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Archived Q&As

The following Q&As were chosen from the correspondence between members of the general public and our panel of experts. Please browse this section to see if any of your questions are answered here. If you wish to ask a new question, please visit Ask an Expert.

• I'm 62 years old. After 41 years with my employer I'm planning to retire with a lump-sum from my company's deferred profit sharing plan. What are my options? What type of income can I expect to receive? Answer



• I have been working with a financial planner (through my bank) over the past year and value his advice. He has just informed me he has changed employers and is working for a different financial institution. Some of my investments are specfic to his former employer. I am to meet with him next week and find out why the change and how it affects my plan. Is this a common situation? Do clients tend to follow their planners or remain with the institution? Answer



• I'm a college student and I have $100 dollars to start an investment account and I'd like to add $25 to it every month. Would it be wise to put this into a money market account or is that even possible? If not what other types of compounding interest accouts exist that I could open? Answer



• I am 23, just graduated from University, have a $10,000 student loan, no savings, living in a studio apt. and just recieved a $70,000 inheritance. Planning on buying a franchise for $50,000 and would like to buy a house and car. What would be a good basic plan for tax purposes, building savings, and at the same time protecting my money? Also is better to use your liquid cash to start a business or should you borrow against assets or use a line of credit from the bank? Answer



• My husband and I are 52 years old. We have $17,000.00 to invest.  Can you help us as to where we might invest it. We are not risk takers, we have GIC's and RRSP. Since this money came quiet easy to us we might be able to take a bit of a risk with some of it. Any suggestions would be wonderful. Answer



• I want to separate my finances manage this myself. Presently my husband and I have a combined portfolio, with mine set up as a spousal portfolio. Is it possible to separate our finances. We are presently being managed by a brokerage, however the interest is only with my husband. Answer



• The company I work for contributes to their employees RRSPs. This is done through a outside financial planner.I was curious as to what information the financial planner requires in order to start an RRSP account for an employee by law. I have been asked for the following information:
  • SIN
  • Driver's licence
  • bank account info (the company is making the contributions, I am unsure why my personal account information is required)
  • net worth
  • date of birth
  • spouse
  • spouse's date of birth
  
  Can you please clarify for me which information is mandatory and which is not? Answer



• I've a mid six figure RSP but a high five figure mortgage that I'm paying $750 P+ I. I've also got pension income mid five figure.
  
  I know the tax cost of cashing in RSP to liquidate mortgage but wonder if in the long run I might be better off. The home is presently valued $475,000 and with no heirs, the savings/RSP could be replaced by reverse mortgaging/down sizing if/when it may be required.
  
  What I'm presently doing is with-drawing annually from RSP in line with tax consideration but use funds to supplement income rather than bulk repayments on mortgage.
  
  Mortgage rate is "better than prime" floating rate and RSP return administered by Wood Gundy with moderate return (notwith standing market situation over past couple of years). Answer



• Prior to the passing of my grandfather, his investments were put in a "right of receivorship" or joint account with my mother. Will my mother have to pay capital gains on these investments now that he has passed away? Answer



• I am in my late 20s and still in school, yet carry on a full-time career making 43k annually. I have just received an inheritance of $40,000. and I am not sure where I can get the best advice and best referral when selecting a financial planner to help me reach my financial goals.
  
  I am almost ready to look for a home of my own. I have a few years left until I get my degree, and on my current salary I don't think it is realistic for me to think I am able to carry a mortgage with the prices in Toronto and surrounding area being so high. My ultimate goal is to see my inheritance grow, and be able to buy a home independently.
  
  My risk tolerance is medium. I'd like to have a well-diversified portfolio. I am not sure what my expectations should be or when I can expect to see some growth. What is my best course of action? How can I maximize this inheritance in the smartest and most profitable way? What kind of returns should I expect from this amount and should I invest it all?
  
  I'd appreciate any advice on what my next best course of action should be. I am new to this and don't know what to do. Answer



• My partner and I, both in our 20's, are currently fast tracking the repayment of our student loans (aprox. 20k each) and maximizing our RRSP contributions. It has been suggested to us that instead of renting we should buy. We currently could only put 5% down and get a 95% mortage. Should we buy or should we continue to rent until the loans are all paid off (aprox. 5 yrs)? (our rent is signifcantly less than what a monthly mortgage would be). Answer



• I am unhappy with the service of my current mutual fund provider. After 3 different financial planners have left for various reasons in the past 2 years, I am left with no representation again, not to mention not very happy with the reprensentation I have had overall anyway. I feel very misled, bought much too high, not enough diversification, very unample returns over last 12 years etc etc. I am presently reasearching setting up a self administered rrsp. My question however is what is my best approach to moving my investments from one company to the new one I chose? Answer



