Hot

For years I wrote an annual guide to RRSPs. All it took was a bottle of uppers, three quarts of scotch, four days and a blonde.

As you can surmise, it was boring work. External stimulus was required. After all, how juiced can you get about a giant tax deferral scheme? Now, tax evasion is deliciously, seductively, secretly illicit. Tax avoidance is a totally moist, throbbing turn-on. Tax deferral’s like a date with mom.

In fact, my opinion of RRSPs has changed as I’ve grown older, harder and more financially debauched. I see them now as tax bombs for many people – who contribute just to get a refund, and end up pushing a giant tax bill into their retirement years. That sucks, unless you know how to get money out free of tax (the subject of a future post).

It’s also what makes the TFSA shine by comparison. Because with this puppy, you can still enjoy sheltered growth while totally eliminating taxes, instead of kicking the pain down the road. Ten years from now the tax-free savings account will be the retirement saviour. RRSPs will be relics. And that boozy, buxom blonde, splayed over the laptop taking unbridled and unbuttoned dictation, just a memory.

Sadly, when F agreed with me on the idea of a tax-free account that gives no deduction for contributions but eliminates taxes on withdrawals, he called it a ‘savings’ account. Big mistake. That one wold has thrilled the banks and misled millions of people. The proof is in the numbers: an estimated 90% of people with a TFSA have put their contributions into savings accounts or GICs paying diddly.

This is akin to having a body like mine and being celibate. Or a Conservative. Oh, the waste.

The beauty of this thing is that it’s a vehicle for sheltering from tax almost any asset that you might own anyway – like stocks, bonds, ETFs, mutual funds, preferreds or REITs. The idea is to gradually over time (the TFSA ceiling grows by $5,000 a year) shift all of your investments into a TFSA. Unlike being in a non-registered account, they will grow totally free of tax. Unlike being in an RRSP, that growth can be withdrawn without paying tax. And also unlike the old retirement plan, you can take money out and replace it later. Plus a bunch of other neat stuff.

Remember that as of this month you can put $15,000 in a TFSA, since it is now three years old. Couples can double that. And you don’t actually need money. As with an RRSP, you can make a contribution in kind simply by transferring in stuff you already own, like ETFs or stocks (you might trigger a capital gain, but the tax is minimal).

Also remember that because wealth inside a tax-free savings account grows free of F’s sticky fingers, and taxes are eliminated instead of just deferred, the last thing you want in here is a girlie-man investment like a GIC. Or worse, savings. Rather, get as much octane as you can stand, which is why I like small-company US or Canadian ETFs, plus exchange-traded funds heavy on the BRIC countries. (Of course, to do this your TFSA must be self-directed, not the one the nice lady at the bank told you to get.)

Other things I like to do with my TFSA include some serious income-splitting. You can just give your incredibly deserving spouse $15,000 and she can stick it in her account with no attribution to you. And unlike with a spousal RRSP, there is no long waiting period to get at the money. It can be spent at Lululemon the very next day. You can even give you kids cash to stick in their TFSA, so long as they are old enough to file a tax return and you trust them.

This income-splitting thing also means you can harvest capital gains on stocks or funds inside your TFSA, remove them without tax, and then park them in a family member’s account. You can also use them, if you’re feeling traditional, to make an RRSP contribution – which will net you a fat tax refund, which you can funnel back into a TFSA within the family. How cool is it to fund a tax shelter with a cheque the government just sent you because you made a contribution to another tax shelter? I’m all sweaty now.

Hell, you can even circumvent tax laws if you want. Dump a stock that’s lost value at the end of this year to claim a capital loss against your taxable income. Then put the money into your TFSA and buy the stock back for future capital gains. Normally the feds would then disallow the capital loss because you did it only to save tax – it’s called a superficial loss. But not this time.

And if you are an old fart, make sure you live on TFSA investments first (tax-free) before cashing in those RRSPs. Best of all, the money you make inside a TFSA never gets added to your taxable income, which means you can reduce or even avoid that nasty claw-back of government pensions. Another reason for your impoverished GenX loser kids to hate you.

See what I mean? These things smoke.

Poor F. He has no idea what he did.

211 comments ↓

#1 T.O. Bubble Boy on 01.12.11 at 10:50 pm

Poor F. He has no idea what he did.

hardly the first time one could make that comment about our wonderful finance minister.

#2 Midas on 01.12.11 at 10:54 pm

An article from a US real estate developer:

http://mises.org/daily/4973

#3 Medic on 01.12.11 at 10:54 pm

When Garth Turner was born, the doctor slapped him in the face. Garth then knocked the doctor out cold and took a cab home.

#4 HouseBuster on 01.12.11 at 10:55 pm

2003 prices are on the way.

#5 Blobby on 01.12.11 at 10:58 pm

Does the limit keep going up 5k each year for ever?

For example, in 20 years time would my joint limit be $230k?

We wish. — Garth

#6 Mikey the Realtor on 01.12.11 at 10:58 pm

The RRSP is a scam of the ages, the fact it that a 30y/o investing in an RRSP who decides to retire at 60+ has no clue what taxes he will pay on it. I agree that a TFSA is a thousand times better, BUT paying off your mortgage trumps all because it’s a GUARANTEE of a return unlike the casino market, and after all we do need somewhere to live and we can’t live in our stocks.

#7 MaxP on 01.12.11 at 11:03 pm

Care to explain “self directed” TFSA and RSSP? If I open a TFSA or RRSP account with ‘Questrade’ for example, is that what you refer to as “self directed”? Do they (Questrade) mail me the tax reciepts to record contributions?

#8 T.O. Bubble Boy on 01.12.11 at 11:06 pm

TFSA was also the topic of the day for Jonathan Chevreau at the National Post:

http://www.financialpost.com/personal-finance/tfsa/TFSA+RRSP+right/4092994/story.html

One key point on why TSFAs will dominate RRSPs in a few years: everyone gets $5000/year in contribution room regardless of income level… which means that TSFAs actually have a higher impact for low-middle income individuals. Since RRSP contribution room is based on the prior year’s income, the benefit is much higher for higher-income earrners.

#9 Peter Pan on 01.12.11 at 11:07 pm

Shhhh!

Garth, It’s so good, I’m sure F. is going to shut it down at the first hint of “tax leakage”…

Look at the hatchet job F. and Carney did on income trusts…

#10 Only The Bankers Laugh on 01.12.11 at 11:07 pm

No way that this TFSA will last. Say a 40 year old gen x’er has 25 years to contribute = $125K or 250K for couple and that grows to say $1000K with some awesome compounding. That is a ton of tax that the government will give up when health care has been escalating, government pensions are busting at the seams, more quality jobs to India/China (I know that’s gloomy but don’t see this trend reversing unless something changes on our venture capital and SME funding – need a CMHC for SME’s?). Can’t see it lasting more than 10 years with structural deficit. Do you?

#11 Don P on 01.12.11 at 11:20 pm

Am I missing something here? This is what I get when I work thru some sample numbers. Starting with $10K pre-tax (from my salary, say) and assuming a 40% marginal tax rate and that I leave the money in long enough to double:

RRSP: All $10K goes into the RRSP (taxes deferred), then doubles over time to $20K, then taxed at 40% when withdrawn leaving me with $12K.

TFSA: $4K goes to the tax man and $6K goes into the TFSA, then doubles over time to $12K, then not taxed when withdrawn leaving me with $12K.

The same, n’est pas?

The better choice would depend on my marginal tax rate now and when I withdraw. If my marginal tax rate will be higher later, the TFSA is better. Or, if like many retirees, my marginal tax rate will be lower later, the RRSP is better (or at least not such a bad thing).

#12 Ayn Rand on 01.12.11 at 11:20 pm

Great post Garth.

Any hints when your next book will be out and the topic? I need a 300+ page missive to enjoy.

S’coming. — Garth

#13 T.O. Bubble Boy on 01.12.11 at 11:20 pm

Here’s a whole new spin on the theory of “Hot Asian Money” buying up real estate… maybe all of the condos are just being bought for massage parlours?

http://www.cbc.ca/canada/toronto/story/2011/01/11/toronto-massage-condos.html

#14 Soylent Green is People on 01.12.11 at 11:23 pm


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G&M: If Steve Harper’s an economist, I’m the Queen of Sheba

The ammunition to bury the Conservatives is overwhelming. Yet a majority of Canadians still don’t see it.

http://www.theglobeandmail.com/news/politics/second-reading/gerald-caplan/if-stephen-harpers-an-economist-im-the-queen-of-sheba/article1769401/

It’s the economy, Scott Brison says, and the Tories are stupid

http://www.theglobeandmail.com/news/politics/ottawa-notebook/its-the-economy-scott-brison-says-and-the-tories-are-stupid/article1861467/

“This Conservative government wrecked Canada’s finances after inheriting a $13-billion budget surplus from the previous Liberal government and then created a record $56-billion deficit,” the opposition finance critic said.

“Furthermore, it was our Liberal government that ensured our banking system was well-regulated and it was the strong financial prudence and regulatory prudence that protected Canada from the worst of the global financial crisis.”

Stephen Harper and Jim Flaherty’s Economic Myths
http://www.youtube.com/watch?v=vZy8W-rkIhg&feature=player_embedded
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#15 walter safety on 01.12.11 at 11:24 pm

Unless of course a tax hungry government changes the rules

#16 InvestorsFriend (Shawn Allen) on 01.12.11 at 11:27 pm

I agree TFSAs are great. Max em out. And invest them in stocks.

RRSPs are good too, just not AS good.

And yeah that deduction you got is coming home to roost as a big tax bill some day. (I am hoping the tax on my RRSP will be HUGE, not the tax rate but the tax, due to the size of the RRSP. I’ve got a BIG one!).

In fact, the way the math works the government will (in most cases) effectively get your refund back plus an interest rate that is equal to return on your RRSP.

That math works out exactly that way, but only if your marginal tax rate when you got the refund is the same as your marginal tax rate in retirement. It might be close for a lot of us. If your tax rate in retirement is lots lower than when you were working than your “pay-back” of that refund is a lot less.

Consider that when you make a $10,000 RRSP contribution and get back say a 40% $4000 refund then in effect you contributed only $6000 to the RRSP and the government contributed $4000.

If in retirement your marginal tax rate is the same 40%, you will pay back in tax all of that $4000 plus a rate of “interest” equal to the return on the RRSP.

Now on “your” share the $6000, it will grow tax free. And mathematically you can consider it is not taxed at withdrawal, the “tax” can be better thought of as just full payback of that refund – with interest equal to the return on your RRSP. Believe me, that is the (surprising) exact math under the assumption of same tax rate.

My math is explained in more detail here:

http://www.investorsfriend.com/May%202%202010.htm

(click and scoll down a page and see the article on this RRSP math. Warning, you will need a couple of brain cells or so to get this. The math is correct.)

Last time I posted this I recall at least one person got it.

Let’s try for two more this time…

#17 freedom_2008 on 01.12.11 at 11:29 pm

Actually for people who stopped working in late 40s/early 50s and don’t have big salary income anymore, you have 10-20 years time to slowly withdraw from your RRSP, pay 20% tax, and use them to contribute to your TFSA and do whatever you like. Good deal.

#18 squidly77 on 01.12.11 at 11:30 pm

TFSAs kick ass, the best, skimming all that profit rocks, leaving it in to continue building, rocks harder. This is an incredible financial machine for those that know how to use it. I manage and have all my family enrolled in TFSAs.

Another tip, SU goes under $30 at least once a year, buy it when it does, sell it when it hits $33, its @ $37 now.

By the way, if you take my advice, bad things will happen to you.

#19 MikeT on 01.12.11 at 11:31 pm

First, BRIC is much hotter as BRI, without C – ask Jim Chanos, and I tend to agree with him. Nobody knows for how long the Chinese bubble will inflate, but when it bursts, it will not be funny.
Second, poor F could as well end TFSA as we know it – just as he brought it to life, wouldn’t he, if he sees that Canadians get income that he cannot tax?

#20 squidly77 on 01.12.11 at 11:32 pm

By the way, your pic tonight is why Viagra was invented, when the mind says no, the chemicals say yes.

#21 OttawaMike on 01.12.11 at 11:34 pm

#144 Bottoms_Up on 01.12.11 at 5:07 pm

That listing looks interesting but I’m sure there is a lot more to the story that caused them to walk then just money. Some of Vanier is built on old sawdust piles and former landfills and settling foundation issues are common. I don’t believe that area is part of it though.

10 minute walk to Parliament hill.
The new Richcraft condo towers and townhouse development is just up the street and there is another new project going up near by so there is a lot of potential there. If you’re willing to deal with the crackhead tenants and other nuisances, the area will eventually become much desired. Big question is how long will you need to wait?
I was looking at buying something around there last year and spoke to a cop at the community police station. His observation was in spite of Vanier’s reputation, he’d never experienced a community where people cared as much for preventing crime and making things better.

#22 Soylent Green is People on 01.12.11 at 11:40 pm

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Question of the Day

Do you think Corporate Tax Cuts create jobs?”

http://www.cbc.ca/politics/insidepolitics/2011/01/question-of-the-day-267.html#pd_a_4379002

-=——————–

My fav. part are the GOOD comments after the poll. Congratulations Canada. You’re finally waking up to the horror that are the neocons.

Not Blind wrote:
Posted 2011/01/12
at 8:30 PM ETAll the “Republicans” of the USA and the “Reform” of Canada have repeated the same line that corporate tax reductions mean jobs.

Joseph Goebbels had stated “if you tell people lies long enough, they will believe them”.

Here we go again. Just like Income Trusts, Senate Reform, Fixed Election Dates. Oh don’t forget my personal favourite of “No Deficit”.

Billions of Dollars in debt later, Harper and his trusty sidekick Flaherty, are still trying to tell us lies. How long can this go on before everyone can see what they are doing? Their track record speaks for itself. Don’t forget, they started with a surplus!
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#23 The Analyst on 01.12.11 at 11:44 pm

Nice ideas Garth… my wife and I using the following approach.

We’re in our low 30’s and our house is paid off. The money we would have been paying for our mortgage (plus interest) is $2,500 which is now being allocated to investments.

We are adding 30K per year into RRSP’s. We are splitting the money within the RRSP into index funds that charge low MER’s (under .5%). 10K of the tax refund we are receiving from our RRSP contribution is going into the TFSA. The TFSA money is being investing in dividend paying stocks (4 stocks x 2.5K each per year).

What do you think of this approach?

Not much. (a) You are building an RRSP tax bomb. (b) You’re missing out on the dividend tax credit, which is a giant gift. (c) Indexing is suicide in a range-bound market. (d) All that equity in your house is paying you 0% and may well decline. Get some professional help. — Garth

#24 CREA Circle Jerk on 01.12.11 at 11:50 pm

Courtesy of the Vancouver Sun

Photos: What one Metro Vancouver home, priced at $1M, can get you in Newfoundland

The average price of a home in Vancouver is now over $1 million. So if you sold a 2,739-square-feet home in Metro Vancouver, how many homes could you buy in Newfoundland?

JANUARY 12, 2011

This Metro Vancouver home in the Lynn Valley is listed for $1,095,000. (3267 FROMME RD North Vancouver, British Columbia. 2,739 sq. ft., 6 bedrooms, 4 bathrooms.) That price can get you 34 – count’em, 34 – homes in Newfoundland currently on the market, with a little extra to spare…

Photograph by: Courtesy, MLS.ca

http://www.vancouversun.com/business/4097300/story.html

#25 TS on 01.12.11 at 11:59 pm

Question of the Day

Do you think Corporate Tax Cuts create jobs?”

