The myth

Hey, there’s the CEO of CIBC on my TV. Gerry McCaughey looks about as comfortable as me at a baby shower as he smiles weakly into the lens and tries to look human. And here’s the “Richer than You Think’ gang flogging Scotia mutual funds to some customers who clearly have mental issues. Over here’s a typical retired couple – he’s tanned, fit, lean, peppered hair, holding a curvy hottish babe as they lounge in front of an azure ocean – well, typical if you believe TD Canada Trust.

Uh-huh. It’s RRSP season again – that silly 60-day window the government gives us to make a retirement contribution that was due a year ago. It ends five weeks from now and in that time these television spots will push us, guilt us, prod us and bamboozle us into giving banks money which will become registered with the federal government.

Of course, there’s never been a TV spot done which explains what an RRSP is, or why you should have one. We certainly understand what probiotic yoghurt does to our plumbing, how Canadian Tire Motomaster windshield wipers work and how much blue liquid… never mind. The point is, whole cities of Canadians haven’t the foggiest of what they’re doing other than ‘saving on their taxes.’

Well, that might be changing. To wit:

Hello Garth: My Gen-X husband and I are having a “lively discussion” about whether to put any more money in RSPs. Maybe other blog dogs are wondering about this same question.

If taxes are going to go higher and higher over the next 10-20 years, then why should we put money in an RSP now just so that it will be taxed under those higher rates when we convert to a RIFF?  Wouldn’t we be better off paying today’s taxes and investing outside the RSP?

Also, in a few years, the amount people have in RSPs might be used to justify clawbacks. Maybe the lower the RSP, the better. There would be some peace of mind knowing that our income taxes have already been paid on our life savings. We’re just wondering what your Hamlet-esque musings on the “to RSP or not to RSP” question might be. The bank ads make it sound so straightforward.

In a few words, RRSPs have two advantages. Money inside grows free of tax until it;s removed, plus by contributing you get a refund equal to taxes you have already paid on that money. And those are both cool. Tax-free growth is awesome, but only if you have assets inside your plan that actually swell – which rules out the billions Canadians have vegging in GICs. As for the tax refund, this is money you should use to put inside your TFSA, but most people just need it to get by,

And this brings me to the disadvantages. First and foremost, this is a tax deferral plan, not (like the TFSA) tax avoidance. All you’re doing is kicking your obligations down the road, where they can hurt worse later.

Second, all money coming out of an RRSP, now or when you’re a wrinkly, disgusting, crusty, undersexed old wheeze, is taxed as income. So you might have made wonderful gains in low-taxed capital gains or dividends inside your plan, but when you cash out, it’s all taxed at your marginal rate.

Third, RRSPs are a form of gambling. You roll the dice that your tax rate in retirement will be lower than when you’re working – which was true for most people in decades past. But how can income taxes in Canada possibly stay at current levels, now that our national debt has erupted and the deficit made structural? Is it reasonable for a 35-year-old to assume that the top tax rate in thirty years will be as it is now – between 39% (Alberta) and 50% (Nova Scotia)?

Fat chance. This puppy will soon be on the move.

Fourth, remember you don’t get a choice about cashing registered retirement plans out. Once you hit 71 you’re forced to dump them, or convert into a RRIF, which means you have to suck off at least 7% per year. On a fat RRSP nestegg, this could be enough income to drive you into a higher tax bracket, claw back your government benefits and make your impoverished children hate you. More.

So, to RSP or not RSP? No easy answer. But the first ten grand a couple can find every year should go into the TFSA – self-directed and in growth assets. For those whose main goal is slicing current taxes, don’t do this end-of-year RRSP thingy. Instead use this vehicle to increase the money in every paycheque – then contribute that to your non-registered portfolio of sexy ETFs.

As I explain it in my book, here’s how:

  • Set up a monthly contribution plan with your advisor or your bank so money is transferred automatically to your RRSP.
  • Go to the CRA web site (www.cra.gc.ca), click on ‘Forms and publications’ then download Form T1213, ‘Request to reduce tax deductions at source.’
  • Fill it out and submit it to the ‘Client Services Division’ of your local tax office. Once approved, you’ll be notified and so will your employer, who can then reduce the amount of tax being sucked off each paycheque to reflect the RRSP contribution. This means instead of getting a tax refund once a year, you get one every month
  • Your after-tax income is greater, which means you have more money for probitics and wipers.
  • Not only will this plump your after-tax cash flow, but your monthly contributions greatly increase your ability to compound gains within your RRSP. Make sure the cash is not put into some brain-dead bank GIC.

Or, you can do what the TV says. You may be thicker than you think.

162 comments ↓

#1 T.O. Bubble Boy on 01.23.11 at 11:04 pm

The main reason most Canadians contribute to RRSPs (despite the pending tax bomb) is company matches. The big banks match 100%+ of every dollar that an employee puts in a RRSP. Many other companies match somewhere around 30%-50% of every dollar (usually to some maximum amount for each year).

