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(March 16, 2007) Canada’s national net worth reached $4.9 trillion by the end of 2006, or $150,500 per capita, Statistics Canada reported on Friday. National net worth expanded by $131 billion in the fourth quarter, up 2.7% and just off the pace set in Q3.

National wealth grew by 6.7% in the year, compared to 5.6% in 2005. On a year-over-year basis, national net worth jumped 9.3% in 2006, a hefty increase over the 5.7% growth of 2005. This was largely driven by the significant drop in net foreign debt during the third and fourth quarters of 2006.

The advance in national net worth was strongly supported by the sharp decline in Canadians’ net foreign debt, which fell by almost half in the quarter. StatsCan chalks much of this up to growth in the value of foreign portfolio assets held by Canadians. The increase in these assets was driven by strong investment flows, as well as the revaluation effects of sharp gains in foreign equity prices and a depreciating Canadian dollar in Q4.

The StatsCan report points out that factoring out financial assets, growth in national wealth slowed to 1.7%. This reflected the easing of economic activity, partly offset by sustained price increases for selected non-financial assets. Residential real estate, for example, continued to be the major contributor to growth in national wealth, accounting for over half of the gain.

Household net worth was up as well. StatsCan noted a 3.8% increase in the third quarter driven by increased foreign equity holdings by Canadians and the continued growth in the value of residential real estate.

Household net worth figures do mask a growing debt problem, though. StatsCan reports that household debt continued to outpace personal disposable income. Canadian households carry about $1.10 in debt for every dollar of their disposable income.

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Retirement savings rules need to change: Investors Group

(March 16, 2007) Investors Group is suggesting that rules regarding retirement savings, especially RRSPs need to be changed in order to motivate Canadians to save more for retirement.

Some of the measures suggested are long-debated tax-prepaid savings plans, the removal of guaranteed income supplement clawbacks that deter low-income Canadians from investing for retirement, and an increase in the RSP conversion age.

The tax-prepaid savings plan is one way to help lower-income Canadians put money away for their retirement, said Debbie Ammeter, IG’s vice-president of advanced financial planning for Investors Group.

Canadians would be able to contribute to a retirement savings plan like an RRSP but without the accompanying tax deferral benefit. However, the contributed funds and all realized investment growth could, under certain conditions, be withdrawn tax free.

Ammeter also pointed to the clawback of the GIS as a disincentive for lower-income Canadians trying to save for retirement. She said that RRSP and RRIF income should not be included in the calculation of any clawbacks of government pension amounts.

Finally, IG would like to see the RRSP conversion age increased by three to five years in recognition of the emerging retirement trends.

“With baby boomers clearly planning more active and innovative retirements, it is also time to reconsider the age limit at which an individual is forced to convert an RRSP to an annuity or RRIF,” Ammeter said. “Canadians are living longer, and a significant part of the baby boom generation has indicated they will likely do some form of paid work after they retire. Forcing RRSP conversion at age 69 certainly seems to be out of step with the new retirement reality.”

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Realtors want capital gains tax removed

(March 16, 2007) The Canadian Real Estate Association is calling on the federal government to make changes to the capital gains tax that would provide several economic benefits, including a boost in Canada’s productivity, expansion of rental housing, and encouragement of urban regeneration.

The CREA wants Ottawa to drop capital gains tax on sold properties if the capital gain is reinvested in another property within one year.

CREA president Pierre Beauchamp noted that small investors are holding on to their investments because of the tax consequences associated with selling and reinvesting.

“Small investors are avoiding capital gains tax by not selling their real [estate] property investment, and this is unduly influencing typical market activity,” he said.

The CREA’s Canadian Commercial Council, which specializes in commercial and industrial properties, believes a deferral would trigger economic activity as small investors typically undertake renovations and make related purchases when they reinvest.

Specifically, the CREA believes removing the capital gains tax will enhance Canada’s productivity and mitigate the tax discrimination that deters investment in rental housing, as well as allow for more labour flexibility since property owners won’t be hesitant to move because of the tax consequences.

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CAs release budget wish list

(March 16, 2007) The Canadian Institute of Chartered Accountants has released its recommendations for Monday’s upcoming federal budget.

The institute said that implementing measures to reduce government spending, lower taxes and increase federal debt payments would benefit Canadians today and ensure Canada has a strong and sustainable economy for future generations.

“Balancing taxation levels and debt reduction is the foundation needed to ensure future prosperity for all Canadians,” said Kevin Dancey, FCA, president and CEO of the Canadian Institute of Chartered Accountants.

“With the federal surplus expected to reach upwards of $9 billion this year, the federal government has the opportunity to reduce taxes and accelerate debt reduction without increasing program spending — in effect creating a win/win/win situation.”

CICA pointed out that it has long called on the federal government to accelerate its debt reduction payments from $3 billion to $5 billion annually. It says this will enable the government to maintain lower individual and corporate tax rates over the longer term without increasing program spending in other areas.

CICA adds that lowering taxes, especially corporate ones, breeds competitiveness and growth in the economy.

“Low tax rates spread across a broad taxpayer base and will stimulate economic growth and competitiveness,” said Dancey. “Strong businesses generate jobs and profit, both of which are good for the Canadian economy and for Canadians.”

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(03/16/07)