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Employing youth during the coronavirus pandemic is a good investment – The Conversation CA

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The recent announcement of an extension of the Canada Emergency Response Benefit (CERB) to part-time workers is good news for young people in Canada. This may prove to be even more important to young people’s well-being than the subsequent announcement by the federal government that students in higher education can receive as much as $1,750 this summer. Skills that cannot be learned in the classroom can be developed through continued participation in the paid labour market.

The Canadian Labour Force Survey, conducted in the third week in March, shows that about 30 per cent of workers under aged 30 were employed part-time in their primary job in March 2020, compared to only 13 per cent among those over 30.

For those at the beginning of their working lives, the long-term impact of earnings lost to COVID-19 could be particularly large. Gaining work experience during the pandemic will help Canada’s young people to obtain the skills they’ll need in a post-pandemic world.

Young people will still need the communication and organizational skills that part-time work has traditionally provided them. They will need to learn how to work in teams, to manage their time and to accept guidance. These skills need to be learned by continuous practice. The incentive to practise these skills is high when work is paid.

Young people tend to be concentrated in a few key sectors of the Canadian labour market. In March 2020, the retail sector employed 18 per cent of workers under age 30, and the accommodation and food services sector a further 15 per cent. Workers older than 30 made up only five per cent of those employed in the sector prior to COVID-19.

Many Canadian young people work in the accommodation and food services sector.
(Unsplash)

Students who are completing their winter semesters are now facing the sudden end of on-campus jobs and a much-reduced market for summer jobs. Many students lost campus or other part-time jobs with the closure of restaurants, hotels and all recreational facilities towards the end of March.

Part-time work may be the best way to protect young people from the long-term labour market consequences of COVID-19. Because young people have relatively little work experience, losing the opportunity to obtain on-the-job skills may have more permanent consequences for their earnings potential.

The on-the-job learning curve is steepest at the beginning of working lives. To mitigate the long-term consequences of COVID-19 for labour productivity, this age group needs to be given particular support to continue working during the pandemic in essential jobs.

Critical years

There are also non-economic reasons why young people need strong support. Some social psychologists consider the years between 18 and 25 to be critical for the lifelong formation of societal views. Evidence from the United States suggests that regional recessions in the 1970s had long-term effects on opinions about the efficacy of government on respondents who experienced economic downturns in this age group. The additional psychological effects of social isolation and a pause in skills development may be particularly long-lasting for youth.

Recent history shows the need to protect the well-being of populations facing sudden joblessness and great uncertainty. The fall of the Soviet Union at the end of 1991 resulted in profoundly negative effects on the well-being and mortality of Soviet citizens. Social supports evaporated overnight. The huge declines in real incomes and increases in uncertainty caused by this event affected life expectancy in former Soviet Union countries for many years.

Young workers affected immediately

A comparison of usual-versus-actual hours worked in the March Labour Force Survey shows that COVID-19 was already having a pronounced effect on sectors employing youth even before non-essential businesses were told to close.

Among those working in accommodation and food services, hours of work in the week between March 15th to 21st were reduced from an average of 30 to less than 20. Those in retail reported usual work hours of 32 and actual of about 27.

Workers in other sectors also reported reductions in average hours worked in the March Labour Force Survey, but these were less dramatic than those for accommodation and food services.

The loss of hours was dramatic in March for those in the food services sector.
(Pixabay)

For example, in public administration, the average actual hours worked were reduced from 32 to 27, and in manufacturing, actual hours were on average 29 versus normal hours of 35. Those in mining and extractive industries and in agriculture also reported significant differences between normal and actual hours.

That 10-hour difference between normal and actual hours worked in accommodation and food services will have been all the more keenly felt because these workers were relatively low paid. Average earnings were just above $16 an hour in this sector, and about $20 an hour in retail.

In durable goods manufacturing, hourly wages were about $29 an hour, similar to the average wages of those in health care and social assistance.

CERB will help

Now that the CERB allows people to work part-time without becoming ineligible, many young people will be incentivized to work in jobs for which demand has increased during the COVID-19 shutdown.

This could mean working part-time to deliver groceries, medicines or other online orders, or working part-time from home.

As well, some may work in the health sector, may take on cleaning jobs, provide logistical support for COVID-19 testing or learn while on the job to perform other essential functions.

Even if these jobs aren’t well-paid, the support of CERB will keep these young people investing in their future.

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Foreign Investment Review – A Warning In The Time Of COVID-19 – Government, Public Sector – Canada – Mondaq News Alerts

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Canada:

Foreign Investment Review – A Warning In The Time Of COVID-19

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The Canadian government, concerned about the impact of
COVID-19 on corporate valuations, has issued guidance that it will
pay particular attention to foreign direct investments of any value
(meaning, even investments that are not subject to review under the
Investment Canada Act (the “ICA”)).  The
government’s announcement does not amend the ICA, nor any
thresholds for review.  But it does issue a warning that the
government intends to use the tools it has to review investments,
including the national security review provisions under the
ICA.

