ARCH-savings-cracked-egg

The experts

John Campbell, CA, CFP, partner, tax group leader, Hilborn, Toronto

Claudio Piron, CA, CFP, FCSI, CSWP, senior investment advisor, Dundee Wealth, Mississauga, Ont.

Client profile
Josh is a 35-year-old single software designer living in London, Ont. Ever since he got his first paycheque from a part-time job, he’s been investing in RRSPs.

The situation

With at least three decades to go before retirement, Josh’s portfolio is invested in global mutual funds, commodity stocks and specialty funds. Through diligent saving, he has managed to put away $110,000.

His $70,000 annual salary covers his mortgage and all living expenses. In addition, he inherited his grandmother’s house four years ago, which he’s been renting out at a rate that covers property taxes, utilities and upkeep.

His grandparents bought the property in the 1950s for $15,000, and it’s now worth $300,000 because of the size of the lot and its proximity to the University of Western Ontario.

The city now wants to expropriate the property for a parking lot, so he’ll face a significant capital gain. His RRSP investments have dropped, and he has a significant capital loss on paper. Josh wants to offset the capital gain with his RRSP capital losses.

The issues

Josh’s grandparents raised him after his parents were killed in an accident. His grandmother was a bookkeeper and instilled in him the importance of saving and investing. After his grandfather died, Josh’s grandmother moved in with him, but she kept her home and rented it out.

Josh started investing in RRSPs at age 16 after speaking with his grandmother’s investment representative at her bank. He showed a high risk tolerance so the rep suggested he invest in high-yield, high-risk stocks.

The stocks fared well during the tech boom, but have since fallen consistently throughout the last decade. So far this year, he’s lost approximately $35,000 on paper.

Josh has about $25,000 in a savings account, and contributes to a defined-contribution pension plan at work, but has no non-registered investments.

He is facing a significant capital gain when the city expropriates the house he inherited. The estate paid the initial capital gains when he inherited four years ago, but the house has since increased $50,000 in value. He wants to know how to minimize the tax hit and is looking for advice on revamping his investments going forward.

How did Josh get here?