Banking

In eight weeks you’ll be able to stick another five grand in your tax-free savings account. If you have a spouse, make that $10,000. If you have four children over 18, then shelter another $30,000. Finally, a valid reason to breed.

If you invest $10,000 in assets with a long-term return of 7% (what equities have given), and add in the annual TFSA contribution limit of five thousand, in 20 years you’ll have $243,674. Not bad for a hundred bucks a week. Of course, you can accomplish similar results with an RRSP, but the quarter mill will be nailed as income, and in 2032 you can bet tax rates will be higher.

I’m always gobsmacked by how many people think a TFSA is a ‘thing’ the bank sells. In fact, surveys show that eight out of ten people believe TNL@TB, and fill their tax shelters with a savings account. This is like making your new Boxster into a planter. Or marrying for love.

Fact is, with interest rates where they are, saving money is a losing proposition inside a tax-free account. Even moderate inflation wipes away the benefit. So all you accomplish is lending money to the bank at 2% so they can give it back to you as a car loan at 5%, and suppress snickers each time you walk into the branch.

I’m appalled at how the banks are misleading folks. So remember this:

The maximum annual contribution is $5,000 per taxpayer, or $10,000 for a couple. All unused contribution room can be carried forward forever, as with RRSPs. Unlike RRSPs, though, there’s no ability to deduct the money you put into a TFSA from your general taxable income, to net a refund. But, also unlike an RRSP, you can take money out of a TFSA at any time without generating any tax bill.

And any money withdrawn from a TFSA can be replaced, without affecting your ability to add another $5,000 every year. Most importantly, everything you stick in a TSFA (as with an RRSP) grows free of any tax. That means capital gains, for example, compound and swell. The best TFSA is a self-directed one, in which you can place a giant range of stuff from ETFs to bonds to stocks.

Here are eight strategies worth reminding.

  • Stick as many of your assets as you can inside a TFSA. Stocks, bonds, strips, T-bills, options—everything qualifies for a self-directed account opened with an advisor or a brokerage company.
  • Make the maximum annual contribution, and if you don’t have the money then simply transfer in assets you already own in the form of a contribution in kind. Remember to get things in first that are subject to the highest rate of tax, such as interest-bearing bonds or foreign securities that pay dividend income. (Also remember a capital gain could be triggered if you transfer securities on which you’ve made unrealized profits.)
  • Use the TFSA to do some serious income splitting. If you give your spouse $5,000 as a gift, for example, then he or she can open a TFSA and contribute the maximum amount, investing this money in growth securities. None of that income will be attributed back to you. And unlike a spousal RRSP, they can take money out at any time and use it for any purpose—even the day after your gift—and no tax consequences.
  • In fact, you could put money in your TFSA, make a big profit on high-growth stocks, withdraw the profits tax free, give them to your son or daughter or mother, and they could then use that money to establish their own TFSA—a great way to recycle tax-free capital gains.
  • You can also take tax-free capital gains out of a TFSA and use them to make an RRSP contribution, which will in turn get a sizable tax refund because of the deductible nature of the retirement plan payment. This tax refund can then be used to replace some of the money you took from the TFSA, which allows it to grow further without triggering any tax consequences.
  • In other words, you have used a tax shelter to create an untaxed capital gain, then withdrawn that profit, tax free, in order to contribute to another tax shelter. By doing so, you receive a very large tax deduction, which reduces your taxable income, with a refund that can be reinvested in the first tax shelter.
  • If you’re retired and worried that your investments could grow in value and throw off income putting you in a higher tax bracket, or cause some government benefits to be clawed back, then simply shelter them inside the TFSA. Then you can withdraw cash whenever you want, without tax and without even having to report it as a part of your overall income.
  • The TFSA can help with tax-loss selling. For example, if you dump a stock that’s lost value in order to claim a year-end capital loss against other capital gains, do it outside the TFSA. Then put the money inside your tax-free plan where it can be used to buy back the security and any future gains will be sheltered, while you circumvent the superficial loss rule.
  • In retirement, having a fat TFSA solves some of the problems you might need an RRSP meltdown strategy to solve. That’s because all withdrawals from a TFSA are free of withholding tax, and do not add to your taxable income. So, it makes perfect sense to draw the TFSA down before you start cashing in that RRSP.

So the tax-free savings account is destined to eclipse the RRSP, especially when contribution limits rise. (The feds promised to adjust them for inflation, but no word on that year. Plus during the last election came the commitment to double contributions when the budget is balanced. But don’t hold your breath.) The very first money you save should go into one of these. Every stock, ETF or mutual fund you own should migrate inside a TFSA, unless you have no room. Your spouse and adult children should have them, allowing you to income-split. The most volatile or growth-oriented assets you own should be here. And never, ever, ever, ever put a savings account, GIC or pathetic Canada Savings Bond inside this baby.

As a group, bankers should be ashamed for taking advantage of the ignorance of the masses. The masses, for their part, have no excuse.

204 comments ↓

#1 Imprisoned In Parksville on 10.28.12 at 5:43 pm

First!

#2 Derek R on 10.28.12 at 5:45 pm

Wow! Really early today! Quiet weekend?

#3 Rainman on 10.28.12 at 5:49 pm

numero uno. :)

#4 Jim on 10.28.12 at 5:53 pm

Good work !

#5 nick on 10.28.12 at 5:57 pm

i’m pretty sure if you withdraw from a tfsa you can’t replace it till next year

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/trnsctns/menu-eng.html

That’s right. I did not indicate otherwise. — Garth

#6 NBE on 10.28.12 at 6:00 pm

Great advice and the reason I made the choice I did ;-}

#7 Junius on 10.28.12 at 6:04 pm

Hoof-Hearted and Coho (previous blog),

HH said, “Anybody remember Acid Rain…?”

Yes, it is real phenomenon caused by Sulphur Dioxide and Nitrogen Dioxide that was mostly solved in the late 1980s by a version of Cap and Trade similar to the carbon taxes being advocated now. Interestingly it was implemented by then President George H. W. Bush who actually believed in real science.

Coho’s international conspiracy theory is all right wing junk propaganda. The idea that global warming is a conspiracy to have us “give up our liberty” actual has it completely backwards. The conspiracy is to cast doubt on the science in order to allow the polluters in the Fossil Fuel industry to continue to pollute the planet with no cost to themselves. If you follow the money it leads right back to the Koch Brothers, Exxon, BP and the rest of them.

It has become a right wing talking point because it will take government regulation and collective action in order to deal with these problems. Like Acid Rain it will require countries to cooperate and agree on standards but the entire global government idea is just hysteria.

“Freedom” is defined as the right to pollute, exploit and leave the planet in any state they want. Whether it is gas fracking in Ohio or spilling oil in the Gulf of Mexico it is about extraction at the expense of all for the wealth of the few.

#8 Junius on 10.28.12 at 6:08 pm

Garth,

Thanks again for the TFSA. i have continued to use it to great effect over the past few years. The gift to the spouse is another great idea – many thanks!

#9 T.O. Bubble Boy on 10.28.12 at 6:13 pm

Paying 2% on a TFSA is far cheaper as a source of capital for a bank vs. paying 5% on Preferreds or 3% on bonds.

That’s why the banks don’t want you to know about self-directed TFSA options.

#10 JRH on 10.28.12 at 6:24 pm

Thank you !

#11 Susie on 10.28.12 at 6:29 pm

Unless you’re one of the many, many Canadians who have dual Canadian/US citizenship. Then you cannot have a TFSA, because the IRS considers this money taxable. Well, you can have one if you choose, but you will be taxed on the growth.

#12 Old Man on 10.28.12 at 6:31 pm

This all is very depressing as in Toronto had all these young babes going on dates with me whose families had big money, and should have married one to secure my future a bit more, as if I had played my cards right would be living on the Bridle Path in style. Oh well one cannot never look back in life, as to what could have been, so am stuck with my lot in life. :)

#13 nervous money on 10.28.12 at 6:41 pm

It’s the 7% return assumption that concerns me, whether inside or outside a TFSA. Don’t preferred shares (and stocks in general) decline in value when interest rates rise? And aren’t interest rates going to rise (eventually)? I worked very hard for the savings I have, and because they’ve been mostly in GICs, I’ve haven’t paid anyone to manage my money (as in a mutual fund), and I continued to see a return of about 5% right through the 08 crash. Sure, 2% or 3% nowadays isn’t much, but at least there’s no risk. I’m afraid of shooting for this 7% in a balanced portfolio, or even 5%, and seeing my money evaporate. I’d like to hear your suggestions, Garth, for a low-risk portfolio.

Already done. — Garth

#14 picasso on 10.28.12 at 6:46 pm

Brand new $250K gulf side of Florida

http://www.newhomesource.com/homedetail/planid-818567

Kinda beats the $420K in Saskatoon ha?

LOL

#15 BillyO on 10.28.12 at 6:47 pm

I opened a TFSA with one of the banks back when they first came out, contributed the max for the first two years but withdrew everything and it’s got $27 in it ever since. My questions:

1) how do I go about investing in good stuff beyond the crappy GIC/high interest account they have, i.e. a self directed account?

2) can I still contribute the max now/moving forward in 2013?

Thanks

#16 Investx on 10.28.12 at 6:48 pm

What if you do choose to hold GICs, any reason not to put them in the TFSA if you have room?

Why would you? — Garth

#17 Hoof-Hearted on 10.28.12 at 6:49 pm

#7 Junius on 10.28.12 at 6:04 pm

Acid Rain …et al ….was probably “rectified” by closures of local Industrial infrastructure outsourced to China etc.

I am not saying there are not problems…but again follow the agenda.

In the 2008 Beijing Olympics..didn’t China shut down its factories so that the “thick as pea soup ” smog would dissipate, albeit just for the duration of the games ?

I did a calculation re: cement production..on the basis that in Metro Vancouver…the (2) cement plants create 10 % of the GreenHouse Gases(GHG’s). I determined , via date available on line, that for every cement truck delivering a load, they represent 15-20 TONS of GHG ‘s. One can do the calculations of what the average(speculative) hi rise condo represents via GHG’s (besides being part of the RE bubble).

Yet our Gov’ts aka disciples of Maurice Strong(holed up in China and Al “Hockey Stick” Gore see that we, the lowly peons, should be taxed for some convoluted logic that more fiat currency will “duct tape” the holes in the ozone layer ?

Pollution , especially air – born….knows no border or boundaries.

Junk $cience …..$CAM….pure and simple…..used to impoverish what will soon become 3rd world countries.

#18 John on 10.28.12 at 6:53 pm

Garth, did I understand you correctly that I can sell stock within regular trading account realizing capital loss and immediately buy the same stock within TFSA and that will no be a supeficial loss? No need to wait 30 days?

#19 TurnerNation on 10.28.12 at 6:56 pm

NYSE’s physical trading floor, closed tomorrow. Electronic trading will remain open.

#20 TurnerNation on 10.28.12 at 7:06 pm

Is this bearish or what.

#21 Van guy on 10.28.12 at 7:11 pm

Mmmm stocks and mutual funds? Is this really you Garth?

#22 25Alpha on 10.28.12 at 7:12 pm

Can i convert what i have in rrsp/mutual funds into a TFSA without penalty?

Yes, so long as you have room. — Garth

#23 Nubbers on 10.28.12 at 7:18 pm

…but Flossy, what big teeth you have.

#24 Junius on 10.28.12 at 7:29 pm

#16 Hoof-Hearted,

You are missing the key point. Cap and Trade worked to reduce pollution and ended up spurring innovation. In the long run it did not impoverish anyone and the pollution was curtailed.

The Oil companies can afford to pay their way including the costs of the externalities associated with carbon emissions. The manipulation is by those who argue otherwise.

#25 Bottoms_Up on 10.28.12 at 7:29 pm

Want to work for a bank? They make you sign a waiver in effect saying you put the interests of the bank before that of the customers. That says it all.

#26 Bottoms_Up on 10.28.12 at 7:32 pm

#14 BillyO on 10.28.12 at 6:47 pm
——————————————
Just go to a bank and ask to open a “self-directed trading TFSA account”. Or open one on-line through Questrade. And to make up your previously contributions, I think you’re allowed a double-up per year. That is, you can contribute MAX $10,000 into it per year, until you catch up to your lifetime limit.

TFSA room accumulates annually. You can catch it up all at once. — Garth

#27 JL on 10.28.12 at 7:35 pm

25alpha – you can withdrawal money from your rrsp to place in your TFSA however, you will pay tax on the amount you withdrawal ( at your marginal tax rate).Once in the TFSA all interest, dividends, capital gains will be tax sheltered.

