Law Times

PAGE 6 COMMENT Law Times Group Publisher ....... Karen Lorimer Editorial Director ....... Gail J. Cohen Editor .................. Glenn Kauth Staff Writer ............. Robert Todd Staff Writer ....... Michael McKiernan Copy Editor ......... Heather Gardiner CaseLaw Editor ...... Jennifer Wright Art Director .......... Alicia Adamson Account Co-ordinator .... Catherine Giles Electronic Production Specialist ............. Derek Welford Advertising Sales .... Kimberlee Pascoe Sales Co-ordinator ......... Sandy Shutt ©2010 Thomson Reuters Canada Ltd. All rights reserved. No part of this publication may be reprinted or stored in a retrieval system without written permission. The opinions expressed in articles are not necessarily those of the publisher. Information presented is compiled from sources believed to be accurate, however, the publisher assumes no responsibility for errors or omissions. Law Times disclaims any warranty as to the accuracy, completeness or currency of the contents of this publication and disclaims all liability in respect of the results of any action taken or not taken in reliance upon information in this publication. OctOber 25, 2010 • Law times Law Times Thomson Reuters Canada Ltd. 240 Edward Street, Aurora, ON • L4G 3S9 Tel: 905-841-6481 • Fax: 905-727-0017 www.lawtimesnews.com Publications Mail Agreement Number 40762529 • ISSN 0847-5083 Law Times is published 40 times a year by Thomson Reuters Canada Ltd., 240 Edward St., Aurora, Ont. L4G 3S9 • 905-841-6481. lawtimes@clbmedia.ca CIRCULATIONS & SUBSCRIPTIONS $159.00 + HST per year in Canada (HST Reg. #R121351134) and US$259.00 for foreign addresses. Single copies are $4.00 Circulation inquiries, postal returns and address changes should include a copy of the mailing label(s) and should be sent to Law Times 240 Edward St., Aurora, Ont. L4G 3S9. Return postage guar- anteed. Contact Jacquie Clancy at: jclancy@ clbmedia.ca or Tel: 905-713-4392 • Toll free: 1-888-743-3551 or Fax: 905-841-4357. ADVERTISING Advertising inquiries and materials should be directed to Sales, Law Times, 240 Edward St., Aurora, Ont. L4G 3S9 or call Karen Lorimer at 905-713-4339 klorimer@clbmedia.ca, Kimberlee Pascoe at 905-713-4342 kpascoe@clbmedia.ca, or Sandy Shutt at 905-713-4337 sshutt@clbmedia.ca Law Times is printed on newsprint containing 25-30 per cent post-consumer recycled materials. Please recycle this newspaper. Editorial Obiter Time to consider municipal election reform O ntarians go to the polls today to elect new municipal coun- cils at a time when electoral reform is on a lot of people's minds. Of course, previous elections have shown that few people actually decide to cast a ballot. So finding new ways to get them out to the polls seems like a good idea. But in Calgary, we've already seen what it takes: an exciting election with inspiring candidates. Last week, voters in that city countered tired stereotypes about Alberta politics by electing Na- heed Nenshi as their mayor. In doing so, Canada's first Muslim mayor beat his conservative challengers, includ- ing Ric McIver, who had the backing of many among the city's Tory estab- lishment. But particularly striking was voter turnout at 53 per cent. That's up from 33 per cent last time and just 18 per cent during the election before that. In a province known for its lopsided elections and dismal voter participa- tion, the results were impressive. In Ontario, discussions on improv- ing the electoral system have included options like Internet-based voting and term limits. Toronto mayoral can- didate George Smitherman has also talked about governance reform to in- crease citizens' involvement in munic- ipal government. Already, places like Markham, Ont., have tried electronic voting with mixed results. There, par- ticipation at advanced polls increased dramatically, but overall turnout re- mained flat. In Brockville, Ont., resi- dents will be voting electronically for the first time today. Given the concerns over the securi- ty and accuracy of such systems as well as their limited effect on participation, it's clear that web-based options aren't a panacea. But term limits may be a better option. Studies, of course, have shown that incumbents have a mas- sive advantage in municipal elections, which could lead to the conclusion that the reason some people don't vote is the assumption that whoever is al- ready in office is going to win no mat- ter what. In Calgary, the tight race was a wide-open contest as current Mayor Dave Bronconnier wasn't running. So with no incumbent on the ballot, many potential voters likely felt they could make a difference by going to the polls. Toronto has seen similar results. When Mayor David Miller first ran in 2003, 692,000 people cast a ballot in an exciting race with no incumbent. Three years later, Miller kept the title in an election that saw just 584,000 people go to the polls. Of course, other factors come into play. Nenshi, for example, was particu- larly good at mobilizing potential vot- ers through social media. At the same time, candidates' ability to motivate people with inspiring campaigns also plays a role. But given what we've