Personal Finance

A couple of interesting tax proposals for investors

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  • May 4th, 2020 5:48 pm
[OP]
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Feb 19, 2010
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A couple of interesting tax proposals for investors

These two tax proposals could throw investors a lifeline during the pandemic
[…]To further assist investors in a time of economic downturn, two proposals have been floated in recent weeks. The first would allow Canadians to tap into their RRSPs, tax free, to help meet current cashflow needs and the second would permit investors who may have experienced capital losses in their non-registered investment portfolios to more easily crystallize those losses and apply them against all sources of income. […]
As a household that hasn't received dime one of all the various Covid "programs" out there, these proposals are of interest having taken a hit in the ol' portfolio.

I'm not interested in crystallizing losses to re-purchase in our RSPs (don't have any RSP room anyway) but would be interested in both the RSP withdrawals without withholding as well as application of capital losses against "regular" income. Hope Trudeau and Morneau have enough sense to enact some/part/all of these proposals.
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Member
May 24, 2018
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Ontario
To compensate loss of income, RRSP withdraw is definitely on my 2020 list-to-do. May be FI should waive fees related to 2020 RRSP transfer or withdraw as well.
Newbie
Feb 29, 2020
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Intrigued by the first proposal as well.

I wonder if it makes sense to use it almost like a second HBP by serving as a deposit for another property purchase or paydown a portion of an existing mortgage.
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dreadsoap wrote: Intrigued by the first proposal as well.

I wonder if it makes sense to use it almost like a second HBP by serving as a deposit for another property purchase or paydown a portion of an existing mortgage.
Absolutely.

Haven't given it much thought since I just stumbled across this today but, off the cuff, might max out the withdrawals in each of our accounts under such a program and then not bother to pay them back and take 1/10 into income each year going forward. As retirees that are in the process of collapsing our RSPs it's not like we're not taking the money out anyway.

Further, if they went ahead with the capital loss proposal, we could take just that much more money out of our RSP accounts and be closer to the day that we're out of them altogether and then really be able to massage our annual incomes as needed.
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Jan 19, 2017
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Conquistador wrote: These two tax proposals could throw investors a lifeline during the pandemic



As a household that hasn't received dime one of all the various Covid "programs" out there, these proposals are of interest having taken a hit in the ol' portfolio.

I'm not interested in crystallizing losses to re-purchase in our RSPs (don't have any RSP room anyway) but would be interested in both the RSP withdrawals without withholding as well as application of capital losses against "regular" income. Hope Trudeau and Morneau have enough sense to enact some/part/all of these proposals.
How is the crystallizing capital loss going to help when you are out of a job in short term, except you can sell some investments that have gone down in value and have money to spend?
Sr. Member
Jan 15, 2015
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Conquistador wrote: Absolutely.

Haven't given it much thought since I just stumbled across this today but, off the cuff, might max out the withdrawals in each of our accounts under such a program and then not bother to pay them back and take 1/10 into income each year going forward. As retirees that are in the process of collapsing our RSPs it's not like we're not taking the money out anyway.

Further, if they went ahead with the capital loss proposal, we could take just that much more money out of our RSP accounts and be closer to the day that we're out of them altogether and then really be able to massage our annual incomes as needed.
It would interest me only if the $20000 were in addition to the amount I normally plan to withdraw each year. If I could collapse my RRIF in approx. 10 years and also have withholding tax deferred, it would give me an extra bit to invest each year.

Relaxing the superficial loss provision is also useful for my non-sheltered accounts, but not sure how you intend to apply that to your RSP though.
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Aug 5, 2006
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Global Village
Won't help the many folks under 71 who have already converted their RRSP into a RRIF, they should include RRIF withdrawals in the program and make repayments back to an RRSP optional. Given the choice I expect most people who can afford to repay it would opt for a TFSA where they have much greater flexibility to withdraw it again later.
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[OP]
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ml88888888 wrote: How is the crystallizing capital loss going to help when you are out of a job in short term, except you can sell some investments that have gone down in value and have money to spend?
I don't understand your question. I am retired so not "out of a job in the short term". I don't expect the markets to come back quickly so it's quite likely that my wife and I will both have losses to be crystallized before the end of the year.

