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From time to time, visitors to our website or readers to our monthly newsletter submit questions regarding particular investment issues to our editors. Where possible, we try to pose as suitable and accurate a reply as we can. Contained in this section are all of our previously answered questions for your perusal, divided into pages based on their topics.

 
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10 Most Recent Entries
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My Mother has some GIC's with your Company from several different banks and trust companies. Can she put beneficiaries on them, or will they have to transfer to her estate when she passes?
My husband and I both have $5000.00 TFSA with Quadras Investments (done thru our company benefits provider. For the next tax year I want to purchase laddered GIC's. Do I have to do this thru Quadras or can I have set up new TSFA's for us or should I fully terminate the Quadras deal and turn over the $10.000 each of us will have, to you.
I read your article re: beneficiaries and wonder if you can comment on if a TFSA holding Mutual funds can have an irrevocable beneficiary setup upon it - again either for divorce settlement, etc.
My husband has turned 65 and still working. Collecting CPP now so it's not taken off his pay cheques. Should we also increase the amount of income tax that is taken off his pay cheque so we don't owe at end of year because of the added CPP?
We have a LIF and are wanting to extract some money for personal reasons. Is there any way of doing this with out being hit so hard on the tax end. Also why do we have a max to take out. It is our money can we not do what we choose to do even tho it is in a LIF. Thanks for you time look forward to your feedback.
Please explain the tax legislation surrounding stocks that can't trade anymore and stocks that are inactive or in "limbo".
I sold some of my mutual fund holdings last December to avoid taxable distributions. I still like some of these funds and would like to buy them back. Isn't there a tax rule that says that I can't buy back these same funds?
My friend passed away earlier this year, with his spouse as designated beneficiary on his Mackenzie RRSP. The spouse would like to do a partial spousal rollover, so a portion of the account is taxed to the deceased. On the portion of the RRSP that does not roll tax-deferred to the spouse, who is responsible for any gains (or losses) in the RRSP between date of death and settlement?
My elderly widowed mother has been receiving the Guaranteed Income Supplement. She's in the process of selling the principal residence and will have approximately $100,000 to invest. Is there a way to invest this money without forfeiting the GIS?
How do you know (or how do you find out) how much is needed to invest in RRSP's in a year to reduce the amount of income tax paid? I have been looking all over for this, but can't seem to find any info on how it might be done.



 
Dear Money Management Editor, my Mother has some GIC's with your Company from several different banks and trust companies. Can she put beneficiaries on them, or will they have to transfer to her estate when she passes?

Dear Reader, she can't put beneficiaries on them as there isn't a beneficiary option for a Bank, Trust Company or Credit Union GIC. What she can do is have the GICs in joint names so that they do not have to be included in probate when she passes away. The joint ownership can be structured so that the joint owner either becomes a beneficial owner of the investment (the money will pass directly to the joint owner when your mother passes away) or the joint owner can just be there for convenience to avoid probate but the money will actually go to your mom's estate rather than the joint owner. There is a declaration that can be signed for either circumstance depending on your mother's wishes.


 
Dear Money Management Editor, My husband and I both have $5000.00 TFSA with Quadras Investments (done thru our company benefits provider. For the next tax year I want to purchase laddered GIC's. Do I have to do this thru Quadras or can I have set up new TSFA's for us or should I fully terminate the Quadras deal and turn over the $10.000 each of us will have, to you.

Dear Reader, you can have TFSAs with different companies, meaning you can keep your existing TFSA with Quadrus Investments and open a new TFSA with another company or companies next year as long as you don't exceed your total contribution limit for the year. You can also transfer your Quadrus TFSA in a similar way that you would transfer an RRSP so if the Quadrus TFSA is not providing a suitable return you can transfer it to another TFSA with another company. Hope this helps.


 
Dear Money Management Editor, I read your article re: beneficiaries and wonder if you can comment on if a TFSA holding Mutual funds can have an irrevocable beneficiary setup upon it - again either for divorce settlement, etc.

