You can save money on mortgages with attention to a few details
Mr. Landry is CMA's adviser to association members on professional and personal business affairs. Readers should not act on matters dis. cussed without the advice of a competent lawyer or accountant.
interest, principal and tax payments price and the amount remaining on of about $1080 per month. If taxes the old mortgage, but charge you inare $100 per month and the interest terest on the combined amount at a rates are 10.5%, you could finance a higher rate than the old mortgage. While you make regular payments to mortgage of up to $105 500. You might consider a "wrap- your lenders, they in turn pay the around" mortgage if you want to buy holder of the old mortgage. Often current interest rates are a property already mortgaged by the current owner. Assuming the first higher than rates on existing mortmortgage lender will not increase the gages, so there is obviously an advanfirst mortgage, the usual course of tage in any arrangement that can preaction would be to finance the total serve the lower costs of the existing purchase price with a new mortgage. mortgage. But there are a few probThe proceeds from the new mortgage lems. Perhaps the existing mortgage would be used to pay the seller and on the home ends automatically when the house is sold. As well, legal fees pay off the old mortgage. A second course would be to as- may be higher than usual. So before sume the owner's mortgage and fi- proceeding, work out the average innance the difference with a second terest cost of combining a second mortgage. If second mortgage rates mortgage and a first mortgage and seem high, the wraparound mort- compare this with the wraparound gage provides a third alternative. interest rate. The wraparound may Your lenders give you a mortgage for appear easier, but it could be costly the difference between the purchase in the long run.
Mortgage insurance on National Housing Act loans provided by approved lenders, such as banks and trust companies, is usually about .875% for existing houses and 1% on new ones. This is not life insurance. It is a policy under which the insurance company guarantees that if the borrower defaults for any reason, the mortgage lender will get back all the outstanding principal. The property is, of course, the security. You will also have to pay an appraisal fee of $100. Many mortgage lenders deduct part of the loan to provide a reserve for future tax payments. Remember that your lawyer will want to be paid for arranging the mortgage. Ask first what it will cost. When an existing mortgage is assumed many of these hidden costs can be avoided.E
Physician manpower seminars. Part V: The ins and outs of incorporation RICHARD STARKS If doctors have really earned their reputation for being naive in investment and money-management decisions they gave little sign of it on the last day of the 3-day MD Management Ltd. symposium. The subject of the morning session - incorporation - was clearly one with which many were familiar, so that at times the listeners were ahead of the speakers. Certainly, the audience showed itself to be more than capable of grasping the financial twists and turns - and the legal ones too - that go with the setting up of a corporation. About a dozen of the participants were practitioners' wives, who had attended the seminar (as one said) to be convinced that incorporation is a legitimate practice enshrined in law, that it can lead to significant financial benefits and that it is not likely to land their doctor-husbands in trouble with the tax man - or, worse still, in jail. They came, in other words, to be reassured by hearing the truth from reputable sources. A similat number, however, had already established corporations and were fully aware of the complexities.
They had come for a fine-tuning of their existing knowledge, rather than an introduction to the basic mechanics. The audience, as one speaker said, was therefore "not as unsophisticated" as some medical audiences he had earlier addressed. And that led to a lively, and at times spirited, session. First to address the seminar was Richard Pyne, a lawyer and partner in the Toronto firm of Pyne and Rovet. A recognized expert in setting up corporations, he brought to the seminar the added advantage of having seen the picture from the other side too; before going into private legal practice he had worked for the Justice Department in Ottawa where he had argued many of the cases that have set the precedents which now shape and control what a corporation can and cannot do. Corporate advantages
Pyne started by explaining the basic concept of a corporation. It is, he said, a "fictitious legal entity", which has a separate and distinct existence all of its own - an exist-
646 CMA JOURNAL/SEPTEMBER 23, 1978/VOL. 119
ence that is quite independent of the people who own and control it. It is possible, as a result, for an individual to create two separate income centres: a personal one and a corporate one. That concept may well have had just theoretical interest for many individuals, were it not for the difference in the way individuals and corporations are taxed. Pyne explained it this way: for an individual, the rate at which he is taxed varies with his income: the higher the income, the higher the rate. For a corporation, however, this is not the case. If a corporation is publicly owned, tax will be levied at a rate of 46% -49%, depending on the provincial rate that is applied. If a corporation is privately owned by 50 or fewer Canadian residents, then it will be taxed at the same rate only if it earns "passive income for example, income from investments or interest from a bank account. If the private company earns "active" business income, however, it will be taxed at a rate of just 25% -28%, again depending on the province.