#28 BobC on 10.28.12 at 7:35 pm

Garth, your a jewel. I just wish you were around in 2005 for Americans. If anybody ignors your advise, well, they deserve what they get. Don’t stop. People need you

#29 Coho on 10.28.12 at 7:38 pm

Junius if you still haven’t seen your way to separating yourself from the left-right paradigm, how can you look at things with any degree of open mindedness or objectivity? Liberating one’s self from this mindset is the first step towards any degree of free thought, in my opinion.

I don’t really want to argue at length about the global warming issue, but wish to make a few more points. I realize that the global warming issue falls into the family of religion, pro-choice-pro-life, liberal-conservative, gay marriage, etc. These are highly charged divisive issues of which the programming regardless of which side one aligns with is very strong, hence the heated debates.

My personal opinion is that science has elevated itself into a god-like status declaring what is true and what isn’t — what is possible and what isn’t based on its current understanding and level of advancement. Many good things have come from it, but like anything else it can also be used to disadvantage people. Scientists are people too, and hence not above comprising their ethics like bankers, politicians, and heck, people from all walks of life when their livelihood is subject to the whims and expectations of those above them. Many scientific studies are paid for by companies or institutions that expect ‘certain results’ and conclusions derived from those results. Numbers and trends can be massaged, skewed, spun, omitted, cherry picked, and interpreted to support one side of the argument or the other.

You mentioned the flat earth. There was also the belief that the cosmos revolved around the Earth in Ptolemy’s time. Science stood behind these theories in the past and people were ridiculed or worse for believing otherwise. Certain theories are sponsored and supported by those behind world affairs, which on the surface may seem plausible at the time, but meant ultimately to mislead people and scientists alike.

Remember the headlines about Cern in Switzerland in that they discovered that particles can actually travel faster than light, but this threw a wrench into established beliefs and was later retracted. Reason being there was a ‘loose wire’ which caused inaccurate readings. And people believe this! Imagine a multi-billion dollar machine subject to being compromised by a loose wire. And the janitor probably got blamed because he was the one in charge of making sure all the ‘wires’ were cinched down real good. It’s laughable. Too many people take at face value anything coming from official sources.

We can’t blame a hotter sun on the people or do anything about a hotter sun. However, we CAN blame people for greenhouse gases and insist they pay to remedy it for the benefit of all. This is why the entire focus is on the human factor even though the contribution of humans to the global warming phenomenon is very small and quite insignificant.

Yes, cleaning up the air is beneficial, but this is not the real thrust behind the emissions trading scheme issue. People are quick to label opponents of ‘common consensus’ as conspiracy theorists. Strange that in a world mired by inequity, war, deception, and suffering — talk of things being not what they appear to be is ridiculed. If this world was a utopia, one could understand why certain people would view the whisperings of conspiracy as delusional, but come on, let’s look around us. There’s money to be made from war, suffering, treating the planet like a rented mule, and ignorance…but not from the general public. Our job is to pay for it, I guess.

#30 EIT on 10.28.12 at 7:40 pm

#7 Junius o contrere mon frere

Libertarian (right wing) politics looks down upon pollution as a third party being harmed as a cause of a contract between two people. As an example the Netherlands told Germany some time ago: Hey the water that moves through my lands originates in yours. So i’m being hurt when you dump shit in your water, Stop it!. And good sense prevailed, or some my dutch brethren tell me. BP spill case in point, criminal activity not held liable cause some jerk off in a some bureaucratic position is going to say : Duhh… we find BP to be not at fauld….Duhh. If property rights were alive everyone along the coast could have sued BP and won because of their negligence. You cannot exercise a freedom if it harms life of another. CRIMINAL ACTIVITY!!!!!!!!!

#31 tkid on 10.28.12 at 7:40 pm

BillyO,

I have a self directed TFSA with CIBC. I called CIBC’s phone line, explained I wanted to open a self directed TFSA, and they opened one for me. I can invest in stocks, etfs, bonds, gics, mutual funds in that account.

I imagine most of the big banks have the same thing. Don’t go to the little branch, phone the main phone number and explain what you want.

#32 Jed on 10.28.12 at 7:49 pm

Don’t invest, a zombie apocalypse is coming:
http://www.youtube.com/watch?v=6TiXUF9xbTo

#33 Devore on 10.28.12 at 7:52 pm

#14 BillyO

2) can I still contribute the max now/moving forward in 2013?

Sure.

Any money you withdraw is added to your contribution limit the following year.

#34 Kate on 10.28.12 at 7:52 pm

Can i convert what i have in rrsp/mutual funds into a TFSA without penalty?

Yes, so long as you have room. — Garth

But wouldn’t you have to deal with RRSP withdrawal tax then?

Sorry, misread your query. Of course RRSP withdrawals are fully taxed. There is no conversion mechanism. — Garth

#35 happy renter on 10.28.12 at 7:54 pm

A 5 year gic at 2.5% is a great idea in a tfsa,that way you don’t pay tax on the interest.Also short term trading stocks or etfs.Mutal funds and bond are not good.Just don’t lose because in these very volitile times nothing is safe.Even the pros lose big money.

A GIC equalling the inflation rate means no gains. Fine if you are already rich. Are you? — Garth

#36 Julia on 10.28.12 at 8:01 pm

A friend was asking me about TD e-series index funds for a TFSA. What do others think?

#37 Dr. WAYNE on 10.28.12 at 8:02 pm

#1 Imprisoned In Parksville on 10.28.12 at 5:43 pm

First! … AND …

#3 Rainman on 10.28.12 at 5:49 pm

numero uno. :)

A PAIR OF MATCHING A-HOLES ……………….

#38 Steven Rowlandson on 10.28.12 at 8:07 pm

“I’m always gobsmacked by how many people think a TFSA is a ‘thing’ the bank sells.”

Don’t feel too bad Garth.
A lot of people think RRSPs are an investment like a stock or a bond and not a tax sheltered account to contain financial assets. If the bulk of the public were actually intelligent the bankers and politicians wouldn’t stand a chance. As it is it is open season on sheeple and the powers that be know it.
That is why we have wars , revolutions , depressions and other nasty events. The flock needs to be fleeced and culled and the PTB need to be entertained and enriched from time to time.

#39 Prairie gal on 10.28.12 at 8:10 pm

The Canadian Council of Chief Executives, the Canadian Alliance of Petroleum Producers and many, many other industry groups all support a carbon tax. It’s simply good economics (internalizing externalities) and good politics (Canadian exports will be hit with tariffs if GHG emissions are not priced in).

Also, Libertarians are not necessarily right wing. That is a gross oversimplification .

#40 Daisy Mae on 10.28.12 at 8:15 pm

Well, naturally, I forwarded this blog to everyone in my contacts list…including my kids, of course. First, and foremost. Powerful.

Hope SOME pay attention! Thanks, Garth.

#41 Bast on 10.28.12 at 8:23 pm

What are the estate rules re: TFSAs? In other words, if Momma Bear has a TFSA and Baby Bear inherits, is the TFSA liable for tax in the estate as a deemed disposition?

Not if the little bruin is declared the beneficiary. — Garth

#42 JO on 10.28.12 at 8:24 pm

TFSA is the most effective account in Canada. Should have been launched 30 yrs ago. It will be my main account in the long run.

Will max out RSP for refund but my plan is to withdraw it if i have low income years over the next 10 yrs. I am not convinced savers with large RSPs will be spared when tax explosion day comes. I have heard former MPs say off the record conversations have occured about the option of imposing an extra tax on “large” RSPs if tax money is really needed. RSP is best used as an income averaging tool, not a retirement savings tool..and i sell them….

TFSA is the best…it almost seems to good to be true..Garth i know you say not to count on government pensions but do you think the people under 35 who work for gov’t will not have a gov’t pension or will it be there just cut back ? Wife going on mat leave next year and i am telling her not to pay up the cash contribution as she is being ripped off as far as i can see..i would rather keep the cash for larger down payment on house in 12-18 months.
JO

#43 JSS on 10.28.12 at 8:31 pm

Garth, if you buy an Etf for the purposes of putting into a tfsa or rrsp, is there a chance that the company providing the etf (e.g. ishares) can go bankrupt?

No. — Garth

#44 Sasquatch on 10.28.12 at 8:31 pm

Thanks for the insight Garth. It’s been a long time since you did a Canadian investing article. I miss them since most investing articles are American.

Perhaps a future post can be about where to find Canadian investing info beyond your great site.

#45 Vangrrl on 10.28.12 at 8:44 pm

“Finally, a valid reason to breed.”

Love it!!!!

#46 ozy - TSFA lies on 10.28.12 at 8:46 pm

Basically, and why not surprising me, TSFA came at a time when GIC pay under 5% per year, so they are useless, tool for the machine

#47 Socius on 10.28.12 at 8:52 pm

Garth, if you put US dividend-paying stocks in your TFSA, you lose the 25% withholding tax and it is non-recoverable. The TFSA and RRSP are treated differently.
http://www.taxtips.ca/tfsa/taxespayable.htm

Also, the superficial loss rule does apply to a transfer-in to the TFSA. You must wait the +/- 30 days. The noted exemption doesn’t apply when the affiliated person (TFSA as a trust) is tax-exempt since the addition to ACB is meaningless in a tax shelter. Unless I am missing something on this one, which I could be…
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/lss-ddct/sprfcl/menu-eng.html
http://www.taxtips.ca/personaltax/investing/taxtreatment/shares.htm

Will you be coming to Calgary soon?

#48 Mainlander on 10.28.12 at 8:53 pm

Reminds me of that old saying. “if you think education is expensive, try ignorance.

#49 Junius on 10.28.12 at 8:57 pm

#28 Coho,

You said, “My personal opinion is that science has elevated itself into a god-like status declaring what is true and what isn’t — what is possible and what isn’t based on its current understanding and level of advancement.”

Don’t get me wrong – I am very concerned about the “cult” of science and the hold it takes over our lives. It sometimes becomes a fundamentalism of its own. I also understand that a scientific idea, opinion or fact may does not always provide answers for human affairs.

However there are facts that need to be understood and solutions need to be found as a result. Smoking causes cancer. Arsenic is poison. Some foods make us fat. In this case, CO2 concentrations in the atmosphere lead to global warming.

#50 Junius on 10.28.12 at 9:03 pm

#29 EIT,

You said, “Libertarian (right wing) politics looks down upon pollution as a third party being harmed as a cause of a contract between two people.”

I don’t recall addressing libertarian politics in this blog strand. However it is interesting to note that many Conservative and Right wing parties, thinkers and even governments outside of North America believe in global warming.

The link between such groups as the Tea Party in the US and their libertarian and denial of global warming is peculiar to the US and to some extent Canada and the UK. I believe the reason is the right wing media bubble that the North American strand of right wing libertarians live in that centres around the church of Fox News in the US and Sun news in Canada.

#51 abraxas on 10.28.12 at 9:06 pm

Garth, there is one downside to the TFSA – interest and dividends from US holdings are still subject to a 25% withholding tax which is not the case with the RRSP.

#52 Toronto CA on 10.28.12 at 9:11 pm

“#35 Julia on 10.28.12 at 8:01 pm
A friend was asking me about TD e-series index funds for a TFSA. What do others think?”

The e-series funds win if you can only add $100 at a time or so to the TFSA, as you can purchase small amounts ($100 I think is the smallest increment but I may be wrong) with no transaction costs.

If you have a $5k lumpsum to invest on day 1, you’re better off using an ETF that tracks the same index that the e-series index fund does though because the MERs are generally even lower (minus the one off transaction cost of purchasing the ETFs) and there is better selection. Hope that helps.

#53 Tom from Mississauga on 10.28.12 at 9:12 pm

That’s a lot of research.

#54 espressobob on 10.28.12 at 9:19 pm

#35

ETF’s might be a better choice for your TFSA. They tend to be more transparent in terms of holdings, also trade very close to NAV (net asset value) and very liquid. Mutual funds tend to shroud holdings & true costs unlike ETF’s.

I’m hoping Garth will shed some light on mutual fund costs like MER, trading costs, trailers etc in a future post. good luck.

#55 Freedom First on 10.28.12 at 9:23 pm

I am amazed at the # of Canadians who do not know about RRSP’s and TFSA’s and all of the rules for both of them. Used “wisely”, understanding them both in “every possible scenario”, they are a great gift to Canadians.

