rrsp

FORT CHICAGO ENERGY TRUST $10.82 (Toronto symbol FCE.UN; SI Rating: Extra Risk) owns 50% of the Alliance Pipeline, a 36-inch diameter natural gas pipeline. It extends 3,000 kilometres from Fort St. John in B.C. to Chicago, Illinois. Enbridge Inc. owns the other 50% interest. The other assets held by the two partners are 85.4% of the Aux Sable natural gas liquids plant. Fort Chicago also owns the 1,324-kilometre Alberta Ethane Gathering System. In the three months ended September 30, 2006, Fort Chicago’s revenues fell 38.8%, to $137.2 million from $227.8 million a year earlier. However, the lower revenue was due to a change in the method of accounting for Aux Sable’s sales. Cash flow per unit rose 36.1% in the quarter, to $0.49 from $0.36. Fort Chicago’s units yield 8.6%. U.S. dividends paid in an RRSP are not subject to withholding taxes. Outside an RRSP, you may need to submit extra paperwork at tax time, as around 40% of the monthly $0.0775 distribution is considered U.S. source dividend income. Dividends from U.S. sources sent to Canadians are subject to a withholding tax — usually 15%. However, if you hold the trust outside an RRSP, in most cases, you get a Canadian income tax credit to offset that tax....

A question investors often ask at this time of year is “What role should bonds play in my RRSP?” If you’re going to hold bonds, an RRSP is a good place for them. That’s because bond interest lacks any tax advantages, unlike dividends from Canadian companies, which carry the dividend tax credit. Bonds usually have fixed maturity dates as well, so you can’t defer capital gains indefinitely, as you can with stocks. But the bigger question is this: should you hold any bonds at all? Holding a mix of bonds and stocks will reduce the volatility of your portfolio over long periods. But it will also cut the long-term return on your portfolio, especially with bond yields as low as they are today....

GREAT-WEST LIFECO INC. $34 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) is Canada’s largest insurance company, with assets under administration of $197.5 billion. Power Corp. of Canada, through subsidiary Power Financial Corp., controls about 70% of Great-West’s shares. In Canada, the insurance business is mature and concentrated among major insurers and the big five banks. While the strong economy has spurred demand from employers for group insurance, demand for individual policies is sluggish....

You can now take out $2,000 a year from a RRIF without paying federal income taxes i f you’re over 65, up from $1,000 previously. This will let you save around $305 a year in tax, up from $153. To take full advantage of the credit, you can transfer approximately $9,100 to a RRIF at age 65 (which assumes a growth rate of 5% a year), and then take $2,000 out per year from ages 65 through 69....

Starting in 2011, Ottawa will impose a tax on income trust distributions that will put the income trusts on an equal tax footing with conventional taxable corporations. Trusts will pay a 31.5% tax on distributions to unit holders, so your cash flow from those trusts will fall by the same amount. However, if you hold trusts outside of registered plans such as RRSPs and RRIFs, you will not see a large change in your after-tax position — even though the distributions you receive will likely drop by 31.5%. That’s because the distributions will now be taxed as dividends and Canadians will benefit from the lower tax rates provided by the combination of the dividend tax credit and the dividend gross-up (foreigners don’t quality for the favourable dividend treatment). For example, in Ontario, investors in the top tax bracket now end up with about $536 after tax on each $1,000 of trust income. Under the new tax proposals, investors holding trusts outside of RRSPs will end up with about $532 after tax. The difference is roughly similar for the other provinces....

You can now take out $2,000 a year from a RRIF without paying federal income taxes if you’re over 65, up from $1,000 previously. This will let you save around $305 a year in tax, up from $153. To take full advantage of the credit, you can transfer approximately $9,100 to a RRIF at age 65 (which assumes a growth rate of 5% a year), and then take $2,000 out per year from ages 65 through 69....

PETRO-CANADA $45 (Toronto symbol PCA; Conservative Growth Portfolio, Resources sector; SI Rating: Average) has delayed a final decision on its proposed 55%-owned Fort Hills oil sands project until mid-2008. The company now feels it will cost $2.0 billion to convert its refinery in Edmonton to handle the tar-like output, up 25% from a earlier estimate of $1.6 billion. To put that in context, the company earned $526 million or $1.02 a share from continuing operations in the first half of 2006. We feel this is a prudent move, since it will give Petro-Canada a better idea of the final cost. Lower oil prices could also slow down other oil sands developments, and cut the cost of steel and labour....

FORT CHICAGO ENERGY TRUST $11.88 (Toronto symbol FCE.UN; SI Rating: Extra Risk) owns 50% of the Alliance Pipeline, a 36-inch diameter natural gas pipeline with a capacity of 1,550 million cubic feet per day. It extends 3,000 kilometres from Fort St. John in B.C. to Chicago, Illinois. Enbridge Inc. owns the other 50% interest. The other assets held by the two partners are 85.4% of the Aux Sable natural gas liquids plant. Fort Chicago diversified its pipeline operations in 2004 with the purchase of the 1,324-kilometre Alberta Ethane Gathering System for $273.3 million. It’s now pursuing a number of growth projects, including investments in the proposed one billion cubic foot per day Jordan Cove liquified natural gas (LNG) terminal in Oregon, and the proposed Pacific Connector pipeline, designed to bring that gas to market. In the three months ended December 31, 2005, Fort Chicago’s revenues rose 5.5%, to $231.7 million from $219.6 million a year earlier. Cash flow per unit fell 16.7%, to $0.35 from $0.42....

If you’re turning 69, you’ll need to wind up your RRSPs. There are three main options: You can cash in the RRSPs and withdraw the funds in a lump sum (although you’ll be taxed on the entire amount in that year as ordinary income). You can purchase an annuity. Or, you can convert your RRSPs into RRIFs. Years ago, many investors chose annuities — contracts that give you a fixed sum every year until you die. However, returns on annuities are closely linked to the level of interest rates, and interest rates are still near historic lows. In addition, annuities have no liquidity. If interest rates and inflation were to move up, your annuity payments would remain fixed and you would lose purchasing power, but you’d have no way to re-arrange your portfolio. So our advice is to resist any urge you may feel to buy an annuity. Many investors find they are able to generate returns that beat current annuity rates over time, if they invest conservatively in the kinds of high-quality investments that we recommend, well balanced across the five sectors....

IGM FINANCIAL CORP. $46 (Toronto symbol IGM; SI Rating: Above average) sells mutual funds and other financial services through three main divisions: Investors Group, Mackenzie Financial and Investment Planning Council. IGM is currently Canada’s largest mutual fund company, with $94.1 billion in mutual fund assets under management. Power Financial Corp. owns 56% of IGM. In the third quarter of 2005, IGM earned $0.66 a share, up 13.8% from $0.58 a year earlier. Revenue grew 11.4%, to $587.0 million from $527.1 million, as improving equity markets fueled demand for mutual funds. Mutual fund sales should continue to rise in 2006, particularly during the busy RRSP season in the first two months of the year, which accounts for over half of the mutual fund industry’s annual sales....