Your Business Law Strategist
February 2009 - Newsletter No. 22
In this Issue . . .
- LIMITATIONS IN MORTGAGE ACTIONS - When must a mortgage lender start a foreclosure action?
- TAX FREE SAVINGS ACCOUNT - $5,000 per year tax free savings
LIMITATIONS IN MORTGAGE ACTIONS
When must a mortgage lender start a foreclosure action?
This issue was discussed recently in the case R.P. Choma Financial and Associates Inc. v. MacDougall, et al. (Alberta Court of Queen’s Bench). On a motion by the Lender for summary judgment, the Borrower alleged that the claim should be dismissed because the proceedings were commenced more than two years after the Lender knew of the default, contrary to the Limitations Act.
The Court reviewed the law and dismissed the application on the basis that there was a triable issue. In its discussion of the law and review of the cases, the Court stated that:
- the Lender knew or ought to have known, on the first day of default payment, that an injury had occurred which entitled the Mortgage Lender to start an action;
- the Mortgage Lender need not take action against the Borrower within two years from the date of default, if the Court is satisfied that the default did not reasonably warrant taking a proceeding. However, the Court stated that it would be unreasonable for the Lender not to take proceedings based on the default, as foreclosure was the only remedy available to the Lender;
- cheques delivered to the Lender by the Borrower’s agent constituted acknowledgements of a debt even though they were dishonoured, thereby restarting the two-year limitation period; accordingly, the two-year limitation period would start only on the date on which the last dishonoured cheque was given to the Lender or the date on which it was dated; and
- section 7 of the Limitations Act permits the parties to include in their contract an agreement to extend the limitation period.
In the circumstances, it is suggested that it would be prudent for a Mortgage Lender to insist on including an extension to the limitation date in its mortgage documents. Also, for the purpose of starting its foreclosure action, it would be wise to assume that the limitation period starts running from the date that a mortgage payment is missed or returned for insufficient funds, subject however to a subsequent acknowledgement of the debt by the delivery of a further payment of a mortgage instalment, even if that cheque is returned for insufficient funds. It is further suggested that if in doubt, the prudent investor should contact legal counsel sooner rather than later in order to avoid the application of the Limitations Act.
TAX FREE SAVINGS ACCOUNT
$5,000 per year tax free savings
Effective January 1, 2009, every Canadian resident who is at least 18 years old is eligible to make a $5,000 per year contribution to a Tax Free Savings Account (“TFSA”). Income earned in the TFSA is not subject to tax and both contributions and income may be withdrawn at any time. Any withdrawals from the TFSA may be reinvested in any subsequent year, and any shortfall in the maximum contribution in any year will be added to the amount which may be invested in the following year.
Financial planners are practically unanimous in their assessment that this is a great investment vehicle for anyone. Unlike a Registered Retirement Savings Plan, a TFSA need not be a trust. It is simply a “qualifying arrangement” or account agreement between a qualified financial institution and an individual with respect to the operation of the account.
Some of the rules and conditions attaching to a TFSA are as follows:
- Income and withdrawals from the TFSA do not affect income-tested benefits such as Old Age Security or Goods and Services Tax Credit.
- Contributions over the yearly allowable limit or by a person who has become a non-resident will be subject to a tax of 1% per month on the over contribution.
- Upon a marriage or a common law “breakdown”, any amount may be transferred from the TFSA of one partner to the TFSA of the other partner without affecting the contribution room of either party.
- Upon the death of an account holder:
- where the surviving spouse or common law partner is named as sole beneficiary in the TFSA itself, the TFSA continues and the spouse or partner becomes a “successor holder” without affecting the beneficiary’s own TFSA;
- where the surviving spouse or partner is not named as sole beneficiary in the TFSA, all property in the TFSA is deemed to have been transferred to the account holder at its fair market value immediately before death, and any further income thereafter will be income of the beneficiaries;
- where the spouse or common law partner is not the sole beneficiary or is a beneficiary in the will (as opposed to a beneficiary named in the TFSA itself) the spouse or partner is considered to be “survivor” and any property in the TFSA and income thereon after the death of the account holder may be transferred to the survivor’s own TFSA as an exempt contribution without affecting the survivor’s contribution limit, provided that an Exempt Contribution Declaration is filed with the Canada Revenue Agency.
- The permissible or “qualified” investments of a TFSA are the same as those permitted in a Registered Retirement Savings Plan; any prohibited investment or non-qualified investment will be subject to a tax of 50 percent of the fair market value of the property, as well as taxes on any income earned from the property.
Generally, a TFSA will be considered to be a preferred investment vehicle, better than an RRSP in that the contributions may be withdrawn at any time without adverse tax consequences and without affecting the account holder’s lifetime contribution limits. TFSA’s will now be an integral part of an individual’s estate plan.