This is a great post Garth, as per usual you are financially educating the masses (who care to learn:)……free of charge….what a service!

Garth is right…….
TNL@TB, she is not your friend, most unfortunately, and I cringe at the trust some of my peers, friends, and family give her to manage their money): ……..as they tell me what they are doing with them, all bent over and unaware.

For disclosure…..my TFSA is strictly for dividend ETF’s, Preferred shares, and Real Return Bonds-10&20 years. All self-directed. Garth has been kind enough to answer questions for me on-line to help me with this-Thank you Garth! Much appreciated you took the time for me on your blog.

#56 piker on 10.28.12 at 9:27 pm

Isn’t it due to go to $5,500 in 2013? I believe it was only a couple of dollars short from the roll-over amount last year.

See Gordon Pape’s explanation from last year:

http://www.buildingwealth.ca/News/FeatureDetails.cfm?NewsletterID=4018&Type=F

Nothing is for sure until it is announced. So far, no announcement. — Garth

#57 OttawaRenter on 10.28.12 at 9:31 pm

Aren’t US assets better in a RRSP to avoid withholding tax on distributions? I don’t think the IRS recognizes the TFSA as a sheltered account as of yet.

US dividends get no special tax treatment in Canada. — Garth

#58 DodgedBullet on 10.28.12 at 9:33 pm

Where possible, use a DRIP inside of a TFSA.

Thanks again Garth – great advice! :)

Ben.

#59 dogman01 on 10.28.12 at 9:42 pm

Hi Garth & Others

I want to keep things simple wrt Tax.
US Dividends Payers are fine in RRSP – Tax treaties
I assume not fine in TFSA.
I assume no dividend credit for U.S dividends in a non registered account.

Interest i.e Bonds etc taxed at regular income.
Dividends get the 50% credit first.

Interest is good in RRSP as it is taxed as income when taken out which is the same as it would be taxed in a non-registered account. Dividends in RRSP get no special tax treatment as it is all income.

Therefore:
Non-Registered accounts dividends are your best bet.
TFSA good is for interest if you have need balance and have enough dividend payers in the non-registered. But you likely want high growth potential in TFSA.
US payers in RRSP if you want things simple then taxed as income when you pull it out.

#60 };-) aka D.A. on 10.28.12 at 9:43 pm

#253Junius on 10.28.12 at 2:43 pm

I find the nihilistic and fatalistic position many people take on this issue to be morally reprehensible. The starting point is that myth that we tell ourselves that we or masters of the universe and can exploit and denigrate the planet at our whims. Or worse, the fundamentalists who believe God will come down and save us or that we will be saved by science.

I do not believe in God nor do I believe that mankind is inclined to do anything about anything until such time as they have significant incentive to do something about it. Let’s hope that by then it will not be too late. In the meantime I look forward to us doing what we are doing, be it driving gas guzzling Hummers or building shelter much larger than we need, that brings forward more quickly that awakening age of enlightenment.

#61 Cory on 10.28.12 at 9:51 pm

I understand TFSA’s were really created to capitalize the banks….but they are also good for people but as you state, severely underutilzed and not used to their full advantage.

What do you think of DRIP’s and especially in a TFSA? thanks

#62 Old Man on 10.28.12 at 9:54 pm

My humble interpretation of the photo being displayed is the one on the left is a blowhard, and that is Caesar, and the other two are F and the C aka the carnival man who both march in step to Caesar’s agenda.

#63 same house 24 years on 10.28.12 at 9:55 pm

my strategy for after 65 is to melt down rrsp in 17yrs while maxing TFSA in 17 years then use TFSA as insurance to cover long survivor risk. Of course transfer high income securities like former stable trusts that affect the gross up of earning to lower the tax load.
this fine tunes your suggestion came up with it when it came up.
I’m an old age welfare bum trying to avoid the claw back.

#64 Sisko on 10.28.12 at 10:10 pm

Garth, as a married couple do we need to each have our own TFSA account, or can we have a joint one? If we have the option, would a joint one be recommended?

No joints allowed. — Garth

#65 Page on 10.28.12 at 10:19 pm

Isn’t it about time for the geared-to-make-believe-inflation TFSA to increase its yearly contribution limit to $5,500?

#66 Prairie gal on 10.28.12 at 10:21 pm

@EIT: you describe the tragedy of the commons. Unfortunately, not every economic problem can be solved by private ownership. Consider habitat preservation of migratory animals. There is a need for cooperative approaches to the more complicated problems.

#67 Awesome on 10.28.12 at 10:29 pm

Just to change the topic for a moment. Open house tour. Lots of empty homes in the GTA. Surprisingly some sold signs. I guess with every significant price drop there are those that will buy in. Everyone is hoping for a Steph spring market according to the realtors. They also smirk at you if you try to suggest prices that would have been seen two years ago. I look forward to the day when realtors say… Just make me an offer… Any offer and wipe that smirk off their face. Patiently waiting in the GTA. Also, I’m not bitter… I own my home outright for many years now and we are young.. Just want to move to a dream home without a ridiculous cost. Also. This week some of us got our new mpac assessments. Significant increases indeed. Toronto should be receiving theirs this week.. People are already complaining about the cost of home ownership… I think mpac assessments will finally tip the market down. It will be the straw that broke the camels back… If its not yet broken :) so
To say.

#68 Elmer on 10.28.12 at 10:29 pm

Who knows whether TFSAs will still exist by the time I retire. It’s likely the government will decide they’re losing too much profit by not taxing this money and will take them away. And since most taxpayers don’t even have maxed-out TFSAs, they’ll be more than happy to support this.

So what? They exist now. Use them. — Garth

#69 kreditanstalt on 10.28.12 at 10:35 pm

What’s the point of all this tax-minimization finagling and chicanery when many of us are jobless or on service-sector wages (savings-less) anyway?

Useless too for retirees or the unemployed – who are probably the majority these days…

The days when most Canadians worked for formal “companies” are L-O-N-G G-O-N-E…

OK, keep your money outside a shelter and pay tax. Good thinking. — Garth

#70 Kirsten on 10.28.12 at 10:36 pm

Hi Garth,

I recently opened a questrade account and took my cash out of the orange mans pockets. I am waiting for the new year to be able to transfer my money back into the TFSA. Is it possible to transfer the stocks from one account to another without cashing them?

Thanks in advance.

Yes. It’s called a ‘contribution in kind’ but you may trigger capital gains. — Garth

#71 Uki on 10.28.12 at 10:39 pm

#47 Junius : “Smoking causes cancer. Arsenic is poison. Some foods make us fat. In this case, CO2 concentrations in the atmosphere lead to global warming.”

Please keep going:

– You’re richer than you think
– Catch up and overtake America!
– You can count on us
– What’s in your wallet?
– Not a step back!
– The rich get richer and the poor get poorer
– Workers of the world, unite!

#72 Scott (GVRD) on 10.28.12 at 10:44 pm

Garth,

I haven’t received an accurate answer to this. Let’s say I have a $15,000 self-directed TFSA and have sold a stock at a loss of $1,000. That means my TFSA is now at $14,000.

Does my contribution room increase by $1,000 in the next year, just like if I had withdrawn $1,000 from the account? That would set my next year’s contribution room at $6,000.

My accountant says ‘no, the contribution room is $5,000′. If the contribution room doesn’t increase, why not?

Thank you in advance.

No. You get $5K a year, no matter how bad you are at investing. — Garth

#73 Scott (GVRD) on 10.28.12 at 11:00 pm

Cheers Garth. Much appreciated (even the snark). :)

You said: “The most volatile or growth-oriented assets you own should be here.”

Since you mentioned in your article that you should put your most volatile stocks in a TFSA, I’m surprised that a TFSA doesn’t see a stock loss and a withdraw as the same thing.

#74 John on 10.28.12 at 11:02 pm

5k what? 20 years when, 2032 huh? So you wrote a post on banking and how to best manage money without mentioning the reality of the banking system?

The truth is you don’t need to. That’s why your advice seems so correct. You’re preaching to the converted.

How your advice stacks up in the global reality you ignore I have no idea. Sure, go ahead and take advantage of the best a guy can do in the ponzi…but how can you be taken seriously when the big picture is avoided like the plague.

What about the enormous pressure on the banks to deleverage. What’s the impact as derivatives and debt hit the wall? Not even mentioned. You’re talking about 2032? You might get away with 2017 as an extreme sport, but 2032? C’mon.

#75 Hugh Jasz on 10.28.12 at 11:09 pm

#11 Susie on 10.28.12 at 6:29 pm
Unless you’re one of the many, many Canadians who have dual Canadian/US citizenship. Then you cannot have a TFSA, because the IRS considers this money taxable. Well, you can have one if you choose, but you will be taxed on the growth.

Don’t the yanks have their own alphabet-soup-acronymed account that’s virtually equivalent to a TFSA?

It’s there. Just wondering why’d they name it after Irish terrorists?

Anyway, if yer one of them dual-ies, maybe this is a good place to hold a few $Gs worth of your US investments?

That is, unless the Canuckistanian revenue agency will bleed you worse!

#76 Hugh Jasz on 10.28.12 at 11:13 pm

Susie, I also thought you needed a fair bit of income before Uncle Sam came looking for a pound of flesh.

Last time I talked to an ex-pat Yank about his tax situation was about 15 years ago. He was high-and-dry as
-Uncle Sam wanted nothing to do with income-after-deductions of less than $70K,
-The CDN dollar was in the shitter, and,
-You got to pick your own exchange rate on the form.

If you’re a Yank living in Hoserland, you’d be doing pretty well before you pay a dime in taxes.

#77 Angela on 10.28.12 at 11:18 pm

To:
Susie: The TFSA was based on what the US already has in the form of the Roth IRA. SO a dual citizen can contribute to their Roth IRA.
#17 John: You have to wait the 30 days otherwise you will be afoul of the superficial loss rule and your loss will be denied.
#15 Innvestx: TFSA or your RRSP is the best place to hold you interest bearing income since unlike dividends and capital gains, interest income is taxed at your highest marginal rate. Yes GICs are not paying much now, but once interest rates start rising and you roll over your GICs their return will increase as you invest in new ones.
Garth: If a person makes an in-kind contribution of stock from a non-registered account to the TFSA, if the stock is down they will not be able to claim loss. On the other hand if they had a gain they will be taxed on the gain. SO if your stock is down, then sell it, transfer the money to the TFSA, wait 30 days and then buy the stock back if you still agree with the fundamentals of the company.

General comment: As time goes on and the TFSA room increases, people should make sure that their TFSA is diversified across the different asset classes and that the asset classes are not correlated. SO hold some bonds, some stocks, preferred shares, dividend payers, gold etc. That way no matter the market, something in your portfolio will be increasing and when you do your regular re-balalncing you will have the opportunity to sell some stuff hiring and buy others at a lower price. Furthermore the person will avoid being caught offside if they only hold one asset class or a couple in their TFSA and the market for the asset class has a correction as happened in the stock market, the bond market, US (soon to be CDN) housing etc. Also in about 10 years or so there will be enough TFSA room for a couple to hold their mortgages in investment properties in their TFSAs and shelter the gains they make over time.

Interesting post. My wife reads your stuff on a regular basis.

Cheers
Lloyd

#78 City Slicker on 10.28.12 at 11:24 pm

Looks like BC feeling affects of 7.7 magnitude earthquake:

http://www.ctvnews.ca/canada/aftershocks-continue-to-hit-b-c-coast-after-7-7-quake-1.1013869

#79 dosouth on 10.28.12 at 11:32 pm

…and even the locals aren’t drinking the Kool-Aid in Kelowna anymore……

are you watching “};-) aka D.A. “?

http://tinyurl.com/944h9nb

#80 blase on 10.28.12 at 11:33 pm

Garth,

As an ex-pat, when I return to Canada can I claim the TFSA for years when I wasn’t in Canada? I’m assuming not. Thanks.

Need to be a resident over 18. — Garth

#81 Crash Calaway on 10.28.12 at 11:46 pm

Better choices where you actually have physical control of your dosh.

– shoe box
– mattress

#82 syd on 10.28.12 at 11:57 pm

is this blog going to turn into financial advice blog now ? or still focused on housing ?

#83 Lenar on 10.29.12 at 12:04 am

Garth and #17,

If you sell a stock/mutual fund for a loss you may not buy that stock/mutual fund back again for 30 days and claim the loss. Buying it back too soon negates the loss. So go ahead, sell it today, but wait 30 days before buying it back in your TFSA.

