[Updated after Geoff's TH]
This is what I have gathered so far from reading (i.e. briefly scanning) Appendix C of KSV's 7th Report as well as bits I have picked up from others in the chat (Geoff, Corey, others) as well as bits from my accountant.
KSV has provide the APS (Agreement of Purchase and Sale). This is the form to be filled out and submit back to them to submit your Credit Bid. This is on their web site.
- APS attached below ("ibids APS" is simply the "Draft" one with Rabideau law filled in as closing lawyer).
Please send me corrections to any of this which I have wrong or you feel needs to be expanded. Also, I apologize ahead of time but my specific case is the simplest possible: I have no RRSP/TFSA concerns and I have no 2nds behind me. As a result, I have not paid much attention to any chatter related to these situations. If someone wants to provide additional simplified steps for these situations; feel free to send them to me.
Submitting your Credit Bid
Submitting a Credit Bid consists of submitting the following to KSV:
- filled out APS
- this is to state the amount of your bid (more on that later)
- you are also required to add your property's PIN.
- documentation to support your bid amount (more on that later)
- $10k deposit.
Bid Amount
The bid amount is up to you but must be between the minimum (the principal amount of your loan) and the maximum (the principal + "accrued interest, fees and costs").
The bid amount is made up of 2 parts: Mortgage Indebtedness and Priority Payables.
Mortgage Indebtedness
This must be filled out on the APS (Mortgage Indebtedness Amount). The minimum amount for this is the principal of your mortgage. You may also include the following to increase the bid amount over the minimum:
- lost interest owed to you on your mortgage (see note below).
- any fees associated with loan payments:
- shortly after start of my last term they stopped making payments and incurred $250/month NSF fee.
- might be different for others, but from my mortgage contract at the end of term, the rate increases by 3% if not paid in full or renewed. Also a $1000 penalty for this.
- I heard in the chat that we could include legal fees associated with closing out the transfer of sale (legal + LTT) but unsure if this is allowed (and does seem odd as at least the legal fees won't be known until after closing).
NOTE: it was suggested that including interest and fees associated with this, would then need to be claimed as investment income. Someone also suggested it would could be written off as "bad debt". Best to check with an accountant and the best option for you.
Priority Payables
This is your portion of the DIP and will be added later to the bid once KSV has come up with the final amount.
Min Bid vs Max Bid
You may want to discuss this with an accountant; but I know of these arguments for Min vs Max.
I am not sure if there are other implications to consider besides LTT and Capital Gains. What about property taxes, insurance, etc?
See note above about claiming interest in your bid as it affects income tax on investment income.
Check with an accountant on your particular case.
Land Transfer Tax
The lower your bid, the lower your LTT (http://ccaa-sucks.liquidcms.ca/page/land-transfer-tax-calculator). The higher your bid, the lower the Capital Gains should you eventually sell the property.
Example calculation: assume minimum (principal of loan) is $200k and max is $250k.
For SSM, LTT:
- $200k: LTT = $1725
- $250k: LTT = $2225
Capital Gains
"For individuals, the capital gains inclusion rate is one-half for the first $250,000 in capital gains and two-thirds for capital gains above this. The amount of income tax would depend on your total income for the year. 30% tax is a reasonable estimate.
For corporations, tax is on two-thirds (66.67%) of the entire capital gain at a current tax rate of 50.2%. Capital gains are excluded from the small business deduction, which reduces corporate tax on active business income to about 12%."
Assume you sell the property for $300k.
- $200k: Capital gains in on $300k - $200k = $100k, So for individual with net CG under $250k, this would be $100k X 50% X 30% = $15,000
- $250k: Capital Gains will come out to ($300k - $250k) X 50% X 30% = $7,500
So with this example, the savings in LTT going with minimum bid is $500, whereas the Capital Gains savings going with the max bid is $7,500.
PIN
PIN: Property Identification Number
This is required at the bottom of APS. I got mine off the lien search I did on my property. I heard rumors that George or the LRC have these for everyone. But never sent out, afaik, so perhaps that was just a rumor.
Supporting Documentation
From 7th Report:
"shall include such evidence as may be requested by the Monitor regarding such First Mortgagee’s first mortgage on the Property, including all mortgage documentation, evidence of advance(s) made, claimed interest, fees and costs, and proposed payout statement."
Seems to suggest we could wait until KSV asks for it; but I would include as much as you can with the submission. I am not sure what this all includes but suspect:
- Documents from Windrose
- Lien search if you have it (everyone should have this)
- Unclear to me how you would show what applicant HASN'T paid.
- Put together a mortgage Payout Statement (list of the items mentioned above).
- Other (??)
Deposit
From 7th Report:
"$10,000, being a non-refundable deposit in respect of the payment of the Allocated DIP Amount to be paid by way of wire transfer, bank draft or other immediately available funds."
KSVs wire transfer information is attached below.
I suspect different from bank to bank; but my RBC (Corporate) account allows me to do online wire transfers up to a max of $10k ($20 fee).
When to Submit
The deadline to submit is Sept 20. I assume you can submit any time after they release the APS (Sept 9th ??). I am assuming the quicker this gets submitted the quicker to exit - but I am likely being overly optimistic.