• I am 55 yrs old have a $100,000 line of possible draw equity on my home, a current 1st mortgage balance or $52,000 at 6.75% and 21 years to go. Current equity line has a balance of $7000 @ 4.25%. My question is does it make any sense to pay off the first mortgage and save 2.5% interest? The equity line would have to rise avove 6.75% for this not to be a good idea ... what do you think? Answer



• My wife and I share any income we receive completely — joint bank account, joint ownership of house, etc. We consider 50% of anything we receive/earn is a gift to the other. These are not loans. Is there anything wrong with this — will Ottawa be upset? Why? Answer



• I was recently laid off as a result of company cost-cutting measures. Under the terms of my severance package, I will receive a lump sum equivalent to roughly four months' wages at the end of October. It seems to me that this payment will artificially inflate my earned income for this tax year. My RRSP contribution limit for this year is relatively small, due to the fact that my 2001 RRSP contributions used up all of my prior years' unused RRSP room. Are there any other things that I can do to limit the tax impact on my lump sum payment? Answer



• I am 40 years old and interested in saving for retirement, other than RSPs. Are there plans where you can save monthly ($100-$200) where I will be able to retire comfortably. I hear there are plans where the compounded interest will enable a person to retire - slowly (15-20 years) - but very comfortable. Are there really such plans? If there are, or there are brochures as such, I would be interested. Answer



• I have a question pertaining to short term investing. I would like to know what options are available for a safe, one year or less investment. I need to have quick access to the money, and don't want to pay any penalties for taking any or all of the money out at any time. Answer



• Is there anyway to put your line of credit into your mortgage? Answer



• When a RRIF is collapsed do the proceeds affect the Old Age Security claw-back? Answer



• Should I pay off my student loan first and then contribute to my RRSPs or should I start contributing while I pay off my loan. Answer



• I am a Canadian living in the US for 18 years. Should I take any of my American dollars and invest in Canadian products? I am not a resident of Canada but am still a citizen. Answer



• Can you provide me information on income splitting between spouses. If possible, can you list examples that are most commonly used? Answer



• Can you give me some ideas how I can reduce the impact of probate taxes and legal costs when my spouse and I pass away? Answer



• What is a preferred share? Answer



• I am a business owner who is considering selling my business in a couple of years. What should I do to maximize the after-tax amount I receive? Answer

Answer provided by Brad Jardine, CFP, CLU, CHFC

A ­First of all be sure you're ready to retire. What are your interests outside of work? However after 41 years you're likely ready to retire. Let's look at your options first.

Essentially there are 4 routes you could take with your profit-sharing fund.

1. Take the funds in cash. This is your worst option since you would lose almost 50% of your fund to income tax.

2. Transfer the fund to a RRSP. Your fund could be transferred to a RRSP tax-free and could accumulate until the end of the calendar year in which you turn age 69.

3. Purchase an annuity. The fund could provide you with a guaranteed fixed monthly income for the rest of your life. In addition, annuities can be structured to provide income to your spouse upon your death.

4. Set-up a registered retirement Income fund (RRIF). You can invest your fund in a RRIF to provide income which you can tailor to your needs. There is an annual minimum which you must take into income.

Finally, how much income can you expect? Before we answer this question we need to analyze your goals, lifestyle, budget, debt load, life expectancy, inflation and other sources of income. This is a complex area with no simple answers. However setting a realistic rate of return expectation is critical. Also, evaluating your "true" risk tolerance is very difficult and problematic given the volatility in today's marketplace.

In simple terms, if you have enough capital in your retirement fund to live on interest only in GIC's then you do not need to assume any risk of capital. But, keep in mind that rates will vary and that inflation will ultimately erode your standard of living. If this level of income is inadequate then you will need to begin using some of your capital or assume some level of risk to accommodate your higher income needs.

Answer provided by Akeela Davis, CFP, RFP,EPC, FDS

A ­This is a very common situation in the financial industry today. Whether or not a client remains with the institute depends on which relationship the client values most; the one with the planner, or, the one with the institution.

For you, this is an opportunity to get a second opinion and perhaps reaffirm your confidence in your old planner.

