Non-registered investment assets, Operation Management

They have set up two TFSAs for long-term savings.

  • One has a balance of $10,123 ($10,000 contributions, $123 in interest income for one year ). These funds are currently earning only 2.5%. However, in early 2011, these funds will be invested to earn 8.0% since Leonard will be making the investing decisions for this account.
  • The other holds preferred shares. Leonard had 700 $10 par value, 6% preferred shares of Steadfast Inc. which have an adjusted cost base (ACB) of  $10 per share and were worth $10  a share when  he transferred  them to the long-term TFSA at the beginning of 2009. The dividends are paid quarterly and are re-invested in Steadfast Inc. shares. Leonard transferred the shares - 5,000 to his TFSA and2,000 to Rose's  TFSA.  Since there is no capital gain on the shares,  there was no tax implication  for transferring half the shares to Rose. The balance at January 1, 2011 is $7,672 ($7,000 for the original transfer and $672 in additional shares bought with the dividends for two years).

When they have prepared their budgets for the years until retirement, any excess funds not invested in the long-term TFSA will be  invested  in a Balanced Mutual Fund. Leonard is going to assume that he will be able to earn 8.0% rate of return on both of the  long-term accounts - the TFSA and the Balanced Mutual Funds.

The Mutual Funds will be in Rose's name to minimize taxes.

Leonard's RRSP Investment Assets

Leonard currently has $120,400 in his personal RRSP, which is invested in a Canadian equity fund. He has a pre-authorized purchase plan (PPP) and for the past few years has contributed the maximum possible each year on a monthly basis to his personal RRSP. These contributions are made from his bank account every month - they are not deducted from his pay. He is fairly knowledgeable about investing and the score from his investor profile questionnaire categorizes him as an "aggressive growth" investor. Until the downturn in
the market a few years ago, Leonard was earning double-digit real returns. He has revised his expectations and now aims to earn an average of 8% a year instead. He has no unused contribution room.

Posted Date: 3/1/2013 7:06:03 AM | Location : United States

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