Of course my advice is worth what you paid for, as is Garth’s. If in doubt consult a tax consultant.

#84 not yet on 10.29.12 at 12:07 am

is it true that a TFSA is considered a foreign trust by the USA for those unlucky enough to file in Canada and the US?

#85 Hoof-Hearted on 10.29.12 at 12:10 am

#23 Junius on 10.28.12 at 7:29 pm

I respect your Al Gore/Maurice Strong injected given right(left?) to swallow this GAIA /Agenda 21 crap……

P.S. Mussolini also had the trains leave on time…how come he didn’t get a Nobel Prize like Gore and Obama?

#86 Peter Goesinya on 10.29.12 at 12:17 am

Buying a Kia tomorrow. Best warranty out there.
Thank for pointing me in the right direction Garth.

#87 Rentvester on 10.29.12 at 12:34 am

thanks for the informative post.

i’ll have to give this one a third or forth read later on.

#88 DonDWest on 10.29.12 at 12:43 am

http://www.viewpoint.ca/sidebarmap#!/overview/41376583/zoom/12

Ok, now I’ve seen everything in the world of real estate. Why exactly would people buy one story of a worn out shed for 50K plus? No land, no utilities, unbelievably poor conditions, having to partition the top floor of this two story shed with another occupant. Just WHO is this occupant who actually bought one floor of a shed?! Does this mean the entire structure is “worth” 100k?

Do they not realize you can buy a pretty damn nice car for 50K that would attract women and would be far more comfortable to sleep in than this “semi-detached masterpiece”? How is this building even legal?!

#89 Tony on 10.29.12 at 1:00 am

Re: #17 John on 10.28.12 at 6:53 pm

That would trigger a superficial loss. You’d have to wait at least 30 days.

#90 InvestX on 10.29.12 at 1:32 am

15 Investx:
What if you do choose to hold GICs, any reason not to put them in the TFSA if you have room?

Why would you? — Garth
———————————————-
Irrelavant why, but let’s say it’s during a time where GIC’s are paying at least 5% interest or I’m already rich?

#91 Party On Garth on 10.29.12 at 2:12 am

To avoid a superficial loss when selling a security in your non registered account, you must wait 30 days before repurchasing the same investment in your TFSA.

At least that is how I understand it.

#92 Jon B on 10.29.12 at 2:19 am

So lets say I invest in a diversified portfolio with the intention of making this much discussed 7% return. But for some unforeseen reason, I actually take a loss on my portfolio. But then I’m told that the guy I paid to help me choose the investments is an idiot. So then I re-invest with some other “expert” who outlines a completely different set of investments. And then lets say the portfolio still doesn’t outperform the bank’s lousy 1% gic rate. Could this happen or does every portfolio out there easily return 7%. GT I like where you are going with this premise but I don’t think the downside of giving money to stock traders gets enough ink on your blog.

Where did I say anything about ‘stock traders’? — Garth

#93 Devore on 10.29.12 at 3:19 am

Philip Chan update: although the price hasn’t been dropped again, the listing was changed. It now features the “free” car, front and centre. What are you buying here again? I thought MLS was for real estate.

http://www.realtylink.org/prop_search/Detail.cfm?MLS=V969843

Now 25% off initial asking price. The price will drop much further still, and of course has already dropped when you subtract the price of the car.

#94 Jane24 on 10.29.12 at 3:23 am

Garth are you not concerned that at some point in the future when govts are even more desperate for money than they are now and there are billions in theses tax-free funds, that the rules will change and these funds become taxable.

Won’t it be too much for the govt of the day to stop helping themselves. Particularly if the masses think the money belongs to the fabled 1%.

#95 Buy? Curious? on 10.29.12 at 4:36 am

Garth, great advice, but you know most people are too embarrassed to act on it. If you were to go to your bank and start asking questions about any thing financial, you’re always steered towards bank products. I know that I’m not the sharpest tool in the shed. My investment plan so far is this, bought a house that I’ll live in for 13-15 years, then downsize. All my other savings is in one stock (can’t tell you which one it is) and the other is inheritance. I’m not claiming to be Warren Buffet but my strategy looks fine to me but what about kids coming out of university with a huge debt, landed immigrants or scared old people? If my mother was to sell her house, and went into the bank to set up a TFSA or something else, she would have these different scenarios thrown at her that she wouldn’t know what to do. The bank will just pat her on the head and say “Everything will be alright.” She doesn’t have the time for that. She’s busy keeping busy. She does art classes, bridge and dancing. Oh, if life was just as simple.

http://www.youtube.com/watch?v=X2OkSmxnHew

#96 };-) aka D.A. on 10.29.12 at 5:34 am

#78dosouth on 10.28.12 at 11:32 pm
…and even the locals aren’t drinking the Kool-Aid in Kelowna anymore……

are you watching “};-) aka D.A. “?

… a single mother of two children told Castanet that having to pay rent, child care, groceries and bills, is a struggle for anyone in her situation. http://tinyurl.com/944h9nb

It is pretty easy to find such a good example of someone struggling to make ends meet in any society and, while I know I will take heat for sounding like an uncompassionate S.O.B., we all must, ultimately, take a great deal of, if not full, responsibility for our plight in life as so too must the single mother interviewed in that Castanet article. That being said, I don’t think anyone is going to find a two bedroom accommodation in Kelowna for much less than $900.00 per month, but then, really, are there many, if any, cities in Canada where you can find such accommodation? I do agree with Mayor Gray though that Kelowna is more affordable than reputed to be.

During the recent peak years in the last real estate cycle there was great debate over the lack of ‘affordable’ housing in the city. I suspect that debate was taking place in most every Canadian city at the time. Now, with the recent shift in the market, even city staff are beginning to realize that their pet projects designed to increase the supply of such ‘affordable’ housing are not nearly so effective as the free market is at fulfilling that need as that debate today has all but disappeared from local news headlines.

While a contentious issue on some fronts, what the city has done to address the issue of affordable housing in Kelowna recently is ‘fast track’ the authorization process for secondary suites in a primary residence reducing the turnaround time from two to four months to two to four weeks. While this process was, I suspect if the city were to admit the truth, more directed toward policing unauthorized suites than make more available it should at least increase the supply of more habitable ‘affordable’ suites. The deplorable conditions in which some landlords expect another human being to live in and pay for has always amazed me. But, it seems, there is ample supply of willing renters resigned to living such a lifestyle. As a landlord myself the main criteria I look for in a tenant is someone who is clearly set upon a path whereby they are improving their lot in life. While such a tenant remains a tenant for not long, such a tenant is, by far, the best tenant to have while they are a tenant and one I am willing to give a break because I know they will respect my property as I do it their ‘temporary’ home.

#97 House Horny Housewife on 10.29.12 at 5:49 am

Garth,

Yes the TFSA is a good thing and if you are going to open a savings or investment account then the TFSA allows you to shelter the income you earn from this account.

However, the money put into the TFSA is AFTER TAX money. Therefore, if you have $5,000.00 of income that you invest in an RRSP, the entire amount will be invested and the government won’t touch a cent of it (yet). If you wanted to invest the same amount in a TFSA, only the net amount after tax can be invested. You will earn the $5,000.00, the government will take their chunk and you can put the rest in the TFSA. Depending on which tax bracket you are in, that net amount can be quite a bit smaller than the original $5,000.00.

Therefore, in addition to the increased rate of income tax that you will pay in the future on RRSP income and the tax that you will pay on the gains of that RRSP account (which you wouldn’t otherwise pay on the TFSA), you have to also factor in the other side of the coin … that the taxes you pay to the government today on that $5,000.00 income (the net being invested in the TFSA) could otherwise have been invested and earn income for you up until retirement if invested in the RRSP.

Deferring taxes .. which is what RRSP’s essentially do, is not such a bad strategy and it really depends upon what financial situation you are in.

Of course you would ideally try to use both strategies to minimize your tax burden but I personally do not think that TFSA’s are the panacea that you seem to think they are, Garth. If the maximum allowable amount was say $20,000.00 per adult per year, then we are talking about a real nest egg for the future and I would consider them in lieu of the RRSP (although, again, you have that opportunity cost of not having to pay taxes today on ALL of the income). However, as it stands today, as you mentioned, over the long term, a nest egg from TFSA’s is not something to bank your future on. I cannot see myself and my husband retiring on savings of $243,000.00 (that’s around $12,000.00 per year if you withdraw 5% per year for 20 years starting at age 65).

HHHW

#98 John on 10.29.12 at 5:51 am

Checked The Star again today…and flashed through their business section. There’s an article on Europe. It’s not worth reading, but suffice it to say, it’s like the post on the blog today entitled “Banking”.

As with your post, banking is not mentioned. You’ve morphed the real estate reality into a banking fantasy. The Star has taken the banking fantasy much further. They’re talking about “political leaders”.

This is the company you’re keeping.

Insanity:

“With a population and GDP exceeding that of the U.S., and export prowess in innovative, high-end goods, Europe should by now be far advanced on the road to recovery. The blame lies with politics, and specifically parochialism and ideological fixations, not with a European economy whose fundamentals are strong. It is European leaders striking poses rather than compromises that has kept Europe from a restored health that would bolster rather than impede economic recovery in North America, China and elsewhere.”

#99 I'm stupid on 10.29.12 at 6:06 am

Hi Garth

Just a quick question. My tfsa is worth 35k right now, 20k contribution and 15k capital gains and dividends. If I withdraw money from the tfsa can I replace it at a later date even though its above the contribution limit due to the strong growth?

You can replace anything you remove, but in the next calendar year. — Garth

#100 Taser19 on 10.29.12 at 7:28 am

Pardon my ignorance, who or what is the ” orange man “

#101 TurnerNation on 10.29.12 at 7:42 am

I think this question must be asked: why is the goverment shutting down our transportation, market, food supplies/network, and water/hydro to some parts of the US? No debate, no choice. It’s “for our own good”. Scare.

Remember my line about a region suffering a week without food being more powerful than a bomb? By our government’s own hand? Will never happen you say? Remember New Orleans and the aid that never came?

#102 wendi1 on 10.29.12 at 7:59 am

You must NOT hold American dividend producers in your TFSA. There is a withholding tax imposed by the Americans on such stocks that is waived if you hold it in your RRSP or RRIF.

The 15% withholding tax on US dividends can be reclaimed as a foreign tax credit on your tax return if the securities are held in a non-registered account. In an RRSP or retirement income come, there is no withholding tax. In any case, unless you have large sums invested, this is a relatively small hit. — Garth

#103 William McNabe on 10.29.12 at 8:19 am

>>If you invest $10,000 in assets with a long-term return of 7% (what equities have given)

And you expect them to continue to grow by 7%? It couldn’t be that the prices have been puffed up for the past few years by the same asset bubble which created the housing bubble?

In the kingdom of the blind the one-eyed man is king, it seems.

The long-term average for the TSX (dividends plus capital gains) is 9.4%. A more conservative, balanced portfolio (40% fixed, 60% growth) has averaged 7.44% over the last two years and 6.46% over he last eight, which included the financial crisis. Your analysis is based on what, exactly? — Garth

#104 EIT on 10.29.12 at 8:43 am

#49 Junius on 10.28.12 at 9:03 pm

I wanted to address this statement: (I was worried)

“Freedom” is defined as the right to pollute, exploit and leave the planet in any state they want.

Just to add to the convo.

The problem you talk about is part miss-information. But the problem goes even beyond that. There are those out there who take the issue of the human population`s effect on the planet and twist the facts for their personal agendas and or gain. Just like a fraudster at unicef is stealing money while telling people its going to the needy. There are those who use the issue of human effect on earth towards their own interest regardless of whether or not the policy or whatever is going to help the environment. If I remember correctly california has been going a little overboard with their environmental stuff. Like at some point people were not allowed to dig a trench around their homes to protect their property from bush fires during dry season. I forget the environmental reasoning, probably some animal. They would get fined, and so people didn`t do the trenches and the result was a higher number of homes lost to fires. The enviromentalists do go overboard just like anyone else.

My point is, a good cause being perused by a just individual can be hijacked by some douch willing to commit fraud (i guess lie about his intentions in this case) and hijack the issue for his own gain. This issue applies to …. everything i guess, and if its to blatant and unaccountable people start getting v e r y c o n f u s e d… and then they hudde to protect their shit.