Meet with your old planner and the new one assigned by your existing bank. Ask:

• For a review of your plan and your portfolio, and specific recommendations for your portfolio.
• If the investments in your portfolio need to change, ask if these changes should have been made before and why they are right for you specifically.
• Ask about costs and are there any fees or sales charges (now or later) applicable when implementing the changes?
• What can their institution do for you that the other one cannot.
• What are their qualifications? If not a CFP professional, why not? (It does not hurt to get an update of your old planner’s qualifications)

When meeting with the new planner, pay attention to the types of questions being asked. Are they interested in getting to know you as a person, or is your portfolio the main focus.

When all is said and done, you go with the person you feel most comfortable with, and have the most confidence in. If you stay with the bank, or choose to follow your planner, you know you are doing it for the right reasons.

Answer provided by Brad Jardine, CFP, CLU, CHFC, Creative Insurance Concepts

A ­Good start on your savings. A money market account is a good savings vehicle and usually the major banks have no problem with the amounts you are planning to invest. However you may want to consider opening a no fee high interest account with ING or Manulife Bank instead. You'll likely get a higher rate of return along with some convenient no fee banking. Good luck.

Answer provided by Alan Munro, CA, CFP, Assante Capital Management Ltd.

A ­If you buy a franchise, most of your effort financially will have to be directed towards growing the business. Usually the business starts out not generating much cash so you will have to use your own cash to live on.

If the bank will set up a line of credit using the franchise assets as collateral, then this is the way to go as the interest will be tax deductible and you can use your liquid cash to live on until the business generates enough income. The interst rate should be close to prime if you give them collateral. If the bank doesn't extend you a secured line, try for an unsecured line but you will have to pay a higher interest rate.

I would pay off your student loan as soon as you can as they start to charge you interest and this is not tax deductible.

Regarding saving for retirement, I would start saving 10% of what you make once the business gets off the ground and invest it into an RRSP plan.

Good luck --but keep your eye on your cash position.

Answer provided by Jim Augerman, CFP, Clarica

A ­Unfortunately, I can't give you a "one size fits all" answer. But, I can suggest a process, and a few things to think about!

Choose 2 different institutions or financial planners. Referrals are the best source of solid planners--they have proven their worth with people you already know.

Then, sit down and, first, look at the "big picture." Here are some considerations your planner should consider:

• What is your current income and job security and do you have an "emergency fund" set aside?
• When would you and your husband like to officially "retire?"
• How much do you have in GICs and RRSPs, and other savings, and how is that money invested?
• In addition to your RRSPs, what other sources of income will you have in retirement?
• Are your will and power of attorney current and up-to-date?
• Are you Life Insurance and Long Term Care insurance sufficient heading into retirement?
• Do you have debt and a mortgage outstanding? If you do, perhaps the $17,000 should be applied to these first.

Step 2, if you determine together the $17,000 should be invested:

• How long will it be until you will need to draw on any of this $17,000?
• Complete a formal "risk-tolerance questionnaire", to determine just what investments you would be comfortable with.
• At least 2 different options should be put forward for you to consider, taking into account all of the above.

My gut feel, if you are in a healthy financial position, is to seriously investigate a good segregated fund portfolio, at 52. This portfolio should based on strong diversification and asset allocation. (meaning a combination of money market, bond and equity investments, based on YOUR comfort level..not the advisors.)

Segregated fund investments can allow you to "take a bit of risk" as you indicate above, yet guarantee 100% of your initial investment. In an interest rate environment that is the lowest since WWII, and a choppy stock market environment, a good, balanced, segregated fund product may be your best fit. And any of Canada's major mutual fund companies, insurers or planners can suggest a couple funds with a strong and stable performance history.

If you do not understand the investment, or do not get a good feeling for the advisor, go somewhere else. Investing should be fun and profitable and you should never lose any sleep over any single investment.

Answer provided by Julie A. Leefe, CFP, R.F.P., Bieber Securities Inc.

A ­Yes, it is possible to separate your finances. However, as long as the marriage is intact, it is better to find an advisor that you both trust because one family advisor can then keep watch over the family asset mix, and so on. If bits and pieces are held in different places with different advisors, you may end up without an effective wealth building strategy overall.

If you are separating from your husband, there are some considerations. You find an advisor you trust, and simply ask this advisor to help you transfer the accounts that are in your name, to the new advisor, and the new advisor takes care of handling all the transfer paperwork and follows it up to be sure it happens smoothly and correctly. You can only transfer accounts on which you are the registered owner. If you are legally entitled, through the Marital Property Act in your jurisdiction, to a portion of accounts that are in your husband's name only, then you have to go through the proper legal channels to get a written separation agreement before any transfers can be done.