Most companies pay very little. It is optics.

#26 Young Old Fart on 01.13.11 at 12:20 am

#11 Don P on 01.12.11 at 11:20 pm

TFSA: $4K goes to the tax man and $6K goes into the TFSA, then doubles over time to $12K, then not taxed when withdrawn leaving me with $12K.

The same, n’est pas?

Not sure what you were doing but as of Dec 31, 2010 my TFSA was worth 20K. With this years (2011) deposit already in now….25k!!

The same????

#27 InvestorsFriend (Shawn Allen) on 01.13.11 at 12:20 am

Don P at number 11.

Your post and mine at number 16, crossed in the electronic mail.

You got the math exactly right…

I said the same in a lot more words…

RRSP and TFSA are same if tax rates are same at contribution al withdrwal time.

RRSP better if tax rate lower in retirement. TFSA better is tax rate will increase in retirement.

Also TFSA has added benefits of flexibility…

All hail TSFA AND the RRSP… max ’em both out if you can…

#28 HouseBuster on 01.13.11 at 12:21 am

TFSA or RRSP? It works out to be the same in the end because you don’t get the refund when you contribute to the TFSA and you can only contribute 5K/year.

But, yeah, max out both of them.

I don’t think so. — Garth

#29 Bottoms_Up on 01.13.11 at 12:30 am

#21 OttawaMike on 01.12.11 at 11:34 pm
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Thanks for the info. on Vanier (Ottawa)

I would prefer to live on the west side of Vanier pkwy, or New Edinburgh, but both are fairly/very expensive. Central Vanier reminds me of east/downtown Hamilton, decent, cheap homes that never appreciate. I think one would have to wait a long time for change, although I agree the people are for the most part OK. However, I once visited the price chopper on Donald? street. Definitely the last time I’ll go there I tell you!

#30 InvestorsFriend (Shawn Allen) on 01.13.11 at 12:31 am

Number 23 the Anlayst.

Don’t listen to Garth here. Your plan is fine. Anyone who can crank $40k into savings per year is to be heartily congratulated. Especially in low 30’s. Home earning nothing? So what! it’s paid for! What does Garth suggest that you mortgage the house to invest? Keep your plan, sleep well.

As I and Don P both demonstated the tax you pay on an RRSP is really just a simple repayment (with interest) of your refund. Your share will grow tax free. That is the math (assumes marinal tax rate on withdrawal same as at contribution).

If you think indexing is dead (as Garth suggests) then stay out of stocks all together. Less than 50% of the people using any other approach will beat indexing. Go with indexing if you believe in stocks. Or (only) if (if) you have skills as a stock picker then do that (pick stocks).

Getting professional advice is a good suggestion too, except I don’treally see where you need it. Rock On!

Sure glad you’re not my advisor. — Garth

#31 BC Bring Cash on 01.13.11 at 12:36 am

RE BLIND BY CHOICE
#74 MrCatfish
Couldn’t agree with you more. Bought ourselves a brand new house from builders plans in Winnipeg due to transfer to the city. Bought in 1987 for approx. $85,000 and were forced to sell for $75,000 6 years later after extensive improvements to said property. Maybe its true that in Winnipeg this time is different. Perhaps the Sheeple are going to take even more of a bath than I did. Maybe thats why its gonna be different.

#32 wetcoaster on 01.13.11 at 12:40 am

“BUT paying off your mortgage trumps all because it’s a GUARANTEE of a return unlike the casino market, and after all we do need somewhere to live and we can’t live in our stocks.”

miley,

Nothing is gauranteed in real estate, get off the pipe. People can live off their stocks as they pay their rent for them. A house pays you nothing til you’re divorced,sick or dead, and in two of those cases you never get to enjoy a nickel of it.

#33 Laurenda on 01.13.11 at 12:54 am

Does F realize what he has done and if so, can he somehow make these type of tax dodging and revenue generating moves legitimately inaccessible to Joe Canadian?? How many years do you think until RRSPs are defunct, or do they make orange man makes too much money to do that? Garth – keep the blonde, the booze, the external stimuli – do what ya gotta dude, but write a book for gen x on TFSAs. If you write it, we will come…
P.S. At a major bookstore/latte shop tonight looking for any of your books, all sold out.

#34 BC Bring Cash on 01.13.11 at 12:56 am

Re TFSA’S

Like other opinions on this Blog, even TFSA’S have the potential by f or other future Politicians to change the rules once again half way through the game because what else could be an easier target than our savings or investments.TFSA’S are possibly another long term long shot as far as I’m concerned. Remember the the RRSP was the Gold standard for generations. Perhaps another government will cook up cook up another scam.

#35 DHJ on 01.13.11 at 12:59 am

Since the majority of those approaching retirement lack private pensions and have insufficient savings, why doesn’t the government modify RRSPs and drastically reduce or eliminate the tax payment required when these funds are required? Retroactively making RRSPs more like TFSAs would contribute to solving our oncoming retirement problem.

#36 Nostradamus Le Mad Vlad on 01.13.11 at 1:01 am


A few years ago, I read a magazine article which had the heading “RRSPs are all but dead” (this was before the CPC got in), but it didn’t give an alternative investment option.

Since replacing the IT lie with the TFSA, I guess the TFSA is that option now. As contributions cannot be deducted from tax, or given any credits for it, the feds. may up the limit to $25K and at the same time eliminate RRSPs altogether.

Besides, the chances of making a tax-free gain, taking those profits and moving them into a non-registered account is a great way to build a really good nest-egg up.

It would be most helpful if presently-held RRSPs could be withdrawn tax-free, but I doubt whether that would catch on. Then again, empty sea shells have a greater IQ level than C-H-F combined, so there is some hope!

Without doubt, TFSAs for up-and-coming Gen Xers and Yers are the way to go. I wouldn’t hesitate if I was starting out again.
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2:15 clip There was a lunar eclipse over Dec. 21-22 (just passed); this may incl. floods and famines all over.

49 of 50 States hit by snow. GW or weather control?

5:37 clip Legislating insanity; not too hard for politicos.

Depopulation takes on a whole new meaning from these figures.

Spike on global energy commodities.

Soros would likely be behind a move to make the Yuan a new reserve currency.

First Pakistan, then Oz, Sri Lanka and now floods in Brazil. HAARP is working extra-hard nowadays!

China’s foreign exchange reserves and Phantom Income.

#37 Jeff on 01.13.11 at 1:02 am

Hi Garth,

You keep saying that RSPs are tax bombs. Can you elaborate on that? You’re frightening me a bit here as I have maxed my RSPs every year; I’ve also maxed my TFSA… Too bad I’ve got no money left over to invest in non-registered accounts.

I completely agree that the TFSA should be topped up first, but should I stop maxing my RSP every year and look at investing in Canadian dividend stocks outside of my registered accounts?

Thanks dude.

#38 Min in Mission on 01.13.11 at 1:04 am

Damn!! I really wish that I was not so financially illiterate. But one thing for sure, TFSA here I come!!

#39 nonplused on 01.13.11 at 1:11 am

I don’t think I agree that an RRSP is necessarily a tax bomb. For many people it is their primary retirement pension vehicle. For those who have pensions, like government workers, the amount they can contribute is small.

For high income earners in the top tax bracket, the RRSP tax credit now when NPV’d is well worth while so long as you don’t try and build an RRSP that will be significantly into the top tax bracket when you retire. But as a place to put your low risk investments and target $30,000 to $60,000 a year in income it’s not bad.

For high growth investments, the TSFA is the better deal, assuming some growth actually materializes. My only beef is the $5,000 limit is low. Some people already have savings that didn’t fit in the RRSP limit that don’t fit in the TFSA limit either and won’t for years. I guess that’s why so many people were over contributing and paying the penalty until they toughened up the rules.

My wife has a TFSA (maxed out) and it’s all in the highest growth instrument her institution offers (not self directed, unfortunately, but the asset mix isn’t awful).

I will get one eventually, before any contributions roll off, or I get a roundtoit. Mine will be self directed and I might put all of it in CEF. After all, if you are buying physical gold and silver as an inflation hedge, no point letting the government tax the insurance if it pays off. The taxing of capital gains ignoring inflation is one of the biggest travesties of our corrupt finance/tax system. Half the capital gains taxes you pay (some would argue more) are really taxes on the inflation of your assets, which leave you with less purchasing power than you started with. Capital gains taxes might be reasonable when inflation is always targeted at zero, but with a 2% targeted inflation rate the first 1% per year of your gain is pure racketeering by the government. Over 20 years that adds up.

Let’s use a simple example. Say you buy gold (I’m using gold because it pays no dividend which would complicate the example) and it appreciates at exactly the rate onf inflation. Inflation is at 2%. $50 dollars is invested, and the period of time is such that you now have $100 in gold. If you sell it, the government sees a $50 capital gain, subject to tax. But due to the 2% inflation, you only really have only 50 dollars worth of purchasing power compared in real terms adjusted for inflation to the date of purchase. If the capital gains tax was 50%, which it used to be for some people, then you have to give $25 dollars to the government, leaving you $75. Sounds like you are still ahead, right? No, you are not. It takes $100 to buy what $50 used to buy but now you only have $75. You loose.

Capital gains taxes are lower than that now, but it’s still partially a tax on inflation. If you think it through far enough, you’ll see that it amounts to a capital tax levied on inflation, which the government causes. (Inflation is caused by the government and central banks. If they can make it 2% they can make it zero, so it’s policy.)

To the extent there are gains beyond inflation, there may be some just gains subject to taxation. But heck, why not just put it in a TSFA and skirt the whole issue.

#40 dark sad person on 01.13.11 at 1:17 am

#14 Soylent Green is People on 01.12.11 at 11:23 pm

“This Conservative government wrecked Canada’s finances after inheriting a $13-billion budget surplus from the previous Liberal government and then created a record $56-billion deficit,” the opposition finance critic said

**********
I’m not defending these clowns in power-but wasn’t most of that buildup in surplus because they rolled CPP/UI/Medi-Care et al contributions into general revenues?

#41 johnnyo on 01.13.11 at 1:20 am

I’m surprised at how misleading this blog post is. While everything that Garth states is true, he only gives half and a very biased story. As Don P and InvestorsFriend explained above, the only difference between an RRSP and TFSA is the marginal tax when you contribute and when you withdraw. Otherwise, both investment vehicles are identical. I won’t repeat the math because Don P did a great job of it, but if your marginal tax rate is higher when contributing than when withdrawing, then RRSP is better. If it’s the other way around, then TFSA is better. So for some people RRSP will be better and for others, TFSA will be better. It’s not possible to make a general statement about which is better.

Let’s see what you say when your RRSP becomes a RRIF and you’re forced to take income every year, whether you want it or not, pushing you into a higher tax bracket and forcing a clawback of benefits – at a time when marginal rates will likely be higher than when you were working. This blog needs crayons and a sand box. — Garth

#42 johnnyo on 01.13.11 at 1:23 am

Regarding the comment above that “paying off your mortgage trumps all”, you simply can’t make this general statement. In fact, I would argue otherwise (especially if you’re young). The goal should not be to become debt free, but rather, it should be to maximize your net worth. To maximize your net worth, it’s not always best to pay off your debt as quickly as possible.

#43 Tom from Mississauga on 01.13.11 at 1:26 am

Hi Everyone
It’s that time of year again, eh? What do I do to get a raise cause the boss sees me on this blog all. My advise:

No company pension but large income = RRSP first

Low income or have company pension = TFSA first

Agree with Garth on Analyst question. It’s in Money Road, get a copy and study it. Borrow money against house equity and earn 2x interest easily. Did it myself last year and it’s been a boon!

#44 InvestorsFriend (Shawn Allen) on 01.13.11 at 1:27 am

Wetcoaster at 32

You are wrong. Paying off a mortgage earns a return equal to the interest rate saved. (and precisely equal to)

Any loss or gain on the house will happen independently of whether the mortage is paid down.

Investing in a house is not a guranteed investment. Once having bought the house with a mortgage, then paying down that mortgage is a guranteed return.

Alos a house does provide living accomodation (at a cost of course).

Also it is wrong to sugges that gains are not real until cashed out. Tell that to Warren Buffett who is sitting on about $50 billion in “paper” gains on Berkshire. He has never sold a share (he has gifted some). The fact it is a paper gain did not stop him from being about the third richest person in the world.

Yes an unrealised gain can be reversed. But it is fully real as a gain even when it is still unrealised.

What is the point of realising a gain on one house only to put the money at risk in another house? or another investment. It only makes sense to cash in a gain when you think the stock or house is far too high in price or when you plan to spend (not invest) the cash.

#45 Debt's Dark Embrace on 01.13.11 at 1:39 am

#9-10-15-19

You guys are on the right track. They will find a way to get a piece of your pie. If not with an outright tax, the capital gain withdrawals will be added to your gross income to claw back benefits. They will find a way to get a piece of your tax free pie sooner or later.

#46 Debtisforever on 01.13.11 at 1:48 am

Great, give us some hot stock tips so we can make huge tax-free gains in our TFSA. Rather than huge undeductible losses. Boo.

#47 LJ on 01.13.11 at 1:52 am

One main problem with RRSP’s is that any capital gains you make will be FULLY taxed as income at your current rate (and we all know that the g-man will be upping those tax rates soon to pay the bills).

The taxman is counting on getting a huge cut of our retirement “savings.” That is why they will be pumping RRSP’s like there is no tomorrow. You can all remember the fear stories last month about how Canadians are not prepared for retirement and have to push more money into these vehicles. Not a word from them about the TFSA.

If you are thinking about investing in an RRSP, first go find someone who is drawing one down and ask them if it was a good idea. The likely answer will be “No.”

Disclosure: RRSP value $0 (chose to pay the original tax and invest elsewhere keeping 50% of the capital gains, tax free – a good, diversified investor should be able to make back the tax within a year or two)

TFSA current value $27900 (all within the contribution limits – looking for more growth!)

#48 Kilt on 01.13.11 at 2:07 am

Why not both.

Make your yearly contribution to your RRSP then take your refund and dump it in your TFSA.
Your taking money that you would normally have paid as taxes and investing it in something that is tax free.

Kilt.

#49 Dirt Dog on 01.13.11 at 2:09 am

I heard yesterday about a sale on YVR’s Westside, 27 offers all Chinese. Apparently your immigration/citizenship papers are fastracked through the system if you’re a new immigrant starting a business in Canada. Guess what, building a house qualifies as a new business.

Bad information. — Garth

#50 debtified on 01.13.11 at 2:39 am

#23 The Analyst | #30 InvestorsFriend (Shawn Allen)

I agree with Shawn Allen that you, The Analyst, are doing fine with $40K of savings per year despite what Garth says about “an RRSP tax bomb”.

First, your rate of savings is way better than most people are able to accomplish these days. Secondly, Garth could be right about the “RRSP tax bomb” but that’s at least 20 years away for you to find out. Lots could happen during that time (incl. Garth being wrong).

Contributing the $10K (in refunds because of your RRSP contribution of $30K – really?) is definitely a wise move. If you follow most of Garth’s investing strategies, your TFSA could command some substantial capital gains that will definitely complement your RRSP savings at retirement time (“RRSP tax bomb” blowing off or otherwise).

If you don’t contribute to your RRSP now, you may not get the $10K tax refund (again, $10K, really?) that you contribute to your TFSA. So I am not sure where Garth is coming from about you building an “RRSP tax bomb”.