Here is some conspiratorial material for you:
http://www.youtube.com/watch?v=jf0khstYDLA
and sequel
http://www.youtube.com/watch?v=x9VcWkFrXWY

but you must already know about this
they created SANDY !!!! (SLAP, snap out of it EIT)

#65 Prairie gal on 10.28.12 at 10:21 pm

Your right, a balanced approach must always be considered, but non the less, property rights take care of a nice chunk of the pollution issue (I find). If we were a truly noble species (which we are not) we could apply the concepts of life, liberty and property to all life. Protecting the animals and their migration areas (their property in effect). I hope one day we enter this star trek world. Prime directive!!!!!! sorry should`ve held that bottled in.

#105 Tom on 10.29.12 at 8:54 am

“Use the TFSA to do some serious income splitting. If you give your spouse $5,000 as a gift, for example, then he or she can open a TFSA and contribute the maximum amount, investing this money in growth securities. None of that income will be attributed back to you. And unlike a spousal RRSP, they can take money out at any time and use it for any purpose—even the day after your gift—and no tax consequences.”

What do you mean when you say “none of that income will be attributed back to you”? I can deduct the gift from my taxable income; potentially putting me in a lower tax bracket? (My wife is a student with little income and no TFSA. I work and have 20k in a TFSA)

No. Non-deductible from taxable income. — Garth

#106 Eaglebay - Parksville on 10.29.12 at 8:54 am

#23 Junius (no genius) on 10.28.12 at 7:29 pm
“The Oil companies can afford to pay their way including the costs of the externalities associated with carbon emissions. The manipulation is by those who argue otherwise.”
__________________

In other words, the consumer pays.
Where do the oil companies get their money from?
The cost of doing business is always passed on to the consumers including corporate taxes.
Otherwise no production.

#107 Nukester99 on 10.29.12 at 8:55 am

#98

If you remove all the funds, you can only replace to the maximum contribution limit remaining in the beginning of the new year and not the withdrawn capital gains. You were not specific in how much you are withdrawing. So remove more than $20K this year and you will only be allowed $25k Jan 01, 2013.

#99

Orange Man is ING

#108 Jeff in Moose Jaw on 10.29.12 at 9:03 am

This is great to get these details about TFSA.
I don’t have one, but am sure thinking about it (and I just can never trust the opinion of TNL@TB.

From the weekends post, thank you Derek R and Live Within Your Means, for informing me about Dinner! Now I know.

#109 Eaglebay - Parksville on 10.29.12 at 9:04 am

#48 Junius (no genius) on 10.28.12 at 8:57 pm
“However there are facts that need to be understood and solutions need to be found as a result. Smoking causes cancer. Arsenic is poison. Some foods make us fat. In this case, CO2 concentrations in the atmosphere lead to global warming.”
_________________

How about a carbon tax on cows?
How about freedom of choice?
Any facts about smoking and cancer?
How about the people (majority) that don’t smoke and have cancer?
How about the benefits of arsenic?
Science has a long way to go.

#110 Mr Buyer on 10.29.12 at 9:20 am

#79 blase on 10.28.12 at 11:33 pm
Garth,

As an ex-pat, when I return to Canada can I claim the TFSA for years when I wasn’t in Canada? I’m assuming not. Thanks.

Need to be a resident over 18. — Garth
……………………………………………………………..
How about the years after 18 (18 to 38 or about 20 years) I was a resident before I became an EXPat?

Only applies in those years the TFSA was in existence. Nice try. — Garth

#111 Bigrider on 10.29.12 at 9:34 am

People in the GTA will be redeeming their TFSA’s next year to the tune of 20k and their RRSP’s ( homebuyers plan) to buy into the real estate market which is now “on sale”

GTA is house humper central..bottom line :houses/condos trump financial asset savings always.

Afterall, I quote the average Torontonian “houses are your best long term investment” .

Keep up the good fight Garth but I think you fight in vain.

#112 Sean on 10.29.12 at 9:37 am

Sorry I may have misread but can you confirm something with me.

If I already have a stock in my TFSA that has a big loss on it. How can I record that as a capital loss? Do you transfer it out to a non-registered account, is that possible ?

No taxable gains or tax-deductible losses within a registered account. SOL. — Garth

#113 EIT on 10.29.12 at 9:45 am

Sorry um.. nice post garth.

#114 Grantmi on 10.29.12 at 9:56 am

#17 John on 10.28.12 at 6:53 pm
Garth, did I understand you correctly that I can sell stock within regular trading account realizing capital loss and immediately buy the same stock within TFSA and that will no be a supeficial loss? No need to wait 30 days?

I dont don’t know the answer to your question.

But ..why the hell would you sell a looser stock you’ve lost a crap of money on, and rebuy it in your TFSA?

Sure.. Sell and take the tax loss, but look for a different stock pick in your TFSA. (unless you’ve got inside information that dar gold up in dem hills!!)

#115 Bottoms_Up on 10.29.12 at 10:10 am

#108 Eaglebay – Parksville on 10.29.12 at 9:04 am
—————————————————-
The facts are clear-cut on smoking and lung/throat cancer.

The funny thing is that alcohol (ethanol) is a carcinogen too. You don’t see beer companies getting sued by people with mouth/throat/stomach or liver cancer.

#116 Timbo on 10.29.12 at 10:16 am

Some Links for Sandy: Flooding underway.

http://abclocal.go.com/wabc/livenow?id=8857235

http://forums.accuweather.com/index.php?showtopic=30127&st=2980

http://google.org/crisismap/2012-sandy

http://www.reuters.com/article/2012/10/29/us-usa-economy-spending-idUSBRE89S0K420121029

“Consumer spending rose solidly in September as households stepped up purchases on automobiles and a range of other goods, but the increase came at the expense of savings.”

Slowly spinning the tires but will it work?….

http://www.guardian.co.uk/commentisfree/2012/oct/26/can-company-fire-you-for-way-you-vote

“Can the company fire you for the way you vote?

Very likely, yes. When it comes to employees’ political views, the free market, not free speech, is the power that rules America”

Gotta love our plutocracy with a new mindset that forces a “mum’s the word” mentality.

#117 Bottoms_Up on 10.29.12 at 10:17 am

#108 Eaglebay – Parksville on 10.29.12 at 9:04 am
————————————————
And the etiology of cancer is multifactorial. Therefore, people can get cancer from a variety of sources/events, not just from smoking. Viruses, radiation, cellular (mis)replication, particles, chemicals etc.

There’s a saying: “if you live long enough, you’ll get cancer”.

There is a truth to that, DNA is only so stable for so long.

#118 Bottoms_Up on 10.29.12 at 10:32 am

#35 Julia on 10.28.12 at 8:01 pm
—————————————–
e-series are good b/c of the low/no fees, but you lack options, I believe there are only a handful to choose from.

#119 Bottoms_Up on 10.29.12 at 10:33 am

TFSA room accumulates annually. You can catch it up all at once. — Garth
———————————————–
Thanks, must have confused the RESP rules with the TFSA. Too many acronyms.

#120 HD on 10.29.12 at 10:39 am

@ #96 House Horny Housewife on 10.29.12 at 5:49 am

“However, the money put into the TFSA is AFTER TAX money. Therefore, if you have $5,000.00 of income that you invest in an RRSP, the entire amount will be invested and the government won’t touch a cent of it (yet). If you wanted to invest the same amount in a TFSA, only the net amount after tax can be invested. You will earn the $5,000.00, the government will take their chunk and you can put the rest in the TFSA. Depending on which tax bracket you are in, that net amount can be quite a bit smaller than the original $5,000.00.”

——————————————————————-

Not true.

You should rethink this one out.

I have maxed out my TFSA and most of the money I invested in it came from my RRSP contributions tax return which is not AFTER TAX money.

Best,

HD

#121 Tony on 10.29.12 at 10:47 am

Re: #104 Tom on 10.29.12 at 8:54 am

There are no attribution rules if your wife is 18 years of age or older.

#122 };-) aka D.A. on 10.29.12 at 10:50 am

#81syd on 10.28.12 at 11:57 pm

is this blog going to turn into financial advice blog now ? or still focused on housing ?

Financial advice is Mr. Turner’s vocational area of expertise and the subject, this his blog, should best stick to.

#123 Longterm on 10.29.12 at 10:55 am

I’ve been out of Canada for a decade as a non-resident but I’m moving back in the new year. Any idea whether I will be eligible for the total unused TFSA limit stretching back to the introduciton of the TFS, or will my limit start at $5000 in 2013 and increase from there?

You have to be a resident during TFSA-available years. — Garth

#124 };-) aka D.A. on 10.29.12 at 10:56 am

#113};-) aka D.A. on 10.29.12 at 10:50 am

#81syd on 10.28.12 at 11:57 pm

is this blog going to turn into financial advice blog now ? or still focused on housing ?

Financial advice is Mr. Turner’s vocational area of expertise and the subject, this his blog, should best stick to.

Although I well understand the huge untapped wealth tied up in real estate that might otherwise benefit the financial instrument investment industry and that from time to time practitioners in that industry might find themselves somewhat compelled to lure prospective clients from one to the other.

#125 Daisy Mae on 10.29.12 at 10:56 am

#37 Steven: “If the bulk of the public were actually intelligent the bankers and politicians wouldn’t stand a chance. As it is it is open season on sheeple and the powers that be know it.”

****************************

I will never forget the banker who tried to talk me into renewing my GIC — which was earning around 10%-12% interest or more in those days long ago — before the expiry date.

That goes to show you how much banks care about their clients/customers….which is, not at all!

#126 Daisy Mae on 10.29.12 at 10:58 am

Further….should add, it would have been at a much lower rate, of course. And he actually believed I would agree.

#127 Lost Investor on 10.29.12 at 11:08 am

Your strategies sound great. But how does one get started? Who do I talk to for advice? Everywhere I look advisors want to charge a percentage. That effectively nullifies any gains and brings me back to bank mutual fund return levels :-(

#128 Investx on 10.29.12 at 11:09 am

Is your TFSA account associated to the bank you open it with? What if you were to open one with bank A and have a Questrade trading account? Can I place dividend paying stocks purchased with Questrade in that TFSA? Or can I only place equities, GIC’s, etc in there that I’ve purchased through Bank A?

#129 Steve on 10.29.12 at 11:18 am

#119 HD on 10.29.12 at 10:39 am
_____________________________

The money stashed in your RRSP is not (yet) taxed, but the amount you get ‘back’ when you file your tax return is, so it is AFTER TAX. Do you really believe that both the RRSP Contributions and the tax refund are Pre-Tax?

As you suggested: “You should rethink this one out.”

#130 Junius on 10.29.12 at 11:32 am

#108 Eaglesville-Parksville,

You said, “Science has a long way to go.”

Indeed. A long, long way to go. However not nearly as far as you, Hoof-hearted and a few others that post on this blog.

#131 Junius on 10.29.12 at 11:40 am

#105 Eaglesville-Parksville,

You said, “In other words, the consumer pays.
Where do the oil companies get their money from?
The cost of doing business is always passed on to the consumers including corporate taxes.”

This is simplistic and naive. You assume free and competitive markets where none exist.

First of all, the Oil and Gas companies are among the most profitable companies on earth precisely because royalty payments for these resources is too cheap and the real cost of the externalities (such as pollution) are not being paid.

Secondly, Oil and Gas companies remain one of the most heavily subsidized industries we have. Below is a link to a list of government subsidies in the US. It is in the billions of dollars each year.

Prices are high for lots of reasons but little of it relates to the so-called “free market” pricing of commodities.

http://www.americanprogress.org/issues/green/news/2010/05/13/7756/eliminating-tax-subsidies-for-oil-companies/

#132 Blacksheep on 10.29.12 at 11:48 am

DA # 122,

“Although I well understand the huge untapped wealth tied up in real estate that might otherwise benefit the financial instrument investment industry and that from time to time practitioners in that industry might find themselves somewhat compelled to lure prospective clients from one to the other.”
———————————————-
Come on DA, don’t mince words, what are you trying
to insinuate : 0 !

take care,
Blacksheep

#133 KommyKim on 10.29.12 at 11:50 am

RE: #108 Eaglebay – Parksville on 10.29.12 at 9:04 am _________________

How about a carbon tax on cows?
How about better meat inspections?

How about freedom of choice?
How about some personal responsibility?

Any facts about smoking and cancer?
There are plenty.

How about the people (majority) that don’t smoke and have cancer?
How about the term “risk factor”?

How about the benefits of arsenic?
How about the benefits of moderation?

