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My wife and I will soon be converting our registered retirement savings plans into registered retirement income funds. Since we must cash out the required minimum percentage of the RRIF value each year, how should we decide which investments to sell? I’m also concerned that sell decisions will come with transaction fees, which will reduce the value of the account.

You don’t necessarily have to “cash out” any stocks to make a RRIF withdrawal. If you don’t need the money, you could ask your broker to make an in-kind withdrawal of shares with a market value is equivalent to the minimum amount you are required to withdraw. This will avoid brokerage commissions but fulfill the government requirement to draw down a certain percentage of your RRIF. Withdrawals up to the required minimum are not subject to withholding tax, but amounts over that threshold will have some tax withheld. It’s therefore a good idea to keep some cash in your RRIF to cover possible withholding tax. Keep in mind that the entire withdrawal will be added to your annual income, so there may be additional tax to pay when you file your return.

Can I claim the cost of face masks as a medical expense for tax purposes? It only seems fair since businesses and schools are requiring masks to prevent the spread of COVID-19.

Sorry, you’re out of luck. According to the Canada Revenue Agency, a device must meet several conditions to qualify for the medical expense tax credit (METC). It must be prescribed by a medical practitioner, it must be included in the CRA’s list of qualifying devices and it must meet “conditions as are prescribed by the regulations as to its use or the reason for its acquisition,” the CRA said in an interpretation bulletin last year.

The CRA’s list of qualifying medical devices does include an “air or water filter or purifier.” However, such equipment only qualifies for a tax credit in special circumstances.

“We are of the view that medical masks and respirators are likely to qualify as eligible devices for the purpose of the METC if they are prescribed by a medical practitioner for a patient to cope with or overcome a severe chronic respiratory or immune condition,” the CRA said in its interpretation.

Bottom line: For the vast majority of people who are buying medical or N95 masks to protect themselves and others from COVID-19, the costs do not qualify for the METC.

Regarding your recent column about “phantom distributions” for exchange-traded funds, am I correct that they are always reported on the T3 slips we receive?

Yes, and no. The capital gains that give rise to a fund’s reinvested distribution – also known as a non-cash or phantom distribution – are included on the T3 Statement of Trust Income. However, the amount may be commingled with other capital gains reported in the same box. The T3 does not break out or identify reinvested distributions separately, which means you can’t rely on the T3 alone to determine whether, or by how much, you should increase the adjusted cost base (ACB) of your ETF units.

As I mentioned in my column, ETF companies publish reinvested distribution amounts for their funds in December, so investors can look up the numbers on the ETF provider’s website and adjust their ACBs accordingly. Even if you are relying on your broker’s “average cost” or “book value” figures, I recommend that you verify that reinvested distributions have been included. Otherwise, your ACB might be lower than it should be, which could inflate your capital gain and lead to higher taxes than necessary when you eventually sell your units.

We hold a mix of Canadian and U.S. equities, as well as fixed-income investments, with one of the bank-owned brokers. Are the gains of the holdings within our registered retirement savings plan and registered retirement income fund accounts subject to capital gains tax? I’m sure they are, but I just want to check.

It’s a good thing you checked. There are no capital gains taxes in RRSPs, RRIFs, tax-free savings accounts, registered education savings plans and other registered accounts. When you make a withdrawal from your RRSP or RRIF, the amount is added to your taxable income. Until then, there is no tax to pay.

E-mail your questions to I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.

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