As for your house, if you like living in it, I don’t see any problems with it paying you 0% return (Garth seems to have a problem with it). It’s a home. It’s paid for. It’s not about getting a monetary return. You and your family need a place to live and create long lasting pleasant memories in.

I believe in Garth’s view on RE future here in Canada (that is why I read his blog). I rent (and missing out on $1,500 per month mortgage subsidy from my employer). More importantly, I believe in a house as a home – not as an investment.

Lastly, I truly appreciate what Garth has done here. I have learned a lot from him (also bought his latest book) and also from all the smart comments from the blog dawgs. I have not contributed much (been lurking most of the time) so I hope the following links to PBS programs that I have watched will be beneficial to some:

1. The inside story of one of the most controversial moments in America’s financial crisis – and its ongoing drama [ http://video.pbs.org/video/1168339502 ]
2. Long before the economic meltdown, one woman tried to warn about the threat to the financial system… [http://video.pbs.org/video/1302794657# ]
3. Examining what Paulson and Bernanke didn’t see, couldn’t stop and weren’t able to fix. [http://video.pbs.org/video/1082087546# ]

#51 Thetruth on 01.13.11 at 2:52 am

easy on the high def pics GT…

usage based internet is here Feb 1st…

http://www.cbc.ca/consumer/story/2011/01/07/internet-expensive-surfing-canadians.html#socialcomments

Good time to invest in Rogers, Shaw, Bell, Telus?? They will have vast pricing power in the very near future. No Netflix (real one), Apple TV, or the likes happening here.

Everything digital (internet, movies, content, telephone) will come from one or two companies. Vast pricing power. $250 a month bills coming to a living room near you! ohh, this is because of canada’s geography and low population density! lol

Worth it to invest in an oligopoly to make money (eventhough bad for the country as a whole) ??

#52 Hans on 01.13.11 at 2:55 am

A steady assumption made by Garth is that interest rates will go up, and in a year or two, all those “Realestate Virgins” will be screwed.

Well, not so fast.

Why would the Canadian Gov commit suicide ? Raising the interest rate back up to past “averages” would greatly impact GDP and force the Gov to pay more to service the Federal Debt. All Gov around the world love the low interest rates. And besides, Interest rates have been on a steady decline since it peaked around 1982 ~19%. This is not a recent phenomenon. From the 1920’s it was a steady 3% until it slowly rose to 7% in 1972. All you have to do is look to the good ole USA. They have a deficit of 15 Trillion. if the interest rates were to revert back to their average level, the debt service level would hit 1 trillion or 50% of all Federal revenue collected today. Take note Garth, – fat chance of this happening.

Look at Canada, our Federal Debt is 554.7 Billion
Debt declined to 458 billion by 2008. Grew 5.8 billiion in 2008-2009 then 55.4 billion in 2009-2010 and expected to grow by 45.4 billion 2010 – 11 and is expected to grow at least to 2014 /2015.

About 24 cents of each revenue dollar went towards public interest costs in the mid-1990s (peak debt of 562.9 Billion) compared to the current figure of roughly 13 cents for service payments

Raising interest rates back up to 7 – 8 % is a long shot. Bank of Canada and the Mr. F wont risk it, so please ratchet down the fear mongering.

As you said yourself Garth, the general population has much higher personal debt than back in the 80’s when mortgage rates were high. Quickly raising rates would be political suicide.

I’ll listen to Mark Carney instead of you. He says they’re going up. — Garth

#53 pablo on 01.13.11 at 2:57 am

Man that jacket sez it all, and those boots, wow, sexy, don’t even get me going about the cut offs and the nylons, ooooh baby!

g; I red the blog as well, will keep it all in mind when I cash out of the house, again with the wife willing, and to the other reader……..yes I still have a pair…….but at my age they’re hanging a lot lower……..makes em a lot easier to get em lopped off if I’m not careful with em!

#54 a prairie dawg on 01.13.11 at 3:12 am

Those are some mighty big shoes to fill.

#55 extso on 01.13.11 at 3:18 am

How about this prediction:

http://www.marketwatch.com/story/harry-schultz-last-investment-testament-2011-01-10?reflink=MW_news_stmp

#56 a prairie dawg on 01.13.11 at 3:31 am

“For years I wrote an annual guide to RRSPs. All it took was a bottle of uppers, three quarts of scotch, four days and a blonde.

As you can surmise, it was boring work. External stimulus was required.”

So by contrast, what does Garth need to write this blog?

A jar of relish.

#57 Devore on 01.13.11 at 3:33 am

#9 Peter Pan

Garth, It’s so good, I’m sure F. is going to shut it down at the first hint of “tax leakage”…

There is no tax leakage. You pay taxes on TFSA contributions up front, today. Maybe in 20-30 years someone will worry about the trillions sitting in TFSAs, growing and being withdrawn untaxed.

#58 Devore on 01.13.11 at 3:37 am

#11 Don P

The better choice would depend on my marginal tax rate now and when I withdraw. If my marginal tax rate will be higher later, the TFSA is better. Or, if like many retirees, my marginal tax rate will be lower later, the RRSP is better (or at least not such a bad thing).

And of course taxes are heading down, right?

While $5k a year is a piddly amount that anyone making average or higher wage should have no problem saving up, the first money should go into TFSA.

#59 pablo on 01.13.11 at 3:51 am

67% increase in income tax rates just passed in Illinois, California among others can’t keep payrolls checks/cheques current, employee pension plans bankrupt, there are many states and cities in U.S.A. are at or near bankrupt, that will go under, defaulting on their bond debt when they loose financial support of U.S. federal govt. as it too runs out of ink and paper to print more dollars or the value falls, whichever comes first.
In Cda provinces and federal govts increasing deficit levels, taxes are going up here as well this year. Food riots worldwide and coming to a city near you very soon given the weird weather we’re seeing with droughts here, floods there, crop shortages. Food commodity prices increaseing 100-200% Oil, gasoline, natural gas costs going higher with utilities costing consumers more. Personal bankruptcies increasing here and in the u.s.a., by at least 10%. Dead birds and fish showing up all over the world. Gulf stream killed by BP Oil.
W.T.F.!!!!!!!!!
Thanks dude I just needed to vent, better go and take another Prozac and vodka shooter, later dudes.

#60 pablo on 01.13.11 at 4:05 am

Canada: 2011 Outlook
After returning to its pre-recession level of output, the Canadian economy has slowed in H2 2010 due to tepid external demand and cooling housing investment.The Canadian economy is entering a new stage of normalization and rebalancing following a marked slowdown in H2 2010. A strong loonie will mean net exports continue to drag on the economy, while domestic demand, the key driver of growth, will slow due to consumer debt levels, slower wage growth and low capacity utilization. The Bank of Canada (BoC) will remain on hold until Q2 2011, offsetting the withdrawal of fiscal stimulus.The slower growth and persistent output gap will dampen inflationary pressures, with core inflation trending slightly below the central bank’s 2% target. Private consumption will continue to be a significant contributor to growth, although at a more subdued pace owing to slowing job creation, income generation and rising debt.-http://www.roubini.com/region/country/canada.php

There now that doesn’t sound too bad does it, almost bucolic. Talk about blind by choice.

#61 Jeff Smith on 01.13.11 at 4:15 am

>#20 squidly77 on 01.12.11 at 11:32 pm
>By the way, your pic tonight is why Viagra was
>invented, when the mind says no, the chemicals say yes.

For that, you probably need at least several pills to have any effects. eek!

#62 JJ on 01.13.11 at 4:26 am

RSP dilemma – couple, 43, 2 young kids. Got $100k DP cash to invest for house (min 3 years out),& retirement. Husband self-emp income 75k net. Got 10k RSPs, 75k US IRAs, 30k TFSAs, will move over 10k/ yr to TFSAs. Owe 10k to HBP. Any reason not to repay 10k HBP now, put 40k into our RSPs over the next 3 years, &take 50k new HBP when ready to buy? (will be FTBs again in 3 years).Would take rest of DP from non-regd, keep TFSA intact , & this would shelter some gains for a few years while not locking up huge amounts in RSPs.Or could put even more in RSPS, got lots of room. Thoughts? Thanks!

#63 Devore on 01.13.11 at 4:34 am

#16 InvestorsFriend (Shawn Allen)

That’s a lot of words to say multiplication is associative. Don’t they teach people that in grade school?

#64 Pat on 01.13.11 at 5:36 am

Are distributions from RRSP eligible for income splitting?

With a spousal plan only. — Garth

#65 Mike on 01.13.11 at 6:07 am

#32 “Nothing is gauranteed in real estate, get off the pipe. People can live off their stocks as they pay their rent for them. A house pays you nothing til you’re divorced,sick or dead, and in two of those cases you never get to enjoy a nickel of it.”

My grandfather once espoused real-estate as the most important investment he ever made, not because of money, but because when he saw currencies collapse, massive unemployment, war, rationing and shortages, real-estate gave him a place where the government would protect his right to live, where he could extend that right to his family and friends, rent rooms for income, and… he could grow food to subsidize what was available.

But if you don’t think things are going to get that bad, I agree, ownership doesn’t mean much.

#66 young & foolish on 01.13.11 at 6:15 am

True, a house pays you 0% ….. so why would anybody want to own property?

#67 Worldwide on 01.13.11 at 6:40 am

Baltic Exchange Dry Index (BDI)

The BDI is a leading indicator of worldwide trade, it’s crashing. (Sitting right now at 1480 vs 12000 in mid 2008). 1480 is the lowest point since the crash of 2008. Lots of items follow it’s ups and downs like the S&P500, copper, gold, oil, etc.

There is currently a line of “Freight Rates Tumbling as 35-Mile Line of Ships Sails” (Bloomberg)

http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm

#68 Chris on 01.13.11 at 8:31 am

http://www.themortgagelender.ca/

posted this two days ago and it promptly went offline about 2 minutes later. Back up now if you’re interested. Curious how “Harold the Jewelery Buyer” has come to be offering mortgages….

#69 jim on 01.13.11 at 8:50 am

There seems to be too much government control and meddling in your life with RRSP’s so I would avoid altogether and TFSA sounds good but I would imagine that this program won’t be around for long or will be taxed.

#70 Northern_dirt on 01.13.11 at 9:16 am

#39 nonplused

The taxing of capital gains ignoring inflation is one of the biggest travesties of our corrupt finance/tax system.
……………………………………………………………………………….

I was in the shower a couple weeks ago, thinking about inflation.. and this popped into my head.. Im surprised more people aren’t rioting in the streets.. Actually I rarely hear anyone even mention loss of purchasing power due to inflation.

#71 Danforth on 01.13.11 at 9:24 am

@
#23 The Analyst on 01.12.11 at 11:44 pm

If you put your house on your balance sheet as an investment strategy, then Garth is right. It does pay poor dividends, since its value increases roughly at par with inflation. Or worse – over the last several decades the house price to avg. salary multiple has only increased.
The dividend is the mortgage/rent you no longer pay.
Don’t know what your place is worth, but some back-of-the-envelope math:
If your place is is worth 400K, and you mitigate paying 2500 a month (30K a year), then the return is 7.5%. Nothing to be ashamed of.

However, if you treat your house simply as a “place to live”, and is treated separate from your investment strategy – then having your house paid for is fantastic. Congratulations!
It is a fantastic insurance policy, since we can not predict future health and employment. And you can live up to 5 decades rent/mortgage free. And there’s absolutely no shame in starting retirement savings in your early thirties, debt free. Well done.

The only challenge is, it costs a couple hundred thousand dollars to have a place to call home. Oh well!

With current real estate prices, an urban house can not be looked at in isolation from the accumulation of net worth or an overall financial strategy. Living in a paid-off house worth hundreds of thousands in a time of asset deflation and financial asset inflation is folly. Stop being emotional. — Garth

#72 Andrew toronto on 01.13.11 at 9:27 am

Garth what happens if you did a selfdirected rrsp and the contributions you made into it , lost money by the time you retired you nestegg is less than you put in . Will there be any repurcussion from that,like still owning the tax on the lost portion of the contribution , when you take it out …Thanks in advance

Any money coming out will be taxed as income at your marginal rate. There is no special exemption for being an idiot. — Garth

#73 Bottoms_Up on 01.13.11 at 9:27 am

#66 young & foolish on 01.13.11 at 6:15 am
————————————————-
A paid off house actually pays you the savings in what it would cost to rent the same place, minus maintenance (something a landlord would have to cover).

Minus property taxes, minus financing charges, minus the lost opportunity cost of the cash invested in equity. In many cases, it is a net savings to rent. Your blanket statement is of no value. — Garth

#74 Ben on 01.13.11 at 9:41 am

Banks repossess 1 million homes in 2010

Janna Herron, AP Real Estate Writer, On Thursday January 13, 2011, 12:20 am EST
NEW YORK (AP) — The bleakest year in foreclosure crisis has only just begun.

http://finance.yahoo.com/news/Banks-repossess-1-million-apf-1937862555.html?x=0&sec=topStories&pos=main&asset=&ccode=

#75 The Analyst on 01.13.11 at 9:43 am

Garth, Shawn Allen (#30), and Debtified (#50)…

Garth, I agree that RRSP’s could be a tax bomb if you don’t manage them properly. Our goal is to retire before 45 (we’re 32 right now) so we can start withdrawing funds from our RRSP’s and reduce the tax man’s share (and still get our OAS and CPP max at 65). With my wife’s pension (teacher) and our annual contributions to RRSP’s/TFSA’s, we believe we could make it happen by investing 40K per year.

As our salaries go up the 40K per year added to investments will go up!

How much will you have saved at 45, and where? — Garth

#76 Moneta on 01.13.11 at 9:44 am

Why would the Canadian Gov commit suicide ? Raising the interest rate back up to past “averages” would greatly impact GDP and force the Gov to pay more to service the Federal Debt
————
Just like Health Canada piggybacks on the FDA, the BoC depends on the Fed. We’re tied at the hip but the US will NEVER let Canada get rich at its expense.

When will Canadians understand that Canada is a rate taker? Do you think the BoC wanted to raise rate to 18% in the early 80s?

#77 Carruthers on 01.13.11 at 9:44 am

F could as well end TFSA , F could as well end TFSA , F could as well end TFSA…

You guys talk like this minority government will be in power forever. Chances are the a-hole that will close the TFSA tax loop-hole will be the next Liberal finance minister.

For a party of supposed grifters and losers you all seem to be pretty certain, and scared, that Harper et al. are going to be around for a long time to come. What gives?

No government will end this. We have a retirement crisis brewing even with the tax shelters. — Garth

#78 Tony on 01.13.11 at 9:48 am

The problem is the TFSA is like “spare change” in your pocket. It’s more like buying lottery tickets because unless you can gamble all of it and turn it into 10 to 100 million it’s basically useless and you’ll still retire poor because 5 grand a year more or less will barely keep you away from the food banks upon retirement.

#79 Leanne on 01.13.11 at 9:50 am

“…boozy, buxom blonde, splayed over the laptop taking unbridled and unbuttoned dictation…”

If the financial gig doesn’t work out, you can always write Harlequin Romances.

If only it were fiction… — Garth

#80 Tony on 01.13.11 at 9:54 am

Re: #67 Worldwide
The baltic dry index is the real truth. The world is deflating and will continue to deflate. Commodities and the stock market will implode when the dance around the mulberry bush finally ends. It should end soon but it will end and so it will be written most of the people were stupid twice and just didn’t get it in the first place.