Mr. Landry is CMA's adviser to association members on professional and personal business affairs. Readers should not act on matters dis. cussed without the advice of a competent lawyer or accountant.
interest, principal and tax payments price and the amount remaining on of about $1080 per month. If taxes the old mortgage, but charge you inare $100 per month and the interest terest on the combined amount at a rates are 10.5%, you could finance a higher rate than the old mortgage. While you make regular payments to mortgage of up to $105 500. You might consider a "wrap- your lenders, they in turn pay the around" mortgage if you want to buy holder of the old mortgage. Often current interest rates are a property already mortgaged by the current owner. Assuming the first higher than rates on existing mortmortgage lender will not increase the gages, so there is obviously an advanfirst mortgage, the usual course of tage in any arrangement that can preaction would be to finance the total serve the lower costs of the existing purchase price with a new mortgage. mortgage. But there are a few probThe proceeds from the new mortgage lems. Perhaps the existing mortgage would be used to pay the seller and on the home ends automatically when the house is sold. As well, legal fees pay off the old mortgage. A second course would be to as- may be higher than usual. So before sume the owner's mortgage and fi- proceeding, work out the average innance the difference with a second terest cost of combining a second mortgage. If second mortgage rates mortgage and a first mortgage and seem high, the wraparound mort- compare this with the wraparound gage provides a third alternative. interest rate. The wraparound may Your lenders give you a mortgage for appear easier, but it could be costly the difference between the purchase in the long run.
Mortgage insurance on National Housing Act loans provided by approved lenders, such as banks and trust companies, is usually about .875% for existing houses and 1% on new ones. This is not life insurance. It is a policy under which the insurance company guarantees that if the borrower defaults for any reason, the mortgage lender will get back all the outstanding principal. The property is, of course, the security. You will also have to pay an appraisal fee of $100. Many mortgage lenders deduct part of the loan to provide a reserve for future tax payments. Remember that your lawyer will want to be paid for arranging the mortgage. Ask first what it will cost. When an existing mortgage is assumed many of these hidden costs can be avoided.E
Physician manpower seminars. Part V: The ins and outs of incorporation RICHARD STARKS If doctors have really earned their reputation for being naive in investment and money-management decisions they gave little sign of it on the last day of the 3-day MD Management Ltd. symposium. The subject of the morning session - incorporation - was clearly one with which many were familiar, so that at times the listeners were ahead of the speakers. Certainly, the audience showed itself to be more than capable of grasping the financial twists and turns - and the legal ones too - that go with the setting up of a corporation. About a dozen of the participants were practitioners' wives, who had attended the seminar (as one said) to be convinced that incorporation is a legitimate practice enshrined in law, that it can lead to significant financial benefits and that it is not likely to land their doctor-husbands in trouble with the tax man - or, worse still, in jail. They came, in other words, to be reassured by hearing the truth from reputable sources. A similat number, however, had already established corporations and were fully aware of the complexities.
They had come for a fine-tuning of their existing knowledge, rather than an introduction to the basic mechanics. The audience, as one speaker said, was therefore "not as unsophisticated" as some medical audiences he had earlier addressed. And that led to a lively, and at times spirited, session. First to address the seminar was Richard Pyne, a lawyer and partner in the Toronto firm of Pyne and Rovet. A recognized expert in setting up corporations, he brought to the seminar the added advantage of having seen the picture from the other side too; before going into private legal practice he had worked for the Justice Department in Ottawa where he had argued many of the cases that have set the precedents which now shape and control what a corporation can and cannot do. Corporate advantages
Pyne started by explaining the basic concept of a corporation. It is, he said, a "fictitious legal entity", which has a separate and distinct existence all of its own - an exist-
646 CMA JOURNAL/SEPTEMBER 23, 1978/VOL. 119
ence that is quite independent of the people who own and control it. It is possible, as a result, for an individual to create two separate income centres: a personal one and a corporate one. That concept may well have had just theoretical interest for many individuals, were it not for the difference in the way individuals and corporations are taxed. Pyne explained it this way: for an individual, the rate at which he is taxed varies with his income: the higher the income, the higher the rate. For a corporation, however, this is not the case. If a corporation is publicly owned, tax will be levied at a rate of 46% -49%, depending on the provincial rate that is applied. If a corporation is privately owned by 50 or fewer Canadian residents, then it will be taxed at the same rate only if it earns "passive income for example, income from investments or interest from a bank account. If the private company earns "active" business income, however, it will be taxed at a rate of just 25% -28%, again depending on the province.
