By Brenda Bouw
You Ask, We Answer
Financial Post, FP Money
April 13, 2002
Question:
I have a question about spousal contributions and the three-year
rule. If my wife makes a spousal contribution to my RRSP for the
tax year 2001, and again for tax year 2002, if I then withdraw the
2001 contribution in 2004 (assuming that is how three years is calculated)
will it be taxed as my income? Or is any such withdrawal tied to
the date of the last spousal contribution?
Answer:
Robert S. Fleischacker, a financial planner says this is a good,
but often misunderstood question. For the fun of it, he posed the
question to several other financial advisors and got an interesting
range of responses.
This created some hesitation in my own immediate response to the
question so I checked with a tax accountant. It appears that there
can be no spousal contributions in the preceeding three calendar
years in order to avoid attribution to the donor on the withdrawal.
For example, deposit on Dec. 10, 1999, Jan. 10, 2000, and October,
2001, you could take money out as early as January, 2005 .
Positioning spousal accounts for possible withdrawal during periods
of predictable low income (maternity leaves are a common example)
is a good planning technique but you must pay attention to the details
or you could negate any possible benefit. Don't forget about minimum
withholding tax on the withdrawal.
Adrian Mastracci, fee-only investment counsel at
KCM Wealth Management, says, “Capital losses
that arose in 2001 must first be used against capital gains realized
in 2001. You then have two options
for the unused net capital loss.”
Question:
My retirement benefit will include a severance package of approximately
$40,000. I'm able to roll it all into my RRSP. My pension will be
above $40,000 annually as well as being indexed. At what point can
I transfer the funds to a spousal RRSP without being taxed?
Answer:
Mr. Fleischacker says the short answer here is never.
The simplest way to keep these things clear is to remember that
once money has gone into a registered account in someone's name,
it can't be moved to a spouse's registered account during your lifetime
(exception is marital breakdown).
Question:
I have realized capital losses which I cannot use for 2001. What
are my options?
Answer:
Adrian Mastracci, a fee-only investment counsellor at KCM Wealth
Management Inc. in Vancouver, says capital losses that arose in
2001 must first be used against capital gains realized in 2001.
You then have two options for the unused net capital loss. They
can then be carried back three years and carried forward indefinitely.
If you elect to carry back, they are applied to capital gains of
the previous three years in 1998, 1999 or 2000.
If there were no capital gains in the previous three years, or
you still have a net capital loss after the carry back, then the
balance can be carried forward indefinitely.
Form T1A is used to carry back the losses to previous years. Capital
losses carried forward can be applied toward future capital gains.
Question:
What if my stock is no longer trading, bankrupt or insolvent?
Answer:
Mr. Mastracci says if your stock is no longer trading, bankrupt
or insolvent, you may be able to make an election that will deem
you to have sold that security for zero proceeds, provided certain
criteria is met. If you claim a capital loss and actually sell the
security later, you'll be taxed on the capital gain.
Consult professional counsel for additional details.
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