I recently read a magazine article you wrote in which you gave a website of where to look for the best GIC rates. I've mislaid our copy of that
magazine and would very much like to get the website! – Cynthia P.
 

You can find all GIC rates on the website of Globeinvestor.com. Here is the direct link: http://www.globeinvestor.com/servlet/Page/document/v5/data/rates?pageType=gic_long&tax_indicator=R  - G.P.

I read recently that the government is planning on increasing the penalty (in 2012) if you take your CPP early - from 5% per year to 6%. I wonder if there are other CPP penalties that I may not be aware of. I am 57 and have been retired since March 2008. I contributed to the CPP each year from 1971 to 2008 with maximum contributions between 1975 and 2007. I turn 60 in 2012 so this would impact my benefits and although it's not a lot of money, it does add up. If there are other penalties, I may have to re-evaluate my retirement plan. - Dave D.
 

You have the right idea but your numbers are off. The current penalty for applying for CPP retirement benefits before age 65 is 0.5% a month or 6% a year. The proposal (which still must be adopted by Parliament and the provincial/territorial legislatures) is to increase this to 0.6% a month or 7.2% a year. This would mean that someone who applies for CPP on his 60th birthday would lose 42% of the amount he would have received at 65. This compares to a 30% penalty at present.

However, it is important to remember that the plan will be phased in over a five-year period from 2012 to 2016. This means that in 2012 the penalty for drawing CPP before age 65 will be 0.52% a month or 6.24% annually. If you apply in 2012 at age 60, your penalty will therefore be 31.2% as compared to 30% under the current rules.

The new rules will also require people who draw CPP before 65 to continue to make contributions to the plan if they keep working. (Currently you don't have to make contributions after you start drawing a pension.) This will add an extra "penalty" for those who remain in the labour force although the amount of their pension will be increased by the additional contributions. - G.P. 
 

There is a money problem in my life that is looming greater as each day goes by and I write to ask for your thoughts that I might find a solution, before my nest egg is gone and then any chance for a worthwhile life has ended for me.
 
Before now, I would never have ventured revelation of my predicament to anyone, but I trudged along thinking I could somehow handle it myself. Here it is:
 
After sixty years of falling through many cracks and pitfalls, having put the interests of others ahead of my own, I now find myself with a monthly income of just $611 but with a nest egg of about $100,000, half of which is still in a struggling RRSP. Fortunately, I am alone with no dependents. The reverse is true, in my case: I get accommodation and other diminishing help from family members.
 
Gordon, you are apparently a man of means and secure, to the extent money can do that. However, I perceive in you something else beyond that: A seasoned measure of good sense.
 
I chance to write, therefore, to ask you what I might best do with what remains. A couple of old sayings help move me to seek your wisdom. They are: Nothing ventured, nothing gained; and: If you don't ask, you most likely will not receive. Yours sincerely, Rick in Nova Scotia
 

Assuming the $611 a month is secure, your financial future is obviously closed tied to the "struggling" RRSP. The fact you would use that adjective is a tip-off that something is wrong. If your RRSP is struggling then the money is probably invested in securities that have more risk than is appropriate in your situation.

The starting point is to carefully analyze everything in the plan (or ask a financial advisor to do it). Decide what is appropriate and what is not. It would appear that at this stage capital preservation is more important to you than growth - the language in your question suggests your fear is the loss of this asset, your "nest egg" as you put it. Therefore, the investments in your RRSP should reflect this.

This means fixed-income securities should be the largest component in your plan, say 70% of assets. With interest rates so low, we are advising readers of my Income Investor newsletter to stay with short-term bonds (not more than five years) or the funds that invest in them to limit risk. You might also consider adding some high-quality preferred shares to your RRSP to increase the yield. - G.P.
 

Would you say that TFSAs are becoming a better way to invest than RRSPs? I have both at 62, no dependents and no personal debt. Would the bank preferreds go into either one? - Jean W.
 

It's not a matter of one being "better" than the other. They're both excellent savings vehicles. Which one should get priority depends on your personal situation.

