Alberta versus BC

Many clients tell us they plan to move BC because of the warmer weather but there are some things that they should keep in mind. Although Alberta and BC have equal small business corporate tax rates of 12%,  Alberta is still the rational choice for your headquarters.

Alberta’s differences over BC:

  1. Higher GDP with an economy size comparable to Finland vs. BC’s economy which is comparable to Romania. In 2017 Alberta grew at twice the rate of BC
  2. More than twice the exports as BC
  3. Alberta is less dependant on oil (a real resource) than BC is dependent on real estate (over-valued)
  4. While there is money to made from the bigger population of BC, it isn’t worth the headache compared to dealing with a demographic with higher disposable incomes. With higher incomes + housing more affordable in Alberta vs. Vancouver, there is more disposable income to capture from Alberta’s affluent consumers.
  5. No provincial sales tax, no provincial health-care premiums (BC’s monthly premium rate), least expensive motor vehicle licenses and permits, which all mean that in addition to higher incomes and lower cost of living, Albertans have more disposable income to spend on your business.
  6. Personal tax advantages to earning non-eligible dividends at $60,000 in a family.
  7. Alberta has no probate fee. However, in BC, where the gross value of all your real and personal property in BC subject to probate doesn’t exceed $25,000, there is no probate fee and where the gross value DOES exceed $25,000, the probate fees are:

    0.6% of the portion of gross value over $25,000 up to $50,000 and 1.4% for the portion of gross value over $50,000 (Example: $8,900 total probate fees if your gross value is $650,000)

  8. There is a property transfer tax (PTT) in BC. You are charged this transfer tax when you make changes to a property’s title. This tax is based on the fair market value of the land and improvements the tax is: 1% on the first $200,000, 2% from $200,000 up to $2,000,000 and 3% on the value greater than $2,000,000.  (Example: Fair market value of $650,000 property = $11,000 PTT payable)

Edmonton’s advantages over Calgary

  1. Edmonton is a global leader in the artificial intelligence (AI), machine learning (ML), and Nanotechnology. The University of Alberta houses the National Institute for Nanotechnology and is ranked #2 in the world for AI and ML and top’s Calgary’s schools in every field.
  2. Edmonton has a well-balanced economy: Petrochemical industries (reserves second only to Saudi Arabia), financial centre (Canadian Western Bank, ATB, Servus, TD, Manulife), retail: The Brick, Katz Group, AutoCanada, Boston Pizza, Pizza 73, Liquor Stores GP, Shaw Communications, Booster Juice, Earl’s, Fountain Tire
  3. Closer proximity to Duvernay and Montney shale formations which rival the entire US reserves, Gold mines which could see a 10x valuation over the next 10 years, and Uranium mines which could see a 3-5x valuation over the next 10 years.

Second Home Base

Live in Edmonton for 6-9 months of the year. For many people, it means spending the winter in a warmer place, but for us, it means summers (June – August 31) in Switzerland.

Other home bases include:

  1. Nha Trang, Vietnam
  2. Las Vegas, Nevada (no state tax)
  3. Austin, Texas (no state tax)
  4. Fort Lauderdale, Florida (no state tax)
  5. Washington state (no state tax and close to Vancouver)
  6. Italy
  7. Barbados

 

 

 

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5 Rules To Keep Your House From Being A Bad Investment

  1. If the housing market has a positive outlook you can consider a home less than 2.5x your gross annual household income if you make a 20% down payment.  If you can make a down payment of at least 30% you could consider a home that costs up to 4x your gross annual household income.
  2. Consider an open mortgage even though the % is higher, you can pay it off whenever you can. Interest is an exponential function not linear so spending only 10% of your wage on keeping your family alive and putting the other 90% of your wage into your open mortgage will have you owing your home as fast as possible (meaning house costs your the least). Conventional banking will only dictate you pay $3K/month and spending and saving the rest. Because of the exponential fx of interest, this makes no sense since few investments now can guarantee you a  better return, and spending the money just makes everything harder than it has to be.  That means no vacation for the first year or two (no big deal, your own life is so good you don’t need to escape from it you will be exponentially better off than had you followed the bank’s amortization schedule, and you can ball out all you want.
  3. Choose a home with the largest area of Low-E windows facing the south (at least two-thirds).  Use retractable awnings to control heat into your south-facing windows.  Use hi-tech window film on the east and west windows to block out summer sun and retain warmth in the winter. Do not install film on the south windows since efficiency gains in the summer would be less than the solar heat blocked in the cold months when the sun is in the low southern sky. North-facing windows never need film except for privacy reasons.
  4. Choose a home with dark colored stone/tile/natural wood floors and build a dark stone/gypsum wall in the south-facing room.  These materials add to the thermal mass of your home, keeping your home warmer in the winter and make it more efficient to cool in the summer.  If there is considerable mass in the wall, lighter more reflective floors will distribute heat to the wall.  The rest of the home should be painted light with zero VOC paint to maximize light.
  5. Buy residential real estate for improving your life first, rental income second, and capital appreciation third.

Example Buying a $500K house when your household monthly disposable net income is $13,500. 

  1. Put 20% ($100K) down and avoid CMHC.
  2. Put 90% – $12K/month in the mortgage (including prop. tax) and the remaining  10% ($1,500 per month) is for groceries + car + insurance + utilities (note utilities are less because of the houses South facing windows).
  3. You own the house in less than 4 years (usually much less since scalable businesses don’t yield linear gains).
  4. After the house is owned outright, interest cost is out of the picture, in 10 years the same $12K being dollar cost averaged into a low-cost index fund you are looking at least $2 million + the paid off house (using a conservative 7%). Click here for the optimized wealth breakdown.

Extra tips

  • Choose a fixer-upper that is as new as possible 1990+ with no more than $30,000 required in fixing up costs.
  • Look for houses that have been for sale over 60 days and try to pay 10% below the assessed value.
  • A stone patio adds significant thermal mass and buffers outside temperatures around the home. Stone pavers make a thermal mass battery from which the house derives heat during the fall and early winter and melts snow early and allows microclimate gardening in planter beds.
  • Rocks create a desirable microclimate (keeping your yard cooler in the summer and warmer in the colder months).
  • Avoid leveraged real estate investments unless you are doing it right: if you can flip it for 50% increase on your purchase price after putting 25-33% down and doubling or tripling your investment in fixing it up.
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