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Should you use your tax refund to pay down debt?

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Should you use your tax refund to pay down debt?

Not sure what to do with your tax refund? While paying down debt or saving for a rainy day may seem less exciting than making an extravagant purchase, it pays to look at the bigger picture: Household debt is near record levels and interest rates are on their way up.

But choosing between paying down debt or bolstering a savings account isn’t always an easy decision. Those with refunds need to consider their whole financial picture when weighing the right choice, according to Andy Nasr, director and lead investment strategist at Scotia Wealth Management.

“This isn’t just about investing, it’s about really developing a plan to preserve and accumulate wealth and that’s going to vary from person to person,” he said. “It is going to depend on your objectives and your risk tolerance.”

If you have high-interest debt, such as a balance on a credit card, using one’s tax to reduce or eradicate that debt should be the highest priority.

According to Jamie Golombek, managing director of tax and estate planning at CIBC, there’s nothing that will guarantee a rate of return like paying off a balance on a credit card that is charging 20% interest.

“I wouldn’t do any RRSPs, I wouldn’t do any TFSAs, I would primarily direct that money to paying down that debt,” he said.

The decision is trickier when it comes to debt with less burdensome interest rates. Mortgages, auto loans, and home equity lines of credit may carry much lower interest rates.

The Bank of Canada has increased its key interest rate thrice since last summer—moves which have prompted the major banks to raise their prime rates. The prime rate at Canada’s largest banks now stands at 3.45%, compared with 2.7% at this time last year.

While the timeline is uncertain, economists are forecasting for rates to inch up higher this year, further pushing up the cost of variable-rate mortgages and other lending linked to prime rates.

Nasr said you have to compare the interest rate being paid on the debt with the after-tax rate of return you think you may be able to get to see if you should invest instead.

“I wouldn’t consider investing unless I thought my expected return on something, whether it is the cash flow from it or the total return, would be enough to service those debt obligations while I have them,” he said.

Also read: This consumer debt could cause issues in 2018

 

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Victoria real estate agent disciplined for false advertising, encouraging cash deal to avoid taxes

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A Victoria real estate agent is facing $9,000 in fines and a 60-day licence suspension after breaking several professional rules during the sale of her father’s half-million-dollar property, according to a decision by the Real Estate Council of B.C. 

Whitney Garside’s missteps — outlined this week in a disciplinary decision posted on the council’s website — included falsely advertising the property as being almost twice its actual size and advising the buyer they could avoid the property transfer tax if they paid cash directly to the seller.

The property on Burnett Road in Victoria was being sold in 2016 by the real estate agent’s father. That relationship was disclosed and isn’t among the reasons she has been disciplined.

According to the disciplinary consent order, Garside told the buyer — whose name is redacted — that by paying $42,000 cash on the side, the value of the property could be reduced to avoid paying the property transfer tax.

That cash arrangement was not shared with Garside’s brokerage, Re/Max Camosun, a failure that contravened the Real Estate Services Act.

The council also ruled that she “failed to act honestly and with reasonable care and skill” when she advised the buyer the property transfer tax could be avoided by paying cash directly to the seller. 

The council’s discipline committee also found that Garside committed professional misconduct when she failed to recommend the seller and buyer seek independent legal advice, specifically regarding the property transfer tax and the cash agreement.

Another issue the council considered professional misconduct involved the size of the property in question.

The council ruled that Garside published false and misleading advertising and failed to act with reasonable care and skill when the property was advertised as 8,712 square feet, when in fact a portion of the lot belonged to the Ministry of Transportation, and the actual size was just 4,711 square feet.

The discipline committee ordered Garside’s licence be suspended for 60 days, which will be completed Jan. 3, 2021.

She has also been ordered to complete real estate ethics and remedial classes at her own expense.

Garside was also fined $7,500 as a disciplinary penalty and $1,500 in enforcement expenses.

She agreed to waive her right to appeal the council’s discipline committee’s decision in September.

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Frisco apartment community sells to Canadian investor

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A Canada-based investor has purchased a Frisco apartment community as part of a larger Texas deal.

The 330-unit Satori Frisco apartments opened last year on Research Road in Frisco.

BSR Real Estate Investment Trust bought the four-story rental community that was built by Atlanta-based Davis Development.

Satori Frisco was more than 90% leased at the time of sale. The property includes a two-story fitness center, a car care center, a dog park and a resort-style swimming pool.

The Frisco property sold along with Houston’s Vale luxury apartments in a deal valued at $129 million.

“BSR recently exited the smaller Beaumont and Longview, Texas, markets and also sold noncore properties in other markets,” John Bailey, BSR’s chief executive officer, said in a statement. “We are now using our strong liquidity position to invest in Vale and Satori Frisco, modern communities in core growth markets with the amenities our residents desire.”

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House prices on Prince Edward Island continue steady climb

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Residential real estate prices on Prince Edward Island continue to climb at a rate higher than the national average, according to the latest report from a national organization. 

The Canadian Real Estate Association released monthly figures for November 2020 on Tuesday.

They show that the average price for a resale home on P.E.I. is about 21 per cent higher than it was a year earlier. 

Only Quebec had a bigger year-over-year increase, at about 23 per cent. Overall across Canada, prices were up 13.8 per cent year over year in the ninth month of the COVID-19 pandemic.

“For the fifth straight month, year-over-year sales activity was up in almost all Canadian housing markets compared to the same month in 2019,” the report noted.

“Meanwhile, an ongoing shortage of supply of homes available for purchase across most of Ontario, Quebec and the Maritime provinces means sellers there hold the upper hand in sales negotiations.”

That lack of houses coming onto the market compared to the demand means that in those provinces, there is “increased competition among buyers for listings and … fertile ground for price gains.”

There have been anecdotal reports for months that Prince Edward Island’s low rate of COVID-19 infection and looser rules around social activities have been encouraging people to buy homes on the Island. 

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