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TAX & ESTATE PLANNING |
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GIS eligibility |
My client is an elderly widow and has been receiving the
Guaranteed Income Supplement. Client is 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?
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.
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RRSP undeducted contributions |
My Notice Of Assessment states that I have $45,000 in unused
RRSP contribution room. I have extra funds available but I thought that I could
only contribute a maximum of 18% of my earned income in any given year? Can
I top up my RRSP to $45,000 even if I have less than that in earned income
for the current year?
As long as you have the contribution room at the time you make an RRSP contribution,
you are allowed under Canadian tax rules to contribute more than the annual
maximum, plus a $2,000 lifetime over contribution, without attracting the 1%
per month over contribution penalty. If you anticipate an increase in your
earned income in coming years, you may want to contribute the maximum allowed
to your RRSP, but deduct on Schedule 7 of your tax return only enough to minimize
your taxes for this year, and deduct the balance of your contribution in subsequent
years. You are allowed to carry forward "undeducted" contributions
indefinitely to use in years of higher income while taking advantage of the
tax-deferred growth of the funds in your retirement plan.
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Superficial loss rule |
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?
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.
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