If your portfolio is an RRSP, it must be separate from your husband's own RRSP. Sometimes brokerage firms combine regular contributions with spousal contributions in one account to save the investors trustee fees, but this really should not be done (says CCRA). Regardless, if the account is an RRSP account, it cannot be registered in two names. It must be registered only in one name. If there is a spousal RRSP on which you are the owner, but your husband is the contributor, you have the legal right to manage it. If you have given your husband trading authorization on the account in your name, you can contact the brokerage firm to revoke this authorization and take back the trading authority for yourself.

If the account is a joint account that is not an RRSP account, it could possibly be split equally in two, but you would have to get your husband to agree to this, or it would be done subsequent to a court order if you have a separation agreement.

If your marriage is intact, and you simply want to learn more about investing, or you don't feel you trust your current advisor, then there are many avenues for learning. Start by asking questions of the advisor, or ask the advisor where he/she would recommend you start in your quest for knowledge.

Answer provided by Brad Jardine, CFP, CLU, CHFC, Creative Insurance Concepts

A ­Your questions concerning opening an account with an investment advisor are certainly warranted. However, your advisor is correct in requesting this information. The Ontario Securities Commission demands some basic information regarding your personal situation in order to have a record of the suitability of the investments that would be recommended to you. In addition, federal legislation now requires two pieces of identification (SIN, personalized VOID cheque, driver's licence #, etc) under anti-money laundering rules when opening a new account and annually on an ongoing basis. This is a burden to all parties involved but a necessity that will likely become even more intrusive as time goes by.

Answer provided by Erika Penner, CFP, FICB, PRP, CDS, Performa Financial Group Ltd.

A ­Thank you for you inquiry. It is certainly a difficult decision to make.

What I do not know is the province in which you live (affects the marginal tax rate -MTR), your age or the remaining amortization of your mortgage. Each of these factors may have an impact on your decision.

For the purpose of trying to answer your question, I will use the following assumptions:

1. You are retired but have not yet converted your RRSP to a RRIF.
2. You live in a province where the top MTR is 47% (eg. Ontario).
3. You are in an open mortgage and there is no penalty to you in paying off the mortgage early. The remaining amortization is 5 years.
4. Your current mortgage rate is 6% and over the medium term you are earning a real return on your investments of 5% (5 year bond fund average).
5. Your outstanding mortgage is $95,000, your RRSP is worth $450,000 and your pension income is $50,000.

You have already recognized that in order to pay out your mortgage, you would need to cash in a substantial part of your RRSP ($180,000) because taxes of approximately $84,000 will need to be paid on your RRSP withdrawal.

If your RRSP portfolio earns 5%/annum, the growth produced by your RRSP will reduce by $9,000, the same amount of your annual mortgage payments ($750/month) – which you will have eliminated by paying out your mortgage. From a cash flow perspective, you will be in a breakeven scenario.

My concern centers on the reduced diversification you will now have, with a greater portion of your assets subject to the ups and downs of the real estate market. Currently, your investments (house $475,000 + RRSP $450,000) are closely divided between financial instruments and real estate.

While the financial markets have been in a severe downturn over the past three years, there is some discussion these days about the current height of the real estate market and some institutional investors are in fact decreasing their exposure to this sector. A recent study conducted by TD Bank estimated that over a 10-year period equities will deliver an average annual return of 7.75% versus a pre-tax increase of 5.8% in home prices. Furthermore, CIBC World Markets economist Benjamin Tal has recently stated that housing market activity is now 30% higher than suggested by demographics and that further improvement in housing affordability is unlikely.

If you have no children to whom you would like to leave your house, you can certainly use a reverse mortgage at a later date if you need more cash to live on. Be aware though that there are limitations on the amount of mortgage that will be advanced against the value of your home – often no more than 40%. So if your house declines in value due to a low cycle in the real estate market, you may not be able to get the amount of money you will need at that time.

I trust this helps with your decision.

Answer provided by Jim Augerman, CFP, Clarica

A ­I am thinking that the joint account that your grandfather set up with your mother was one with "right of survivorship", rather than receivorship as you mentioned. This was a good move, and good advice.

"Right of survivorship" means this account can stay open, and all assets simply revert to the ownership of the survivor- your mother. This avoids both the settlement time and costs normally associated with probate. The process of probate validates the will, and most financial institutions would otherwise freeze the assets, and the assets would be included in the estate valuation and therefore subject to probate, also known as EAT (estate administration taxes), generally in the ballpark of about 1.5% of the value of the estate.

