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Author: spunkeebeaver Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1193  
Subject: What do you think? Date: 2/6/2000 11:09 AM
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Greetings, eh? I purchase WMT stock through a payroll plan. Co. adds 15% of what we buy each pay. Stock split in Apr/99. Has gained $10 or so a share. On my wages, I can't max out my RRSPs. Would it be an option to sell some of my WMT shares to increase my contribution for '99? I am very new to this and would appreciate learning the pros/cons of this idea. Thanks for your input.
#spunkeebeaver
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Author: Jacko2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 378 of 1193
Subject: Re: What do you think? Date: 2/7/2000 6:54 PM
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Here's my thoughts:

1. First, you need to answer the question of whether you should carry some investments outside versus inside a registered plan. Generally, if you're in the top tax bracket now (ie, income > about $59,000/year), you'll want to contribute to such a plan. If you're in the bottom (<$30,000) bracket and don't expect that to change, you might be better advised to hold the shares outside the plan. In the middle, you'll have to make up your own mind.

2. Assuming you decide you want the shares inside a registered plan, you can either

a. sell them for cash outside the RRSP, and then contribute the cash. There's income tax consequences on the sale (capital gain/loss), and there may be administrative costs (check with your payroll folks); or

b. if you have a self-directed RSP, contribute the shares in kind (probably at some admin cost), and you'll have to pay capital gains tax if there's a gain. But you can't claim capital loss, if there's a loss. Also, on this option, you need sufficient foreign content room already inside the plan (I assume WMT stands for WalMart).

Find an adviser and get the numbers crunched, so you can know the potential gains and losses before going ahead.

Don

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Author: nsoley Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 379 of 1193
Subject: Re: What do you think? Date: 2/7/2000 7:01 PM
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But you can't claim capital loss, if there's a loss.

This came up before and I questioned it but was assured that's it's correct. I went off the the CCRA web site and poured through all the publications I could find that looked relevant and short of actually breaking out the tax act I couldn't find anywhere were it said that capital losses resulting from an in kind transfer to an RSP received any different treatment then capital losses resulting from any other terminating event (sale, aquistion by a foreign company, etc.). So my question is where does it say this?

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Author: vanselst One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 380 of 1193
Subject: Re: What do you think? Date: 2/8/2000 12:29 PM
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Greetings, eh? I purchase WMT stock through a payroll plan. Co. adds 15% of what we buy each pay. Stock split in Apr/99. Has gained $10 or so a share.
On my wages, I can't max out my RRSPs. Would it be an option to sell some of my WMT shares to increase my contribution for '99? I am very new to this
and would appreciate learning the pros/cons of this idea. Thanks for your input.


That is a good question with no good answer. In most cases, we say that it "depends on your situation" but in this case I would have to say that it REALLY depends on your situation.

The plan you outline would allow you to defer an additional $21.00 in taxes per share until your income gets below $30000 (at which point you only defer about $12/share). At 10% growth, you are getting about $2/share in growth so you need to be working with at least 50 shares or so to make it worthwhile after commissions.

The downsides are that the money in your RRSP becomes very restricted in terms of what you may invest in and how you may spend it and that the RRSP contribution room is no longer available if your income goes up.

If you are not planning on buying a house, engagement ring or new car in the next five years or so the RRSP thing may be the right thing to do. Given that WMT is IMO a very good company to own for the long-term and that all growth is tax-deferred until you decide to sell it anyways, I would probably save the contribution room for now.

Interestingly, I am in almost the opposite situation. I have been aggressively contributing to my RRSP and ave very little contribution room left. In addition, I have a company which has an investment portfolio. As a result, when I decided this year to buy a house and a ring (and maybe a car too), I found that nearly all the money I needed had a tax implication. It has been kind of frustrating to try to come up with the money needed, pay the taxes and not dip into my RRSP. If I could do it over, I would have more investments in a non-registered account and more RRSP room so that I could realize the income (to buy the house) and not have to pay taxes in the highest tax bracket.

(*)Very roughly. If you were to sell the WMT, you would realize a capital gain(**) of $10/share and pay tax (at your marginal rate, ~40%) on 75% of that ($7.50 a share). By moving that money to your RRSP, you get to defer taxes on the original amount + the $10/share:

Selling 1 share adds $7.50 to your taxable income but you contribute $60 to your RRSP so your taxable income is actually reduced by $52.50 for every share you sell.
At 40%, you are deferring an additional $21.00/share.

(**) There are cases where it is treated as regular income and fully taxable.



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Author: spunkeebeaver Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 381 of 1193
Subject: Re: What do you think? Date: 2/8/2000 8:05 PM
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Thanks to all who took the time to give me their thoughts. I have no plans to purchase anything big. I just don't wanna be eating Alpo when I retire.
#spunkeebeaver

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Author: Jacko2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 382 of 1193
Subject: Re: What do you think? Date: 2/9/2000 9:57 AM
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<So my question is where does it say this? >

My info comes from the "KPMG Tax Planning for you and your family 1997", p. 46, but they don't give a reference. Admittedly a few years old, but I'm not aware this rule was changed since then. Try researching under "allowable capital losses", but that phrase just means the 3/4 of the total loss that you can recognize against a capital gain.

Also, RevCan publishes a little guidebook on capital gains. Did you find that one?

Don

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Author: vanselst One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 383 of 1193
Subject: Re: What do you think? Date: 2/9/2000 12:45 PM
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SpunkeeBeaver,

I can assure you that if you continue to invest the way you are right now (ie: putting everything extra into quality stocks for the long haul):

1) Finding RRSP room will be a bigger problem than filling it.

2) Not even your dog will have to eat Alpo.

Cheers,
E.

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Author: Canadienne Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 384 of 1193
Subject: Re: What do you think? Date: 2/9/2000 1:45 PM
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nsoley wrote>

But you can't claim capital loss, if there's a loss.

This came up before and I questioned it but was assured that's it's correct. I went off the the CCRA web site and poured through all the publications I could find that looked relevant and short of actually breaking out the tax act I couldn't find anywhere were it said that capital losses resulting from an in kind transfer to an RSP received any different treatment then capital losses resulting from any other terminating event (sale, aquistion by a foreign company, etc.). So my question is where does it say this?

Reply>>

The loss is denied by ITA S.40(2)(g)(i) as a superficial loss (defined in ITA S.54) because you still own the property (now in your RRSP) within 30 days of the day the loss occurred.

C

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Author: vanselst One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 385 of 1193
Subject: Re: What do you think? Date: 2/9/2000 4:02 PM
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The loss is denied by ITA S.40(2)(g)(i) as a superficial loss (defined in ITA S.54) because you still own the property (now in your RRSP) within 30 days
of the day the loss occurred.


Could we add this to the FAQ? This is an "every-three-month" question and (kudos to Canadienne) the first time somebody's actually answered it.

E.


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