Science has a long way to go.
Science never stops. It’s always improving itself. Unlike dogma, ideology & boneheadedness….

#134 William McNabe on 10.29.12 at 11:53 am

>>The long-term average for the TSX (dividends plus capital gains) is 9.4%. A more conservative, balanced portfolio (40% fixed, 60% growth) has averaged 7.44% over the last two years and 6.46% over he last eight, which included the financial crisis. Your analysis is based on what, exactly? — Garth

Long-term, the TSX doesn’t come close to 7.44%, as you can see by looking at historical records.

The stock market went up from 2009 – 11, despite the recession, because of QE, which gave banks and other financial institutions large amounts of virtually zero-interest money. This is the same reason why commodities went up and also why house prices went up.

#135 William McNabe on 10.29.12 at 11:57 am

Notice that over the past twelve years the stock market hasn’t even kept up with inflation, despite the fact that for most of this period the economy was being puffed up by a low interest-rate asset bubble:

http://www.forecast-chart.com/historical-tsx-composite.html

Without that (as in, for the foreseeable future) the economy and the stock market have nowhere to go but down.

You need glasses. — Garth

#136 Bigrider on 10.29.12 at 12:36 pm

#122- AKA DA.

I hope you equally understand that the huge amount of wealth in real estate you mention also represents an abhorrently large percentage of Canadians net worth, not to mention obsession,which will probably lead to the poor prospects of some, if not most, when it comes to their respective financial health and the risks associated with such a concentrated position in one asset.

I do equally understand the interest in the real estate sales transactional industry, of keeping said enormous wealth in real estate, afterall ,keeping average retail prices high results in higher real estate commssions.

#137 Marnic on 10.29.12 at 12:51 pm

Appalling, shameful banks. I’m sure these are different banks than the ones you encourage people to invest in, right?

It’s possible to be profitable and ethical at the same time. — Garth

#138 William McNabe on 10.29.12 at 12:55 pm

>>You need glasses. — Garth

Are you able to work out a person’s prescription based on their comments on this blog? Or was this just a piece of gratuitous abuse because you weren’t able to address any of the points I made?

Gratuitous abuse. You earned it. — Garth

#139 Mike on 10.29.12 at 12:57 pm

Nice post Mr Turner.

If this, and the tax post, were what you thought when you needed more ideas besides real estate, I say well done.

RE: banks

I too am appalled, but the ignorant masses are to blame. Imagine a TD television commercial with those two old dudes…where they advertised NEGATIVE interest rates. That’s what TD offers isn’t it? $12.95 per month ‘service charge’ is just a clever moniker for negative interest rates.

Change what’s on the TV and you can change people’s minds….a sad reality of our times.

The best part of the banks….they smile and thank you after they steal your money. And tell you to have a nice day.

#140 HD on 10.29.12 at 1:00 pm

@ #127 Steve on 10.29.12 at 11:18 am
#119 HD on 10.29.12 at 10:39 am
_____________________________

The money stashed in your RRSP is not (yet) taxed, but the amount you get ‘back’ when you file your tax return is, so it is AFTER TAX. Do you really believe that both the RRSP Contributions and the tax refund are Pre-Tax?
As you suggested: “You should rethink this one out.”

——————————————————————-

“Do you really believe that both the RRSP Contributions and the tax refund are Pre-Tax?”

Where did I write or suggest that RRSP contributions are Pre-Tax?

I wrote that the “RRSP contributions tax return” is Not AFTER TAX money.

Do you get taxed on your RRSP refund? No.

Try again….

Best,

HD

#141 };-) aka D.A. on 10.29.12 at 1:01 pm

#134 Bigrider on 10.29.12 at 12:36 pm
#122- AKA DA.

I hope you equally understand that the huge amount of wealth in real estate you mention also represents an abhorrently large percentage of Canadians net worth, not to mention obsession,which will probably lead to the poor prospects of some, if not most, when it comes to their respective financial health and the risks associated with such a concentrated position in one asset.

I do equally understand the interest in the real estate sales transactional industry, of keeping said enormous wealth in real estate, afterall ,keeping average retail prices high results in higher real estate commssions.

There is risk in most any investment, real estate included. However, I do not recall ever seeing anyone lose nearly so much of an “investment” in real estate, compared to those losses I have witnessed incurred by fools through their foolish speculative ventures in either real estate or financials. But clearly more to my point is historically two things have held; 1.) you need a roof over your head and that invariably cost money and 2.) real estate has despite its short term ups and downs trended up that it tends to double every ten years, so why not combine the two and own where you live instead of paying for someone else’s investment in real estate?

On the matter of commissions, I think most in the industry would agree we’d rather see stability than marginally increased commissions. While I can appreciate you might rather lower commissions would you have so at cost to the stability of your own personal economy? Be careful what you might wish for.

#142 Spiltbongwater on 10.29.12 at 1:21 pm

I am going to buy energizer and duracell when the stock market opens again on Wednesday. I heard they are selling out of batteries in eastern U.S.

#143 AprilNewwest on 10.29.12 at 1:24 pm

# 110- Real estate is far from being “on sale”. Prices are still way too high. Anyone jumping in over the next couple of years is foolish indeed.

#144 NorthOf49 on 10.29.12 at 1:26 pm

Desperation time for sellers in my neighbourhood, Hamilton West Mountain/Ancaster. Four properties right around the corner for sale for months, multiple price reductions, open houses every weekend….no takers.

One house started at $549,900, multiple reductions until the listing expired. Unsuccessful agent replaced with a new hotshot agent who has changed the description of the house to include “in-law suite” and has re-priced the house to $499,990 but is quietly dropping the price by $10 a day to keep the listing new on the MLS. Now sitting at $499,930.

Gotta say, I admire his tenacity.

#145 Mark on 10.29.12 at 1:30 pm

Ok. If I contribute 10000 into TFSA and the stock paid 500 in dividends, can I take 500 out this year, then contribute 5500 the next year?
Thanks

#146 Bottoms_Up on 10.29.12 at 1:51 pm

#126 Investx on 10.29.12 at 11:09 am
————————————–
it’s per institution. You could have a TFSA open at 5 different banks, placing $1000 into each, and buying stocks in each. As long as the total adds up to $5000/yr or less, you don’t pay tax on the contributions.

#147 Bottoms_Up on 10.29.12 at 1:53 pm

#125 Lost Investor on 10.29.12 at 11:08 am
——————————————-
you can do better than bank mutual funds simply by opening a self directed trading account and buying “XIU.to”. This is essentially the TSX60. You collect dividends, the MER is super low and you stand to gain from price appreciation.

#148 ApplePi on 10.29.12 at 2:03 pm

Garth, I’m confused on one thing, though… you mentioned that you can gift $5,000 to your spouse, which results in income splitting. How does that work? I have a stay-at-home spouse, so are you saying I can take $5,000 off my earnings and have it come off my taxable income?

I already claim her as a dependent, does that income splitting benefit me and how do I set that in my tax forms.

No you cannot deduct a TFSA contribution from anything. But by putting it in her name it will grow tax-free and none of the growth will be attributed to you or compromise your own room. — Garth

#149 Macrath on 10.29.12 at 2:06 pm

Hurricane Sandy Crisis Map

http://google.org/crisismap/2012-sandy

#150 W-Hat on 10.29.12 at 2:10 pm

The biggest gotchas re: TFSA, which have resulted in many people paying penalties

1) Any withdrawl you make creates an equal amount of contribution room IN THE NEXT CALENDAR YEAR. If you contribute $5k in 2012, then need to withdraw $3k for an emergency in 2012, you cannot add that $3k back untill 2013 (without paying a penalty). In 2013 you would safely be able to contribute $8k total.

2) you can’t pull a contribution from one TFSA and move it to a second TFSA with another instituion in the same year

#151 Captain Placeholder on 10.29.12 at 2:31 pm

Thanks for the insights Garth, big fan! I’m not sure what to think about these point though:

1. How about the volatility of ETFs? Are they a good idea to invest short-term? For example, what if I’m saving for a downpayment in 3-5 years (in case the GTA market cools enough by then or we move to the US…)

2. Is it a good idea to max out employer RRSP contributions at the expense of TFSA?

Thanks in advance!

Three to five years is not short-term. The proper EFTs should serve you well. Always fill your TFSA first. — Garth

#152 Hoof-Hearted on 10.29.12 at 2:32 pm

#128 Junius on 10.29.12 at 11:32 am

#108 Eaglesville-Parksville,

You said, “Science has a long way to go.”

Indeed. A long, long way to go. However not nearly as far as you, Hoof-hearted and a few others that post on this blog.

====================================

Moi?

The problem is far beyond the mythology of science, which itself can often have dogmatic overtones.

Oil and Gas companies are profitable because of manipulation…no different than the stock market and banking system.

Rockefeller (accountant by trade) figured out its not the supply per se, but refining capacity.

http://www.eia.gov/tools/faqs/faq.cfm?id=29&t=6

What do you think the Middle East turmoil is all about ? There are more secure deposits in politically stable countries , but that would be bad for business. Its Pump….WAR…Dump…peace….REPEAT. Trillions are skimmed off via this market swing racket and Al Qaida nonsense. Alaska is estimated to have enough reserves to supply the US for 200 years. Why are they sending troops over THERE ? Its a racket.

Peak Oil is another Leftie contrivance.
Ask the Russians.

“Tax this…. tax that”…..Leftie answer to everything…
I think we need a Leftie Tax…..

Lefties: Stop pooping in the cognitive debate punch bowl and saluting comrade David Suzuki.

#153 Form Man on 10.29.12 at 2:46 pm

#131 KommyKim

well said

#154 Steve on 10.29.12 at 2:48 pm

#138 HD on 10.29.12 at 1:00 pm
__________________________

Any tax refund, and some refund dollars are the result of RRSP contributions, is AFTER TAX. It is the money that you overpaid to the government through deductions on earnings, that is being returned to you (after being held interest free) once you reconcile your account with the government at Tax time. There is no tax charged on the refund cheque because it is not income – they are simply returning your after tax dollars to you. It was considered income when you earned it through payroll, when it was taxed and taken from you. Even the government will not tax your income so blatantly twice.

The money that you put into your RRSP is tax sheltered – you get taxed when you take it out, hopefully at a lower rate than you would pay when you put it into the RRSP. Everything you take out is taxable income.

This is different than the money earned within a TFSA. The $5k contribution per year is after tax money, so putting it in and out of the TFSA does not affect your income, or your tax. The bonus is that any earnings inside the TFSA are tax-free. You can withdraw them without impacting income or capital gains.

Hope that explains it more clearly.

#155 Old Man on 10.29.12 at 2:49 pm

#145 Hoof-Hearted – you are correct about the oil and lets not forget the natural gas in Alaska. This was all drilled, tested, and analyzed back in the 1970’s; then by a Presidential order all was classified. Enough to fuel all of America for at least 200 years.

#156 Two Sided Coin on 10.29.12 at 2:51 pm

Junius : “In this case, CO2 concentrations in the atmosphere lead to global warming.”

You might want to do a little more research on both sides of this topic. Especially when the earth has actually been cooling since 2010, not warming:

http://www.forbes.com/sites/peterferrara/2012/05/31/sorry-global-warming-alarmists-the-earth-is-cooling/

#157 sciencemonkey on 10.29.12 at 2:58 pm

Hmm, I wasn’t aware of the rule that one has to wait a year before putting money back into a TFSA, and as a consequence I think I might have overcontributed to my TFSA by $100. What happened was I had $100 in an RBC “high interest” TFSA, and then I removed it and used that capacity (along with other capacity) to contribute to a self-directed TFSA with RBC DI. Oh well, looks like I’m going to be paying a whopping ~$12 penalty.

#158 Kingarthur on 10.29.12 at 3:04 pm

Like I said: location counts! Snowy Edmonton, October 28th…

http://www.calgaryherald.com/news/alberta/7461064.bin?size=620x400s

#159 Junius on 10.29.12 at 3:16 pm

#151 Hoof-Hearted,

You said, “Oil and Gas companies are profitable because of manipulation…no different than the stock market and banking system.”

On that we can agree. As with most things it is complicated however we certainly do not have competitive markets in Oil and Gas.

As for peak oil being a lefty conspiracy……..what nonsense. You think Jeff Rubin is a lefty?

#160 House Horny Housewife on 10.29.12 at 3:21 pm

#139 HD

You wouldn’t have had the refund to invest in the TFSA if you had not contributed to the RRSP in the first place.