#81 Nuke on 01.13.11 at 10:08 am

As Garth pointed out, the TFSA has added more than F thought. I believe it was to molify us when he attacked income trusts. RRSPs are still pretty important for those earning over six figures without a great pension plan. The $22,450 contribution will give you back about $10,000 in taxes, perfect for a TFSA. Then in retirement this RRSP (RRIF) can be split with the spouse and the TFSA can come out tax free. . And lets not forget the RDSP for those (or family members) with disabilities. The feds fund the RDSP with $1,000 per year and an additional $3,500 annual if you simply deposit $1,500. Up to $90,000 per RDSP. You can also drop up to $200,000 into the RDSP and it will grow tax deferred. What’s best is that money taken out won’t reduce other government benefits like disability income, OAS etc. The financial and tax planning world is becoming fun.

#82 David B on 01.13.11 at 10:09 am

Poor F. He has no idea what he did.

He does now!

Having said that all governments, our’s included hold the majic pen and there is one word they know how to spell and that is “Ammendment” and when the time comes they will … they did it with RRSP’s twice and HOSP’s ….. but I agree go for it and make hay while the sun shines.

#83 Devil's Advocate on 01.13.11 at 10:17 am

I don’t like either (RRSP or TFSA). I was stupid enough to have been so ill advised as to try shelter some extra earnings by putting it into an RRSP which due to a sneaky government loophole to their benefit (Alternative Minimum Tax) I paid tax on going in and, all things being equal, will when it comes out. As far as I am concerned those bastards are going to take their pound of flesh one way or another and twice if they can.

I heard mention of by you Garth that you can move RRSP money over to a TFSA and that you will hint further of this opportunity tomorrow? I will wait patiently with abated breath as I would love nothing more than to do so and then as quickly as possible back into our pockets – reducing taxes all the way. Now that I would be interested in. I doubt there will be opportunity of that though will there?

What I fully expect in the not to distant future is a huge tax evasion wave. Yes “evasion”, not deferral, not avoidance “evasion”. Those inept bastards are screwing with our futures in a, for all intents and purposes, irresponsible and almost illegal way… so I expect we will pull a fast one on them or try our level best to – even though in reality they are we but… not me. ;-) This will be a most certain occurrence if the economy does not improve due to governments meddling hands as all that happens then is the economy gets pushed under ground just as it has and does in every other socialist/communist country in the world.

Things are changing. Met with a mortgage broker buddy of mine the other day. The dominant topic of conversation was the banks. Of course he and I interact with the banks quite a bit in our day to day business. The banks are getting more and more aggressive. If the government doesn’t getcha the banks will. Your banker is NOT your friend. Taxes and interest… yuck. Taxes and interest… arrggggg. Think about it… taxes and interest… the goal is to reduce taxes and EARN interest… hard to beat the bank on that game though as they have it mastered. What was it Thomas Jefferson said about banks again? ;-)

I mentioned you can move money out of an RRSP tax-free under certain conditions, not into a TFSA directly. BTW, without those greedy government bastards you speak of, your industry would be in tatters. It is artificially low mortgage rates, the Home Buyer’s Plan and government-insured high-ratio mortgages which feed you. Don’t suck and blow. — Garth

#84 tangocash on 01.13.11 at 10:18 am

Nice ideas Garth… my wife and I using the following approach.

We’re in our low 30′s and our house is paid off. The money we would have been paying for our mortgage (plus interest) is $2,500 which is now being allocated to investments.

We are adding 30K per year into RRSP’s. We are splitting the money within the RRSP into index funds that charge low MER’s (under .5%). 10K of the tax refund we are receiving from our RRSP contribution is going into the TFSA. The TFSA money is being investing in dividend paying stocks (4 stocks x 2.5K each per year).

What do you think of this approach?

Not much. (a) You are building an RRSP tax bomb. (b) You’re missing out on the dividend tax credit, which is a giant gift. (c) Indexing is suicide in a range-bound market. (d) All that equity in your house is paying you 0% and may well decline. Get some professional help. — Garth


I agree with much of what you say Garth, but i diverge on your index theory in the present market. i have almost half my growth assets in an index fund mirroring the tsx at a .5% mer and have been doing great over the last year. i am bullish on CDN equities and feel the TSX is anything BUT range bound…

Well, good luck. Fifty per cent exposure to one equity fund (no matter what the fund fee) is overweight. As you will see. — Garth

#85 Pat on 01.13.11 at 10:18 am

#58 Devore wrote:

“While $5k a year is a piddly amount that anyone making average or higher wage should have no problem saving up…”

Well, the average family in Canada makes about $70-80K, is in their late 30’s and has 2 children. After taxes and various withholdings (EI, CPP, medical/dental, employer pension plans, etc), the net income is probably about 4K/month (I haven’t done exact calculation).

Let’s make a modest budget: $1500/mo for mortgage/rent/prop taxes and insurance, $300 for utilities, $500 for car/transportation, $800 groceries, $300 child activities, $100 clothes, $200 miscellaneous and $300 for vacations/travel.

There isn’t much left over to invest. The stories about families in their 30’s to early 40’s with children and several hundred thousand in savings aren’t stories about average families.

#86 boomer62 on 01.13.11 at 10:31 am

HOT,
January 12th, 2011..January 12th, 2011, 2nd paragraph

“Tax avoidance is a totally moist, throbbing turn-on.”

Pre-election pandering?

#87 Andrey on 01.13.11 at 10:49 am

There’s a good article on similar topic that favors RRSPs http://michaeljamesmoney.blogspot.com/2011/01/rrsp-vs-tfsa-downside-protection.html

He calls his blog an “amateur’s journey” and really lives up to it. — Garth

#88 wendi1 on 01.13.11 at 11:04 am

Garth, according to the CRA website, TFSAs are only available to those 18 and older. So, you can give your kids money for a TFSA only if they are adults.

Kids who are under 18 can file a tax return (to get RRSP contribution room, for instance), but cannot have a TFSA.

Quite so, and in some provinces it is 19. — Garth

#89 Joe Larue on 01.13.11 at 11:04 am

One thing I haven’t seen discussed is the Group RRSP/DC Plans that many employers offer.

If my employer is matching my contribution dollar for dollar (e.g. I contribute 3% of my salary and they match it), that’s a guaranteed 100% return.

In this case, I think it makes sense to contribute the maximum amount that will be matched.

The problem is that the investment choices are usually limited to mutual/pooled funds.

#90 Bottoms_Up on 01.13.11 at 11:13 am

#71 Pat on 01.13.11 at 10:18 am
—————————————-
I can speak from first hand experience; in Ottawa, 3-person family (one) gross income = $5750/mo

But Net income = $3700/mo

Modest living expenses ~ $3800/mo (includes an RESP contribution but not TFSA or RRSP).

Anything miscellaneous (weddings–gifts, hotels; house/appliance repair etc.) puts us severely in the red.

But we will be able to get into the black when the wife takes a job.

#91 Kaganovich on 01.13.11 at 11:18 am

#75 Pat

Exactly.

#67 Worldwide

Thanks for posting the information. The BDI is a great indicator of what is actually happening with the global economy. So much for each country trying to export their way out of the holes they find themselves in…wealth inequality and its correlate, demand destruction are relevant concepts for trying to understand this quagmire we’re in.

#92 MIKEF on 01.13.11 at 11:19 am

Get some sleep G-Man!!!

#93 Devil's Advocate on 01.13.11 at 11:20 am

I mentioned you can move money out of an RRSP tax-free under certain conditions, not into a TFSA directly. BTW, without those greedy government bastards you speak of, your industry would be in tatters. It is artificially low mortgage rates, the Home Buyer’s Plan and government-insured high-ratio mortgages which feed you. Don’t suck and blow. — Garth

1. I disagree. Had they not fueled it with such low interest rates in the first place the market would have continued along just fine. That monetary policy was driven by as much greed as any.

2. I did not partake in those exuberant times. I was preoccupied with other business interests while on a short sabbatical of sorts from my real estate activities as a result of my foreseeing what was then on the horizon. I didn’t like what was taking place and knew it would end badly for those who sucked and blew at the time. I sold not one property purchased as a speculative venture.

Pure speculation and conjecture on your part Garth. I’d have thought you above that.

Those are the government inducements to real estate that exist today. Without them, housing sales and prices would be a fraction of current levels, along with your highly-taxed income. — Garth

#94 Bottoms_Up on 01.13.11 at 11:22 am

“Canada the only G7 nation where real output, private domestic demand, and employment have returned to pre-recession levels.”

http://www.statcan.gc.ca/daily-quotidien/110113/dq110113b-eng.htm

What does that matter to a family more deeply in debt than ever before, unable to afford the average home, or living in fear of job loss? Do you work for the federal government, which wrote this sunshine report? — Garth

#95 Pop goes the housing bubble on 01.13.11 at 11:36 am

This is a good article by Gary Mason about a crash caused by a massive sell-off by downsizing boomers.

http://www.theglobeandmail.com/news/opinions/opinion/pop-goes-the-housing-bubble/article1867849/

#96 Tim on 01.13.11 at 11:38 am

Every bit helps, but how much good will it do for us folks that are 40 plus? Maybe we can sink 50-60K into it and with capital appreciation we’ll end up with something like 100K when we’re 55. How long will that last us? 3-4 years?

#97 Rich Renter on 01.13.11 at 11:42 am

“Poor F. He has no idea”, edited for accuracy.

#98 WINNIPEGER on 01.13.11 at 11:52 am

http://www.theglobeandmail.com/news/opinions/opinion/pop-goes-the-housing-bubble/article1867849/

#99 Northern Dirt on 01.13.11 at 12:01 pm

#78 Tony

it’s basically useless and you’ll still retire poor because 5 grand a year more or less will barely keep you away from the food banks upon retirement.

……………………………………………………………………………..

$5000 a year for 30 years compounded at 6% is $450,000..

That then put into Dividend paying stocks at 5% would yield $22,500 a year for life..

#100 boomer62 on 01.13.11 at 12:05 pm

#73 Devil’s Advocate on 01.13.11 at 10:17 am

Sweet dreams.

http://www.pne.ca/pneprizehome/

and

http://ydreamhome.org/grand-prize/

#101 Mr. Plow on 01.13.11 at 12:10 pm

I like to think I have pretty good knowledge of real estate, when to sell, when to buy etc…

But I admit, I suck at this stuff and am trying to get better.

I have RRSP’s in a variety of things some recommended here some not, but I have balance although a little more to the side of being conservative.

I have a TFSA that I know I have not used properly, I am one of those 90%, but I am worried about moving it around because I fear I will do something wrong and trigger a tax bill.

So the question I need answered, if I take my current TFSA and some of my RRSP and move them into another account that will generate better returns will I only be getting taxed on the RRSP portion of the move because they will no longer be registered? This is assuming I don’t go over $15K. If anyone can answer that would be great thanks.

#102 Kevin on 01.13.11 at 12:11 pm

Canadian mortgage trends say it was a record year in 2010 for reverse mortgages and analysts expect more growth in 2011.

Averaged across households in Canada, the amount of equity borrowed against homes equaled 8% in 2010.

Homeowners are tapping into their homes like never before, information like Garth’s is much needed for Canadians.

A classic sign of bubble behavior is people that believe housing is the safest and best investment.

If a person had $64,000 in 1977, the average Toronto house was outpaced by Gold, 5 year GIC, Canadian stocks, Global stocks and US stocks.

#103 Devil's Advocate on 01.13.11 at 12:18 pm

Without them, housing sales and prices would be a fraction of current levels, along with your highly-taxed income.Garth

Prices maybe Garth. And would that have been such a bad thing? But sales…? Beyond a relatively short period of market exuberance which was fueled by rapant speculations as much as cheap money the housing sales volumes are not excessive. What would you have; cave sales fill the demand for a roof over ones head? Garth be it rented or owned every home must be bought and sold be it to a homeowner or a landlord.

I like you way more when you stick to financials.

Return to market mortgage rates or private high-ratio insurance and see what sales might be like. There is no question the government you decry is heavily subsidizing the industry which supports you. — Garth

#104 goldenfox on 01.13.11 at 12:33 pm

RRSP: All $10K goes into the RRSP (taxes deferred), then doubles over time to $20K, then taxed at 40% when withdrawn leaving me with $12K.

TFSA: $4K goes to the tax man and $6K goes into the TFSA, then doubles over time to $12K, then not taxed when withdrawn leaving me with $12K.

The same, n’est pas?
……………………………………………………..
You are right there is no difference. However, there is a big difference if you make a big withdrawel or die. If all your money is in a rrsp, you will be taxed big time.

#105 Joey on 01.13.11 at 12:33 pm

A tax-free savings account is somewhat of a misleading term to me as it is contibuted to with earnings that have already been taxed anyway.

#106 goldenfox on 01.13.11 at 12:36 pm

The previous post should have had the following at the top of it

“Don P on 01.12.11 at 11:20 pm”

#107 wbhyoung on 01.13.11 at 12:43 pm

Overall I enjoy reading this blog, but I have to point out something:

“Hell, you can even circumvent tax laws if you want. Dump a stock that’s lost value at the end of this year to claim a capital loss against your taxable income. Then put the money into your TFSA and buy the stock back for future capital gains. Normally the feds would then disallow the capital loss because you did it only to save tax – it’s called a superficial loss. But not this time.”

This is wrong. The series of transactions you described here results in a superficial loss. See definitions of “superficial loss” and “affiliated persons” in the Income Tax Act. Also see CRA Technical Interpretation 2009-0343051M4.

Please provide details. — Garth

#108 goldenfox on 01.13.11 at 12:47 pm

Besides the obvious benefits of having a paid off home, like not having to worry about investments going sour and being able to sleep well, there is also one other benefit. All that money you are saving by not paying out rent or a mortgage is tax free.

Real estate is an asset class like every other. It can, and does, lose value – sometimes disastrously. Without diversifying into other asset classes, you are most definitely at risk. How hard is that to understand? — Garth

#109 nonplused on 01.13.11 at 12:47 pm

Most securitized mortgages in Massachusetts are now probably best considered “unsecured loans”. This one is a bit of a slog but if you have time read through it and reach your own conclusions:

http://www.zerohedge.com/article/guest-post-ibanez-%E2%80%93-denying-antecedent-suppressing-evidence-and-one-big-fat-red-herring

#110 kitchener1 on 01.13.11 at 12:49 pm

#93 Devils Advocate

Guy, you cannot be serious.

Without govt policy changes RE would never have had the run up.

Simple economics 101

The increase in wages has been non existent. All the govt did is increase the pool of buyers through non traditional means.

Compare the traditional methods- 5/25

bringing in 0/40 down– how many buyers did that add?

Allowing CHMC to insure secondary property purchases, in the past, a person had 50K as a downpayment, that would let them buy one house, then it was changed to allow 5% down on second-third-fourth etc.. properties

Allowing CMHC to insure at variable rates

etc…

#111 wetcoaster on 01.13.11 at 12:54 pm

Investors friend,

It’s irrelevant if the market corrects 15-20% as I believe is inevitable. Mikey the real estate pumper(and DA) is saying buy now or be priced out forever, thats totally ridiculous but typical pumper talk.

If you take out a 35 year on $500,[email protected] 5%, like most are, it takes you almost 15 years to cross off all that principal on a 20% correction ! On top of all the maintenance costs, insurance etc. Warren Buffet didn’t get rich buying at the top bud, he bought low, then leveraged on his profit.

There won’t be any profit for any of the sheep who bought the last 4 years and will be sucked in for 35 years of ball and chain pain. If you can’t afford a 15 year bi-weekly payment you have no business owning a house.