#2 Contrarian on 01.23.11 at 11:19 pm

“the first ten grand a couple can find every year should go into the TFSA – self-directed and in growth assets”

I hope every young couple understands this golden statement.

Thanks Garth.

#3 Angry Bird on 01.23.11 at 11:25 pm

first….and garth’s advice sucks. Are you sure you’re not a banker garth!

You are so accurate. — Garth

#4 Angry Bird on 01.23.11 at 11:26 pm

oh bubble boy you are too quick!

#5 walter safety on 01.23.11 at 11:27 pm

5 year GIC average 1980- 2009 7.1 % -Bank of Canada
S&P/TSX composite 1980- 2009 9.4 %- Can Institute of Actuaries. Feb 11,2010
Of course you can’t invest in stocks without fees so there is virtually no advantage to the stock market over GIC’s and its been that way for 80 years . Older data is just a little harder to get now.
The spread over 2000- 2009 is TSX 5.6 -GIC’s 3.3 =2.3 % – or less than your average mutual fund charges.
So enough with the GIC bashing .I thought you were doing this to dispel persistent myths.

You included the period in which interest rates went to an historic high, so it is not representative. Regardless, GICs currently yield less than inflation, and that will likely remain the case. It is the worst of choices. My conservative 40-60 portfolio earned 14.89% last year, while GICs paid 2%. Inflation was 2.1%. — Garth

#6 Spazmogen on 01.23.11 at 11:31 pm

Any plans on explaining the “RRSP Meltdown” to the masses as well?

#7 BC Bring Cash on 01.23.11 at 11:31 pm

Was it Einstein That said compound interest is 8th wonder of the world? It works extremely well for the lender and in the reverse for the borrower. For the poor sap, the borrower, compound interest is always working against him/her. I read somewhere that all debts are always paid, either by the borrower or the lender. In case of default the lender is stuck with the debt. Someone always has to cough it up.

#8 DaBull on 01.23.11 at 11:35 pm

Go to the CRA web site (www.cra.gc.ca), click on ‘Forms and publications’ then download Form T1213, ‘Request to reduce tax deductions at source.

Back in the early 80’s I told all my salaried friends about this. I explained to them that it would only cost them around $60 to put $100 into their RRSP, but at year end they would most likely not get a tax return. Almost all said, even one’s that were already contributing to a RRSP at year-end, “What!!? I won’t get a tax return, I’m not gonna do that”. I even showing them the numbers on paper but that did’t help. All they could think about was losing that damn tax return. I guess they would rather pay the Government interest to collect a tax return at the end of year. What a bunch of dumb asses. Garth, good luck trying to convince this crowd. I hope at least a few take your advice.

PS: Back then you had to write the Chief of Source Deductions in Winnipeg. Also most employers didn’t like it because they thought it was to much work to administer. Computers weren’t that common like they are now so there should be no excuses for not doing it.

#9 Colin on 01.23.11 at 11:36 pm

> And this brings me to the disadvantages. First and foremost, this is a tax deferral plan, not (like the TFSA) tax avoidance. All you’re doing is kicking your obligations down the road, where they can hurt worse later.

There’s a good argument to maxing out your TFSA before you put any money in an RRSP, depending on how you think future tax rates and your future income will look, but your post implies that maybe it makes sense to invest outside an RRSP instead of in one. It would generally never make sense to invest outside the RRSP (except for the TFSA) instead of inside the RRSP, because you are able to invest more, and the money that is compounding is shielded from tax while compounding.

If you are in a 40% tax bracket on your top dollar, then a $12,000 after tax investment outside an RRSP should be compared to a $20,000 investment in an RRSP, the pre-tax amount. So you are starting off with $8000 more, you are able to put in more every year, and everything you build up is compounding tax free. You come out way ahead over paying tax as you go along, even if you have to pay tax on the final result when you pull it out…

since you would

then investing $20,000 in an RRSP should be compared to a $12000 investment

costs you $12000 in after tax dollars. It should be compared

#10 The Analyst on 01.23.11 at 11:37 pm

Good Advice Garth… Thanks to your Money Road book I setup the request to reduce tax deductions last week at my work. Our accountant said I am the first person (of over 300 staff) to request this deduction.

We are now contributing $2,500/mth into RRSP and $1,000/mth into TFSA on ETFs. My wife and I are 32yrs old and our house is paid so the money we would have spent on our mortgage is now going towards accelerated retirement (our goal is to retire by 45).

Thanks for the advise!

#11 Utopia on 01.23.11 at 11:37 pm

#291 TheBigLebowski on 01.23.11 at 9:55 pm

“The sooner people realize that we are living through a carefully orchestrated script the better off they can prepare. As Greenspan use to say, creative destruction was part of the economic order….. Order out of chaos is another way of interpreting what he meant. Out of this global economic car crash will come a solution”.
———————————————————–

You have legitimate concerns BigLebowski. We all know that change is coming though and it will not be welcomed in some quarters. Unfortunately we are on a crash course with destiny and none of the other alternatives are acceptable.

