater Victoria homeowners have it in writing now -- their houses are worth less, especially if on the waterfront.

Property assessments are arriving in mailboxes this week, and they're using July 2007 market values instead of the usually higher ones from July 2008.

Market value for most houses slid after July 2008, so the province decided to revert to 2007 prices for assessments. For example, a Saanich house was given a market value of $517,000 in July 2008, but the 2007 value of $489,000 is being used for the 2009 assessment.

Premier Gordon Campbell gave this explanation last fall for using 2007 values: "To avoid confusion, anxiety and unnecessary assessment appeals prompted by higher-assessed property values that do not reflect current market conditions, we will lock in B.C.'s assessment rolls at 2007 assessed levels."

No one municipality in the capital region took a significant hit with this assessment, but waterfront values came down more, said Brian Hawkins, area assessor Greater Victoria.

"We found the higher-end properties and the waterfront started to drop off earlier than average housing just because waterfront and higher-end homes had a much higher increase over the last five years and came off first," he said.

The number of houses in Greater Victoria assessed at more than $1 million has hit a plateau.

Assessors valued 3,198 single-family homes at more than $1 million, up slightly from the 3,183 of last year when there was a jump from 2,516 in 2007.

There are 200 condominiums assessed in seven figures, up from the 167 last year, and 105 in 2007.

There was no change in the number of townhomes assessed at more than $1 million this year -- 109 for two years in a row, up from 73 in 2007.

Chris Markham, president of the Victoria Real Estate Board, said the market tends not to react immediately to assessment notices.

"It all depends on the motivation," he said, noting homeowners may get excited about an increase in the assessment if they are planning on selling.

"But I try not to pay any attention to assessment value at all [as an agent]," he said, noting while it may be a starting point for homeowners to set a price, agents should be looking at the location, asset and history.

Markham, who predicts the market will have a slow start in 2009, also said homeowners should expect to see assessment numbers drop a bit next year. "I would suggest [B.C. Assessment] will be watching our marketplace and have to make some adjustments next year," he said.

While the assessment gives property owners a sense of where they fit in the market, it is also used by municipalities to set tax rates in the coming months.

For the vast majority of property owners whose latest assessment falls within the average changes, there will likely be little or no increase in property tax. Those assessed well above the average change will see a higher tax rate, while those below will see a decrease.

Property owners who feel that their property assessment does not reflect market value, or who see incorrect information on their notice, should contact B.C. Assessment.

Hawkins said last year 98 per cent of property owners accepted their assessment and the authority is anticipating similar numbers this year, though homeowners are able to appeal both assessment valuations this year."

Posted for interest sake...enjoy the read.
Krista and Sherri
www.lawlessbrown.com

Victoria BC Housing Assessments

Assessments to reach homeowners next week
A majority of properties face the same or lower assessed values
Andrew A. Duffy, Times Colonist
Published: Friday, January 02, 2009

It's not exactly Sears catalogue day, but the first official working day in January no doubt has postal workers doing a few pre-work stretches as they prepare to handle the 1.85 million assessment notices being sent out across the province.
B.C. Assessment will send the notices out starting today meaning homeowners around the province will start seeing the envelopes in their mailboxes early next week. But homeowners anxious to check out the assessment of their homes may be able to do so online at www.bcassessment .bc.ca starting today.
This year's assessment notice will be slightly different than in years past.
That's because the provincial government decided earlier this year to maintain assessed property values for the 2009 assessment roll at the July 1, 2007 valuation date -- the same date used for the 2008 assessment roll.
The goal of this was to give property owners more certainty in response to the downturn in the real estate market.
New construction in 2008 will be assessed at a value as if it existed July 1, 2007.
The 2009 notices will show two assessed values -- for July 2007 and July 2008. The lower amount will be the official assessment.
About 94 per cent of property owners will receive an identical or lower assessment this year than last, according to B.C. Assessment. Of that group, 82 per cent of properties will have the same assessment, 12 per cent will be lower, and the rest applies to less common property classes.
For Greater Victoria, that means the assessed value of all homes should be close to last year's $83.7 billion which was an increase of $10 billion from the year previous.
According to Brian Hawkins, assessor for the region, last year's numbers reflected a steady increase with the majority of homes in the region having increased between eight and 12 per cent in a year.
This year's assessment will also come with a market trend graph for specific areas around the province, both big and small, that will show what the market has done in the last year and a half.
Anyone wishing to appeal their assessment has until Feb. 2 to make the request.



From Krista and Sherri,

We have received our housing assessments in the mail and all are the same as last year. If you have any questions about them or how to use the equity you have in the house to make money for you, call us and let us show you how. You can also find free information and sign up for our newsletter on our website.

www.lawlessbrown.com