This is exactly my point.

With an RRSP you can keep money you would otherwise have paid in taxes in order to invest it wherever you wish during the time up until retirement (and a TFSA is indeed a good place to put it).

However, if you prioritize the TFSA over the RRSP, as Garth suggests, you give up the opportunity of keeping that money you would otherwise have gotten back as a “refund” (deferred tax).

For example, say you have only $5,000.00 of GROSS income to invest and no more. If you take out a registered retirement savings plan, you can put ALL of it in and have 100% of the funds earning income until you retire. Of course the entire amount will be subject to tax when you withdraw.

However, if instead of taking out an RRSP you decide to invest this in a TFSA, you need to pay say 35% or $1,750.00 in taxes and then can only invest $3,250.00 in the TFSA. You will not have that $1,750.00 available to invest over your lifetime until retirement because the government has already taken it. And that is $1,750.00 per year over your lifetime until retirement, compounded annually over say 15-20 years.

It is THIS opportunity cost that I am saying must be factored into the equation.

Yes with the RRSP you will pay taxes later at a higher rate (unless we get another type of government in power) and yes, unlike the TFSA, the earnings on that income is taxable later on. But you are also forgoing that tax “refund” or deferral and giving the government its money now rather than later. This must be a consideration when looking at the equation.

HHHW

#161 Suede on 10.29.12 at 3:44 pm

“Canada has been affected by volatile and lower commodity prices, which are dampening government revenue growth” – F

Last i checked:

gold is near record highs
oil is well above its yearly long term moving average copper is near record highs
various forms of timber are well above long term moving averages

Maybe the FinMiniscule and henchmen should re-check their statements – financial and rhetoric

#162 Suede on 10.29.12 at 3:50 pm

Anecdotally,

With the 7.7 quake off Queen Charlotte’s (Haida Gwaii) in BC on the weekend, look for the tsunami warning and EQ to spook richmond real estate further.

For those unfamiliar, richmond is surrounded by dykes and is built on sea level.

I have been asked the following by dozens of people of asian descent around the office, most of which have had experiences with tsunamis in mainland China, Japan and areas in their youth prior to coming to Canada:

“Can Vancouver withstand a tsunami?”
“Are we safe from an EQ in our buildings?”
“What richter sale number is everything designed to?”

Natural disasters are black swan events that amplify emotion and panic.

#163 Bigrider on 10.29.12 at 3:50 pm

#140 AKA DA response to Bigrider.

Go back and read my original response. I did not state nor remotely imply that I wish to lower commissions in your industry at all. I stated clearly that I believed that the interest is ,among those practitioners in your transaction driven industry , to maintain higher real estate prices thereby securing higher commissions. Do not jump to conclusions of what my wishes/ thoughts are, nor anyone else’s and I will do the same of yours.

As to your two points about everyone needing a roof over their heads and real estate trending higher in price over time as to double in price every ten years or so, I would agree with the premise for both and would agree with combining the two.

I would also remind you that the stock market indices globally have doubled in value, over shorter periods of time then your stated 10 year time frame for RE, albeit not the past twelve years but certainly over the past 200 years. This can be verified easily and by the way, compound rates of return from both stock and bond markets have been much higher than RE appreciation rates over past 200 or so years, also easily verified.

Where the problem lies in your philosophy for RE is inherent in it’s abuse, such that those followers, of which I am one admittedly as I own my home, now decide to go and apply said philosophy to the extent that all of their net worth is in RE. What’s worse is those who buy second and third properties, leveraged because ‘real estate always goes up” .

You seem to( not sure and feel free to correct) place RE as an asset class of superiority over others. I think this is where most object.

I would place RE as an asset class which, like all others ,will have it’s day in the sun(past decade) and time in the dark(probably soon..jurys out).

In any event, the emphasise on RE has to be tuned ‘down’ and the emphasise on savings through various financial vehicles and instruments tuned ‘ up’.

This will create a more stable economy for all Canadians.

#164 Portia on 10.29.12 at 3:56 pm

Garth, thank you very much for teaching me, for I am just a layman in your field. Very hard for me to learn, but sure I have been trying hard to learn from you. May God bless you and your heartily fans.

#165 Ogopogo on 10.29.12 at 4:10 pm

#121 };-) aka D.A. on 10.29.12 at 10:50 am
#81syd on 10.28.12 at 11:57 pm

is this blog going to turn into financial advice blog now ? or still focused on housing ?

Financial advice is Mr. Turner’s vocational area of expertise and the subject, this his blog, should best stick to.

Translation: “I, DA, would love it if Mr. Turner only addressed financial advice and stopped educating Canadians on the perils and machinations of real estate and the real estate industry, respectively, while I continue to dupe fools and greater fools for a living”.

#166 picasso on 10.29.12 at 4:15 pm

Ho Hum… the markets are closed Tuesday too!

No… don’t tell me to play the Canadian markets. lol

#167 Milk Man on 10.29.12 at 4:18 pm

I have an extra net 50 grand every year after all expenses ,mortage and so on. In this low rate regime, my first preference is paying the maximum annual prepayment allowed in my mortgage and the rest goes to TFSA if any.

Clear debt first.

#168 Devore on 10.29.12 at 4:30 pm

#93 Jane24

Garth are you not concerned that at some point in the future when govts are even more desperate for money than they are now and there are billions in theses tax-free funds, that the rules will change and these funds become taxable.

A) The money has already been taxed, so only the incremental growth could be taxed again as… capital gains? unless each account was individually traced to determine how much cap gains, dividends or income distributions contributed to the growth.

B) Hardly anyone actually puts money into TFSA, preferring instead to take today’s tax refund and delay the day of reckoning. Majority of those who do, put their money into high interest accounts and GICs, so barely any growth there to tax at all.

C) Optics won’t work. TFSA is the only tax shelter available to the common person. RRSP is a tax deferral scheme, and for heavy contributors into this plan it is a ticking tax bomb. For these people, it makes more sense to pay the tax now and max out the TFSA, rather than pay more in taxes later.

Regardless of whether you believe TFSAs will be eliminated later, they are here today, and you should use them. Even if TFSA is eliminated in the future, you don’t know how it will happen. Existing accounts may get grandfathered. You may be liable for some taxes (sell a portion of your holdings, no big deal). It is hard to imagine how you would not be ahead using a TFSA vs not using one.

#169 Bill Gable on 10.29.12 at 4:32 pm

Savings Rate Plunges To Lowest In One Year As US Consumer Once Again Tapped Out –

“Today’s personal income and spending report for the month of September was just the latest datapoint confirming that the US consumer is once again massively cash-strapped and is eating, literally, into their savings.

While Personal Income rose at the expected pace of 0.4%, Spending in the last month came well above expectations of 0.6%, printing at 0.8%, which meant that on a net basis Consumers, always hopeful, outspent themselves by a margin of 0.4%. This meant that the savings rate declined from 3.7% in August to a tiny 3.3% in September.

This was the lowest Savings print in 2012, and higher only compared to last November’s 3.2%, which in turn was the lowest print since the start of the second great depression. In other words, overeager consumers saw their nominal incomes increase… and decided to outspend said rise at double the rate of increase! At this pace, by the time Thanksgiving rolls out, US consumers will have no savings at all left to tap and living will be strictly a month to month activity.”

>>Now – add Hurricane Sandy destruction – this is a very tense and scary time for many. If we see New York under water – what happens to the US Economy?

President Obama just mentioned the Economic impact – during a White House briefing. 9 States have been declared disasters.

We also pray our Eastern Canadian friends stay safe.

Unbelievable.

http://tinyurl.com/9ra34cc

#170 Paul on 10.29.12 at 4:53 pm

Back to Real Estate….reports from Kelowna this am…another one in trouble. Everyone apparently has been laid off.

sopasquare.com

#171 Form Man on 10.29.12 at 5:12 pm

#169 Paul

Just drove by Sopa Square. Not a soul on site. DA told us the south Pandosy area was a real estate hot spot. WTF ?

#172 Hoof-Hearted on 10.29.12 at 5:19 pm

#158 Junius on 10.29.12 at 3:16 pm

Peak Oil assumes that all Oil that ever existed or will exist has already been created. I question that.

Both sides of the political spectrum Left and Right use it to further their agendas.

#173 };-) aka D.A. on 10.29.12 at 5:21 pm

#162 Bigrider on 10.29.12 at 3:50 pm

I hear ya and respect not just what you had to say but how you said it.

#164 Ogopogo, on 10.29.12 at 4:10 pm

I am certainly not equipped to and do not give financial advice and, while Mr. Turner from time to time has many a good thoughts to share on the subject of real estate I do find myself more frequently of late questioning the extent to which he gives advice in that regard, especially when he gives forecast that others may rely upon. I don’t think in his own industry he would do that as I know there are strict rules about what and how to give such advice. Of course this blog is as much an open social forum, his forum, and not an advice column where he is entitled to his constitutional right to free speech. Still it is quite evident to me that many readers are unduly influenced by Mr. Turners comments and I grow concerned at times that some might, or maybe already have, find, in retrospect they have been disadvantaged by his influence. But they too are autonomous human beings and ultimately must take responsibility for their actions.

But really Ogopogo, by Mr. Turners own declaration, almost 70% of Canadian families own their own home. I really don’t think we in the real estate industry are concerned he is going to convert even a small recognizable portion of them back to renters. Even if he did they need landlords who own property from which to rent. Nope, we’re not at all concerned as there is and will remain plenty of business to keep us busy.

#174 Devore on 10.29.12 at 5:23 pm

#121 };-) aka D.A.

Financial advice is Mr. Turner’s vocational area of expertise and the subject, this his blog, should best stick to.

And buying a house, a person’s largest single purchase/asset/debt, using high leverage, is not a financial decision? Of course, you’d rather it doesn’t get treated as such, after all, you’re buying a home for your family, think of the children, right?

You are reverting to your old insufferable self, telling us we’re just all ignorant idiots here, even repeatedly implying in not so subtle terms your host, Garth, is not qualified to talk about real estate on his own blog. How classy.

#175 Old Man on 10.29.12 at 5:35 pm

Did anyone ever wonder why there are very few listings, if any, for a duplex, triplex, and so on? They must be in a formal state of being, rather than a non- conforming scenerio. It is all about cashflow supporting the asset value with some tax advantages, so who would want to sell? Not a bad home for a husband and wife with one or two children who took the 3 bedroom unit. They will survive the downturn.

#176 };-) aka D.A. on 10.29.12 at 5:38 pm

#170Form Man on 10.29.12 at 5:12 pm
#169 Paul

Just drove by Sopa Square. Not a soul on site. DA told us the south Pandosy area was a real estate hot spot. WTF ?

Sopa Square is an unusually large and ambitious endeavor for a city the size of Kelowna . Many, including me, have been watching it in wonder. From concerning geotechnical rumors on up to questioning if an already amply supplied city can absorb that much more inventory at those lofty prices many have kept their fingers crossed as it would surely be a benefit to the city.
I’ve heard from several sources Mr. Fenwick was seriously injured in a motorcycle accident not long ago. As the projects founder I do hope he pulls through and his Sopa Square project does too.

http://youtu.be/Jj6dn1jWWGU

#177 };-) aka D.A. on 10.29.12 at 5:44 pm

#171Hoof-Hearted on 10.29.12 at 5:19 pm
#158 Junius on 10.29.12 at 3:16 pm

Peak Oil assumes that all Oil that ever existed or will exist has already been created. I question that.

Yep, we be squeezing the juice outta more dinasours faster than we can consume it.

Peak oil is more than that. Quite frankly I think peak oil’s going to be a good thing – a wakeup call a renaissance. I look forward to its inevitability. We will adapt and be better off for it. Might be a heap of discomfort getting there mind you.

#178 Devore on 10.29.12 at 5:50 pm

#149 W-Hat

TFSA rules are very simple. But once you say “equities” or “investing”, people’s brains turn to mush, because “it must be complicated”.

http://www.tfsa.gc.ca/

If your institutions won’t cooperate and transfer your TFSA, and why would they, with so many of them in savings and GICs it’s free money for the banks, you can get around it by closing your TFSA towards the end of the year, and opening the new one (and recontributing the withdrawn money + the new $5000) next year. Open an account with a discount broker, buy a bunch of ETFs.

#179 FTP - First Time Poster on 10.29.12 at 6:09 pm

I have a better idea than the TFSA – its called paying down your debt. Returns are guaranteed!