Dear Reader, we made inquiries to a mutual fund company on your behalf and their response was "Only a revocable beneficiary designation is permissible on a Tax Free Savings Account". If a spouse is named as beneficiary for a TFSA segregated fund contract signed in Quebec, the beneficiary is irrevocable unless otherwise indicated when the contract is signed. For mutual fund TFSAs, beneficiaries are revocable.


 
Dear Money Management Editor, My husband has turned 65 and is still working. He's collecting CPP now so it's not taken off his pay cheques. Should we also increase the amount of income tax that is taken off his pay cheque so we don't owe at end of year because of the added CPP?

Dear Reader, if your husband is still working and his current EMPLOYMENT INCOME is about the same as his EMPLOYMENT INCOME before he started receiving CPP then it would be a good idea to increase the income tax deducted from his employment income to allow for what he would owe on the additional CPP income. If he doesn't do this then he will have to pay all of the tax owing on the CPP income when he files his tax return. Another option would be to contribute the CPP income to an RRSP or Spousal RRSP if he has sufficient contribution room so that the tax receipts received will offset the tax liability on the CPP income. A third option if you are at least 60 years of age and wish to start receiving CPP is for you and your spouse to share your CPP. This option will work best for your spouse if you have little or no CPP benefits and his taxable income is higher than yours. Under this option you and your spouse can apply to receive an equal portion of the CPP you both earned over the years that the two of you lived together. The amount to be shared depends on the length of time you cohabitated and the amount of the contributions you both made to CPP over that time. It is best to contact Service Canada, Income and Security programs by phone at 1-800-277-9914 or visit one of their local offices to determine the benefit of this option.


 
Dear Money Management Editor, we have a LIF and are wanting to extract some money for personal reasons. Is there any way of doing this with out being hit so hard on the tax end. Also why do we have a max to take out. It is our money can we not do what we choose to do even tho it is in a LIF. Thanks for you time look forward to your feedback.

Dear Reader, LIFs or Life Income Funds are "locked-in" funds that originate from the pension plan of a previous employer. These funds are intended to provide a retirement income for you and that is why there are restrictions on access to them and limitations on the maximum amount that can be withdrawn each year. Any funds withdrawn from a LIF are taxable as tax breaks were received when funds were accumulated within the pension plan.

The good news however is that there have been recent changes to LIFs that will allow access to up to 50% of the value of the plan. The first thing you have to do is determine whether your LIF came from a Federally or Provincially regulated pension plan as the rules are different for each. If it is a provincially regulated plan it is subject to the legislation of the province in which you worked and earned the pension benefits. If your LIF is federally regulated, new rules were introduced in 2008 that will allow you to withdraw or transfer to an RRSP or RRIF up to 50% of the plan value upon converting the old LIF to a new Restricted LIF or RLIF. New rules came into force for Ontario LIFs on June 19, 2009 that will allow you to convert an "old LIF" to a "new LIF" on or after January 1, 2010 and access up to 50% of the plan value. Conversion before this date only permits access to 25% of the plan value. There are other options that require too much detail for this response but check with the institution that administers your LIF for full details.


 
Dear Money Management Editor, please explain the tax legislation surrounding stocks that can't trade anymore and stocks that are inactive or in "limbo".

Dear Reader, there are sometimes circumstances in which a taxpayer is allowed to elect that he or she has disposed of an investment or holding in a taxation year, even though there is no sale or transfer. The great thing about this is that the taxpayer can claim a loss for an investment that is worthless and has no market. If the investment is a share of the capital stock of a corporation, the election may be made if:

  • the corporation during the taxation year the loss will be claimed has become bankrupt
  • the corporation is insolvent and is in the process of winding-up in the same year the loss will be claimed
  • the corporation is insolvent at the end of the taxation year but there is no winding-up order made but:
    • the corporation or any corporation related to it is carrying on business
    • fair market value of the shares held by the taxpayer are NIL
    • it is a reasonable assumption that the corporation will wind up or never again commence business

Timing for the taxpayer is important - the loss cannot be claimed at any time in the future, but must be claimed the year of the event (or as reasonably close to the event as the taxpayer is aware). Otherwise the taxpayer will have to find someone to actually buy the stock for a nominal amount. To claim the loss, the taxpayer has to include a letter with his or her tax return stating he or she wants Subsection 50(1) of the Income Tax Act to apply. The signed letter must include the following information:

  1. name of the corporation
  2. number and class of shares disposed
  3. insolvency, bankruptcy or wind-up date of the corporation
  4. date the shares were purchased
  5. amount of the proceeds of disposition
  6. adjusted cost base
  7. any outlays / expenses upon disposition
  8. the amount of the loss being claimed

In the event the corporation at some point in the future becomes active, and the stock becomes valuable again (usually never happens, but one never knows), the ACB of the stock will be NIL.


