Q. In January, I decided to liquidate most of my RRSP and non-RRSP stock portfolio. After crunching the numbers, total gains minus losses left about a $20,000 loss. All my RRSP proceeds were taken out. How much of these amounts can I deduct when preparing my tax return in March?
A. In these uncertain times, it is not unreasonable for individuals to cash out of the stock market.
These are scary days, even for professionals. Many financial advisers insist, “Don’t cash out if you are in for the long term!” However, if it brings peace of mind, then you must do what you must do.
Any transaction executed after December 2008 (aside from any RRSP contributions to March 2, 2009 or superficial losses) are reported on your 2009 tax filing.
Therefore, withdrawals, sales, taxable income or losses will not affect 2008 tax returns. For 2009, you will have to determine what and how much income to report:
• Separate RRSP dispositions from non-RRSP transactions.
• All RRSP dispositions will have no immediate tax consequences, as they are tax sheltered.
• All RRSP withdrawals will be fully taxable for that year. The financial institution will provide a T-4RSP slip on or before Feb. 28, 2010.
• Calculate and offset capital gains against capital losses for non-RRSP dispositions. The net amount must be reported on 2009 tax return.
• Taxes are paid on 50 per cent of capital gains, while excess capital losses can be applied to reduce capital gains in prior three years or carried forward in subsequent years.
Your tax adviser/accountant should provide some advice in these matters, not just tax preparation.
– Reach Henry Choo Chong, CGA, at email@example.com.