#112 kitchener1 on 01.13.11 at 12:55 pm

In the construction biz or service side- think mechanics etc.. there is already a huge and thriving cash business trade.

Canadians have happily paid their taxes, we might grudge and complain but we always paid them. My theory is that more and more people move to fixed income type situations, they are effected much more by higher tax rates.

Property taxes
Hydro/gas rates
Price of fuel
HST on all products
etc..

In my opinon: the boomers will be the ones that will be fueling the huge cash business in the future.

#113 bill on 01.13.11 at 1:04 pm

Hi Garth
Was ”money road” the book with the instructions on how to melt down rrsp into a tfsa?
Thanks

Not what I said. An RRSP or RRIF can be converted to a non-registered account, not a TFSA. Yes, it’s in the book. — Garth

#114 rory on 01.13.11 at 1:11 pm

#14 SGIP

Just to be clear to us bloggers and especially me are you just anti-Harper or just pro-Iggy or baby-Jack?

Are you a socialist, communist, fascist, anarchist, libertarian, a disgruntled conservative, anti-government, patriotic Canadian, a political wannabe or just the RCMP trolling for hatred?

Just asking ‘cuz all you got is anti-Harper this and anti-Harper that. Just want to know what spectrum in space you’re coming from so I / we can respond ‘correctly’ to you in the future.

#115 Devil's Advocate on 01.13.11 at 1:17 pm

Return to market mortgage rates or private high-ratio insurance and see what sales might be like. There is no question the government you decry is heavily subsidizing the industry which supports you.Garth

Why is it you can not glean just one iota of the immense contempt I hold of our government for that “heavy subsidization”. I’d have thought, by now, you would know better of me than to think I rely upon such let alone hypocritically capitalize upon it.

Again, read my words very slowly; would it have been so bad were the government not to have meddled in the industry in the first place that we might have lower prices as, both you and I agree, would have surely have been the case without such irresponsible loose monetary policies?

Do these comments sound like that of a man who prefers his business “supported” by government or one who would rather take his chances without it?

Again, it’s not what you say that counts so much as what is heard. Think about what’s being said instead of what you want to say in rebuttle.

Consistency of thought is its own reward. — Garth

#116 wbhyoung on 01.13.11 at 1:21 pm

108 wbhyoung on 01.13.11 at 12:43

“Please provide details. — Garth”

As defined in section 54 of the ITA, a “superficial loss” is essentially a loss arising from a disposition of a property where the same or an identical property is acquired by the taxpayer or an affiliated person during the period beginning 30 days before the disposition and ending 30 days after the disposition, and the taxpayer or the affiliated person still owns the property at the end of that period.

In ministerial correspondence 2009-0343051M4, the office of the minister of finance was asked whether the superficial loss rules would deny a capital loss realized on the disposition of securities by a taxpayer if the same securities are immediately repurchased by the taxpayer’s TFSA. The CRA confirms in its response that a taxpayer’s TFSA trust is an affiliated person of the taxpayer and since the security was immediately repurchased by the TFSA, the capital loss is considered a superficial loss under section 54 of the ITA and is deemed to be nil under paragraph 40(2)(g) of the ITA.

I can email you the above-mentioned CRA correspondence if you want.

#117 Aussie Roy on 01.13.11 at 1:28 pm

#111 kitchener1 on 01.13.11 at 12:49 pm

Of course he can see what has driven the market.

Your comment is spot on.

Wages drive values, easy credit and emotion drive prices.

Aussie Update

A gathering storm?

I don’t expect that property markets will respond well to further cash rate adjustments should they happen. Already, depending on who you bank with, mortgage rates have increased up to 150 basis points in the last 12 months.

If borrowers are slugged much more, I strongly suspect that values will slide into reverse gear.

Given the accepted wisdom is that the cash rate will increase by another 50-100 basis points in 2011, do you agree that this spells bad news

http://theage.domain.com.au/real-estate-news/blogs/property-values/can-we-take-more-rate-hikes/20110112-19npn.html?comments=16

#118 Angela on 01.13.11 at 1:31 pm

“You can just give your incredibly deserving spouse $15,000 and she can stick it in her account with no attribution to you. And unlike with a spousal RRSP, there is no long waiting period to get at the money. It can be spent at Lululemon the very next day. ”

Oh, baby, that’s what I’m talking about. Finally, language I can understand!

#119 David B on 01.13.11 at 1:39 pm

Amazing just “f” amazing …. so many peope think they have the plan, beit gold, stock markets, real estate and list goes on. A simple plan like TFSA … “TAX FREE SAVINGS ACCOUNT” should alone open one’s mind to investigation and action. Our American cousins would kill for something like this …hello the World would … only in Canader eh ….. what blows my mind to-day one could drop $$15-$30 grand into it not having known about …. try that in any other country.

Americans have the Roth IRA. — Garth

#120 Devil's Advocate on 01.13.11 at 1:40 pm

But rather than get into a pissing match with you that I can not win because I am a REALTOR and there-by guilty if only by association, let’s just agree, as obviously we do, that government is the biggest culprit and cause in the meteoric rise in property values of late. REALTORS are at the back end of that equation then, based on your claims Garth, and thereby then not so responsible for the plight of the Greater Fool as you blame them to be.

Follow the logic? Or delete this post. You pick.

Bing, bing and bong.

#121 Mr. Plow on 01.13.11 at 1:44 pm

Garth great topic today, more topics like this would be appreciated.

DA, usually I support a lot of what you say either publicly or in my own mind. In this case, I think you have missed something.

While you may have preferred that the gov’t not step in and help out the real estate industry and just let things follow their own natural course, the fact of the matter is they did step in and they prop up the industry. I think that is fact that you would not argue.

So regardless of what you wanted, they did do what they did so I think Garth is suggesting you don’t bite the hand that has fed you.

#122 Devil's Advocate on 01.13.11 at 1:45 pm

Consistency of thought is its own reward. — Garth

Consistency in anything, none-the-least thought. As mine has been so too have the rewards… and not all have been monetary.

#123 Abitibidoug on 01.13.11 at 1:46 pm

In response to post #19 quote:

First, BRIC is much hotter as BRI, without C – ask Jim Chanos, and I tend to agree with him. Nobody knows for how long the Chinese bubble will inflate, but when it bursts, it will not be funny.

You’re not the first person to suggest that, and I hope you’re right Mike T. If that happens, it will likely shake markets up like the Asian Flu did in 1998 and create a good buying opportunity.

Quote from post #15:

Unless of course a tax hungry government changes the rules.

That’s why you should invest as much as you can now while this good opportunity lasts. Considering what F did to income trusts in 2006, I wouldn’t put it past him, or others in our debt ravaged government, to can this good opportunity some day. Make hay while the sun shines!

#124 wetcoaster on 01.13.11 at 1:46 pm

Don Campbell just said this on G&M live forum:

“The cries of Bubble have been occuring for literally decades. They are great attention getters (just check out the headlines) as fear always grabs attention. That being said, we need to go back to regional discussion. #1 A bubble doesn’t exist if you actually analyze the underlying economic fundamentals (rather than screeching about housing market numbers)……. ”

“The popping sound you will hear, will be the popping of the ‘chicken littles” predictions exploding. I just wish that people/pundits wouldn’t say things just for attention. It is like some care turning real estate and investing into U.F.C. rhetoric, where opinions are win or lose. Commentators are suppsed to educate based on fact, then give direction where they can. ”

Lets see, clear threat of rising interest rates by BOC, over borrowing by Canadians at record levels, and a housing chart like a hockey stick and we “chicken littles” aren’t using facts ? This guy has his head up his ass.

#125 ApostleSIX on 01.13.11 at 1:56 pm

Garth,

You often say “give your kids cash to stick in their TFSA, so long as they are old enough to file a tax return”

What is the age in which they are old enough to file a tax return? All my kids have S.I.N.’s and therefore are “old enough” to file tax returns are they not? Could I pay them a salary, claim the expense, then have them invest in a TFSA?

Please share, how someone self employed, might gain a tax advantage in this situation.

Thanks,

Eighteen. — Garth

#126 Bottoms_Up on 01.13.11 at 2:02 pm

Minus property taxes, minus financing charges, minus the lost opportunity cost of the cash invested in equity. In many cases, it is a net savings to rent. Your blanket statement is of no value. — Garth
————————————————–
I disagree with some of that, if someone purchases a home with cash, let’s say $300,000, and this saves them $20,000/yr in rent (which would have been paid for in after-tax dollars as someone mentioned), this is (at best) a guaranteed 6.6% return on their money (but less any costs associated with owning vs. renting such as maintenance and taxes as you mentioned).

True, there is lost opportunity cost of that money, but many people would buy GICs with it anyway, so buying a house would offer a similar rate of return if it was their primary residence (especially over the long-run).

Thus, buying a house with cash could be seen as offering an equivalent return as a GIC, but one can live in the former and not grow veggies in the garden of the latter.

Let me illustrate with an example: I know a retiring doctor in Mississauga. Lives in a paid-off, million dollar home. Thought about moving to realize the capital gains, but then thought, ‘where else am I going to live, I like it here, and don’t want to downsize to a condo’. Thus, that home is worth to him what it would cost to rent (4000-5000/mo minus expenses), plus an inherent sentimental value that is difficult to quantify.

Sure, the financially prudent thing to do would be to sell, invest, get your investments to cover the rent on your 600 sqft condo, but how to you put a price on lifestyle and staying in your forever family home? What about the stress of relocating to an entirely different neighbourhood.

My bet is that many boomers stay put in their homes. Good for them (event though it’s like owning a GIC).

Just because dumb people do something is no justification to repeat it. $300K invested for an 8% yield in the form of dividends or capital gains would give $24,000 per year – more than enough to pay the rent (which is unlikely to be $1,600 a month on a 300K abode). And you conveniently ignore the additional costs of home ownership once again, including property taxes, maintenance, repairs, insurance etc. There is only one financial rationale for purchasing, which is the expectation of a capital gain. That is now gone. — Garth

#127 The InvestorsFriend (Shawn Allen) on 01.13.11 at 2:02 pm

Goldenfox at 104 says:

If all your money is in a rrsp, you will be taxed big time. (compared to zero tax on TFSA).

Goldenfox you were the one who “got it” last time I pointed out that TFSA and RRSP are IDENTICAL if (and only if) we assume the same tax rate on withdrwal as at contribution time.

Yes big tax on RRSP… but as Don P and I pointed out the RRSP can have more money in because the government in effect subsidises it with a big tax refund.

Think of the tax you pay at RRSP withdrawal time as the repayment of that refund plus an interest rate equal to what you made in the RRSP.

Meanwhile on the 60% or so of the RRSP that you actually contibuted out of your pocket there is effectively zero tax. That is the math (assumes same tax rate at withdrawal as at contribution).

People whine that in RRSP they don’t get dividend tax credit. Why should they? They are not really paying ANY tax on RRSP withdrawals in substance. The tax in substance is just the repayment of the refund you got plus the return on that. Even with the tax RRSP beats a taxable account. (again always assuming here the tax rate at withdrwal is same as when you got the refund).

Make your withdrwal when you are not yet on pension and not working and your tax rate may be very low and then RRSP will beat TFSA.

#128 Sam on 01.13.11 at 2:05 pm

WOW!

http://www2.macleans.ca/2011/01/12/easy-money-men/

#129 Leanne on 01.13.11 at 2:16 pm

If only it were fiction… — Garth

Well then, I’ll be looking for that next book of yours on the bestseller list: Sordid Memoirs of a Parliamentarian.

#130 confused and financially illiterate on 01.13.11 at 2:17 pm

sorry guys…i need to continue:

if my wife has no personal income, and i contribute 15 000 into her self-directed rrsp…can’t she, in turn, pull this money out (without tax) within 2-3 years?

then, the money will be in her name…and the tax burden falls to her.

but there won’t be any tax burden because of her low income.

then, she can pull that money out…and we can keep recycling this idea every few years.

isn’t this more beneficial than going the tfsa route…at least for our situation, or until her contribution room runs out?

cheers.

After three years money sitting in a spousal RRSP is the property of the spouse, and will be taxed at his/her marginal tax rate. It is based on your contribution room, not hers. — Garth

#131 Supermodel turned nun on 01.13.11 at 2:17 pm

TFSA – it seduces me!

I thought when TFSA were first announced the limit was to increase by 5K + some addition for inflation adjustment. Has inflation been ZERO in last 3 years?

Forget that. ‘Supermodel turned nun’? Send pix. — Garth

#132 Abitibidoug on 01.13.11 at 2:22 pm

Quote from posting #3:

When Garth Turner was born, the doctor slapped him in the face. Garth then knocked the doctor out cold and took a cab home.

And now the punch line: Garth kept the receipt for the fare (tip included) and figured out how his parents could deduct the amount from their income tax!

#133 Sandra on 01.13.11 at 2:24 pm

@ #88 Bottoms_Up

According to your numbers, you’re over-spending each month by $100. That’s why you’re in the red as soon as something pops up.
You need to reduce the contribution to the RESP and start an emergency fund. Once you have 3-6 months’ living expenses saved up, start with a TFSA.
Reduce your living expenses now, otherwise you’ll always be in the red.

#134 dark sad person on 01.13.11 at 2:25 pm

Well here’s Kanada for you-

As the economy spirals into nothingness-our ever vigilant rulers will save us with political correctness-

A nest of socialist protectionist controlling commies who constantly demonstrate the fact-that if legs were brains they’d all be walking on the cheeks of their ass–

Pay no attention to that indisputable fact and all blindly and silently follow along and pretend it isn’t happening and instead-let’s have another goldbug bashing day and get rid of the truth seekers-the deep thinkers-they are the dangerous ones-

“Money for nothing”
A Black Swan an omen perhaps-

Let’s ban and bury it-

It’s possible the phrase might even cause some to think and connect the dots to our scam-

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

Money For Nothing banned 25 years after release

Canadian broadcasters stop playing original version of Dire Straits classic after just one complaint

http://www.rockaaa.com/news/money-for-nothing-banned-25-years-after-release-1821

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

http://www.youtube.com/watch?v=iwDDswGsJ60&feature=related

Crank it!
If you dare-

#135 Dave in Victoria on 01.13.11 at 2:26 pm

#85 Pat on 01.13.11 at 10:18 am

“Let’s make a modest budget: $1500/mo for mortgage/rent/prop taxes and insurance, $300 for utilities, $500 for car/transportation, $800 groceries, $300 child activities, $100 clothes, $200 miscellaneous and $300 for vacations/travel.

There isn’t much left over to invest. The stories about families in their 30′s to early 40′s with children and several hundred thousand in savings aren’t stories about average families.”

Exactly. Convincing the proletariate to ‘invest’ 5-10% of their net income (maybe 5K per annum max) has made many a CEO bonus possible, allowing the top 5% wage earner to ’employ’ said CEO to maximize THEIR return on investment, while the foolish SERF scrapes together coupons and attempts to live a humble life, like they weren’t doing so already.

#136 mf on 01.13.11 at 2:32 pm

89 joe larue

Check the mer rates on those mutual funds.. They can be very low , with cost covered by the employer.

#137 Worldwide on 01.13.11 at 2:37 pm

#120 David B “Our American cousins would kill for something like this”

Americans have the Roth IRA. — Garth

Don’t American’s also enjoy tax-free muni bonds as well? While Canadian’s pay tax on prov bonds?

#138 bill on 01.13.11 at 2:42 pm

thankyou garth for the clarification.

