Hi Vadasambar,
When I said about the bonds I had in my mind your short time frame for investment and I meant to invest only in those short term bond which have a maturity left of around 2 years or less and are paying good interest and are available on either below par or par value in the secondary market.
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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada
Hi Vadasambar,
When I said about the bonds I had in my mind your short time frame for investment and I meant to invest only in those short term bond which have a maturity left of around 2 years or less and are paying good interest and are available on either below par or par value in the secondary market.
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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada
But Chopraji, the 2-yr benchmark bond yield, as of today, is only 3.25% almost the same as for a GIC.
Moreover, if you want to buy a bond you need to open an account with set-up fee and then there would be transaction fee involved for buying bonds. Ultimately the after-tax yield on these interest-bearing instruments would turn out to be very low even below the inflation rate.
Don't you think investments in both individual and spousal RRSP accounts would be a better choice?
Let me dwell on a few benefits, in addition to tax benefit in the year of contribution. I am assuming the client is married and has sufficient RRSP room and he opens individual and spousal RRSP accounts. According to the client he may decide after 2 years whether to stay here or go somewhere else. Now let us discuss the following:
(1) In case the client withdraws money after 2 years, he pays tax on the full amount whether it is his or his spouse's RRSP. Not much of a benefit except that he has enjoyed compounded growth for 2 years. But let us consider a likely possibility that in the year of his departure from Canada his income is low then he has a lot to gain in income tax savings on his RRSP withdrawn amount.
(2) If he withdraws money after 3 years the income tax would be shared between him and his spouse. A scenario where he can save a lot on income tax.
(3) If he waits for 5 years, he again becomes eligible for Home Buyers Plan and now he can withdraw up to $40,000 from the two accounts.
Chopraji, I would like to have your comments on this. Thanks.
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Man's Best Friend 
Location: Hum aap ke dil me rehte h
Posted on: 06-11-04 11:22:52
Tejsab,
I am not sure whether this RRSP option will work for me. I am right now making mid 60K and I expect my income to be around 70K in the next two years (rough calculation)+My wife doesnt work right now and she is expected to start working near future. This is likely to increase our taxable income in the future. So, If I withdrow from RRSP after two years, I might get taxed at a higher rate than what I save right now.
Your expect comments please?
Vadasambar
Teja Sahab,
Yes of course spousal RRSP is a better option if the spouse is earning much less and as you said, the moeny is there for 3 or more years so that it is taxable to the lower income spouse only at the time of withdrawal.
However, until we know our client fully well, we can not suggest any thing correctly as you would see from his later posts that he would be making more than what he is making now and also he is not sure whether he would remain in Canada or not. That's why I gave only a generalised answer and asked him to PM me as people who have money to invest for shorter terms, I can have their money invested for better gains by financing 'second mortgage'
Moreover, where would one invest the money in RRSP, because the MUTUAL FUND would have redemption fees apart from MERs and GICs or Treasury bills would not give him more return but may be able to beat inflation.
Regards,
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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada
Chopraji and Vadasambar avargal,
I agree we have only sketchy information about VS's situation. That is why I suggested 2-, 3- and 5-yr scenarios.
VS may leave Canada after 2-yrs. is not certain. Therefore, I refrained from concentrating only on 2-yr term. I proposed a broader perspective. If he does leave the country, then he has to pay the opportunity cost. That is a fact of life.
As far as investments inside RRSP are concerned, I would rather not comment unless client's risk profile has been analyzed.
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Man's Best Friend
deleted ..
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Real Estate Sales Representative
Accredited Buyer Representative (ABR)
Re/Max West Realty Inc, Brokerage
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Mobile: 416-843-7600
Office: 416-745-2300
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