It is up to each and every one of us to open our minds to the future. You are one of those who sees the obvious and I respect that. Too bad most others don’t.

You know what to do to prepare. Think bigger than Gold though.

#12 Colin on 01.23.11 at 11:38 pm

Sorry, last 3 paragraphs in my post above are leftover stuff I forgot to erase…

#13 Stevermt on 01.23.11 at 11:42 pm

Just wondering if the Australian floods could be a Black Swan event for the insurance industry…..My guess is that it won’t become apparent until the deluge of claims come in.

#14 vreaa on 01.23.11 at 11:43 pm

White-Hot Sentiment –
“People want to get in. They want to get in bad”

Transcription, stills and discussion of the CBC National news piece on recent Vancouver sales

http://wp.me/pcq1o-1LL

#15 Dark Sad Monster Bunny on 01.23.11 at 11:44 pm

Garth – has your stance changed on putting your mortgage in your RRSP?

No, for some people it works. For most it does not. Highly specific to circumstances. — Garth

#16 nonplused on 01.23.11 at 11:44 pm

I have to contribute to my RRSP to maximize the “company match” portion, so I will have to gamble on taxes.

The capital gains vs. marginal rate consideration is a good one. But if they are raising taxes, I think the capital gains deduction is one of the first things to go. My understanding is they have already pulled it for employee stock options. They’ve certainly looked at it.

I like the idea of using your refund to plump up the TSFA.

And, as always, I disagree with Garth about the potential for debilitating higher taxes in the future. 50% is about the limit you can get to without killing the economy, and it’s already high enough to slow the economy down considerably from its natural potential. They may try it for a while, but it won’t work. I think it’ll be some combination of continued inflation and reduced services that limp things along.

Raising the GST might be something they also look at, and then you are equally screwed RRSP and TSFA alike when you go to spend the money. But there is only so high they can raise that too before the taxpayers go broke.

I think this whole “rising taxes for the next 20 years” is part of the “our children are going to pay off the debt meme.” It’s all part of the boomers figuring they should pay low taxes while they are working and borrow to pay for the various programs they’ve voted for, and then assuming that when they go into their retirement years and have low incomes and a lot of government paid services like health care and CPP coming at them, somebody else is going to pay for that too. Newsflash: Ponzi schemes don’t last, and this one won’t either. Raising the price the new Ponzis have to pay to get in isn’t going to work. First of all there aren’t enough of them, and second, they don’t have any money.

The people who are going to pay off the debt are the same people who built it up. So for the most part that means people who were part of the economic system from about 1970 to today. And a big part of the solution has to be reduced government spending. There won’t be a way around that.

There is a fair amount of low hanging fruit in all the useless duplicate agencies and stuff like the gun registry, but to really get where we need to go public employees need to see their pay and benefits aligned with the public sector. And no, they don’t need to lay anyone off. Simple salary and benefit reductions will do the trick. But the unions won’t go for that, they will insist on layoffs, which is what they will get.

#17 nonplused on 01.23.11 at 11:47 pm

Sorry, public employ pay and benefits need to be aligned with the “private” sector.

#18 LH on 01.23.11 at 11:50 pm

There is a great tax free return available to almost anybody with a fixed rate mortgage: PREPAYMENT!

The Canadian Government can sell 5Y bonds for 2.6%. Why pay more? If you have a low loan-to-value (e.g. super low risk for the bank) mortgage, why not contribute the maximum prepayment per year?

Sure, shovel more equity into a soon-to-be-depreciating asset. Smart. — Garth

#19 Utopia on 01.23.11 at 11:53 pm

#295 Patz on 01.23.11 at 10:20 pm

“Sorry to be flip, but really, do you think anyone knows what to do? I don’t”.
————————————————————

Don’t worry Patz….others do.

#20 Geoffrey L. on 01.24.11 at 12:03 am

Garth, I commend you for explaining this stuff to people.

#21 LH on 01.24.11 at 12:16 am

In reply to:

“Sure, shovel more equity into a soon-to-be-depreciating asset. Smart. — Garth”

There’s only one proper way to withdraw equity: sell the house. As you have suggested, that is exactly what many house-rich and cash-poor Canadians should do. However, given that mortgages are full recourse, I don’t see any point to keeping or adding half-assedly to a 40% loan-to-value mortgage.

For the asset poor, it might make sense to lever up to 90% and go long equities. Worse they can take away is your house. Take advantage of CMHC’s free option.

For the asset rich (I already have about 250k each in equities and cash), prepayment may be the best option. Sure beats GICs and government bonds.