#139 Lead Paint on 01.13.11 at 2:44 pm

DA you stated:
“were the government not to have meddled in the industry in the first place that we might have lower prices as, both you and I agree, would have surely have been the case without such irresponsible loose monetary policies”

If you work on a commission basis, and you admit government policy has inflated prices, is it not safe to say that government policy has raised housing prices, thus your commission, and thus your income? I think this is what Garth is making clear…. you have financially benefited from the policy’s you decry.

If you disagree with the government policy then feel free to send them this unwarranted additional income.

#140 jess on 01.13.11 at 2:57 pm

Mortgage fraud up nearly four-fold, finds KPMG’s Fraud Barometer
. Number of fraud cases at 22-year high
. Professional criminals top perpetrator list

Mortgage fraud has nearly quadrupled in value during the first six months of 2010, according to KPMG’s Fraud Barometer. 21 cases with a value of £96 million were reported – compared to the same period during 2009, where there were 18 cases worth just £24 million. Indeed, the whole of 2009 saw a total of only £77 million.

Mortgage fraud accounted for over half of all fraud committed against the financial sector in this period.

Management wreak fraud havoc
Managers in companies inflicted far greater fraud damage than their employees, KPMG’s figures show. Though there were more employee cases than management ones (47 compared to 32), management frauds had a far greater value, at £135 million compared to £45 million. At an average value of over £4 million per case compared to £1 million per employee case, managers are clearly able to carry out larger frauds due to their positions of greater authority and the trust they are afforded.

…”One example was of a Manchester finance boss who manipulated the profits of a steel supply firm to ensure a bonus by falsifying the company’s accounting records. …

…legacy issue for the banks from the pre-recession boom years when house prices inflated, providing the opportunity for fraud. Banks will be hoping that they have uncovered most of their fraudulent loans. But the trend remains upwards and it could be some time before we see the peak.”

http://rd.kpmg.co.uk/mediareleases/22725.htm

#141 Brad in Cowtown on 01.13.11 at 3:10 pm

This may have been mentioned already, but I didn’t read all the comments.

In my opinion, and the math I just did seems to prove it, the power of an RRSP is the power of compounding your gains before facing the tax bill. i.e. taking 30 giant consecutive steps forward and then 12 steps back at the end when you eventually face all those years of tax deferral. People seem to overlook that they’re still 18 steps ahead of their original starting point.

The 2 most important things in compounding are time and the expected rate of return. Over a long enough time frame (let’s say 30 years) with a solid rate of return (let’s say 10%), the RRSP route is absolutely a solid path to take. That’s because those gains are accumulating on top of each other over many years.

But if your time frame is shorter and/or you would prefer 5% guaranteed (instead of 10% with some risk involved), you are way better off working with a non-RRSP account, with 50% of gains tax exempt.

In other words, it all depends on the person. Each situation is different.

Personally, I think the TFSA model is the best one, but because it is capped at 5k per year, you must consider an RRSP or non-RRSP account as well.
Unless you only plan on saving 5k per year which is… um… well, to each their own. :)

#142 Brad in Cowtown on 01.13.11 at 3:11 pm

This may have been mentioned already, but I didn’t read all the comments.

In my opinion, and the math I just did seems to prove it, the power of an RRSP is the power of compounding your gains before facing the tax bill. i.e. taking 30 giant consecutive steps forward and then 12 steps back at the end when you eventually face all those years of tax deferral. People seem to overlook that they’re still 18 steps ahead of their original starting point.

The 2 most important things in compounding are time and the expected rate of return. Over a long enough time frame (let’s say 30 years) with a solid rate of return (let’s say 10%), the RRSP route is absolutely a solid path to take. That’s because those gains are accumulating on top of each other over many, many years.

But if your time frame is shorter and/or you would prefer 5% guaranteed (instead of 10% with some risk involved), you are way better off working with a non-RRSP account, with 50% of gains tax exempt.

In other words, it all depends on the person. Each situation is different.

Personally, I think the TFSA model is the best one, but because it is capped at 5k per year, you must consider an RRSP or non-RRSP account as well.
Unless you only plan on saving 5k per year which is… um… well, to each their own. :)

#143 T.O. Bubble Boy on 01.13.11 at 3:17 pm

@ #132 Supermodel turned nun:

The TFSA contribution room is indexed for inflation, but is also rounded to the nearest $500… so, you should see the room jump to $5500 in 2012 I believe.

#144 dark sad person on 01.13.11 at 3:18 pm

#141 jess on 01.13.11 at 2:57 pm

Mortgage fraud accounted for over half of all fraud committed against the financial sector in this period.

…legacy issue for the banks from the pre-recession boom years when house prices inflated, providing the opportunity for fraud. Banks will be hoping that they have uncovered most of their fraudulent loans. But the trend remains upwards and it could be some time before we see the peak.”

**************
Fraud “against” the financial sector-

Banks are hoping they’ve “uncovered” the fraudulent loans-

The unfolding of a beautiful Paradox-

Hurry with the jails Stockwell-
Get those peasant fraudsters locked up-

#145 jess on 01.13.11 at 3:29 pm

Tuesday, October 12, 2010
“At the Root of the Crisis We Find the Largest Financial Swindle in World History”, Where “Counterfeit” Mortgages Were “Laundered” by the Banks

Black explained that fraud by a financial company usually involves the company:

1) Growing like crazy
2) Making loans to people who are uncreditworthy, because they’ll agree to pay you more, and that’s how you grow rapidly. You can grow really fast if you loan to people who can’t you pay you back
and
3) Using extreme leverage.
This combination guarantees stratospheric initial profits during the expansion phase of the bubble.

But it guarantees a catastrophic subsequent failure when the bubble loses steam.

And collectively – if a lot of companies are playing this game – it produces extraordinary losses (more than all other forms of property crime combined), and a crash.

In other words, the companies intentionally make loans to people who will not be able to repay them, because – during an expanding bubble phase – they’ll make huge sums of money. The top executives of these companies will make massive salaries and bonuses during the bubble (enough to live like kings even even if the companies go belly up after the bubble phase).
Johnson confirmed that a high housing default rate was part of the banks’ models. The financial giants knew they would make huge sums during the boom, and then transfer their losses to the American people during the bust.

As William Black noted last October:

•Everyone involved knew that the CDOs which packaged subprime loans were not AAA credit-worthy (which means that they are completely risk-free). He also said that the exotic instruments (CDOs, CDS, etc.) which spun the mortgages into more and more abstract investments were intentionally created to defraud investors
•In November 2007, one rating agency – Fitch’s – dared to take a look at some loan files. Fitch concluded that there was the appearance of fraud in nearly every file reviewed…

•The mortgages in the millions were counterfeits, not mortgages. They were “laundered” … the dirty paper was converted into clean paper. Securitization was used to convert the worthless paper from triple D minus junk to triple A. The commercial banks were the “fences”, they took the laundered paper and sold it on to the legitimate market. The “marks” were the pension funds, or any investing entity which trusted triple A rating or investment banks.”

http://rabble.ca/rabbletv/program-guide/2010/10/features/dr-james-k-galbraith-cep-convention-2010

#146 Renting in Rosedale on 01.13.11 at 3:32 pm

#101 Mr Plow

“So the question I need answered, if I take my current TFSA and some of my RRSP and move them into another account that will generate better returns will I only be getting taxed on the RRSP portion of the move because they will no longer be registered? This is assuming I don’t go over $15K. If anyone can answer that would be great thanks.”

Mr Plow, this is what you should do:

Step 1. Arrange two new accounts, which “will generate better returns” to use your words. One will be an RSP account. The other will be a TFSA account. Perhaps you’ll decide to make them self-directed trading accounts at a discount brokerage? It doesn’t matter. First step is to get them established.

Step 2. Have the institution arrange transfers from your existing RSP and TFSA accounts. Whether from a Bank, Brokerage, ING, Ally — doesn’t matter, the process is the same. You might transfer all of the funds, or only some — it’s up to you.

You will not be taxed on any of this, the funds remain sheltered.

#147 bigrider on 01.13.11 at 3:38 pm

Real estate and religion. Interesting that they ryhme somewhat.

Other similarities in order to buy into both:

1) both require blind faith.

2) both require absence of rational thought.

#148 goldenfox on 01.13.11 at 3:38 pm

Real estate is an asset class like every other. It can, and does, lose value – sometimes disastrously. Without diversifying into other asset classes, you are most definitely at risk. How hard is that to understand? — Garth

…………………………………………………………………

I dont give a crap if my house goes up or down, I have no intentions of selling. I have more than enough money invested in gold and silver mining stocks to last a lifetime and if that goes down the tube, I can always go back to work. And if i get sick and cant work, what good is money going to do me anyway. And by the way my house has gone up in value 10 times in fiat dollars since I bought it. We all end up with the same amount of real estate. Six feet.

#149 Amarillo on 01.13.11 at 3:58 pm

The 1-acre that my principal residence sits on is subdividable and will hopefully lead to the sale of several non-capital-gain residential lots in years to come.

That’s assuming that residential lots will still be worth something in years to come.

In the meantime, I’ve got lots of garden space and … well, lots of weeds too.

Should I bail on this property while it’s still worth something and get into ETFs & preferred’s instead?

#150 Devil's Advocate on 01.13.11 at 4:05 pm

So regardless of what you wanted, they did do what they did so I think Garth is suggesting you don’t bite the hand that has fed you. #122 <b.Mr. Plow

Everything comes at a price… in due time. There is no free lunch.

Give a man a fish and he will eat for a day. Teach a man to fish and he will eat for a lifetime. Too many for too long have been fed. Will come a day when they are charged with fending for themselves.

Yes my industry has benefited immensely by government stimulus but so too, as you well know, has it grown fat and lazy. But no Plow, that hand has not fed me. I remain lean and learned. My competitors on the other hand will pay a price. While that hand has been feeding them I have known that this day will return, as it always does, and prepared for it. The man who learned to fish while others were being fed is the man who will dine most royally.

Again I am reminded of Garths “Suck and Blow” comment. Who again is doing all the “Sucking and Blowing”?

But I pay a price in the end too. We all do as I am sure we must all agree that we collectively would be far further ahead had our governments not intervened.

Garth is correct “consistency of thought is its own reward” some just don’t have the patience. Too many want it all and they want it now without consideration of future consequences… such are shepple… predictable in their infidelity.

#151 Alex on 01.13.11 at 4:17 pm

The Rainforest Special of the Day:

Perched unappealingly in Vancouver’s east side, where the immediate environment is as gloomy as this month’s weather, this prehistoric relic is one slammed door away from complete implosion! Bring all offers in excess of one million dollars, and remember: Buy now or be priced out of this level of housing FOREVER!!

http://www.realtor.ca/PropertyDetails.aspx?PropertyID=10195366&PidKey=-172069930

#152 Danforth on 01.13.11 at 4:18 pm

#132 Supermodel turned nun on 01.13.11 at 2:17 pm

TFSA – it seduces me!

I thought when TFSA were first announced the limit was to increase by 5K + some addition for inflation adjustment. Has inflation been ZERO in last 3 years?

I read up on this a while ago.

Every few years, they’re going to bump it up by a nice round number.

As memory serves me, the next increment is going to be $5200 or so., though I don’t know which year.

#153 Supermodel turned nun on 01.13.11 at 4:21 pm

Forget that. ‘Supermodel turned nun’? Send pix. — Garth

Inflation turns me on!

Click here for pix: http://www.mysinchew.com/node/46428

Did you also want my supermodel pix?

#154 Devore on 01.13.11 at 4:26 pm

#70 Northern_dirt

I was in the shower a couple weeks ago, thinking about inflation.. and this popped into my head.. Im surprised more people aren’t rioting in the streets.. Actually I rarely hear anyone even mention loss of purchasing power due to inflation.

Most people think inflation is good or at worst neutral, at least that handful that even gives it a thought.

After all, it means more money in your account, but things cost more, but then your house is worth more, so you are more wealthy, right? right?

Virtually no one sees inflation as a tax. It’s not even a progressive tax, it’s a flat tax (it’s even regressive; wealthy people can protect themselves from it much better), where’s the outrage?

#155 kw on 01.13.11 at 4:27 pm

Not sure if it has been mentioned here or not, but I got one of those info inserts with my discount brokerage statement the other day. They charge a nominal fee for deregistrations of RRSP’s. What has changed is that you used to be allowed one free transaction per year. No longer. Now they charge 25$ per. Also they stated that they will charge 25$ for a withdrawal on a TFSA after the 1st one per year. We have a small spousal RRSP that is worth less than the 25K min. limit so they also charge 100$ + HST per annum for administration of this account. The way things are going, they will get a bigger portion of the plan than we will.
Charges are 25$ and minimal, some will say. But whats stopping them from increasing this fee over the next few years?
I also see the greedy internet suppliers are making the www less available starting in Feb.

#156 Junius on 01.13.11 at 4:29 pm

#129 Sam,

My fav line from the Macleans article, “But the strategy—to the extent that it can be called one—does accomplish one key objective in the meantime: it gives Ottawa political cover if some overzealous Canadian households are eventually pulled under by broken balance sheets. “The one thing you don’t want to happen,” Ragan says, “is to look back two years from now and say, ‘Gee, we should have warned people about this.’ ”

Great. Do nothing but talk about it. What leadership! Or should I put it as What Leadership?

#157 A Lesser Fool on 01.13.11 at 4:30 pm

From the Globe and Mail today:

“Mr. Golombek said there’s a case for putting RRSPs ahead of TFSAs for high-income earners who expect a six-figure annual retirement income. These people benefit in a big way from the tax-reduction of making RRSP contributions and, with annual income in excess of $110,000 or so in today’s dollars, they can expect all their OAS to be clawed back.”

“TFSAs are a good retirement savings option for lots of people, but Mr. Golombek rejects any blanket dismissals of RRSPs. “The message I don’t want to get out there is that RRSPs are bad, because they’re not.””

http://www.theglobeandmail.com/globe-investor/personal-finance/rob-carrick/why-tfsas-trump-rrsps-for-the-young-and-lower-paid/article1867974/

#158 T.O. Bubble Boy on 01.13.11 at 4:39 pm

This is a bad headline for those that make up the $1.6B of mortgages at Xceed (formerly one of Canada’s leading sub-prime lenders):

Xceed Mortgage To Stop Making New Mortgages

http://online.wsj.com/article/BT-CO-20110113-709970.html

Aren’t the first of the 0% down / 40-year mortgages up for their 5-year renewal in a few months??? (coincidence?)

#159 Bottoms_Up on 01.13.11 at 4:40 pm

There is only one financial rationale for purchasing, which is the expectation of a capital gain. That is now gone. — Garth
——————————————
Ah yes, but there is an emotional rationale for purchasing (and for not selling one’s paid for home), which is very difficult to quantify, especially when measured in gold shavings. ; )

Then go to an emotional blog. We’re just financially horny here. — Garth

#160 Bottoms_Up on 01.13.11 at 4:46 pm

#134 Sandra on 01.13.11 at 2:24 pm
—————————————-
Thanks for the feedback but to me it makes sense going into the red in order to get the 20% on the RESP (4% borrowing cost offset by 20% gov’t contribution).

If I absolutely had to cut back, it would be t.v., followed by the clothes budget, followed by the food budget (but I definitely do not want to go back to the K-dinner days).

We’ll be OK….it’s just a matter of time before we’ll be DIWKs!

#161 allisun on 01.13.11 at 4:52 pm

#16 Investors Friend (Shawn Allen)
I understand your math. Also, returns could be higher considering Garth’s strategies outlined in his essay.

