There are two basic aspects of the housing market you need to understand. One is how to buy and sell property – the key factors to look for, why some properties appreciate faster than others, etc. The second is mortgages and how they work. Mortgage loans can be extremely complex so make sure you understand all the pros and cons.

There have been many books written about real estate in Canada. Two that are quite popular at present are 97 Tips for Canadian Real Estate Investors by Donald Campbell and Real Estate Investing for Canadians for Dummies by Douglas Gray and Peter Mitham. – G.P.

My advice is to never agree to an automatic rollover of GIC investments. Always instruct a financial institution to deposit the proceeds to your account at maturity. You can then decide if you want to reinvest in GICs, take some of the cash for spending, or put the money to work elsewhere. – G.P.

It sounds to me like the plan being proposed is based on using borrowed money from the brokerage house to create a non-registered investment portfolio. The interest on the loan would be tax-deductible and therefore would presumably offset the tax payable on withdrawals from the RRSP.

In essence, you’ll pay interest to the brokerage firm to save taxes on your RRSP. The net interest costs will likely be higher than any tax you save and you’ll be adding to your financial risk with a leveraged portfolio.

It’s your decision but, frankly, I don’t believe that someone who does not know the meaning of “margin call” should be involved in this kind of sophisticated maneuver. – G.P.

First, since this is a spousal RRSP you need to be sure that no contributions were made to the plan within the past three years. Otherwise, her withdrawals (or part of them) will be taxed in your hands.

Second, although your wife won’t have to pay tax on the withdrawals (there will be withholding tax but that can be recovered when she files her return) your own tax bill may rise. That would happen if you are claiming a full or partial spousal tax credit. The value of the credit is tied directly to the spouse’s income. The higher the income, the less the credit until it disappears entirely.

I suggest that you ask your financial advisor to run the numbers for you to see how your own tax bill would be affected by this strategy before you proceed.

Also, if you don’t actually need the money now, remember that by reinvesting it outside her RRSP she will lose the tax sheltering. – G.P.

I have $74,660 in RRSP deductions available for 2006 (I haven't been making the full deduction for a number of years). My new job pays $79,000 a year and I'm in my mid-40s. Should I put all or part of the cash into the RRSP deduction, or should I split it and put half on the mortgage and half into RRSPs? I'm not sure about diminishing returns of putting the whole lump into RRSPs. Thanks in advance! – Catherine L., Vancouver BC

The RRSP vs. mortgage question has been asked in different forms many times. It’s a tough call because there are so many variables involved that it requires a complex computer program to do any meaningful long-term projections.

One way to look at the decision is from a lifestyle perspective. If you can comfortably handle the mortgage payments and are confident you can continue to do so, put the emphasis on the RRSP – especially if you have no employer pension plan. Just be sure to set up your mortgage amortization schedule so that the condo is fully paid for by your planned retirement date.

Another approach is from a pure investment perspective. A pay down of the mortgage saves you interest on the loan. If your mortgage rate is 5%, you would need to generate a return of slightly more than 8% within the RRSP to end up with about the same after-tax result (assuming a marginal tax rate of around 40% when the money comes out of the plan). If you can do better than that, the RRSP would be the preferred investment choice.

Finally, you can split the difference. Make the RRSP contribution (spread the tax deduction claim over two or three years to maximize the benefit) and use the refund to reduce the mortgage principal. – G.P.

Setting up a trust will entail some expenses but would allow the money to be invested in securities that generate a higher return than you would get from an annuity, and therefore more income. The flip side is that you would lose the guarantee provided by an annuity.

It’s a difficult call but if the payments from an annuity would come up short (and remember to take inflation into account) I’d probably choose the trust. – G.P.

The estate of a deceased person is responsible for settling all outstanding taxes. Since the house is presumably the gentleman’s principal residence, it will not be subject to capital gains tax. But he may have other taxable assets, such as a RRIF. The will should appoint an executor (which could be your son although a lawyer is preferable) to discharge all outstanding debts including taxes and settle any other financial matters.

Once all the debts have been paid, the residue from the estate can pass to the beneficiaries. At that point, they are not liable for any income taxes, although there may be a land transfer tax to pay on the change in home ownership. If your son sells the house immediately, he would not be on the hook for any capital gains tax. However, if he holds on to it for a while and it appreciates in value in the interim then any gain after he took possession would be taxable since it is not his principal residence.

Since it sounds like there may be a fair amount of money involved here, I strongly suggest obtaining legal advice. – G.P.

We own our home and our savings are almost used up. My question is about the RRSP funds we have. Is there any way we could use them now with my small pension? – Marinus V.

Given the income that I earned in 2006, does it make financial sense to take out a RRSP loan or line of credit to use towards paying the entire RRSP contribution? Will I receive a significant refund to pay off the RRSP loan? I do not want to put myself in further debt resulting in a financial burden. – Michael A.

This is not meant to discourage you from making the RRSP contribution. But you should plan to repay the balance of the loan as quickly as possible, certainly within a year. Given your income, a monthly payment of $200 seems quite realistic. – G.P.