seen in recent elections, it's clear that term limits for municipal councils are worth considering. Already, the Law Society of Upper Canada has taken a few attempts at elec- toral reform, notably by invoking term limits for benchers that should provide some evidence on whether they work. While some people call such changes undemocratic, it's arguable that the alternative of continuing to have such low rates of voter participation is the worse option. — Glenn Kauth the pain of the last decade is re- ceding, albeit very slowly. The de- cade opened with the Dow Jones Industrial Average at 11,357. It closed on October 11, 2010, at 11,010, which makes for a lost decade for most investors. Individuals and institutional F investors were burned in 2000-02 by accounting scandals, analysts' malfeasance, corporate gover- nance (or lack thereof), war, and terrorism. Then they were hit in 2008 by the banking and mort- gage fiascos in the United States. But what does recovery really mean for individuals? If we as- sume that stocks might gain at the more normal average annual rate of return of seven per cent, including dividends, for the fore- seeable future, it will take many years to recoup the prior loss in investment values. But do seven-per-cent an- nual gains actually represent the real value of stock appreciation or is the number a mirage? If we rom the stock market's per- spective, the best thing one can say about 2010 is that deduct an average of two per cent for inflation and three per cent for hidden transaction and investment costs, the real rate of return drops to two per cent. Deduct another 1.5 per cent off the top of the nomi- nal investment return for taxes on gains and income, and we have a real net rate of return of about 0.5 per cent. An annual real gain of 0.5 Recovering from the 2000s Financial Matters By Vern Krishna The picture with fixed income per cent means it will take 144 years for investors to double their money in the market. Since most people don't have their entire portfolio in stocks, the rate of return they might expect is gen- erally lower than seven per cent. For example, a balanced port- folio of stocks and bonds might produce an overall annual gain of only five per cent per year. Now if we subtract two per cent for infla- tion, 1.5 per cent for investment costs, and another 1.5 per cent for taxes given that the tax on in- terest income at 45 per cent is higher than the tax on dividends and capital gains, we have a net average annual gain of zero. investments is even grimmer. As- suming an annual rate of return of three per cent, inflation of two per cent, investment costs of 0.5 per cent, and taxes of 1.5 per cent, the average annual rate of return is negative one per cent, which should keep you working until you drop. To be sure, all of the above es- timates for inflation, investment costs, and taxes are speculative. If the average annual rate of in- flation is consistently less than two per cent year after year, the yield on investments will improve somewhat but not by much. Sim- ilarly, if taxes fall, the real after-tax rate of return will improve. Since inflation and taxes are beyond investors' control, people have limited room to www.lawtimesnews.com manoeuvre to improve their returns. There are, however, two areas in which investors may boost their investment performance. First, tax-sheltered plans obviously delay the impact of taxation on annual returns and, therefore, provide the op- portunity to improve real invest- ment performance. The other area of effective tax sheltering is to invest in stocks that promise capital gains over the long run. The tax rate on capital gains is nearly eight points lower than on dividend income and is half of the tax on interest income. Thus, growth shares allow one to defer income and eventually pay tax on any capital gain at a substantially lower rate. Secondly, people can hold down investment costs to im- prove the real rate of return. Since most individual investors don't have much leeway in ne- gotiating investment costs with mutual funds, the easier way to bring them down is to consider exchange-traded funds, which typically yield the market's rate of return minus a minimal amount for investment costs. Since most mutual funds don't beat the average annual market rate of return on a consistent ba- sis, exchange-traded funds will generally outperform them as a result of lower costs. If Freedom 100 isn't an attrac- tive option, the only alternatives left are to save more, reduce ex- penses or get a judicial appoint- ment. Although the investment return on the savings may not prove to be particularly attractive, it will at least allow the investor to increase the principal amount of overall savings to provide for an earlier and better retirement. Healing financially from the ex- cesses of the last decade will likely be a slow process. Watch for my followup article in 2020. LT Vern Krishna is tax counsel for Borden Ladner Gervais LLP and executive director of the CGA Tax Research Centre at the University of Ottawa. He can be reached at vkrishna@blg.com.

• Cover
• New ID
• Financial Recovery
• Focus On Trusts & Estates