While the enhanced scrutiny is to apply to any acquisition
of an interest in a Canadian business involved in public health or
the supply of critical goods and services to Canadians or to the
Government of Canada, all foreign investments by state-owned
investors, regardless of value, or private investors assessed as
being closed tied to or subject to direction from foreign
governments, are also considered targets for such
review.  

One can expect that Canadian companies involved in
manufacturing needed supplies to address COVID-19 healthcare
requirements (for example manufacturers of personal protective
equipment), or companies involved in vaccine research or other
health technology would be of particular concern.  As to
critical goods and services, we can look to the Government’s
own Guidance on Essential Services and Functions in Canada during
the COVID-19 pandemic for assistance.  In that guidance, the
Government cites energy and utilities, information and
communication technologies, finance, health, food, water,
transportation, safety and manufacturing. 

The first real test, however, of the Government’s
application of its enhanced review will be a gold miner, TMAC
Resources Inc., which operates the Doris gold mine in Nunavut’s
Hope Bay.  In a deal announced two weeks ago, China’s
Shangdong Gold Mining Co. Ltd. will pay just over C$207 million for
TMAC, which has been struggling financially.  TMAC is listed
on the Toronto Stock Exchange and has lost significant value since
its IPO.  Control and the majority equity interest in Shandong
is owned by the Chinese Government.  Whether Shandong can
establish that the acquisition is of net benefit to Canada, and
particularly so with such declared enhanced scrutiny, remains to be
seen.  There has been certain concern expressed by the
security community in Canada about Beijing’s control over
critical metals and minerals.  Gold is, in volatile financial
circumstances, a safe haven investment. 

As a general caution, foreign buyers should consider the
guidance from the Canadian government on the ICA.  Foreign
investment is still recognized as beneficial with a compelling case
for the transaction.  But at the least, potential acquirors
should be alive to the potential for a greater degree of review,
and should consider the time-frame for review and when to submit an
application for review, including a pre-closing notification under
the ICA. 

Originally published May 25, 2020

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

POPULAR ARTICLES ON: Government, Public Sector from Canada

COVID-19: Cross Country Update (May 11, 2020)

Miller Thomson LLP

Today Prime Minister Justin Trudeau announced support for large and medium-sized businesses so they can keep their workers on the payroll and survive the COVID-19 pandemic.

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Should Mark and Meredith invest their surplus or pay off their mortgages? – The Globe and Mail

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Mark and Meredith, seen here, should catch up on their TFSAs first, lower the extra payments on their original house and invest the difference.

Lars Hagberg/The Globe and Mail

As a military couple, Mark and Meredith have relocated seven times in the past 10 years, so they’re looking forward to moving back to their original home – now rented out – when they eventually retire.

Mark, an officer with the Canadian Armed Forces, is age 44 and earns about $142,400 a year. Meredith, an employee at the Department of National Defence, is 47 and earns $72,660 a year. Her income has suffered from long spells in places where no work was available. They have a 12-year-old daughter, two houses and substantial mortgage debt.

Mind you, they’ll be well-fixed when they retire from the military. At the age of 55 Mark will be entitled to a defined benefit pension, indexed to inflation, of $116,000 a year plus a bridge benefit of $12,838 to the age of 65. From 65 on, he will get $134,623 a year.

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At 58, Meredith will also be entitled to a DB plan: $35,427 a year plus a bridge benefit of $988 until she’s 65. After that, she will get $39,315 a year.

First, though, they want to pay off their mortgages. They’re not sure which one to tackle first or whether they would be better off investing their surplus funds. “My husband thinks that it would be better to invest extra dollars [in financial markets] because our mortgage interest rates are low,” Meredith writes in an e-mail.

We asked Robyn Thompson, president of Castlemark Wealth Management Inc. in Toronto, to look at Mark and Meredith’s situation. Ms. Thompson is also a certified financial planner.

What the expert says

Mark and Meredith have $2,715 a month in surplus cash flow that they can use for debt repayment, investing, or increased lifestyle spending, Ms. Thompson says. They are using $1,000 of this to make prepayments to the mortgage on their original family home, now rented out.

In addition to their two properties, they have investment assets in their various accounts totalling $305,515, with 60-per-cent equity, 30-per-cent fixed income and 10-per-cent cash. Both have unused RRSP room that they are carrying forward to reduce taxes payable on their retiring allowances (a taxable, one-time payment on retirement in addition to their pensions) – $80,000 for him and $25,000 for her.

The couple would like to retire at the age of 55 with an annual after-tax income stream of $72,000 in today’s dollars (or $106,234 at retirement, indexed at 2 per cent), the planner says. When they do, they plan to move back to their original house and rent out their current residence.

Complicating matters is the fact that they have, at different times, declared one property or the other as their principal residence, Ms. Thompson says. “This will create a taxable capital gain on the property that is eventually sold,” she notes.

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For example, renting out part or all of a principal residence changes its use to an income-earning property. So capital-gains tax may apply for the period during which the property was used to earn income. Mark and Meredith would still be able to claim the principal residence exemption for the period in which they used the house as their primary residence.

“It is therefore critically important for Mark and Meredith to keep detailed records of when and how each property was used along with receipts for any improvements made, no matter how minor,” Ms. Thompson says.