 
Dear Money Management Editor, I sold some of my mutual fund holdings last December to avoid taxable distributions. I still like some of these funds and would like to buy them back. Isn't there a tax rule that says that I can't buy back these same funds?

Dear Reader, the Canadian Income Tax Act has a clause that prohibits you from using capital losses to reduce your taxes and immediately repurchasing the same investments within 30 calendar days of the sale. This rule is called the "superficial loss" rule, and therefore if you triggered a loss last December, you could repurchase the same investments any time after the end of January and still use the capital loss against any realized gains in the year or in the previous three years, or to carry the loss forward for use at any time in the future against any capital gains. If you triggered a taxable capital gain when you sold your holdings, then you can repurchase at any time - the 30-day rule does not apply to gains.


 
Dear Money Management Editor, my friend passed away earlier this year, with his spouse as designated beneficiary on his Mackenzie RRSP. The spouse would like to do a partial spousal rollover, so a portion of the account is taxed to the deceased. On the portion of the RRSP that does not roll tax-deferred to the spouse, who is responsible for any gains (or losses) in the RRSP between date of death and settlement?

Dear Reader, the RRSP proceeds are included in the income of the deceased as of the date of death, and the named beneficiary on the RRSP becomes the owner of the RRSP proceeds as of the day after the day of death. In this instance, the beneficiary is the surviving spouse, who has the option of transferring some or all of the RRSP proceeds to his or her own RRSP on a tax-deferred basis, thereby reducing the tax payable by the estate. The value of the RRSP may experience an increase or decrease in value between the date of death and the date of transfer or disposition. Any increase in value (capital gain) of RRSP proceeds that are not transferred tax-deferred to the spouse would be taxable in the hands of the surviving spouse beneficiary. Any decrease in value (capital loss) would be used against any gains in the estate, or if there are no gains to be offset in the estate, can be carried back to the final (terminal) year of the deceased and used to offset any capital gains realized by the deceased. The capital loss cannot be used by the surviving spouse.


 
Dear Money Management Editor, my elderly widowed mother has been receiving the Guaranteed Income Supplement. She's in the process of selling the principal residence and will have approximately $100,000 to invest. Is there a way to invest this money without forfeiting the GIS?

Dear Reader, the Guaranteed Income Supplement is a federal program that provides money to low-income seniors who receive Old Age Security (OAS). The OAS pension is payable at a flat rate regardless of income, but the GIS is reduced by $1 for each $2 of monthly income. GIS eligibility depends not only on an individual's income, but also upon his or her marital or common-law status. How you and your client invest the $100,000 will directly affect eligibility for GIS. Interest, foreign income or dividends subject to the gross-up will increase reported taxable income, and will likely reduce GIS eligibility. Depending on the age and circumstances of your client, a portfolio structure to defer or minimize income and provide capital gains can lower the possibility that the GIS would be affected. As with any investment however, you and your client will have to weigh the priority of safeguarding the GIS against your client's investment objectives and financial needs.


 
Dear Money Management Editor, how do you know (or how do you find out) how much is needed to invest in RRSP's in a year to reduce the amount of income tax paid? I have been looking all over for this, but can't seem to find any info on how it might be done.

