S.E.C. Real Estate Observer

• Tweet

• Tweet

A discussion on Canada has been requested. To that end, below we will touch briefly on Canada Demographics, Canada’s Economy, My Target Market, Canadian Taxes and Summary U.S./Canada Relations…

Canada Demographics

After the breakup of the Soviet Union, Canada, arguably, has the largest land mass in the world. It boasts a population of approximately 33 Million (10% of the U.S.), with a large percentage located within 200 miles of the U.S. border. Its ten provinces and two northern territories have a wide diversity of geography, economies and culture.

From the Atlantic Ocean, Newfoundland, the most easterly land mass in North America is known for its laid back, friendly approach to life. Vacationers flock to this area plus Prince Edward Island, Nova Scotia and New Brunswick to enjoy the quaint down home welcome that always is presented.

Quebec offers a distinct European flavor, with its ever-present French culture.

Expansive Ontario, historically known for its manufacturing, offers up wide variety from the multi-cultural giant Greater Toronto Area, which is the third largest financial center in North America, up to sparse native settlements on James Bay and Hudson Bay.

Manitoba and Saskatchewan’s history relates to largely farming with expansive plains and miles of open fields. You see the wheat fields for miles and miles.

Alberta (Texas North) is, by definition, the renegade libertarian-thinking province that continually reminds all who will listen of its independent nature. This is ranch country, widely known for its beef and oil.

On the shores of the Pacific Ocean is British Columbia, known for its mountainous beauty, with Vancouver and Victoria being a Mecca for wealthy Asian immigration.

At the Arctic Ocean, Canada’s two northern territories comprise thousands of miles, but very small populations. Yes, it’s cold up there. A tradition of impoverishment may be changing with the increasing discovery of oil and other minerals underneath the ice.

Except for the far north, Canada’s climate is the same as most northern states, with four seasons of spring, summer, fall and winter.

One common thread running throughout the country is its love of hockey and the uncompromising requirement to win continually. In addition, a Canada-wide culture of socializing at Tim Horton coffee shops is well known.

Canada’s Economy

Canada has been blessed with an abundance of scarce resources in which the world increasingly has an interest. New claims are continually being staked out right across the country in most mineral sectors including oil, gas, potash, gold, uranium, etc. An abundance of water is also a valuable resource.

In July 2010, statistics showed Canada remaining the largest exporter of oil to the U.S., boasting 20% of U.S. needs. I continue to wonder why North America still is held hostage for its oil to rogue regimes who wish us harm, when we have the capacity NOW!

Historically, manufacturing drove Central Canada, much like the states of Ohio, Michigan, and New York, etc. Even though this sector has slowed, there is optimism that we are clawing our way back.

As of this writing, Canada’s currency is within 2% of the U.S. dollar, floating either way.

Although the world economies are becoming more and more intertwined, Canada remains far ahead as the largest trading partner with the U.S. Witness the major border crossings on any day to see the multiple $ billions in commerce being transacted.

Historically, when the U.S. sneezes economically, Canada gets a large cold. However, currently, a major difference with the two economies seems to rest with Canada’s current financial stability, which has weathered the downturn much better. Arguments for this mostly range from a banking system structured quite different, and a conservative government systematically targeting ongoing tax cuts.

However, following in the footsteps of the U.S., current Canadian GDP statistics range around 2-3%, which identifies slow growth.

My Target Market

My particular Canadian market is the GTA (Greater Toronto Area) and north. The GTA, with its world-renowned large multi-cultural population will see expansion continue at a brisk pace.

Current population of 6 Million is expected to rise to 9 Million by 2036. Some sub-markets in the GTA are calculating 40-90% growth. Two hours north, where I live, is witness to a growing baby boom generation, moving to a slower way of life, which bodes well for slow steady growth over the foreseeable future.

Canadian Taxes

Canada does not directly offer a similar tax deferred exchange mechanism, like the well-known 1031 formula. However, Americans can exchange into Canada on a 1031 formula, if proceeds were received off shore from the U.S. As an example, we recently sold a large acreage of timberland to a U.S. citizen, who brought proceeds tax free from a New Zealand Sale. Another example could be American owned lands in the Caribbean being exchanged into Canada on a tax-deferred basis.

Traditional taxable capital gains in Canada can be structured to reduce the hit through additional one-time deductions, creative reserves, etc.

The Federal corporate tax rate has been dropping steadily in recent years. The 2008 rate was 21%. Each year since, the Federal Conservative Government has dropped this liability down. In Jan/11, it will be 16.5% and Jan/12, 15%. Similar to many U.S. states, each Canadian province also applies their own parallel lower rates, which currently range from 1% to 5%

There are reciprocal treaties between the two countries that allow elections on where taxes can be paid in taxpayer-selected jurisdictions. . Ask your accountant to advise.

Summary U.S./Canada Relations

Looking back on the many years of travel between the U.S. and Canada, I am continually thankful at how blessed we are to have two such beautiful and diverse countries next door to each other.

These two neighbors have, for the most part, gotten along famously over these many years. Our collective histories and geography are so intertwined with each other it is sometimes hard to differentiate which country we may be in at any one time.

We only really fought each other some 200 years ago in the War of 1812. Monuments to that struggle are in evidence today along certain border points. Bill Stonaker and I debate on who actually won that conflict.

We also celebrate the differences, which, I believe, began with how each country was formed. The U.S. came together through revolution, while Canada was created through an act of the British Parliament. I believe this has been pivotal in how we approach some issues from a somewhat varied viewpoint.

One interesting area of difference I have witnessed over the years is in the area of building trust in relationships. A Canadian traditionally will trust early on, but have a hard time reconciling if that trust is betrayed. An American, however, does not readily offer trust early on, but takes a measure of time to decide.

Overall, the world looks to Canada and the U.S. as two countries sharing common goals and values. In my lifetime, I continue to be heartened at how we are so close. We fight wars side-by-side, with common teamwork and purpose. Our militaries train together. Even after 9/11, we continue to share the largest open border in the world. We share culture. We share intelligence. We share technological and human resources together as one, with no motive other than seeking successful collective conclusions.