Invest your money where it will grow the best. That does not currently include real estate. — Garth

#22 Patz on 01.24.11 at 12:28 am

That’s quite a feat the dude in the pic is pulling. No, I don’t mean holding it up with his … uh MP. I mean balancing it as there is so much more dumbell on the right than the left. Ah… a political metaphor!

#23 Kilt on 01.24.11 at 12:43 am

I think the decision to contribute to RRSPs as with any financial planning, is dependent on each persons individual situation.
Some people may not have company pensions. They may not plan on working to the age of 65 and would be drawing on the RRSP long before they reach 72.
As for the TFSA, great idea, if you are 25.

Kilt

#24 Angela on 01.24.11 at 12:43 am

It sounds tempting to not contribute because of the delayed tax hit, but it’s important to remember that you can’t income split while you’re working but you can when you’re retired. It makes a huge difference if Suzy Homemaker can claim some income.

#25 a prairie dawg on 01.24.11 at 12:43 am

Oh what a tangled web we weave, when TFSA’s passed for an RSP.

#26 Jeff Smith on 01.24.11 at 12:47 am

I heard Canada is prosperous, stronger and more united. I dunno, don’t feel all that strong nor prosperous, I am just barely making ends meet. Maybe united though, I feel me and people around me are very united… hmm…
I guess an election is coming up.

http://www.cfra.com/?cat=1&nid=77755

http://www.vancouversun.com/news/Harper+celebrates+five+years/4152578/story.html

#27 wes_coast on 01.24.11 at 12:48 am

I don’t know that I buy the increasing taxes argument. Taxes create a dead weight loss in the supply and demand curve and only serve to surpress production and consumption. If we are going into a situation of structural unemployment, I don’t see where taxes can go up. Until the imbalances caused by China’s currency manipulation and US Fed monetary policy are removed will we be able to get a true picture of the way forward. Rather than increase taxes I see a reduction of the welfare state. Less tax. Less government (which equals less waste) and more capital to go where it creates productivity (which Canada seriously lacks right now)

#28 Jsan on 01.24.11 at 12:53 am

“#14 vreaa on 01.23.11 at 11:43 pm

White-Hot Sentiment –
“People want to get in. They want to get in bad”

Transcription, stills and discussion of the CBC National news piece on recent Vancouver sales

http://wp.me/pcq1o-1LL

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

I see those Busloads of Chinese buyers in Vancouver as nothing more than Greaterfools from overseas. Would I be wrong in guessing that some Chinese Vancouver realtor has taken out ads in the Hong Kong media and is capitalizing by bringing naive “investors” who have been well versed by the aforementioned Vancouver realtor that house prices in Canada never go down and that they should invest now for big riches later?

I would bet the farm that this little get rich quick scheme will fizzle as fast as every other get rich scheme has fizzled in history. I remember watching a news program about foreigners buying Dubai condos sight unseen as they were going up in value by 50K every month. Again, nothing more than gambling that always ends very badly.

#29 TheBigLebowski on 01.24.11 at 12:57 am

11 Utopia-“You know what to do to prepare. Think bigger than Gold though.”

You make a good point. Don’t forget silver . Joking somewhat. I am debt free and have sold, liquidated and am renting. I have extra food stores etc. 50 years ago, not having extra food would have been looked upon as foolish, but now most people are lucky to have more than two days of food in stock. Grocery stores likewise have only 2 days of supplies on hand if there is a rush for supplies. He who prepares calls his own shots.

#30 Jeff Smith on 01.24.11 at 12:58 am

I think Garth should mention also that stuffs inside TFSA also grows tax free. So all that dividends, capital gains on those favorite stocks are not taxed. This is probably the biggest gift of all. Thank you lord F.

#31 wes_coast on 01.24.11 at 1:04 am

By the way. The Global housing survey is out. Vancouver housing prices sit at over 9 times the average income in the region (3rd highest in the world). Only Sidney Australia and Hong Kong are crazier then us.

http://www.demographia.com/dhi.pdf

#32 Thetruth on 01.24.11 at 1:04 am

#13 Stevenrt

War will be the Black Swan Event… allows America to print money WITH the approval of the people… to inflate away the debt.

#33 Hoof - Hearted on 01.24.11 at 1:15 am

Uh-huh. It’s RRSP season again – that silly 60-day window the government gives us to make a retirement contribution that was due a year ago. It ends five weeks from now and in that time these television spots will push us, guilt us, prod us and bamboozle us into giving banks money which will become registered with the federal government.

=========

I agree Garth

I don’t know why the RRSP etc. whores make this time of year an ad nauseum annual repetition, trying to market it in the global citizenry’s historical weak point…as NFL season ends and before MLB season begins. It truly disgusts fans of your soft info- porn approach to greater public enlightenment to the masses.

(Ignore NASCAR, …….the ” Watch paint dry” channel aka HGTV et al is more exciting and has less of a carbon footprint).