Dear Reader, due to insufficient information, only a general response is possible but here is an example you can follow for your own situation. Let's say you have worked through your tax return and would owe $500.00 before you make any RRSP contributions. To determine a close approximation of what you can make to an RRSP to reduce your tax to zero go to the Federal Tax Schedule 1 you would have completed and look at the tax rate that applied on line 5 of this schedule for the box that you filled in. (for the 2004 tax year if your income was between $35000 and $70000 it would be 22%) Then go to the pink Provincial Tax Schedule (which is ON428 in Ontario) and see what tax rate applied on line 5 as well for the box that you completed. (for 2004 Ontario income between $33375 and 66752 it would be 9.15%). If you add the two rates together (in this case 22% plus 9.15% for a total of 31.15%) you will arrive at your marginal tax rate. If you then divide the amount of tax owing on your return by this marginal rate you will arrive at the amount of the RRSP contribution you need to make to reduce the tax to zero. In this case divide $500 by 31.15% and you get $1605. You could then go back and rework your return with the $1605 amount input on line 208 as your RRSP contribution and you should come close to reducing your tax to zero. This method doesn't allow for any surtaxes but you will be quite close.

Another thing to review and consider is the amount of accumulated RRSP contribution room recorded against prior income years and available for your future use. The government computes this amount from information from your prior year(s) filings. You can use all or any portion to minimize taxes in the form of an RRSP contribution purchase. The government has a web site to make such inquiries. Your yearly notice of assessment from Canada Customs and Revenue will advise you of this amount.


 
Dear Money Management Editor, after the death of the registered GIC holder, do the proceeds of the account have to go through probate? Is there a threshold dollar amount?

Dear Reader, upon the death of a GIC registrant (single name) the institution will not always want a probated copy of the will before it will release the investment proceeds to the estate. Most institutions have a threshold amount above which probate will be required and below which the requirements will be limited to a letter of direction or declaration of transmission signed by the estate executor(s) along with a copy of the will and original death certificate. Each institution has their own threshold and you can
check with them directly to determine their requirements.


 
Dear Money Management Editor, I'm wondering if you have done any comparisons between the benefits of making lump sum RRSP contributions at the beginning of the year versus monthly contributions made throughout the year - to mutual funds in particular?

Dear Reader, the question that you have raised is one that can only be tested in hindsight each year as the comparitive results will differ due to the changing unit price of any particular mutual fund. As you are probably aware, in a rising market it would make sense to invest all of the intended contribution for the year as early as possible to capture the most growth. This assumes that the individual would not be borrowing for the contribution, otherwise you would have to factor in the borrowing costs.

In a fluctuating market a monthly dollar cost averaging approach may be more appropriate but you won't know until the end of the year if this approach provided a better result. You could, if you had the time, also expand the comparison to see what day of the month was the best choice for the dollar cost averaging. The only problem is whatever "best result" you arrive at for a particular year may not be the best in the following year.

In a declining market you would probably want to wait as long as possible before investing in a market sensitive fund.

Most financial planning discussions of RRSP contributions recommend investing as early as possible to maximize compound growth. This works well with fixed interest investments in a stable market (rising interest rates may make monthly contributions more appropriate) but in the real world markets fluctuate and as your question points out ...early may not always be better.

My personal view is that when investing in mutual funds the dollar cost averaging approach reduces the market risk of the RRSP contribution over time. Monthly contributions whether to a mutual fund or fixed term RRSP are also easier on cashflow because they can budgeted for and make it more likely for individuals to continue with their contributions.

There is no study that I am aware of that compares dollar cost averaging to a single purchase for a particular fund. Most studies show the benefits of being in the market as opposed to trying to time the market. This is not the case with your question as dollar cost averaging is not market timing. It is just a measured approach to placing funds into the market.


 
Dear Money Management Editor, I have a joint account with my daughter. Please explain what Right of Survivorship means - will the account be turned over to my daughter?

Dear Reader, Rights to Survivor is explained with its permutations at Investorwords, or using Fiscal Agent's site search will find for you both definition and articles that address its usage. The short answer is Yes - but I've always found it best to write to the issuer (I'm assuming its a bank), and have them emphatically state, that if you die prematurely, the moneys in question pass to the co-owner (being your daughter) and she has clear title.

However, if you have complicated family of financial circumstances around the entitlement to any assets you have, then your best advised to seek the advice of legal counsel. Personally speaking, advice from a web site is likely not the best method to arrange your financial affairs.







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