#162 Devil's Advocate on 01.13.11 at 4:54 pm

#148 goldenfox

RIGHT ON BROTHER.

And… if real estate goes up it all generally follows and if it goes down it all generally follows (provided you weren’t so stupid as to overlook the three most important factors in making such a purchase in the first place). So it’s an Even Steven kinda gig on the matter of that particular asset class (RE).

#163 dark sad person on 01.13.11 at 5:08 pm

A day of CVF’s (counter veiling forces)

Scroll down-until you read this–

“Buy Gold and Silver Online at GoldMoney’

‘The Best Way to Buy Gold and Silver”

And guess who’s always smiling face appears?

http://globaleconomicanalysis.blogspot.com/

“Stronger than thunder’s winged force All-powerful gold can speed its course; Through watchful guards its passage make, And loves through solid walls to break. ” —Horace

#164 Devore on 01.13.11 at 5:24 pm

#103 Devil’s Advocate

Prices maybe Garth. And would that have been such a bad thing? But sales…? Beyond a relatively short period of market exuberance which was fueled by rapant speculations as much as cheap money the housing sales volumes are not excessive. What would you have; cave sales fill the demand for a roof over ones head? Garth be it rented or owned every home must be bought and sold be it to a homeowner or a landlord.

Do you deny that volume and size of transactions (which determine how much money you make) rises drastically in a market in which prices are spiraling upwards, as opposed to one in which they are reasonable and flat?

Any way you slice it, cheap credit, taxpayer guarantees and environment of “certain” and exorbitant capital gains is fueling a real estate orgy, which puts food on your table.

#165 Got A Watch on 01.13.11 at 5:27 pm

Great post Garth.

Clearly, the TFSA is a superior choice over an RRSP. Unless you like to pay taxes to Ottawa, in which case, go ahead, max out that RRSP now while ignoring the TFSA. Your income/tax bracket now, vs in the future when you retire, is a consideration, but from almost every angle (except it’s limited to $5K/year max contribution) the TFSA is by far superior. If your income is so high you can max out the TFSA and RRSP every year, you should be getting professional advice from accountants, lawyers and financial advisors, not from a Blog, anyway. Don’t be so cheap, you may be saving hundreds and costing yourself thousands.

The choices of what to do and when are difficult, and most of you asking complicated questions here really need to seek professional advice, from an unbiased expert. I know they are hard to find, but I don’t see any choice. Every other “advisor” who works for some “wealth management company” or “Big Bank” is really just a commissioned salesman for the in-house product, most of which is designed to earn money for the house (them) first and you second, if at all. So their “advice” will be, surprise, for you to buy what they are selling.

If you can’t find an independent advisor (not really many around, I know) ask Garth, he has said he can help there.

Buying Garths’ books and reading them – should be your first course of action. Gather information first, then make the decision. I know, totally opposite to what most people do – sign the contract first, then question the details later, if at all. Ask questions here, G or readers will try and answer them. The internet is a click away, use it, Google any term you aren’t familiar with. If you don’t pay proper attention to your own money, why should anyone else? They will focus on parting you from it, slowly over time via commissions and fees, or quickly, by steering you into the wrong investments for you that are right for their paycheck. The only way to reduce that risk of getting bad advice is to know about some of what is being proposed to you so they can’t sucker you in easily.

Or you can just be like the sheeple in the Big Bank ads on TV, who just toss their “portfolio” to some suit at the local Bank branch and ask them to “fix” it. Oh they will, alright, the fix will be in. For them.

“always pay off the house first” – great idea, or not. If that means waiting till you make the last mortgage payment before you start saving for retirement – you’re an idiot. My mortgage has only a few years left, and is now at 2.1% – I see exactly 0 reasons to pay it off now, when interest rates are at historic lows. Much better to take any scarce capital and invest it. Now if interest rates were high, the opposite would probably be the case – but they aren’t, so why bother. If you are so concerned that you won’t be able to afford your mortgage in the future, you likely bought far too much house anyway for your income. Or I could just pay it off, and refi 80% and invest the money, which I am contemplating. But just sinking the money into a house, what for? If you pay ca$h for a house and then sit on it, unless you are very wealthy, you are making the wrong choice, as Garth has ably described above. Again, it pays to get informed advice here.

#67 – The BDI is being driven down now by a glut of large new cargo ships that have been recently built. It is not as accurate a reflection of global trade as it used to be. It’s supply (large) impacting demand (flattening), it is hard to figure how much of the price move now is due to each factor independently. The key is that freight rates are falling, and probably to below a level that makes it economical to operate the ship. So over time, this situation will self-correct, as older fuel-inefficient ships are scrapped. That could take a while, so it probably means avoid shipping related stocks in the meantime. But it means there is not a straight linear relationship between BDI and global trade (which is mostly to/from China) now.

#117 – so you can’t wait 31 days? What’s the rush? If action A saves you taxes while action B costs you taxes, it doesn’t seem like a difficult choice to me, it’s a no-brainer.

#126 – “Could I pay them (kids) a salary, claim the expense,…” – you could, if they are actually doing some real work for the family business. Otherwise, the word for that is “tax fraud”, and you’d better hope you don’t get audited.

#143 – good news there, if it’s going to $5,500…

#146 – sounds good, but do the rules allow you to have 2 TFSA and 2 RRSP accounts at the same time for 1 taxpayer, is there a grace period while you do the asset transfers? If it’s legal, just remember to close the old accounts once you have transferred the assets out. I ask because I am contemplating moving my accounts to other Brokers, and I wondered exactly how that would work, from a CRA perspective.

#166 pauline on 01.13.11 at 5:30 pm

When my husband was diagnosed with rare form of cancer, we battled it for eight years and finally won. Now I can assure you all that the only real assets you have in this life are your health, your family, your values and your integrity.
We rent 2 bdrm apartment in Vancouver, we have jobs we love, we have food on the table, we have a little bit of savings, we are healthy and we feel like we are the happiest people on earth!

#167 X on 01.13.11 at 5:31 pm

re #121 – Devil’s Advocate – you might be right, the low rates to rescue the economy from its woes have definitely led to the current RE valuations. Personally, I don’t blame the REALTORS for squeezing as much juice as possible out of it. I would probably do the same.

But do take some of your earnings, and some time, to figure out what to do with your RRSP and TFSA to maximize what you have.

#168 Mr. Plow on 01.13.11 at 5:33 pm

#146 Renting in Rosedale…

Sounds simple enough, thanks.

#169 X on 01.13.11 at 5:42 pm

re #132 – It is rounded to the nearest $500 amount. So for now the inflation indexed amount is closer to $5000 than $5500.

re #140 – you can plant roots in a home with a basement rental, or you can utilize your home equity to invest and create more equity for your family. Living in a paid for house and doing nothing with the equity is a waste of your families resources.

#170 Mikey the Realtor on 01.13.11 at 5:43 pm

#23 The Analyst

you are doing quite well and dont let anyone persuade you otherwise. Spend some money living, pouring every penny you have into investments for retirement which may never come as you may never reach 60 is foolish, yes, save some for retirement but dont let your youth pass you by. As for the paid off house, dont gamble with it, its paid off and keep it that way. You had good luck along with some hard work I’m sure but the table can turn at any time for various reasons.

#171 Devore on 01.13.11 at 5:50 pm

#132 Supermodel turned nun

I thought when TFSA were first announced the limit was to increase by 5K + some addition for inflation adjustment. Has inflation been ZERO in last 3 years?

There is no guarantee of inflation-based TFSA contribution increases, only that they will be evaluated periodically and may be adjusted.

#172 Devore on 01.13.11 at 6:02 pm

#132 Supermodel turned nun

…and may be adjusted, in increments of $500.

Ok, enough posting for today, time to get some work done.

#173 Debtfree on 01.13.11 at 6:35 pm

More boom to come.

http://www.marketwatch.com/story/china-sovereign-wealth-fund-to-open-toronto-office-2011-01-12

#174 Azza4 on 01.13.11 at 6:37 pm

Pat on 01.13.11 at 10:18 am#58 Devore wrote:

“While $5k a year is a piddly amount that anyone making average or higher wage should have no problem saving up…”

//Let’s make a modest budget: $1500/mo for mortgage/rent/prop taxes and insurance, $300 for utilities, $500 for car/transportation, $800 groceries, $300 child activities, $100 clothes, $200 miscellaneous and $300 for vacations/travel.There isn’t much left over to invest. The stories about families in their 30′s to early 40′s with children and several hundred thousand in savings aren’t stories about average families.//

$1100/mo for rent (all inclusive)
$0 for utilities,
$600 for car,
$500 groceries,
$300 child activities (for 6 month unless hockey),
$30 clothes (),
$100 miscellaneous and
$250 for vacations/travel

$2630 max. It’s $15K+ in savings annually. Still you should be a little bit better of than average family to save $40K+ even with RRSP tax deduction at the source.

#175 Bobby on 01.13.11 at 7:08 pm

I have both RRSPs and TFSAs. They are both good investments if used properly, but the problem is many have little idea how they work.

RRSPs are a great way to get income splitting going into retirement. Fortunately, my wife was able to stay home but has amassed a tidy sum in her spousal RRSP. Now that those are maxed out for the year, it is time to put the $5000 into each of our TFSAs. Rather simple.

I once had a collegue, come new realtor, tell me that I was foolish to have money in retirement funds. Real estate was the place to be he said. I asked him what he was going to do for income in retirement. He really didn’t have an answer.

I’m fortunate, I also have a DC pension plan that will pay me a tidy retirement. My advice to anyone. Get good advice and avoid anyone who wants to sell you something. The first question to ask a financial advisor is how they make their money. If they don’t give you a straight answer, head for the door.

#176 Ronaldo on 01.13.11 at 7:12 pm

#26 Young Old Fart – gotcha beat…mine is now $30,683.80 after today. Thank you F. And to think that back in February of 09, the banks FP’s were scared spitless to sell you anything other than GIC’s or MMF’s for your TFSA when the stocks in their companies were down 50%. At the time I read an article in the G & M stating that Mr. Nixon of RBC was investing his bonus in RBC stocks so I decided that he must know something others don’t so I bought into one of the other banks and a junior miner and havn’t looked back. Thanks Gord.

#177 45north on 01.13.11 at 7:21 pm

countervail: to exert force against an opposing and often bad or harmful force or influence

http://www.merriam-webster.com/dictionary/countervail

#178 Western Canadian on 01.13.11 at 7:40 pm

“I’ll listen to Mark Carney instead of you. He says they’re going up. — Garth”

Carney has said alot of things over the past couple years and alot of it has not happened.

Carney in my opinion is trying to talk down the market, scare people away from taking on more debt because he knows he can’t raise interest rates substantially.

The CAD is flirting with $1.02 U.S…

People actually think Carney is going to get aggresive with rates, and what push the CAD up to $1.10, yeah that will be great for the economy.

Garth is contradicting himself, if the economy is going to struggle like he says this year, with low growth and high unemployment, then Carney is not going to raise rates any more than 0.25 or 0.5, especially with oil poised to hit $100, the CAD is going to be under more upward pressure.

Carney knows he can’t do anything policy wise, all he can do is talk.

Don’t you all remember when the dollar was moving up and he was saying that “we have other tools that we can use to stem the rise in the dollar”… (not exact quote I know)… Just more trying to talk down the market, they didn’t try to do anything..

Rates will rise. They cannot fall. When is a mug’s game. In any case, it matters not. Real estate will fall regardless. — Garth

#179 Cowboy_aka_My_View on 01.13.11 at 7:54 pm

Let’s try this again, if you own or RENT, you need INSURANCE. In case caca happens, make no mistake: flood, fire or theft, see if your LL gotz your back? And please show me a metropolis rental SFH 3bd, 2 storey, parking, and not dilapidated or seventyish for $1600/mth., all in– 300k valued home.

Here ya go. — Garth

#180 Nostradamus Le Mad Vlad on 01.13.11 at 8:12 pm


#99 Northern Dirt — “$5000 a year for 30 years compounded at 6% is $450,000. That then put into Dividend paying stocks at 5% would yield $22,500 a year for life.”

80% or more of that would also be tax free, so it is a great deal for retirees; that amount could also be put into Bank prefds.’s and bonds for a nice quarterly payout.

#160 T.O. Bubble Boy — “Aren’t the first of the 0% down / 40-year mortgages up for their 5-year renewal in a few months??? (coincidence?)

Hmmm. Seems to me there are no such things as coincidences, things happen for reasons unknown to many.

I may be out to lunch on many topics, but posters here have said the BDI is headed south, Aussie Roy mentioned something like An Ominous Warning (supposedly Oz RE), western economies don’t know left from right anymore — I work on the assumption that something is slightly out of whack!

#168 pauline — Good and uplifting post!

#130 Leanne — “Sordid Memoirs of a Parliamentarian.”

Good intro. for musical fruits! — Love Shack This is what the HoC really looks like!

#181 Ronaldo on 01.13.11 at 8:20 pm

http://www.midasletter.com/index.php/foreclosures-in-2011-expected-to-be-20-more-than-2010/

20% more foreclosures expected in the U.S. this year compared to last year. How on earth can that economy possibly come back anytime soon? Is this what we have to look forward to up here in Canada over the next few years?

#182 S.B. on 01.13.11 at 8:21 pm

US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages

http://blogs.forbes.com/robertlenzner/2011/01/12/us-banks-reporting-phantom-income-on-1-4-trillion-delinquent-mortgages/?boxes=Homepagechannels

#183 doctore on 01.13.11 at 8:28 pm

RRSP may actually be worse in the future as broke gov’s will probably be forced to increase income taxes. The same brackets today maybe much higher in the future, so that when you take out money from RRSP in future you might be taxed at a higher rate than in a similar bracket today. The idea is when you retire you live on less as supposedly your mortgage is paid and the kiddies are gone. TFSA’s are tax fee to withdrawal any gains, but I think eventually the gov will end or curtail the TFSA.

#184 Cowboy_aka_My_View on 01.13.11 at 8:33 pm

Lol, nice try. Although not certain if it’s all in? Left message for agent Mr. Manchisi. I say its $1500/mth plus utilities. So I save on taxes aprox $250/mth. Oh yeah Metropolis Milton?

#185 Devil's Advocate on 01.13.11 at 8:34 pm

#166 Devore on 01.13.11 at 5:24 pm

#103 Devil’s Advocate

Do you deny that volume and size of transactions (which determine how much money you make) rises drastically in a market in which prices are spiraling upwards, as opposed to one in which they are reasonable and flat?

Any way you slice it, cheap credit, taxpayer guarantees and environment of “certain” and exorbitant capital gains is fueling a real estate orgy, which puts food on your table.

And THAT is just so demonstrative of how little you understand the business. You can be excused though as half those who are actually in the business are of the same misconception. They were drawn into the business during exuberant times thinking it just that easy – and it was for a time. But nothing lasts forever as those who are of such short sightedness are the first to realize.

You have probably heard me speak of my admiration of the overwhelming market forces which ultimately drive us toward equilibrium in all such things regardless how hard we try to influence it otherwise. Well cheap credit, taxpayer guarantees and an environment of “certain” and exorbitant gains are all transitory. Why ever would I build a career based upon them. That would be rather short sighted don’t you think?

#186 Timing is Everything on 01.13.11 at 9:04 pm

No government will end this. We have a retirement crisis brewing even with the tax shelters. — Garth

You are correct…’No government’ will end this. Ha!