Given their substantial income and relatively modest living expenses, Mark and Meredith will be able to achieve their short- and long-term financial goals, the planner says. “They have some catching up to do with their tax-free savings account contributions and prepayments toward the mortgage, but they are in a rock-solid financial position,” she adds.

The couple’s investments have done well, delivering an annualized rate of return of 8 per cent going back to 2013, Ms. Thompson says. The value of their portfolio shrank somewhat in early 2020 as a result of the stock-market meltdown triggered by the COVID-19 pandemic, the planner says. “But they have a long time horizon and view the market downturn as a short-term event.”

Their portfolio consists mainly of Canadian and U.S. large-cap, blue-chip stocks, exchange-traded funds and a small mutual-fund allocation. They use an investment adviser to whom they pay 1.65 per cent a year. The adviser does not provide planning or tax services.

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The registered education savings plan for their daughter is allocated 50 per cent to fixed income and 50 per cent to equities. Using a 4.5 per cent expected rate of return and a 2 per cent inflation rate, at their current contribution rate the RESP will grow to $73,028 by the time their daughter starts university at the age of 18.

Now for the mortgages. Mark and Meredith are paying 1.95 per cent interest on the $468,560 mortgage on their original home (rented out for $36,000 a year). Their current mortgage payment on the original house is $40,685 annually. In addition, they are making an extra payment of $1,000 a month, or $12,000 a year.

When the mortgage comes up for renewal next year, the interest rate could well be higher, the planner says. She assumes a 2.39 per cent interest rate at renewal. Instead of paying $1,000 a month, they could cut their prepayment to $500 monthly and redirect the surplus cash flow of $6,000 a year to their tax-free savings accounts, where they have unused contribution room. There the investments are forecast to grow tax-free with an expected real rate of return of 4.5 per cent annually, the planner says. “They will still have the property paid off by [Mark’s] age 55.”

As for the house they are living in now, they plan to rent it out for $2,000 a month after they retire. Rather than paying off the $215,000 mortgage, the planner recommends they continue with it, deducting the mortgage interest along with the other expenses. They could use the net cash flow first to contribute to their TFSAs and then invest any surplus in a non-registered, balanced portfolio.

“Meredith’s first inclination is to pay off the mortgage as fast as possible,” Ms. Thompson says. “This is not always the best option in a low-interest rate environment.” For Mark and Meredith, using cash flow to maximize TFSA contributions makes more sense at this point, the planner says. “With a properly diversified, balanced portfolio, the after-tax compounded annualized rate of return on their investments inside the TFSA is likely to exceed the compound interest payable on their mortgage.”

At Mark’s age 56, the first full year they are both retired, Mark and Meredith will have after-tax income of $169,160 a year. After-tax lifestyle needs and the mortgage payment on the rental will total $120,408 a year, giving them plenty of room to expand their goals if they choose to.

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Client situation

The people: Mark, 44, Meredith, 47, and their daughter, 12

The problem: Should they invest their surplus or pay off their mortgages?

The plan: Catch up on their TFSAs first. Lower the extra payments on their original house and invest the difference. Leave the mortgage on the second house when they retire.

The payoff: Making the best use of their money.

Monthly net income: $16,160 (includes gross rental income).

Assets: Cash $7,000; emergency fund $20,000; her TFSA $52,300; his TFSA $30,815; her RRSP $96,905; his RRSP $80,375; RESP $38,120; residence $450,000; rental $750,000; estimated present value of his DB pension plan $2.36-million; estim. PV of her DB plan $863,000. Total: $4.7-million

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Monthly outlays (both properties): Mortgages $4,570; property taxes $990; water, sewer, garbage $115; home insurance $150; electricity, heat $215; maintenance $895; garden $100; transportation $780; groceries $800; clothing $180; gifts, charity $315; vacation, travel $1,250; other discretionary $30; dining, drinks, entertainment $700; personal care $30; club membership $15; pets $15; sports, hobbies $120; other personal $450; health care $25; disability insurance $370; phones, TV, internet $130; RESP $200; TFSAs $1,000. Total: $13,445

Liabilities: Residence mortgage $215,000; rental mortgage $468,560. Total: $683,560

Want a free financial facelift? E-mail finfacelift@gmail.com.

Some details may be changed to protect the privacy of the persons profiled.

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Legault won't rule out another investment in Bombardier – Montreal Gazette

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QUEBEC — Premier François Legault has not ruled out another government bailout of struggling Bombardier Inc., which announced Friday it plans to eliminate 2,500 jobs because a slump in demand for business jets.

But Legault said if his government did proceed, it would not make the same “mistakes” of the former Liberal government, which chose to invest in the C-Series program and not Bombardier in general.

He said he also would obtain guarantees on the preservation of jobs, the head office and make sure the company’s executives not pay themselves fat salaries and bonuses.

The former Liberal government of Philippe Couillard invested $1.3 billion in Bombardier’s C-series program, which was later sold to Airbus. Quebec still holds its shares in the firm, which were valued at $700 million in the last provincial budget.

Legault Friday seemed to suggest in his remarks that the money is lost.

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