Friday, April 1, 2011

Short Takes: Family Tax Cut Benefits Rich and more

I’ll use the fact that it’s Friday as an excuse for not coming up with something clever for April Fools’ Day this year. As inadequate compensation, I’ve got more opinions than usual about the posts I’m highlighting this week.

Canadian Capitalist does some analysis and finds that the Conservatives’ family tax cut would be primarily a tax break for the rich. His second chart makes it seem that the tax break is actually most targeted to the middle and upper-middle class, but this applies to couples when one spouse earns no income at all. When one spouse earns at least a small income, the bulk of the tax benefit shifts toward wealthier people.

Rob Carrick explains that the increasing cost of house insurance is largely due to water damage. An insurance company executive is quoted as saying that the cost of house insurance is actually coming down when measured as the cost per $1000 of coverage. I wonder if this is $1000 worth of house or if it is $1000 worth of property including land. If it is the latter, I’m not impressed. The earth my house sits on has been growing in value faster than my house, but insurance costs are more closely related to the replacement cost of just my house.

Canadian Tax Resource explains the complications that result when withdrawing money from a spousal RRSP less than 3 years after the last spousal contribution. The bottom line is that you should avoid breaking the 3-year rule if you can.

Canadian Mortgage Trends explains the interest rate differential (IRD) penalty that you have to pay when you break a mortgage. The principal behind IRDs is sound in that it compensates the bank for losses on a profitable mortgage. You get the benefit if you lock in and rates go up. The bank should benefit if you lock in and rates go down. The problem is the games that banks play with the “comparison rate” that is used to calculate the amount of the IRD. You could also make a case for taking into account mortgage provisions that allow you to increase payments or make lump sum payments once per year.

Money Smarts explains why Canadians aren’t actually withdrawing money from their RRSPs at an alarming rate. Some scary statistics can be explained by the distinction between RRSPs and RRIFs.

Big Cajun Man isn’t too happy with Pay Day Loan companies.

Million Dollar Journey is giving away 3 copies of the book Moolala.

Financial Highway offers some reasons for keeping your land line. The fact that a post like this exists is evidence that many people are choosing to drop their land lines.


  1. Thanks for the link Michael!

  2. Thanks for the mention.

    I'm pretty sure the insurance coverage is mostly for the house. Unless you have a garage, I'm not sure what else you could claim.

  3. My suspicion is that the hump will shift to the right as well as the spouse earns a bit of income. I'm not at all sold that income splitting as proposed by the Tories is a good idea.

  4. @Mike: I agree. That's why I'm skeptical of the claim that house insurance costs are dropping measured per $1000 of coverage. Suppose that over 5 years my house insurance premium rose from $500 to $1000. During that time, my home's value rose from $250,000 to $550,000, but the replacement cost of just the house (not land) rose from $150,000 to $200,000. Measured relative to the overall price of my home, my premium dropped, but measured relative to the replacement cost of my house, my premium rose.