As a general rule, if you expect your income to be lower after retirement than it is now, contribute to an RRSP first. That's because your tax rate now is higher than it will be after you stop work. Your refund will therefore be greater than the amount of tax you'll be assessed when the money is withdrawn from the plan.

If you expect your income to be higher after retirement (perhaps because of a generous pension plan or an anticipated inheritance which will be invested) then use the TFSA first.

You can put bank preferreds into either plan provided it is self-directed. However, you will lose the benefit of the dividend tax credit by doing so. - G.P.
 

I will be turning 60 years of age in February 2010. I was told by a friend I could apply for Canada Pension at least six months in advance of this. How would I go about doing this and when is the best time? I am still working at this time. - Joan L., Nova Scotia
 

Under the current rules you cannot apply for CPP before age 65 unless you stop work for at least two months: the month before you start to draw benefits and the first month afterwards. If you will meet those requirements, it is advisable to apply six months before you want the pension to begin although it is not a legal necessity. You'll find an application kit on the CPP website at http://www.hrsdc.gc.ca/cgi-bin/search/eforms/index.cgi?app=profile&form=isp1000&lang=e  - G.P.
 

My mom recently passed away. She has a RRIF and some money in her bank account. She also has a cottage that will be going up for sale. Would you be able to tell us what percentage of taxes will be taken by the government? Is there a way to divert these taxes? Do we need to get advice from a tax accountant? - B.P., Manitoba
 

No, I can't tell you what the percentage will be because each asset will be treated differently. There is no tax payable on the money in her bank account. The assets of the RRIF will be added to her income in her final tax return and taxed accordingly. Any profit on the cottage would be a capital gain.

Of these, the cottage offers the best possibility for reducing taxes depending on how long she owned it and certain other factors. You may well need the advice of an accountant on this.

Note that all taxes will be paid by the estate before any money is distributed to the heirs. - G.P.
 

I was wondering whether an ETF's yield should be adjusted by its return of capital (ROC) for comparison purposes. For example. the iShares REIT ETF quotes a yield of 9.1% but 51% of the distributions were ROC. Does that mean that it really had a yield of 4.47%? Am I missing something? – Jim B.
 

I can understand the confusion. Return of capital implies that you are receiving some of your own money back hence the true yield is less. However, that is not necessarily the case. For example, the return of capital portion of a REIT's distribution is produced by the application of depreciation charges to the assets it owns. Since a REIT is a trust, these are passed through to investors and have the effect of deferring taxes (but not fully eliminating them). So you aren't really getting back your own money; rather you are benefitting from a tax break.

It would be more correct to reduce the yield from a fund in cases where the net asset value drops on a year-over-year basis. Ironically, in many of those situations you get no tax credit at all for return of capital. – G.P.
 

Do I have to take a minimum withdrawal payment from my RRIF in the year it was set up? I turned 71 in February. – George B.
 

No. You don't have to begin withdrawals until the following year, in your case 2010. By the way, your RRIF does not have to be set up until the end of December so there is no rush. – G.P.
 

I have a child who is 14 years old and is a successful musician. How can I set up banking for this business so it is the child's income and it is taxed to the child, yet I have control over the use of the funds? – Fred S.
 

There should be no problem opening a bank account for the child, in trust. Any payments should be made to the child directly so that there is a clear tax trail. If you are the trustee of the funds, you control them as long as the child is a minor, although you would be expected to use the money for the child's benefit. Once he or she reaches the age of majority, you can no longer retain control. At that point, the child can do whatever he/she wants with the money. You should consult an accountant to ensure the child's financial affairs are set up properly. – G.P.
 

If a stock becomes delisted, can you show it as a capital loss on your tax return? How does one go about this? – John W.
 

I've received a few questions along this line which I suspect result from the delisting of the shares of Nortel Networks. The answer is yes, you can claim a capital loss. Since the shares are delisted, there is no resale market for them so their value is zero.

When you prepare your 2009 tax return, simply complete part 3 of Schedule 3, which is where you list the disposal of publicly-traded shares, mutual funds, etc. Show the proceeds of the disposition as zero in column 2 and provide the rest of the information as appropriate. – G.P.