Long story short, I still have those shares, however, they are now worthless. I feel stupid for holding on to them. My question is whether I can claim the interest paid on my credit line for the money I borrowed to purchase the shares. I still have a large outstanding amount on my credit line and still pay monthly interest because of it.

Now I want to sell all 2,000 shares. How do I claim this on my income tax as a capital loss? Can I claim a capital loss if I were to sell them now when I file my income tax in March? Is this procedure so complicated that I need a tax preparer or an accountant to do my income tax?

I also have other shares on which I have to declare a capital gain (this will not offset my capital loss). Is it true that I can offset the capital loss against the capital gains indefinitely until all the capital loss is covered? – L.T.

Yes, the interest on the loan is tax deductible, assuming that the money was used exclusively for investing. In fact, you can go back and claim for previous years as well. See the General Tax Guide for details on how to make changes to a previously-filed return. You can go back as far as 10 years.

Claiming a capital loss on your return is not complicated and you do not need an accountant. Buy a tax preparation software program, enter the numbers, and it will do the calculations for you.

However, if you sell the shares now you cannot claim the loss until you file your 2008 tax return. That won’t be until spring 2009. So you cannot use the loss this year to offset your capital gains. The good news is that you can retroactively apply any capital losses to the three previous tax years. Losses can also be carried forward indefinitely. – G.P.

An RRSP is simply a tax-sheltered investment account. Your returns are predicated on what you invest in. It appears your RRSP money was invested in poorly-chosen securities, which is why it didn’t perform. It would have made no difference if those same securities had been held in a non-registered account – they still would have done badly.

So go back to the RRSP only this time try to be more selective in your investments. Start with a conservatively-managed balanced fund – one with a long history of steady returns and low risk. Some of the recommendations in my Mutual Funds Update newsletter that meet these criteria are Mackenzie Sentinel Income Fund (B units), Harbour Growth and Income Fund, Fidelity Canadian Asset Allocation Fund, TD Dividend Income Fund, and Signature Income and Growth Fund. Your financial advisor can help you make a selection.

Because of the tax-sheltering, you don’t need high returns to build a decent-size RRSP. If you invest $5,000 a year in a fund that generates an average annual gain of 7%, your plan will be worth almost $340,000 after 25 years.

Of course, I don’t advocate putting all your investment eggs in the same basket so over time you should add other funds to the mix. But you asked for a starting point, so there it is. – G.P.

TD offers many good mutual funds that could be used to start your plan. I suggest one of their balanced or dividend funds – it’s a good idea to keep risk to a minimum in an RRSP. I’m sure a financial advisor at the bank will be happy to help you make a choice. – G.P.

So yes, you would need to convert some of your RRSP savings to a RRIF to take advantage of this. But you don’t have to convert the entire amount – just enough to enable you to withdraw $2,000 a year. You are allowed to have both a RRIF and an RRSP until age 71.

Once the RRIF is set up, minimum withdrawals must be made every year. But if you take my advice and keep the RRIF small, that should not create a tax problem. – G.P.

Am I making a mistake? Isn't paying rent of $1,000 a month a waste of money? I am 49 years old and my husband is 55. Are we too old to be thinking of buying a house? – P.D.P.

My advice is to forget about buying a house for now. Although it technically can be done with the use of mortgage insurance, I doubt you would find any company that would finance a mortgage with no down payment, especially given what has happened with the subprime market in the U.S.

Instead, I suggest you go the RRSP route for the time being. Based on the figures you quote, you should be able to contribute $5,200 over the next year ($200 x 26 payments). If you invest the money carefully, within a few years your plan should be worth well over $20,000.

At that point, you can start thinking seriously about becoming a homeowner. You can borrow up to $20,000 from the RRSP interest-free to use as a down payment, under the Home Buyers’ Plan. If your husband can set up an RRSP as well, he could also borrow $20,000, for a total of $40,000 between you. Assuming you choose a modest house, you should have no problem obtaining a mortgage at that stage. Good luck. – G.P.

Follow-up: Recently, I was asked whether it was better to pay down the mortgage or contribute to an RRSP. In my reply, I said I was not aware of any on-line calculators that could help make this decision easier. A reader, Wade L., was kind enough to send along the following link. Try it out.

Click Here

In these circumstances, RRSPs do not have to be a top priority. However, before you make a final decision on a strategy, I suggest you do some projections. See if you can get estimates as to how much income you will each receive from the pension plans at retirement and match that against your anticipated expenses. There are worksheets to help you do this in my book The Retirement Time Bomb. You may also want to make use of the RRSP/mortgage calculator at Click Here

Also, remember that you can have your cake and eat it too. If you have any RRSP room (check your last notices of assessments from the Canada Revenue Agency) you could make contributions and then use the refund generated to pay down the mortgage. – G.P.

However, that doesn’t mean the share prices of the banks aren’t vulnerable and in fact CIBC, which is the one most exposed to tainted subprime paper, is down 38% from its 2007 high.

What to do in these circumstances? Well, there is nothing wrong with your boring GICs. Better boring than losing, I always say. If you want to aim for better returns, buy some bonds or bond funds, especially those that focus on government issues. Bonds have done very well in the past few months and should continue to outperform stocks if, as expected, interest rates continue to drop in the first half of 2008. – G.P.

I learned that to take advantage of the $2,000 pension credit, my husband should convert $2,000 of RRSP money into a RRIF, withdraw from the RRIF, and transfer the tax credit to my tax return. However, once he's started a RRIF, can I still continue to contribute to the spousal RRSP to minimize my taxes? Or should I forgo the $2,000 pension credit and claim the spousal RRSP deduction only? I have sufficient RRSP room.

Do most financial institutions allow a partial conversion of RRSP to RRIF? – L.W., South Surrey, BC

There’s better news regarding the pension credit. There is no law against a person having both an RRSP and a RRIF at the same time, as long as the person is no older than age 71. And your financial institution should permit partial RRSP conversions. However, I suggest that your husband shift more than $2,000 into the small RRIF for this purpose. If he collapses the plan each year, he’ll have to go through all the hassle of setting up a new one 12 months later.

One other point. As far as RRIF withdrawals are concerned, the pension credit can only be claimed at age 65 so he’ll have to wait two years to do this. – G.P.

Tax is another factor you need to consider, since most of your money is in a non-registered account. For example, about half the payments from the RBC Monthly Income Fund were fully taxable last year whereas less than 20% of the distributions paid by the BMO fund attracted tax at the top rate.

As you can see, there are several variables to consider. You may want to seek the help of a financial advisor to sort through them all. – G.P.