#34 Bailing in BC on 01.24.11 at 1:19 am

I more I hear about what a good idea TFSAs are, the more annoyed I become about not having any.

#35 Roial1 on 01.24.11 at 1:23 am

#128 cellar dweller on 01.22.11 at 2:31 pm

Yesterday you said that you have never done the “Ski, golf and sail” on the same day. Well, I came really close. I skied, golfed and went fishing on the same day last february. Can I count that???
Oh, I don’t live in Van. Just the Comox Valley here on Beautiful V.I.

P.S. I’ll be skiing and fishing tomorrow. (Monday the 24th of January 2011. (The golfing is just a little soggy)

#36 Tim on 01.24.11 at 1:31 am

so at what point does one realize they have too much and start to reduce the RRSP by taking out a loan to cancel out the tax on the RRSP withdrawn?

#37 walter safety on 01.24.11 at 1:32 am

Garth – your conservative 40 – 60 portfolio will adjust to historical norms in relation to GIC’s returns over time . You know the equity/interest rate spread is structural. You know there are massive distortions in the system facilitated by central bankers. What nobody knows is when the adjustment will arrive. You no doubt can take the adjustment but many of your readers are being funneled into taking stock market risk which is just as delusional as thinking houses never decline in price.

#38 Dark Sad Monster Bunny on 01.24.11 at 1:34 am

16 non-plused – I thought the employee stock option was
declared as income or a taxable benefit. That is if you
purchase stock from your employer at a discount, the
amount of the discount is added to your taxable income
(as it should be).

I recall a link awhile back where employees of tech start-
ups were given huge stock options in the $100Ks. They
tried to sell them later, often when the stock had
dropped, thinking there was no tax liability. CRA nailed
them for income at the price of the stock when acquired.

Anyways, stock options from the company your work for may put too many eggs in the one basket.

#39 $froma$ia-The mother of all Bubbles on 01.24.11 at 1:40 am

i GUESS an election is comming.

Just like the last one, it’s to get in before the housing market deflates and Canadians look to the reason why.

Don’t expect the Liberals to point this out. No “Mr. Popularity” want’s to touch this one with a ten foot pole, till after it happens. Theres too much risk of taking the blame even for mentioning even though you didn’t intro the zero/40…

Garth, nice picture looks like that one should be on a cialis or viagra commercial.

Next, the guy will be Vlad the Impaler.

$$$

#40 pablo on 01.24.11 at 1:43 am

TAXES ARE GOING UP, AND IF U DON’T SEE THAT THEN GET A DOG.
RRSP/TFSA both good vehicles depending on your circumstances, however if you don’t keep a watchful eye on govt rhetoric and discussion you’ll never see the rule changes coming to claw back your savings, eg; income trusts. Govts don’t understand the adage; never bite the hand that feeds you, they’ll take your hand, your arm right up to the shoulder if they can.

#41 Hoof - Hearted on 01.24.11 at 1:55 am

I see the that none/nada/0% of the infinitely wise and thus intuitive (redundant) Greater Fool posters didn’t ask the crucial question re: the infinitely resourceful “Garth” (genuflect)

How the hell did you get a classified photo of the Soviet women’s weight-lifting team past the Canadian Border Nazi’s ?

Duly noted are the weights 2-D photo – projection caught at the 50 % – from – vertical point (crotch level)of their potential energy vs. gravity manifestation. Why have the weights stopped ?

Garth: Ever think of running for office ( instead of running from office ?)

#42 Patz on 01.24.11 at 1:57 am

#26 Jsan

Ah Dubai, good point Jsan. I read recently that those marvelous islands in the shape of the world are in deep do do. Seems they’re eroding–who’d a thunk? Buyers are suing the developer and potential buyers are staying away in droves. Yes, Dubai was the poster child for offshore wealth shoring up RE–bad pun somewhat intended.

#43 groundzeropat on 01.24.11 at 2:09 am

In response to:

“14 vreaa on 01.23.11 at 11:43 pm
White-Hot Sentiment –’People want to get in. They want to get in bad’ http://wp.me/pcq1o-1LL

Hi Everyone, I live in Vancouver and here is info on this house as listed on: www. bcassessment.bc.ca The home is on a larger corner lot that has a tax appraisal value of $1,357,300.00. It is commom knowledge that government tax assessments are about 20% below market values means this house should have a current market value of approx. $1,628,760 . The asking price of $1,088,000 is done to fuel a bidding war!!! Which is precisely what happended. The selling price of $1,611,000 is just a hair under current market value. PLEASE people don’t get all hyped up and STAY calm. Yeah, right $533,000 increase @$#@%^. Why not start the asking price at $537,000 and say the sold price was a cool 300% increase!