Unfortunately, although "right of survivorship" can bypass probate, it will not avoid the payment of capital gains. Whenever assets pass down the family tree from one generation to the next, the government (CCRA) will deem the asset disposed of at date of death for tax purposes. Therefore, the value at the date at death becomes the FMV (fair market value) of the asset. This will be (simplified) compared to the original book value/purchase price (adjusted cost base), and the difference will form a capital gain on which taxes will have to be paid from the estate on the final terminal tax return.

A quick example: account value at death (market value): $100,000. Deposits ($80,000). Gain $20,000.

Capital gain= 50% of $20,000, or $10,000. Generally the marginal tax rate on a terminal tax return averages around 40%, so, in this example, $4,000 in taxes would need to be paid on the transfer of this asset from one generation (your grandfather) to the next (your mother). Your mother's ACB then becomes that same FMV at date of death and the whole cycle begins again.

If you are concerned with either the taxes or the administration of your grandfather's estate, or want to minimize the taxes going forward of your mother's estate, I would suggest setting up a meeting with a good tax accountant, estate lawyer or financial planner in order to help- plus they can view your situation from a global perspective knowing all the specifics, values and details.

Answer provided by Alan Munro, CA, CFP, Assante Capital Management Ltd.

A ­From the information in your e-mail, you have stated that your goals/objectives and assumptions are:

1. Complete your schooling and enter a career that earns more money.
2. Buy a house in Toronto when your downpayment is sufficient.
3. Your timeframe for buying a house, I am assuming is 5 to 10 years, considering that you have a few more years of schooling and you want to accumulate a sufficient downpayment. I am assuming that the $ 40,000 inheritance will only be used to buy a house.
4. You are a moderate investor which means that:
   • You want an investment that combines capital growth and moderate income potential
   • You plan to hold the investment for the long term (5 to 10 years) and can accept short term fluctuations in the value of the investments.

As you are new to investing, I think that you would have to be trained on the risk/return relationship of any investment. You have to realize that for a higher return expectation you will be taking added risk on your investments.

I would examine how much money that you want to accumulate in 5 to 10 years and would show you the portfolio of investments that would best get you there.

If a low rate of return is required, Then I would recommend GICs, corporate bonds and conservative mutual funds.

If a higher rate of return is required, we would state to look at balanced mutual funds and equities. A well diversified portfolio of fixed income and equity mutual funds would help reduce the risk while supporting an acceptable return. Also available are managed money products that allocate you investments across many portfolio manages depending on the risk/return level required.

In conclusion, as a financial planner, I would have to meet with you to determine all the above factors and explain to you the ups and downs of investing so that you would understand the market and feel comfortable with your investment portfolio.

Answer provided by Ross Young, CA, CFP, Peer Financial

A ­This is always a difficult question. The reason that the banks suggest that you should buy is that it will cost you the same amount as renting. If you will be paying significantly more that argument doesn't hold water. I would also check into a mortgage broker with a floating mortgage as many mortgages can be as little as prime minus 0.5%. If you were to make the same payments as say a 5 year locked in rate you could put a good dent in the principal. You should also consider how much you think the average house will appreciate in price in those 5 years you wait for paying down your loan. In addition, you have the RRSP homebuyer loan that you can use if you so choose. I would caution against that in your situation as stock markets are at a 3 year low and if you are invested in equities that may rebound over the next 5 years you may be better off not using that option. If however, you are down on the stock market are holding money market type funds then this may make sense. Finally, you should consider the relationship with your friend. Renting is one thing but owning is another. What happens if one gets transferred? What if one wants out and the other doesn't? These are real things to consider.

I guess the bottom line is that it is not easy to give you a definitive answer - it is largely based on your personal situation. I hope this gave you a better perspective on some of the things to think about.

Answer provided by Ross Young, CA, CFP, Peer Financial

A ­You had quite a few questions and concerns so I thought I would try to address all of them in an orderly fashion. The first thing that I thought should be addressed is the level of dissatisfaction with your previous financial planners. When starting a relationship with an advisor it is important that both parties are "on the same page." This can be done with a letter of engagement setting out what the expectations are for both parties and how the advisor will be compensated for the work provided. This will provide reference material should any misunderstandings happen in the future. Another good practice is to request the names of clients that you can use to check references. Finally, you should ask how long the planner has been in business and discuss their future plans.

Furthermore, once you choose someone to manage your investments it is a good idea to have an investment policy statement. Generally, this outlines the approach that is being taken on the investments, the risks and return that are expected and the time horizon for investments - again this will give guidance should future disagreements occur. Both of these documents should be reviewed on a regular basis to ensure that they are still accurate.

