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This newsletter is courtesy of Terry Fay and RetirementByDesign.ca. Please remember that while strategies outlined within this newsletter may be appropriate for some investors, you should always consult a financial advisor to determine if they are appropriate for you.
Sincerely,
Terry
Hello:
The issue of investing in Canada versus globally is again a topic of great interest. Do you base your investment decision on what’s happened in the past or do you look forward to the opportunities that lie ahead. For example, do you feel compelled to invest in real estate today because it has performed so well over the past five years or do you think that potentially the market has reached a top? Has the Canadian investment market seen its best days and do you look outside Canada to invest moving forward?
In our tax tips learn how to capitalize on capital losses and transferring your capital losses to your spouse. The New Year is coming quickly and reviewing your investment holdings and positioning yourself for 2006 is upon us.
For those of you who turned 69 this year remember you need to convert your RRSP to a RRIF or annuity. If you aren’t 69 but know someone who is please feel free to have them call me with any questions they may have.
I look forward to your comments and questions. As usual if you would like to meet to review your financial plans please call to set up a meeting. Thank you for all your referrals. If you like receiving these eNewsletters feel free to tell a friend about them.
Investing should be based on Opportunity not Historical Returns
When was the last time you considered investing in companies listed on the stock market in Iceland? Would you consider investing 60% or more of your portfolio in Iceland? Probably not, yet Icelanders do invest 60% of all their investments in Icelandic companies.
Can you name one Icelandic company? It would surprise me if you could think of one, because there are only 15 listed companies on their exchange.
As silly as investing in Iceland seems to a Canadian on a world market Canada isn’t that much different. Canadians similarly have 70% of their investments in Canadian companies. Albeit a larger stock market than Iceland, on a global basis the Canadian market only makes up 3%. This is a home bias phenomenon.
Click here to find out more about investing opportunities at home.
Capitalizing on Capital Losses
If you or your spouse have realized capital gains in the last three years, consider selling an investment that has dropped in value to recover the taxes paid on those gains.
Transferring Capital Losses between spouses.
If you don’t have capital gains this year or the previous three years, but your spouse or common law partner does, it is possible to transfer capital losses to these individuals.
First, the investment is sold to crystallize the capital loss. Immediately afterwards the spouse or common-law partner buys the exact same amount and identical investment.
The spouse or common-law partner then sells the investment after waiting at least 31 days. The capital loss realized on your sale will be denied under the superficial loss rules and instead be added to your spouse or common-law partners adjusted cost base, thereby transferring the capital loss.
Example:
John has a net capital loss of $20,000 realized this year that he either
carries back to a previous year or transfers to his spouse. Here’s
how the tax savings stack up.
Type of
Income (50% inclusion rate)
Loss amount $20,000
Tax savings at a 43% marginal tax rate $4,300
Carrying back John’s loss to a previous year or transferring it to his spouse results in a recovery of $4,300 in taxes previously paid.
Ideal candidates Investors who:
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Are selling their investments at a loss, and who have little or no capital gains in the current year and
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Had capital gains, or their spouses or common-law partners had a capital gain, in the past three years.
Take action
To apply for the loss carryback, investors need to:
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Complete area III of Form T1A, Request for loss Carryback and
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Attach it to this years return.
Louise Guthrie, Assistant Vice President Tax and Regulatory Services Manulife Investments
All you really need to know is that we are committed to helping our clients achieve financial security and peace of mind.
Our Mission: Enhancing peoples lives by creating a positive life vision and the money to support it through our unique approach to financial planning.
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