Subject Property [Help]
Property Address: Property Assessment Value: Sale Date: Sale Price: Description: Area-Jurisdiction-Roll Number: Comments:
906 20TH AVE W VANCOUVER V5Z 1Y5 $1,357,300 1 1/2 STY house – basic 09-200-009697150940000

#44 don bool on 01.24.11 at 2:15 am

RRSPs have two advantages. Money inside RRSP,s grows free of tax until it;s removed. .

I wish that were true.

The Harper Government,Flaherty and BOC Governor Marc Carney intentionally created a calculated crime against investors and their RRSP,s based on fraud and deception. Harper and Flaherty,s claim that income trusts avoided taxes are the 38% of trusts held in RRSP,s which should be tax deferred like all investments in RRSP,s. The 18 pages of blanked out paper were blanked out because these weasels would have been toast if the public knew just where this phony tax leakage came from. So the great Canadian savings device pumped by governments, banks, brokers etc. will be double taxed. Double taxed based on a calculated lie. If you had these same income trusts in a cash account they,d be eligible for the DTC and the loss would be minimal.
What the Harper Government did was knock the crap out of responsible citizens saving for retirement. Don,t ever think in the future this criminal act could not be repeated. The problem with income trusts and the ones who wanted rid of them could have been solved in a honest and straight forward way. Instead these fools used slash and burn tactics that were fraudulent and based on deception and lies and the sad part is the same results could have been achieved with minimal pain on both sides. Incompetence and mean spiritness is how this situation was handled. Politicians robbed RRSP,s to meet their agenda. It could happen again very easily because all parties ignored this crime. The N.D.P. were complicit in this disgusting crime. The Bloc got paid off with billions of dollars of transfer payments and the Liberals milked it for votes. The only one who kicked ass on this was Garth but he,s no longer an M.P. A crime of massive proportions just fades off into the sunset and the criminals come out looking like heroes. It,s all smoke and mirrors by all political parties in how to gain votes from the majority of the population who are middle class. Unfortunately there,s not one political party that represents this middle class. And they wonder why less and less people vote and don,t get involved in politics.

#45 Hoof - Hearted on 01.24.11 at 2:15 am

Review the Non – demoninational definition of KARMA.

Our Gov’t( aka that group we ” elect” to represent our best and better interests LOL ) had better take some fiscal and legislataive prunes to UN tighten their ideological sphincter.

They could let in every frikkin billionaire into Canada via the investment category, …….drive up the RE market 10 fold…but then what?

In” reducto ad absurdum” fashion…..The current legislative mechanism would, in robotic fashion,fiscally rape and pillage the general Canadian citizenry.

A critical mass would be reached that this globalized “sell out” would create a fiscal collapse and ignite a domestic civil revolt.

Einstein would be proud, an economic manifestation of his ” Black Hole” theory.

There is a point that the disenfranchisement of the citizenry reaches a point of “no mas” or uber taxation….take your pick “F”, “C” and “H” (aka the 3 Stooges of Parliament Hell )

#46 thecomingdepression on 01.24.11 at 2:37 am

My Silver went up 569% over the last decade and DOUBLE your 14% return..from 2010. I expect my SILVER to go up another 50% this year. Good luck with that CASINO.

#47 Anon on 01.24.11 at 3:00 am

So, Garth, you say gold is bad because we will have deflation but GIC is bad because the interest rate is too low? Come on now, you can’t have it both ways. Either gold is good or GIC is good. I guess we’ll find out…

Gold is overvalued and dangerous. GICs are non-performing. — Garth

#48 kansai_92 on 01.24.11 at 3:13 am

Scotiabank’s new slogan:
You’re in more debt that you think.

#49 Mark on 01.24.11 at 3:34 am

#21, “For the asset poor, it might make sense to lever up to 90% and go long equities. Worse they can take away is your house. Take advantage of CMHC’s free option.”

They can also take away your equities. If you default on the house, the CMHC will be coming after the equities.

“Sure, shovel more equity into a soon-to-be-depreciating asset. Smart. “

Its debt repayment. Unless the house is sold, one doesn’t decrease their exposure to real estate as an asset class.

#50 Seen this in the States and now its here in Canada on 01.24.11 at 3:50 am

Saw this on BNN and they are basically saying CMHC is over leveraged and the taxpayers on the hook. This was very scary.

http://watch.bnn.ca/squeezeplay/january-2011/squeezeplay-january-17-2011/#clip402937

#51 Seen this in the States and now its here in Canada on 01.24.11 at 3:52 am

BNN speaks to Neil Mohindra, Director, Centre for Financial Policy Studies, Fraser Institute and he says Canadian taxpayers on the hook for CMHC over leveraged books. Very, very scary.

http://watch.bnn.ca/squeezeplay/january-2011/squeezeplay-january-17-2011/#clip402937

#52 realpaul on 01.24.11 at 4:22 am

Re Witholding tax at source…Most companies can do this through payroll but most employees don’t take advantage of it. The thing I often hear is the guy saying ‘I can’t afford an RRSP”. I know..just retarded…and you know they aren’t contributing to a TFSA either. The well paid people I know save nothing, have big ( average 700K to 1 million ++) mortgages, many unfunded kids and oddly tithe their churches before their own savings.