Obviously I am baised towards having investment advice but that being said, it is important for you to do your homework when selecting a planner/advisor. The advisor will provide a sounding board when panic sets in and may help you through the rough times (like we have seen over the last 3 years).

Now, should you choose to hold a self-directed RRSP and manage the funds yourself, you should set out guidelines and an investment policy for yourself. As for removing the funds, if you are going to run a self-directed account with the bank, they should be able to transfer your existing mutual funds into the self directed account. Once inside you will have to check if there are any deferred service charges for cashing them in should you choose to switch the fund companies you are investing with.

Answer provided by Ross Young, CA, CFP, Peer Financial

A ­Regarding your question on the home equity line of credit, you are correct, it would make more sense for you to access the line of credit at a lower rate of interest. The thing I would be careful of is the flexibility of the line of credit. In some circumstances, the bank may only require that you pay the interest on a monthly basis. Given your current situation, I would try to make the same monthly payments which would then decrease the principal at a faster pace and ultimately pay off your mortgage more quickly. The other things to take into consideration would be the penalty that you may have to pay on the mortgage if you are cashing it in early and the fact that the line of credit rate is probably fluctuating. If there are penalties for cashing in the mortgage early you would have to factor that into the equation.

Answer provided by David Salloum, CFP, CIM, FCSI

A ­What you have been doing is something that is commonly done by many Canadians. However, from an income tax perspective this is not strictly correct. The Income Tax Act has something called the attribution rule that applies whenever one spouse transfers an asset to another spouse. The purpose behind this rule is to prevent income splitting between certain non-related persons, including spouses. What this rule does is to attribute all income (ie. dividends, interest, royalties) and all capital gains/losses back to the person who transfers the asset. So for example, if spouse A transfers or gifts $100 to spouse B to invest, the investment income earned by spouse B will be attributed back to spouse A. In other words, spouse A will have to continue to pay taxes on any income earned on the $100 by spouse B. This way, the combined taxes paid by two spouses cannot lowered by simply have the family assets invested in the lower spouse's name.

The use of joint account is common between spouses for estate planning purposes. Where one spouse transfers all the assets to a joint account, he/she will be deemed to have disposed of 1/2 of the all the assets to the transferee spouse. The default tax treatment whenever an asset is transferred between spouses for no consideration is that the transferor spouse is deemed to have transferred the asset at his/her cost base, which results in no immediate tax consequences to the transferor spouse in this case. However, as discussed above, any future income earned from this asset, as well as any capital gains/losses when the asset is subsequently sold, will still be taxed in the hands of the transferor spouse.

If both spouses contributed cash into a joint account and the cash is then used to buy investments, then the income and gains/losses earned from the investments can be apportioned in accordance with the percentage each spouse contributed to the account.

If both spouses transferred assets such as stocks or mutual funds into a joint account, then keeping track of who contributed what for the purposes of the attribution rules can get kind of difficult to keep track of. A common practice that a number of spouses have used in this case is to open two joint accounts. Each spouse will contribute all their assets into one of the joint accounts and the account will have that spouse's name first (ie. John and Mary) to identify who contributed to which joint account.

Answer provided by John Strba, CFP, TEP, CIBC Wood Gundy

A ­In today's sluggish economy layoffs are common place. The fact that you are dealing with a severance package is not unusual.

In terms of limiting the tax impact of the lump-sum severance package, the options are limited. There is a provision that allows a certain portion of a severance package to be rolled into your RRSP (without affecting that years RRSP contribution limit), but that only applies to years of service prior to 1996. Given that you started employment with this company in 1997 this option isn't available to you.

The lump sum severance will be classified as income in the year it is received. Thus, if your employer would be willing to delay the payment until January 1, 2003, this would be to your advantage. Since you will be unemployed it is assumed that your overall income in 2003 will be less than 2002. The end result is that you will pay less tax.

Answer provided by Ross Young, CA, CFP, Peer Financial

A ­I think you may be thinking of a monthly deposit into a non-registered mutual fund account. Deposits to this account are not available for a tax deduction like an RRSP, however when you withdraw from the account you will only be taxable on the growth whereas RRSPs are fully taxable. In addition, non-registered accounts are taxable on interest, dividends and realized capital gains on an annual basis whereas the tax on RRSPs is deferred until withdrawal.

I did a quick calculation and assumed that you were able to achieve an 8% rate of return and were depositing $200 per month. In 20 years you would have approximately $114,000 which would produce about $9,000 per year income at an 8% return.