#187 dradak1 on 01.13.11 at 9:10 pm

#25 TS on 01.12.11 at 11:59 pm

Yes, they do, but in Costa Rica, Brazil, Columbia …

#188 jess on 01.13.11 at 9:16 pm

disaster profiteering and Haiti
sad and dark

http://www.truth-out.org/one-year-after-haiti-earthquake-corporations-profit-while-people-suffer66822

http://www.corpwatch.org/article.php?id=14014

#189 dradak1 on 01.13.11 at 9:17 pm

#26 Young Old Fart on 01.13.11 at 12:20 am

” #11 Don P on 01.12.11 at 11:20 pm

TFSA: $4K goes to the tax man and $6K goes into the TFSA, then doubles over time to $12K, then not taxed when withdrawn leaving me with $12K.

The same, n’est pas?

Not sure what you were doing but as of Dec 31, 2010 my TFSA was worth 20K. With this years (2011) deposit already in now….25k!!

The same????”

You didn’t read to the end or misunderstood. DP – has the point:

“… The better choice would depend on my marginal tax rate now and when I withdraw. If my marginal tax rate will be higher later, the TFSA is better. Or, if like many retirees, my marginal tax rate will be lower later, the RRSP is better (or at least not such a bad thing).”

#190 Nostradamus Le Mad Vlad on 01.13.11 at 9:17 pm


Food Bubble is bursting, just as the RE and other fiscal bubbles are bursting.

Re: the BDI Chart (locked up).

US GDP approx. same as Costco’s?

US Banks stole over one mln. homes last year.

In Service to banxters (Obama, by way of Soros).

Euro + Loony Heavily into stupid stuff. Plus Swedish Krone.

Money For Nothing “This is a perfect example of what I was talking about back when the word under discussion was “nigger”; that we are so trained to focus on individual words that we fail to see the ideas behind them. Anyone who understands the song “Money for Nothing” knows that the word Faggot is not meant to portray gays in a bad light, but to reflect on the central character who is working in an appliance store and insanely jealous of the success of the rock star.

“So why this insane effort to erase words? Words are but tokens or handles for thoughts. As George Orwell pointed out, if you take words away from the public, then you take away the ability to form and express thoughts that require those words. When words that describe the evils of government are erased, then thoughts of revolt become impossible. The brain cannot consider ideas for which words no longer exist (or so the theory goes). The very intensity of the focus on individual words to the exclusion of all else demonstrates that blinding the population to thinking on a larger scale beyond a single word is the agenda.” wrh.com. Politically correct crap; take it and shove it where the sun don’t shine.

Hooray for the judge! “Bankers apparently hold themselves to be above the law!” wrh.com.

US Fed Fraud “The Federal Reserve says economy being hurt by people suing the banks!” However, the US Fed is privately owned, so it’s fair game. (How can the US Fed (or BoC, change laws?)

9:39 clip Who owes the debt? Not taxpayers; we were never given the chance to say yea or nay to our govt.’s expenditures.

Bernanke “The only place the economy is looking good is Wall Street as they hand themselves record bonuses plundered from confiscated homes, looted to pay for the collapse of the fraudulent mortgage-backed securities bubble; the biggest financial swindle since the South Seas Bubble of 1720!” wrh.com.

Oahu “We all know what is coming. Like the passengers n the Titanic we resolve to be stoic about it, but we have seen the iceberg and we hear sounds of incoming water coming up from the holds. And we are preparing.” wrh.com.

BRIC + South Africa. Where does this leave the US?

Within Two Decades Yuan replaces US$. About the same time when the cycles have completed going from one to another.

#191 Adam on 01.13.11 at 9:19 pm

Garth,

Is it as simple as TFSA = good, RRSP = bad (or at least not as good)? A while back you wrote a post about holding your mortgage within your own RRSP.

I am 28, putting a bit aside into my RRSP each month, and was planning on taking the refund and applying it directly to the mortgage. The idea is to pay down the mortgage and build up the RRSP to the point where when I have to renew in 4.5 years, the mortgage is small enough and the RRSP big enough to accommodate it. TFSA’s are part of the long term picture that includes RRSPs, real estate, and other investments in a balanced portfolio of assets. Your thoughts on this approach?

In 40 years you will curse this strategy. — Garth

#192 Pr on 01.13.11 at 9:29 pm

#52 Hans.(interest rate)..I’ll listen to Mark Carney instead of you. He says they’re going up. — Garth
Well Garth, I really hope your right, because, as today the people are buying real estate like its boxing day.

#193 K on 01.13.11 at 9:40 pm

#168 – Pauline, congratulations to you and your hubby. You really do get it! :)

K

#194 T.O. Bubble Boy on 01.13.11 at 9:59 pm

Garth – the National Post / Financial Post are stealing your topics:

http://opinion.financialpost.com/2011/01/13/rrsp-maximizers-blinded-by-tax-refunds/

(they added the charts though)

#195 InvestorsFriend (Shawn Allen) on 01.13.11 at 10:08 pm

The notion that everyone with a large RRSP will regret it is utter nonsense.

One of our two RRSPs has had a total of $58,507 contributed to it through the end of 2010. The weighted average age of the contributions is 10.5 years.

What was it worth on December 31? $331,376.

So each $1.00 contributed grew to $5.66 in an average of 10.5 years. Now that was the better of our two RRSP accouunts to be sure. The other only grew each $1.00 to $4.39 and took an average 13 years to do it.

So when we withdraw we will face tax of 40% or more. Perhaps we can get a good bit of it out between age 60 to 65 after retiring but prior to collecting pensions so that our tax rate may be reasonable.

As I have said repeatedly, the government effectively contributed about 40% of the money in these RRSPs. So I consider the income tax to simply be the government taking its 40% share. It effectively takes back the original refund plus the growth on the refund. Our original out of pocket portion of the RRSP was really about $58,507 times 0.60 = $35,104 which has grown to $331,376 times 0.60 (assumes 40% tax on withdrawal) or $198,826.

We are NEVER going to regret putting that money into RRSP. Our share has effectively grown completely tax free. We just have to pay back 100% of the original tax refund plus 100% of the growth on the refund. (assumes 40% tax rate initially and on withdrawal).

Many Board readers today surprised me by “getting” this.

Our illustrious host, though a VERY smart dude, has a hate on for RRSPs at the moment and does not seem to get in.

Have patience I will keep pounding away at this everytime tthe topic is raised.

Yes the TSFA if it were around might have been a better route. Then again it is so flexible we might have been tempted to tap it over the years while RRSP was sacrosanct and was our “forced ” saving. But RRPS has been VERY kind to us.

All hail the RRSP, the TFSA and the RESP and the DSP.
Any time the government allows you to save on a tax-subsidised basis you should grab it. But why do so many people have to snipe and bite at the RRSP hand that feeds them?

It’s really the poor working stiff SOBs that are paying taxes but can’t afford to contribute to these tax-assisted gifts that us upper middle classes gorge on that should be complaining. Families making $50 to $80k, are subsidising the RRSPs and TFSA of those with higher incomes. Isnt it grand?

Why not abolish all this crap and just lower the tax rate for everyone?

I have no hate for RRSPs, and I think they are excellent vehicles for the gullible. However, TFSAs are superior, and should consume the first investment dollars anyone has. I have absolutely no doubt Canadian marginal tax rates will be uncomfortably higher in 20 years, at which time you will wish you heeded this blog. — Garth

#196 poco on 01.13.11 at 10:11 pm

#196 pr–where are they buying like it’s Boxing Day????
give us some numbers when you make a statement like that

#197 jbone on 01.13.11 at 10:26 pm

If my spouse is making no income and I contribute to a spousal RRSP to get the tax return can I in the same year pull money out of her non-spousal RRSP? Is it only the spousal RRSP where I would have to wait 3 years?

You can’t pull any money out of her plan – only she can, and it will become income in her hands. — Garth

#198 Cookie Monster on 01.13.11 at 10:44 pm

So far I’ve only read to #139 but I have to chime in and say that the only rational argument regarding realtors’ gains versus government monetary policy is DA’s. All arguments against DA have the rational depth and logic of pond scum. The don’t go very deep.

Sure some realtors are unscrupulous like car salesmen and Future shop representatives, but I think most people are quite alright when knowingly within a den of thieves. The problem is when people are unknowingly, unwittingly and misleadingly juggling peril as orchestrated and made possible ONLY by the monetary powers that be. The prime mover. The central bank.

#139, sure some of them had a few good years but trust me, realtors have better saved a little from those good times during the boom phase because they’ll be facing bad times ahead and it’s going to be a rocky road for everyone. On the other hand, don’t they sell during the boom as well as the bust? I think they do.

#199 dark sad person on 01.13.11 at 10:48 pm

192 jess on 01.13.11 at 9:16 pm

disaster profiteering and Haiti

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

As always-the neo-cons skimming and engaging in corporate racketeering for funding militias for the sole purpose of overthrowing democratically elected governments so as to insert their puppet regimes and plunder the resources all the while using funds donated by people who have a heart and donated billions to help those unfortunate people and yet none of it got to them-

The Pigmen have no morals-no conscience-no feelings-
They are your classic sociopaths and they are in power all over the world and every war and money feedback loop leads to them-the same names over and over-

Suffer the children-

#200 Mark on 01.13.11 at 10:53 pm

#199, Shawn, congratulations, you must be a great stock picker/investor, but the 300-400% returns that you espouse over a decade are not realistic over the long haul. Especially when the stock indicies have returned quite close to 0% over the same interval.

My question to Garth/Shawn, is would their opinion of RRSPs and TFSA’s be different if normal index (ie: TSX60 XIU iShares) ETF returns were used instead?

#201 The Original Dave on 01.13.11 at 11:30 pm

I will give you guys the hot sectors of 2011.

– rare earths
– uraniums
– pulp and paper
– gold juniors (late summer is when they kick off)

the uranium (2nd time around) and pulp/paper bull market have started in the past year…uranium within the past 4ish months.

Rare earths are in a major bull market that have brought tremendous gains. I think this bull market will continue (there will be dips), as there’s still some very serious supply concerns.

I know Garth hates individual securities. I’m not touting any, but I must say, the past couple of years in some of these sectors have been fantastic.

#202 dark sad person on 01.13.11 at 11:30 pm

#199 InvestorsFriend (Shawn Allen) on 01.13.11 at 10:08 pm

So when we withdraw we will face tax of 40% or more. Perhaps we can get a good bit of it out between age 60 to 65 after retiring but prior to collecting pensions so that our tax rate may be reasonable.

As I have said repeatedly, the government effectively contributed about 40% of the money in these RRSPs. So I consider the income tax to simply be the government taking its 40% share. It effectively takes back the original refund plus the growth on the refund. Our original out of pocket portion of the RRSP was really about $58,507 times 0.60 = $35,104 which has grown to $331,376 times 0.60 (assumes 40% tax on withdrawal) or $198,826.

We are NEVER going to regret putting that money into RRSP

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

Ohhhh the misconceptions of youth-

“NEVER”

Ohhhh Shawnnie- Mr Market heard that-

You seem to contradict yourself a lot-
You “say” you’re an investor-which i take to mean that you are invested and so that would also imply that you are cash light and if you are-then all your fancy growth numbers are nothing but pie in the sky-

Because-Shawwnie-this might happen the day before you retire-

http://seekingalpha.com/article/203798-10-shocking-etf-charts-from-flash-crash

And guess what?
This time they might not be able or might not want to correct the downdraft and it is very possible that it could form an L pattern–for years ):

Let’s look at what RC’s cut would be in that situation–

40% of zero = omfg

#203 Lead Paint on 01.14.11 at 12:01 am

202 Cookie Monster

Re-read 1 through 139: DA had disagreed that he had benefited from government policies that inflated housing prices. Or else he was just being objectionable and it was interpreted as such.

You and DA have since tried to obfuscate the original point with straw-man arguments.

Both pseudonyms are suspiciously similar (one good noun and one bad) – the career satisfaction of a realtor is very boring (a favourite topic of DA) let’s move on.

#204 Cookie Monster on 01.14.11 at 12:26 am

#202, I’m not obfuscating the issue at all, I’m just looking at the circus show and pointing out the choreographer.

#205 Cookie Monster on 01.14.11 at 2:08 am

#207 I just realized the implication of your last statement.

Damn foiled again! you are right. You must have noticed DA and I have not ever being seen together at the same place and time…. Whoohahahhah!

#206 Cookie Monster on 01.14.11 at 2:09 am

been seen

#207 Roy Stacey on 01.14.11 at 6:43 am

Yesterday, I met the Reator. She is showing me a nice 3 br 2 bath home 1500 Sq Ft in town, on a smaller lot, built in 1996. The owners are in trouble, the bank has offered the home as a “short Sale.” The price $85,000

So far, interesting, and interested.

We go to the home. Unoccupied, needs repair, and after calculating all the items needed, the fact it is a double-wide not a regular House – in the US mfg home standards are for “trailers” not very efficient, and they are usually EL Cheapo. New, this thing is likely $55K or close, used it has less value than a 14 year old Yugo.

After viewing my offer would be $27,000 but I’ll fold over my money in my pocket -effectively doubling it.

Home prices in the US have now slid off further than they did during the Great Depression of the 1930’s.
We are NOT necessarily done YET… I don’t know where the bottom is, but I can tell you we are here at least, still a long way from hitting the water in the bottomn of that well.

Stay Tuned for more pain. Lot’s of investments out there but RE is not one, nor the Banks behind RE right now – in MY opinion.

#208 G. Jimmy on 01.14.11 at 10:55 am

Right on, Garth!

Trying to talk my kid out of buying a townhouse in Vancouver at 500K. She thinks renting means throwing money away!

Not!

#209 Kenny on 01.14.11 at 12:46 pm

While I agree that TFSA’s make sense as a primary investment vehicle for most people, I think RRSPs have there place among higher income earners that know they’ll be in a much lower tax bracket when they retire.

What I find most people miss about RRSPs is that if you don’t do a gross-up before the end of Feb, you’re better off not bothering with an RRSP at all. The data shows that RRSPs are worthwhile when you invest pre-tax income into them (so there’s more to grow to offset the tax). If you take your tax return an blow it on your mortgage/tfsa/consumer debt, then you’re just agreeing to pay an income tax rate on the investment down the road.

This might be a good post topic for next month Garth. TFSAs first, grossed-up RRSPs second.

#210 dark sad person on 01.14.11 at 1:02 pm

Here’s an antidote for all you gun registry-please protect me advocates-
All of this is and will continue to come back and bite you in the ass-
If not you-then perhaps your mother or grandmother-

Be careful what you scream and whine for-you might just get it-good and hard-
***************

Woman, 82, ‘humiliated’ by airport security

An 82-year-old woman says she was humiliated by airport security who forced her to reveal her gel prosthesis during a recent public pat-down at Calgary’s airport.

Elizabeth Strecker, who was flying to British Columbia after visiting her children last week, says that she will never fly again following the incident.

“It was terribly humiliating and embarrassing for me,” she told CTV British Columbia in an interview.

http://news.sympatico.ctv.ca/home/woman_82_humiliated_by_airport_security/a6e10365

#211 Alister on 01.14.11 at 4:59 pm

I know – I’m a day late with my comment.

Since my wife was a homekeeper looking after our kids, and later she stayed home as the kids got bigger, I have always contributed to her Spousal RRSP. (hope she doesn’t leave me). We will soon be drawing out the RRSP contribution but she will have a personal exemption, which means she can take out quite a handful before taxation kicks in.