The larger companies will match contributions, usually to a certain percent, usually 5 -6%….but again , most employees can’t ‘afford to save’. They are neck deep in mortgage debt , car leases and consumer debt. All the good advice in the world will not help these people. The professional class in this country lives paycheque to paycheque.

BOC gov Carney acknowledges that Flaherty’s tweak of the real estate finance rules does nothing to the overall debt of Canadians. Whether inadvertantly or not he states the following.

“Bank of Canada chief warns again on debt levels

TORONTO, Jan 23 (Reuters) – Bank of Canada Governor Mark Carney warned again on Sunday that Canadians should take steps to deal with high levels of household debt because interest rates would at some point rise from near-historic lows.

“Canadians could overextend themselves and they could get into a position where the debts that are sustainable at very low interest rates prove unsustainable when rates return to a more normal level,” he said in a transcript of an interview with CTV’s “Question Period.”

“Don’t take the current situation and extrapolate it, extend it out to the future. At some point, interest rates are going to move higher, they’re going to go back to more normal levels. Can you service the debts you’re taking on today at that point?”

Low interest rates have encouraged Canadians to take on debt at a level at that has alarmed some policymakers. Recent data from Statistics Canada showed household debt has risen to a record 148 percent of disposable income. [ID:nN13227591] [ID:nN13203720]

The central bank held its key interest rate steady on Tuesday and signaled it may keep rates on hold for longer than markets had expected even though it nudged its economic growth forecasts higher. [ID:nN18290983]

The Bank of Canada last year became the first central bank among the Group of Seven advanced economies to start raising interest rates since the financial crisis hit. It hiked its key policy rate three times, but left it at 1 percent as fresh strains emerged domestically and abroad.

Carney said the central bank was keep a close eye on Europe’s sovereign debt problems, warning it posed a risk to Canada.

“We wouldn’t be immune if the European situation were to take a real turn to the worse,” he said.”

http://www.reuters.com/article/idUSN2212125420110123

I have to agree Garth, the state of affairs with the extreme levels of growth in the National and civic debt have grown to such an extent that taxes will escalate rapidly. Frankly I fear that the debt monster will come out of the closet as soon as we give the politicians the wiggle room to tell the truth. Fear a majority government people….thats when the bad news will be stuffed up your a**.

#53 Gerry B on 01.24.11 at 4:38 am

From statistics I’ve seen a lot of Canadians have large credit card debts, typically with high interest rates (as high as 20%). Presumably if someone’s got any credit card debt, paying that down makes more sense than putting money into an RRSP.

I wonder how many Canadians give money to banks via RRSPs “invested” in GICs at piddling interest rates, and borrow money from the same banks at higher rates via credit cards…

@Jasn #28: in the newspapers here in Singapore there are loads of ads selling property abroad – Australia, Malaysia, UK, and sometimes Canada, e.g. Vancouver, Calgary, Toronto. I even saw an ad for holiday homes at Mt. Tremblant, Quebec.

I recently chatted with a 70+ yr old Chinese Singaporean woman who had spent ~15K two years ago to buy a plot of land in a new development “near the Great Lakes”. I told her that was a very large area, but she couldn’t narrow down the location any more than that. She wanted to sell, but the developer told her she should hold because she’d make a loss, and that the land was sure to go up in value.

Here in Singapore property is extremely expensive, interest rates very low, and the desire to own property very strong. On top of that, there’s a strong gambling culture. All these factors mean that Singaporeans will likely continue to speculate on property abroad. Similar factors probably apply in Hong Kong.

#54 VanLarry on 01.24.11 at 6:36 am

I’ve actually been advised before to go the other way, increase my tax installment withholdings. It’s because my previous two years before, my income was exceptionally high. It was my capital gains that was causing it.

It’s good advice, if you want to pay a less amount at the end of year. However, it’s only good if your total income is expected to be consistently high. In my case it wasn’t.

#55 Utopia on 01.24.11 at 7:05 am

#16 nonplused

“And, as always, I disagree with Garth about the potential for debilitating higher taxes in the future. 50% is about the limit you can get to without killing the economy, and it’s already high enough to slow the economy down considerably from its natural potential”.
————————————————————

Tell that to Europeans, Nonplused.

The Vat Tax (equivalent to HST) is already 25% in Norway, Sweden and Denmark. The French, Germans and Italians pay about 20% each.

But for an eye opener you need to look at tax revenues as a percentage of GDP. In 2008 we Canadians paid out 32% while American tax revenues as expressed by GDP was 28%.

Over in Europe though you can see how the burden changes. France, Belgium, Norway and Sweden and Denmark range from 43 to 50% while the Brits, Germans and Italians all ring in with rates close to 40%.