I would imagine that your lifestyle needs in retirement would be greater than this and you would therefore need other sources of retirement income.

Answer provided by Alan Atkins, CFP, CLU, CH.F.C., Complete Financial Planning Inc.

A ­ Short term investing is limited by the fact that usually the funds are expected to be needed within a definite period of time and must be available, preferably without charge.

Since this type of money can only be made available to the market place for a short period of time, your expected return will usually be determined by short term interest rates.

You could use a high yield banking account such as ING or PC banking. These give you t-bill type rates with no charges or restrictions.

Your bank branch may also offer t-bill accounts but may have service fees attached.

You can also purchase no-load money market mutual fund or segregated fund accounts.

Another option is to use short term deposits that range from 30 days to a 1 year GIC. Avoid using a regular savings or chequing account since they pay little or no interest and can actually cost you for the privilege of parking your money.

You may also consider no load balanced or bond funds that may produce a higher return but could also decrease in value just when you need your money and are therefore not recommended for a period of less than five years.

Avoid anything that promises an exceptionally high return with no strings attached. There is no such thing. The reality is that the longer you are able to leave money invested the greater the potential return and vice versa. Realistically, you should count on obtaining a maximum of 2 to 5% over 1 year and have your capital guaranteed.

Answer provided by David Salloum, CFP, CIM, FCSI

A ­You may be able to do an "add-on mortgage" where you would pay out the credit line and add the amount to your mortgage. The interest rate would be a renegotiated, blended interest rate. The other option would be to do a second mortgage. You should check with your bank.

Answer provided by John Strba, CFP, TEP, CIBC Wood Gundy

A ­ The short answer to your question is, yes, collapsing a RRIF could very well affect the OAS claw back.

The Federal Government has determined that seniors with an income in excess of $55,309 are not entitled to full OAS benefits. What this means is that if your total income (i.e. pension income, RRIF payments, interest, dividends, capital gains etc.) exceeds $55,309 the Feds will begin to claw back your OAS. Equally important, the amount of this claw back increases, until your income exceeds $90,000, at which point the entire OAS payment would be clawed back.

Now, when you collapse a RRIF the Financial Institution holding the RRIF must issue you a T4RRIF. The T4RRIF must be included in your total income for that tax year. So, if the amount on the T4RRIF, plus all your other income earned that year (i.e. pension income, interest, dividends, capital gains etc.) exceed $55,309 than the OAS payments will be subject to a claw back. If the combined income exceeds $90,000 than the entire OAS payment would be clawed back.

Answer provided by David Salloum, CFP, CIM, FCSI

A ­For 1998 and later years, students who pay interest in the year on a student loan are able to claim a non-refundable tax credit for the interest paid. There is a five-year optional carryforward. To be eligible for credit, interest must in fact have been paid on a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a law of a province governing the granting or financial assistance to students at a post-secondary level.

If cash flow permits it would be best to do both - contribute to an RSP plan and have the tax free accumulation in the RRSP while paying off the student loan and benefiting from the tax credit for the interest paid. In addition you could put the RRSP refund against the student loan payments.

Answer provided by David Salloum, CFP, CIM, FCSI

A ­There is no quick answer to your question as there are a number of variables that have to be considered. Firstly is to assess your current asset allocation; do you still have investment assets in Canada? If so are they in a registered or non-registered accounts and what percentages in stocks, bonds and cash? What are your asset allocation percentages with your US investments? Do you have an IRA? 401K? If you are married does your spouse have investments and where are they allocated? You also have to be aware of the various tax issues that will arise out of holding foreign equities as well as be comfortable with the risks that go with investing in stocks denominated in a foreign currency. I would also want to make sure that your source(s) of Canadian research are current.

Assuming that holding Canadian investments makes sense you would contact your US broker (as I don't think you can have a Canadian advisor/broker handling your account given you have a US address unless he/she has met certain licensing requirements) and look at purchasing Canadian stocks that fit into your overall investment strategy. To get your Canadian exposure you may want to consider:

• some of the Index Participation Units that are available (such as the TSE/S&P 60 - ticker symbol XIU)
• some Canadian stocks are "interlisted" (they trade on the NYSE or the NASDAQ and can be purchased in US dollars)
• WEBS - World Equity Benchmark Shares

As you can see this is not an easy question to answer as there is lots to take into account, you would do well to contact your US advisor or planner before you invest.

Answer provided by Ross Young, CA, CFP, Peer Financial

A ­That is a wide open question but I will give you some examples.

