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By Gigi Suhanic
National Post
FP Money
Saturday, August 16, 2003
Question: Can
you explain how I would calculate my RRSP entitlement?
Answer: The RRSP
entitlement for a particular year is based on
the "earned income" of the previous
year, says Adrian Mastracci,
president of KCM Wealth Management
in Vancouver.
Adrian Mastracci, investment
counsel and
financial advisor at ‘fee-only’ KCM
Wealth Management, says, "As an example,
the RRSP entitlement for the 2003 tax year is
18% of the 2002 "earned income" to a
maximum of $14,500. This amount is reduced by
the pension adjustment and past service pension
adjustment for 2002.”
The major components of earned income are: salary;
business income; professional income; commission
income; fishing income; farming income; active
partnership income; taxable support payments received;
employee profit sharing plan allocations; net
rental income; net research grants; royalties
received by inventors and authors. The sum of
the above net incomes is reduced by business losses,
net rental losses and deductible support payments
to arrive at the "earned income" figure
for the year.
As an example, the RRSP entitlement for the 2003
tax year is 18% of the 2002 "earned income"
to a maximum of $14,500. This amount is reduced
by the pension adjustment and past service pension
adjustment for 2002.
Question: I owned
a house in London for 2 1/2 years, but sold it
as part of my divorce settlement. With only 5%
down, the equity was limited, especially split
in half. Since no RRSPs were used for the purchase
of my first home, am I permitted to borrow (tax-free
with the 15 years to repay) from my RRSPs for
my next home?
Answer: One of the
requirements to use the Home Buyer's Plan is to
be a first-time buyer. You are a first-time buyer
if during the four calendar years prior to the
year of withdrawal, and up to 30 days before the
withdrawal, you did not reside in a home owned
by you, your spouse or common-law partner, says
Kevyn Nightingale. To use the HBP in 2003, you
must have been out of that house since at least
Dec. 31, 1998.
Question: Is there
a rule of thumb to follow when figuring out how
much to invest in RRSPs to lower income tax payable
at the end of the year?
Answer: Basically,
put in as much as you can without jeopardizing
your cash flow or creating debt that can't be
paid off quickly, says Ryan Beebe.
What individuals should look at is putting enough
in to bring taxable income down to the lowest
possible marginal tax rate. Today those rates
(federal) are 16%, 22%, 26% and 29%. For example,
if a person is earning $35,000, he/she would be
in the 22% marginal tax bracket. To get down to
16% they would need to make a contribution of
$3,324 as the income level at which the 22% bracket
begins is $31,677.
Question: Can RRSP
monies invested in mutual funds be transferred
to the purchase of stock in a company without
penalty?
Answer: Whether this
can be done and what it may cost you depends on
where the mutual funds are being held and how
you originally purchased them, says Jamie Golombek.
If the mutual funds are held directly in a fund
company account, then the fund must first be sold
and the proceeds received would have to be transferred
directly by the fund company to an RRSP brokerage
account before you would be able to purchase shares
with those monies. If, however, you already hold
your mutual funds inside of an RRSP brokerage
account, you should have no trouble selling your
funds and purchasing stock of a company.
In either case, you may face a fee (as opposed
to a penalty) for selling your funds. The fee
you may pay depends on how the fund was originally
purchased. If, for example, you purchased the
fund on a "front-end" load basis, you
paid a commission when you bought the fund, and
there would be no fee to dispose of the fund.
If, however, you purchased your mutual fund on
a deferred sales charge basis (or "back-end"
load), there could be a fee of up to 6% of the
amount that you redeem, depending on how long
ago you purchased the funds. Finally, if you purchased
a "no-load fund," then there would be
no cost to dispose of the fund, other than possibly
a nominal transaction fee charged by the broker.
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