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investor clinic

When I published my New Year's money quiz last week, I invited readers to e-mail me if they were stumped by any questions.

Today and next week I'll provide explanations for the questions that elicited the most responses.

We'll start with No. 15, which was – by far – the most difficult question based on the e-mails I received.

Ignoring commissions, if you invested $10,000 in an oil and gas producer on May 3, 2013, and sold your shares for $4,000 on Dec. 31, 2014, you would be entitled to claim a capital loss of _______ on your 2014 return:

a. zero

b. $6,000

c. $6,000 less any return of capital

d. $3,000

The correct answer is a. zero. Why? Because, for tax purposes, it's the settlement date that counts, not the trade date. When you buy or sell a stock, the trade settles – that is, the shares and cash actually change hands – three business days after the order is executed. So a stock sale on Dec. 31 would settle in 2015 – too late for the loss to be included on the 2014 tax return.

In fact, because of the Christmas Day and Boxing Day holidays and the weekend that immediately followed, for the capital loss to have counted in 2014 the trade would have had to take place no later than Dec. 24. Had that been the case, the investor could have claimed the $6,000 loss in 2014 (less any return of capital received, which reduces the adjusted cost base of an investment).

There are a few other points to keep in mind. Capital losses must first be applied against any capital gains incurred in the same year. If there are net capital losses left over, they can be carried back up to three years or carried forward indefinitely to offset capital gains in other years.

Another question that tripped up some readers was No. 3.

Sandra turns 35 this year. She has contributed a total of $15,000 to her tax-free savings account, and last year she withdrew $10,000 to buy a used car. Her maximum TFSA contribution in 2015 is:

a. $5,500

b. $21,500

c. $31,500

d. $36,500

The correct answer is c. $31,500. To arrive at that number, first add the cumulative contribution room for the TFSA. In the TFSA's first four years from 2009 through 2012, the maximum contribution was $5,000 annually. In 2013, 2014 and 2015, it was $5,500. Assuming an individual qualified each year and made no contributions, the cumulative limit in 2015 would therefore be $36,500. However, because Sandra previously made a $15,000 contribution, her 2015 limit would be reduced to $21,500. The final step is to restore the $10,000 she withdrew last year – TFSA withdrawals are added back to contribution room the following year – which increases her 2015 limit to $31,500.

The final question we'll review here is No. 6.

Which of the following statements about registered retirement income funds (RRIF) is false?

a. You can use your younger spouse's age to determine your minimum withdrawal.

b. Tax is sometimes withheld on in-kind RRIF withdrawals.

c. The percentage of RRIF assets that must be withdrawn annually falls with age.

d. In some cases, RRIF income can be split with a spouse.

The correct answer is c. A few readers disagreed. They pointed out that the minimum percentage of RRIF assets that must be withdrawn annually rises with age. And they're right: At 65, for example, the minimum RRIF withdrawal is 4 per cent; at 85 it's 10.33 per cent; and at 94 and older, it's 20 per cent. But the question asked which statement was false, and c. is indeed false. The rest of the statements are true.

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