To start with, probably the most form of income splitting would be using the spousal RRSP. In a situation where one spouse is working and the other is not, a spousal RRSP can be used to create two RRSP accounts. When the money is withdrawn for retirement income, each individual will have taxable income and will pay less tax then if it was just taxed in one person's hands (assuming there are no other sources of income). Any withdrawals made from the spousal plan within a certain time period (about 3 years) will be taxable in the hands of the contributor.

Another form of income splitting is paying a spouse or children salary if you are a business owner. This is not really true income splitting as the salary paid must be reasonable given the work that is being done.

Business owners can also split income by making their spouse (or others they may want to split income with) an owner of the company. Although the salary must be justified based on the work being done, dividends can be paid out to the shareholders and that does not have to be tied to the work in the company, only the fact that they are shareholders.

These are a few of the more common uses of income splitting.

Answer provided by Alan Atkins, CFP, CLU, CH.F.C., Complete Financial Planning Inc.

A ­ Probate occurs only when it is necessary to obtain court validation of a will in order to release assets or transfer title. Unfortunately, to obtain this for even one asset such as a GIC, the value of everything that goes through the estate is totalled for calculating the Estate dministration Tax (E.A.T. - cute eh?). In Ontario this is $5/ thousand for the first $50,000 and $15/thousand thereafter. In addition, legal fees of 1 - 3% and similar executor fees could be added. The executor must also obtain a clearance certificate from CCRA before distributing assets to heirs.

Many people put property in joint name to avoid this, such as a principal residence or cottage or bank account. Other ways are using segregated funds and naming beneficiaries as well as naming beneficiaries on all RRSPs.

It is also legal to have multiple wills so that shares of a family business could be held in a separate will and only the will relating to personal assets would need probate. Trusts are also useful. For example, alter ego and spousal trusts or family trusts can bypass the estate.

Although it is usually desireable to reduce an estate for probate purposes, it is important that you seek help from qualified, experienced advisors in order to avoid unintended results that could cost more than what you hoped to originally save. All of these solutions have tax issues to consider and should be reviewed before any decisions are made.

Q ­ What is a preferred share?

Answer provided by David Salloum, CFP, CIM, FCSI

A ­ It would help to understand what a preferred share is if we also have an understanding of stocks and bonds. When you are starting up or running a company probably the most important issue is CASH. You are going to need it to build up inventories, acquire staff, get a work place, etc. and in business there are basically two ways of getting cash. One is to borrow the funds in the form of a bond. In this case you would issue say, a $100,000 bond with say, a 5% coupon and a 5 year term. You as the borrower have now agreed to pay interest to the lender of $5,000 per year (usually in two payments of $2,500 dollars 6 months apart) and to repay the $100,000 at the end of the 5 year period.

The other way is to issue shares in your company so that the shareholders are part owners and as such they have the right to vote, attend shareholder meetings and participate in any profits the company earns.

A preferred share is a sort of hybrid between a stock and a bond and are usually purchased by investors looking for income. It is less secure than a bond but more secure than common shares. Preferred shareholders are, in most cases, entitled to receive a fixed dividend out of net earnings subject to the discretion of the Board of Directors. Although there is greater risk in owning preferreds compared to bondholders a major benefit lies in what is known as the Dividend Tax Credit. What this basically means is that you receive more after tax dollars from a dollar of dividend income vs. a dollar of interest income. The price of preferred shares will be affected primarily by changes in interest rates and preferred shares can be issued with many possible different features so be sure to understand all that's involved before you buy.

Q ­ I am a business owner who is considering selling my business in a couple of years. What should I do to maximize the after-tax amount I receive?

Answer provided by Ross Young, CA, CFP, Peer Financial

A ­ The first thing to consider when selling a business is the amount of time that you spend running the business on a daily basis. If you are spending a great deal of time, you should consider to start hiring management to gradually replace you - this will help to maximize the value that others would be willing to pay. The second consideration is whether you would be able to access the enhanced capital gains deduction that is available on the sale of qualifying shares. The shares must be that of a Canadian Controlled Private Corporation that were held by you or someone related to you for the past 24 months. At the time of sale, at least 90% of the fair market value of the assets must be used in active business and for the 2 years preceding the sale, at least 50% of the assets must be used in active business. If the shares do not meet this test, you will be unable to shelter $500K of the capital gain. In addition, if there is additional cash in the corporation, you may want to incorporate a holding company and pay tax-free dividends into the holding company to reduce the non-active assets as well as reduce the ultimate selling price of the operating company. All items should be discussed with your accountant and lawyer before proceeding.