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You are a financial planner who focuses on helping couples. Jasper (23) and Bill (25) live in

Toronto and have come to see you regarding their decision on whether to buy a house or

continue renting. Jasper and Bill have recently married, and they are thinking about

adopting a child 8 years from now. They are currently renting a 2-bedroom condo in

Toronto. The rental cost is $2,595 per month and this includes heating. They estimate

heating is about $200 a month from 1st November to 30th May. Internet, electricity, mobile

phones and other utilities cost them about $450 a month and they have tenants (home

contents) insurance which costs them $500 per year. They spend about $180 a week on

eating out and other living expenses come to about $250 a week. The apartment is good for

now, but in 8 years, they will need to upgrade to a bigger house.

They want to buy a property now, live in it for the next 8 years to get on the ‘property

ladder’ and then purchase something bigger. They have found a 2-bedroom apartment in

midtown Toronto which costs $899,000. They estimate moving costs will be about $10,000

and legal fees will be another $5,000. The maintenance fees on the new property are $800

a month and annual property tax is $3,600 p.a. If they purchase this home, they will have to

buy homeowners’ insurance at a cost of $1,600 per year. Also, they want to renovate, when

they move in, and this will cost them about $5,000.

Bill is more financially literate than Jasper, so he has invested their savings. He encouraged

Jasper to open a TFSA and both have maximised contributions to the allowable TFSA limit.

Their investments are currently in Canadian equity where they have purchased an All-

Canadian Stocks Capital Growth Fund. Their portfolio does not pay dividends but increased

in value by 7.9 % last year and is expected to do the same in the future. Bill and Jasper have

saved $210,000 towards the purchase of their home. Bill is holding $105,000 in a nonregistered

investment account (the cost price was $100,000) and both, Bill and Jasper, are

holding the remaining $105,000 in their tax-free savings accounts (cost price was $84,500).

Bill earns $110,000 per annum and his average tax rate 25%. Jasper earns $80,000 per

annum; his average tax rate is 21%. They both have employer pension plans and these gross

income amounts are after pension contributions. Bill is thinking about transferring all of the

non-registered portfolio into Jasper’s name to save on taxes because Jasper has a lower

average tax rate. Jasper has two years left on a student loan and the payments are $350 a

month. Jasper’s car loan will mature in 3 years and the monthly payments are $300 a

month until it is paid off.

Current mortgage rates at a bank are 2.24% APR, for a 5 year term with a 25 year

amortization. The current rate of inflation is 3% and it is expected that all prices will

increase at this amount. Assume future returns will continue at the same rate as past

returns. Round all rate-based figures to 4 decimal places and round all money figures to the

nearest dollar. Use tax information and financial regulations for the year 2021 in Ontario

and assume that these will remain the same over the next 8-year period for your



1) What is Bill’s marginal tax rate on capital gains? What is Jasper’s marginal tax rate

on capital gains? (10 marks)

2) Provide Bill with advice regarding his tax strategy of transferring assets to Jasper’s

name. (15 marks)

3) Calculate whether Jasper and Bill will be able to borrow the money under current

lending criteria. Note the stress test (15 marks).

4) Analyse whether Jasper and Bill should rent or buy the apartment. (40 marks)

5) Explain to Jasper and Bill two assumptions you have made in your calculations in

question 4) and why these might not hold. (10 marks)

6) Explain to Jasper and Bill two costs that been omitted from the calculations in

question 4) and why these should be considered


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