19 May 2016
Your Parents Owe $500,000 to CRA…Can a Reverse Mortgage Help?
Lawyers, doctors, business owners and other self-employed Canadians…you know the type. Well educated, hard-working and driven. They are dedicated to their profession, their business, their staff and helping people. They don’t have much personal time since work is their life, but when they do, they like spending time with their friends and family, they have hobbies and they like to travel and enjoy life. They are in their late 50’s to early 60’s and usually own big homes and vacation properties. They seem to have it all.
So why when it comes to financial matters, especially tax matters, are they so disorganized or naïve? It may be that they are too busy, or have more important things to focus on, or are just big procrastinators, but many accountants across the country are finding out that remitting HST to CRA is not a top priority for some of these professionals.
It usually starts small, they forget, or they put it lower on their priority list. Then over time, the amount they owe becomes bigger and they no longer have the money, but not to worry, they say they will have it soon and then it spirals out of control. Next, they are sheepishly sitting in their accountant’s office waiting for the ‘sentence’. You owe…gasp…$500,000!
This was a familiar scenario for Michael B. (68) of Vancouver, BC. Michael was a family doctor working in his own practice for over 35 years. Married with children, Michael was the sole income provider for his wife of over 45 years and his 2 sons until they married and had families of their own. As a family doctor, Michael’s clinic was always busy and he and his family never had to worry about money. Michael only visited his accountant once a year during tax season and never worried much about income since he was planning to work for at least another 7-8 years.
His retirement came suddenly when his wife was diagnosed with Alzheimer’s and Michael needed to spend more time at home to care for his wife as she was deteriorating faster than usual. At first, his spending habits remained the same as when he was working and when tax season came around, he was too busy to remember to file. The habit of cutting expenses was difficult since he never had to watch his spending. In addition, he was no longer occupied at work and with his wife sick, Michael was spending more money on ordering food and dining out. After many years of putting his taxes on the backburner, his accountant gave him the bad news that he owed more than $250,000 to the CRA. Additionally, his spending money was now beyond depleted and he was paying excess amounts in credit card interest. Michael was suddenly faced with the decision to sell his home in order to pay off his debts and to clear his taxes. Both he and his wife loved their home and it was the one thing that he would not be ready to sacrifice.
Michael’s accountant introduced him to a simple solution called a CHIP Reverse Mortgage from HomEquity Bank. Equity taken out via a reverse mortgage is taken tax-free, keeps investments intact and because there are no monthly payments, won’t have an impact on day-to-day cash flow. It can be arranged quickly without CRA tax liens or payment schedules. A reverse mortgage can be a great solution for your 55+ clients. Contact your Dominion Lending mortgage professional for more information.