Not necessarily when debt is less than current inflation, or when made tax-ddeuctible. — Garth

#180 Form Man on 10.29.12 at 6:17 pm

#175 DA

Sopa is an example of the serious state Kelowna’s housing industry is in. Construction of Sopa began in 2010 (2 years after the crash), to supposedly be ready for the housing rebound in 2012-2013. The rebound never materialized, so another one bites the dust along with countless subtrades and suppliers………

#181 Devore on 10.29.12 at 6:36 pm

#159 House Horny Housewife

There are some advantages of TFSA/drawbacks of RRSP you are not talking about.

For example, in an RRSP, you are taking tax-efficient capital gains and dividends, and having them taxed as income. This is a loss, which I have NEVER seen anyone count as a loss, or quantify it. Yet it is a loss.

Another example, RRSP/RRIF withdraws count as income, and will bump you into higher tax brackets. This will affect your qualification for income assistance (OAS, GIS) and various federal and provincial means-tested programs. If you can reduce your taxable income by 20%, and cover the difference with tax-free TFSA redemptions, that will save you a lot of money.

Similarly with non-registered investments, you only pay the capital gains tax/dividend tax on those when you take money out, and while you’re still working, keep them as DRIPs if possible, to maximize the compounding power.

#182 Junius on 10.29.12 at 6:47 pm

#171 Hoof-Hearted,

You said, “Peak Oil assumes that all Oil that ever existed or will exist has already been created. I question that.”

You mean we are going to make oil? You think this is going to be cheaper, easier and more effective than solar, wind, ocean or any other type of power? This is your argument? Really?

One thing is pretty clear. The idiots that run our world are going to burn every drop of what we have and then move onto coal. Let’s just hope it doesn’t happen fast enough to destroy most life on the planet.

#183 kothar on 10.29.12 at 6:52 pm

In my balanced portfolio, my TFSA is the worst performing having brought down my overall return. So far I have not made any return at all from it, even though it is invested in higher growth potential foreign ETF’s. Someday they may return somehow.

#184 Junius on 10.29.12 at 6:53 pm

#155 Two-Sided Coin,

Are you kidding me? You are going to quote Peter Ferrara.

He is a lawyer and employee of the Heartland Institute which is an organization paid by big oil to dispute global warming. He is a hooker with a law degree. Next time check your sources.

2012 has been the warmest year since humans began keeping records in the late 1800s.

#185 TurnerNation on 10.29.12 at 6:55 pm

Liquidity dried up at a HNW real estate fund…
I am familiar with ROI’s offerings, usually they are in private money.

>Post says GrowthWorks investors await BCSC
Monday October 29 2012 – In the News

The Financial Post reports in its Saturday edition that liquidity is an issue at ROI Capital, which offers real estate investments to accredited investors, and GrowthWorks, which sells labour-sponsored venture capital funds to retail investors. The Post’s Barry Critchley writes that at GrowthWorks, investors will have to continue to be patient. Last March, ROI’s manager, suspended them in the wake of large requests from a concentrated group of advisers. Redemptions at four of its funds were halted because “selling investments at discounted prices to fulfill the redemption requests” wasn’t felt to be in the interests of all unitholders. The manager then put a new redemption plan in place, called a unitholder meeting to vote on that plan — and then cancelled the meeting. At GrowthWorks, the fund was closed almost a year ago for redemptions because of “volatile market conditions.” That plan, which allowed up to $20-million a year in redemptions, was endorsed by unitholders at the June, 2012, annual meeting. It was never implemented because the B.C. Securities Commission will not allow it and the fund indicated recently that the initial order has been extended to the end of next month.
© 2012 Canjex Publishing Ltd.

#186 Smoking Man on 10.29.12 at 6:56 pm

If my boat was not winterized and up north,
I would be taking it out on ontario tonight. 15 min, take a few photos. the lake is like glass up to 100 yards off shore on the north side.

share the pics. risky but very do able. so long as you dont lose engine or go out to far. but then again if the winds changed .

o well not going to happen.

#187 Junius on 10.29.12 at 7:00 pm

#103 EIT,

I understand what you are saying which is really that all opinions have an element of subjectivity. It is impossible to be entirely objective about anything because of our human limitations and our individual experiences. I accept that. In fact, I think it is important that we come at each issue with a sense of humility and try to see the other side.

However if I am given a choice between questioning the veracity of the Oil industry versus the scientific community on global warming it is pretty clear to me who has more of a vested interest in lying. Enormous profits versus what? Research grants? Give me break.

#188 Ydnew on 10.29.12 at 7:04 pm

Please adjudicate:

My husband says that if you transfer stocks in kind from a RRIF below the minimum allowable amount no tax is payable.
I say that while no withholding tax is deducted, the amount that is withdrawn still has to be declared as pension income at tax time.

All RIF withdrawals are taxed as income received. Your husband made this up. But I’m sure he’s cuddly. — Garth

#189 Ydnew on 10.29.12 at 7:05 pm

This is into a TFSA

#190 };-) aka D.A. on 10.29.12 at 7:20 pm

#173Devore on 10.29.12 at 5:23 pm
#121 };-) aka D.A.

Financial advice is Mr. Turner’s vocational area of expertise and the subject, this his blog, should best stick to.

And buying a house, a person’s largest single purchase/asset/debt, using high leverage, is not a financial decision? Of course, you’d rather it doesn’t get treated as such, after all, you’re buying a home for your family, think of the children, right?

You are reverting to your old insufferable self, telling us we’re just all ignorant idiots here, even repeatedly implying in not so subtle terms your host, Garth, is not qualified to talk about real estate on his own blog. How classy.

I don’t think I am saying that at all. Buying a house (home) is most certainly a financial decision and one which one should do a great deal of diligence before pursuing. I would most certainly advocate having a long term financial plan well before buying a house as the purchase of a home is a long term commitment which needs to fit into your financial goals. I think one should most certainly have a long term financial plan well before embarking upon having children and consider for them what kind of home in what kind of city and what kind of neighbourhood they would want to raise a family in.

I don’t think I called anyone an ignorant idiot. I did suggest that I feared there might be some who take Mr. Turners forecast of the future too serious and inevitable that they might base some decisions on it they come to regret. I don’t know the future and neither does Garth. At most I might imply what I think the future may hold but I never forecast it as sure and I don’t think anyone, Garth included, can or should.

Classy? Your call.

#191 Old Man on 10.29.12 at 7:51 pm

One of the most important elements with investing money is to preserve capital going forward. We all know that Real Estate is going to take a hit; some areas more than others, and in any given location there will be differences. I say forget about all these complex investment plans about this, and that with bankers, stock brokers, mutual fund salesmen, and the guys in Real Estate.

The key to all is taxation, and pity those that own a secondary summer home or another rental property, as one day this on a disposition will come as a shock. It is imperative to retain the services of a fee based advisor in today’s world to adjust the mess with knowledge; do not be penny wise, and pound foolish in the end. The world today is a complex financial matter, and it is imperative for those that have big money to retain the services of an expert.

#192 };-) aka D.A. on 10.29.12 at 7:59 pm

#179Form Man on 10.29.12 at 6:17 pm
#175 DA

Sopa is an example of the serious state Kelowna’s housing industry is in. Construction of Sopa began in 2010 (2 years after the crash), to supposedly be ready for the housing rebound in 2012-2013. The rebound never materialized, so another one bites the dust along with countless subtrades and suppliers………

They are not out of it yet Form Man, although who knows for sure. Regardless I don’t see how Sopa might be so valid a barometer of the health of the Kelowna real estate market. There has been a lot of money dumped into that site thus far. They had good opportunity long before they broke ground to shed it and run before becoming as vested as they are today. I really think that says a lot more positive about the market than you’re trying to spin a story of.

Fact is the increases in condo sales are outpacing that of single family residential in the Central Okanagan. Both minor increases to be sure but increases none-the-less and more so in the condo sector. By the time Sopa Square is done, provided there are no significant other projects brought forward of which there appear to be none at this time and even if there were they would be significantly behind Sopa Squares completion date, the market might prove them to have been of most keen foresight, although we know it would mostly be luck for no one has a crystal ball after all.

Good timing has a lot to do with the good outcome of a rain dance.

#193 Old Man on 10.29.12 at 8:15 pm

#185 Smoking Man – I keep my party yacht moored at the Port Credit marina, and if you want to get lucky in the Spring of 2013 just might invite you for a trip, as have a free bar, and food with lots of babes; you just might get lucky, and I check all ID’s before a cruise to make sure all are legal age.

#194 Gunboat denier on 10.29.12 at 8:16 pm

119 HD

“I have maxed out my TFSA and most of the money I
invested in it came from my RRSP contributions tax
return which is not AFTER TAX money. ”

You may refer to the following tax calculator for Ontario

http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2012-Personal-Tax

$120K income gives $35600 tax leaves $84400

Making $11500 RRSP after tax reduces to $108500.
$30600 tax payable means $5000 refund to max TFSA. So that’s $16500 total.

Now $84500 – $11500 leaves $72900. This is the net on $99700 gross. So you could have contributed $20300 to RRSP before tax, or $8800 more than after.

$8800 taxed at the 43.4% MTR leaves $5000. So your tax refund is AFTER TAX.

Toronto CA can verify if he is around and willing.

#195 Hoof-Hearted on 10.29.12 at 8:33 pm

#181 Junius on 10.29.12 at 6:47 pm

The beauty of propaganda is when the vested interests do a major pole vault past objective scrutiny, and fire up the manure spreader….the “lie” sticks like sh*t to a blanket. It is often harder to UNlearn versus learn.

The Russians are of the view the Oil supply is not static…..it is dynamic.

#196 Hoof-Hearted on 10.29.12 at 8:48 pm

OldMan/SmokingMan

FYI:

A 2-man rubber raft made in ROC and on sale at Canadian Retread is neither a boat nor a yacht….no matter how many bikini clad babes you can squeeze on .

N/C

#197 broadway skytrain on 10.29.12 at 8:56 pm

fact: there is no proof whatsoever that the activities of man cause the climate to change in a way that is different from the way it is already, and constantly, changing.

fact: the earth is currently in an ice age – when the polar ice caps melt entirely the planet will be back to “normal”

fact: the fraudlent , gore inspired, RELIGION, of CC is the largest and most destructive scam yet unleased upon the planet. Billions, probably trillions of dollars have been diverted from solving the REAL problems of pollution. The islands of garbage in the pacific could have been cleaned up 100x over but we waste $ on CO2

This is not a medieval blog. — Garth

#198 Form Man on 10.29.12 at 9:00 pm

#191 DA

One of the things that Sopa didn’t pay attention to was MOI. It was at some 20 months when they decided to launch Sopa. If only they had known the old real estate rule about MOI………

#199 Vancouver Thunder on 10.29.12 at 9:52 pm

•The TFSA can help with tax-loss selling. For example, if you dump a stock that’s lost value in order to claim a year-end capital loss against other capital gains, do it outside the TFSA. Then put the money inside your tax-free plan where it can be used to buy back the security and any future gains will be sheltered, while you circumvent the superficial loss rule – Garth

It looks like you have to wait 30-31 days no matter what account you are using…even if you sell the stock in your cash account and repurchase in your TFSA.
http://www.canadiancapitalist.com/in-kind-contributions-and-superficial-loss-rules/

#200 Snowboid on 10.29.12 at 10:12 pm

#179 Form Man on 10.29.12 at 6:17 pm…

One of our neighbours in our high-rise has told us he and his wife bought a penthouse there, every time they drop into the sales centre they add another month to the completion date.

Latest from last week is they hope to be in by December 2013.

On paper it’s a great concept, but having lived in the area in the 1970s I know how high the water table is, and also heard the pumps they had going couldn’t keep up.

The prices they are asking are out-of-step with current condo values in Kelowna, so that can’t help.

#201 TFSA news. | Canadian Performer's Money on 10.29.12 at 11:59 pm

[...] I have written a few times about Tax free Savings Accounts. I think they are probably the best, first investment every Canadian should make. Today I read an excellent article by Garth Turner that I wanted to share with you. Click here to read. [...]

#202 EIT on 10.30.12 at 8:24 am

#187 Junius on 10.29.12 at 7:00 pm

You underestimate the complexity of corruption. You’d be a terrible gangster.

#203 Hogtown indebted on 10.30.12 at 2:35 pm

And we need to note carefully those who claim to be most free of corruption

#204 M G on 10.30.12 at 7:50 pm

Who thinks Carney’s next move will be down?