For those that ARE out of work and needing cash why wouldn't you cash out non-registered investments particularly under the plan being discussed here?
SAM3674 wrote: It would interest me only if the $20000 were in addition to the amount I normally plan to withdraw each year. If I could collapse my RRIF in approx. 10 years and also have withholding tax deferred, it would give me an extra bit to invest each year.

Relaxing the superficial loss provision is also useful for my non-sheltered accounts, but not sure how you intend to apply that to your RSP though.
Can't see why it wouldn't be in addition. That's the whole point and exactly what I would do if this goes through.

If I can deduct net capital losses against regular income, I can withdraw more money from my RSP and net that against the losses to arrive at a taxable income number at the top end of the lowest tax bracket.
Deal Addict
Sep 2, 2009
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ml88888888 wrote: How is the crystallizing capital loss going to help when you are out of a job in short term, except you can sell some investments that have gone down in value and have money to spend?
Exactly.

Plus usually you can only offset capital gains instead of regular income (would mean knowing that there is some tax coming back to you later as well - to help repay the investments or improve cash-flow later as well as now), and remove some of the fear of crystallizing a loss now).
Sr. Member
Jun 19, 2007
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Halifax
Glad there's finally something, although effectively are you not just borrowing from yourself and missing out on growth? So there is still a real cost to investors. Ppl getting that 8k, or employees being paid to do nothing can just more or less continue on as normal with free money. But unless I'm missing something, there doesn't really seem to be a cost to the gov't here. Both missing out on 10 years or RRSP growth or crystallizing losses in non-registered investments, would leave you less wealthy over the very long haul. And what if you don't have income to offset it against? And the superficial loss rule, and even RRSP's as a whole, I always effectively felt "who cares". It's largely a pay me now or pay me tomorrow situation.
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seadog83 wrote: And what if you don't have income to offset it against?
Will mostly help people that have higher incomes but also higher expenses. Cost to government is less taxes - which is the savings to the person selling at a loss.

Example: loss right now can only be applied to a capital gain (50 percent inclusion rate towards capital gains) but applying to regular income tax allows for extra cash available now and at tax time (100 percent inclusion towards income).

If someone is temporarily out of work (3 of 12 months), this can make a lot of sense since there would would still be 75 percent of their income to pay taxes on next year.

At a high level though, it seems like it would mostly benefit the wealthier. (I do not have stats to say how many Canadians would actually have at least 25-50k in a non-registered account since a good chunk do not max RRSP nor TFSA)
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Jun 19, 2007
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cloak wrote: Will mostly help people that have higher incomes but also higher expenses. Cost to government is less taxes - which is the savings to the person selling at a loss.

Example: loss right now can only be applied to a capital gain (50 percent inclusion rate towards capital gains) but applying to regular income tax allows for extra cash available now and at tax time (100 percent inclusion towards income).

If someone is temporarily out of work (3 of 12 months), this can make a lot of sense since there would would still be 75 percent of their income to pay taxes on next year.

At a high level though, it seems like it would mostly benefit the wealthier. (I do not have stats to say how many Canadians would actually have at least 25-50k in a non-registered account since a good chunk do not max RRSP nor TFSA)
Ah good call on the inclusion rate. Not sure if it would be of tremendous benefit to someone subsisting off investments for a break from work though unless they let you carry it forward/back. I wish they had just did something simple like the US and sent everyone a cheque instead of having a dozen different programs for a dozen different groups.
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Dec 27, 2006
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Great deal, in for two. Thanks OP, up voted.

Now let's see what fuzz is about. The govmnt wants to give the bag holders a break after their portfolios almost evaporated trying to suckering them in by offering cap loss to offset income. What the govmnt doesn't tell you is that the tax short fall has to come from somewhere, either in the form of higher tax rate in your other part of taxable income, or in the form of reduced benefits, or in the form of increased govmnt borrowing. All fuzz is for no real relief. The only outcome is increased taxpayer paper work, though this will have public service sector's seal of approval because that adds to their job security.

Oh, don't forget the rumor that the current Liberal govmnt is in talks of increasing cap gain inclusion rate. Those fortunate enough to be on the other side of the trade will get in at lower adjusted cost base buying from losers, only to have higher future tax payable thanks to the rumored increased cap gain inclusion.

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