Over there they have proven that you can tax at rates approaching 50% without destroying the economy or bringing on civil unrest. Europeans want their programs and so they are prepared to pay for them.

I agree with Garth in saying our own tax burden will grow here over time. It has too in order to cover the debts we have already piled up (and the future obligations that are on the horizon). The only other alternative is to cut program spending. Sadly, we will probably be getting a little of both to start and a lot of both down the road if we don’t get back in balance.

http://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_as_percentage_of_GDP

————-
Now about todays picture….is that supposed to represent house porn and the ability to carry debts in the future?

#56 Utopia on 01.24.11 at 7:57 am

And speaking of taxes….

How have the Liberals and the NDP come out on the wrong side of corporate tax cuts on such weak platforms?

I mean, what are they thinking?

It is not as if we in this country have not been stunned already by the numbers of job losses in the US to overseas locations. It is pretty obvious that corporate incentives are necessary to keep jobs at home and keep employment levels up.

I believe most Canadians now recognize that high tax environments are a disincentive to business investment and this crazy platform of theirs just creates worry and fear. It will not resonate with Canadians who are already concerned about the security of their jobs.

The Irish, despite their domestic spending problems have long since proved that very low corporate tax rates can attract billions of new investment dollars into an economy and have a revitalizing effect. That means jobs and lots of them.

We can not be in the business of driving business out of the country at a time like this nor even creating the appearance of an unstable environment. Ending the sceduled corporate tax reductions is not a campaign promise that provides hope for the future, it is a negative and a threat to our economic well being.

#57 House on 01.24.11 at 8:25 am

1. How could my taxes go up . My completely responsible Conservative government is giving a $6 Billion tax break to banks . Why would they need to raise my taxes?

2. Doesn’t the future taxation also apply to company pension plans? You should advise bank presidents to stop their current pension plan contributions as they are surely in the top rate.

#58 Shane on 01.24.11 at 8:27 am

Garth, I have about 9K in my RSP stock share program at work can i transfer that money out to my TSFA without that money being added to my income? or that money being taxed?

Shane

#59 greyhairedoldgoat on 01.24.11 at 9:14 am

I just withdrew 5k from my RRSP. It was a GIC deposited to RSP savings account. The interest earned was lower than the $50 fee, plus 10% holdback that they charged. This is how the banks will make money when we all need more to live on when we retire.

#60 David B on 01.24.11 at 9:16 am

Stand by Canada …. Harper and Flahety’s Canadian Sheild is about to be tested.

Global Price Fears Mount
As Food, Raw Materials Soar, Europe’s Central Bank Head Warns on Inflation.

By BRIAN BLACKSTONE And MARCUS WALKER
Inflation fears—fueled by spiraling food, oil and raw material prices—are mounting around the globe, prompting the head of the European Central Bank to signal that it could raise interest rates in the future even though some countries have been weakened by the Continent’s debt crisis.

———————–

So go on and on about just how geat Real Estate is …. and do not ever think about the value of your pay check.

#61 Got A Watch on 01.24.11 at 9:23 am

Utopia – “Over there they have proven that you can tax at rates approaching 50% without destroying the economy or bringing on civil unrest. Europeans want their programs and so they are prepared to pay for them.”

Apparently the current sovereign debt crisis in Europe has escaped your notice. Newsflash – almost every country in Europe except Germany is in deep financial trouble. Because they have spent far in excess of tax revenues for decades, mostly on those “programs they are prepared to pay for”. Well, they obviously weren’t prepared to pay for them fully, instead they borrowed a lot of money. It’s like paying the VISA bill by using your Master Card. Even Germany is slashing Budgets.

Now Europe, outside of Germany, is well into economic stagnation, forced austerity, shrinking “programs they can’t pay for anymore”, and very unhappy citizens. For the next decade. The first “austerity Budgets” are in effect this year, many more years to run.

If they had to raise taxes immediately to a level high enough to balance the Budgets, their economies would implode. So they face many years of austerity as Budgets are slashed and programs are cut back, plus higher taxes anyway. High unemployment, shrinking economy, poor prospects, slow to non-existent growth.

You seem to be arguing it both ways, reading the next comment. High taxes are good/bad for the economy? Good for citizens, but bad for corporations? Huh?

Jobs don’t leave North America or Europe only or mainly because of taxes. They go to China because of very low labor wages, and lax environmental and workplace regulation. When costs get too high there, they’ll move to Vietnam or Cambodia, or wherever costs are lower.

So by cutting taxes on corporations here, you are just allowing them to make more profits on the goods made in China or somewhere overseas but sold here. I’m all for competitive tax rates, to a point, but they are pretty low in Canada already. Chopping them more will just rob the Government of needed revenue, just like H&F did by cutting the GST, during a time when every dime of revenue is needed to help balance the Budget. And won’t bring any jobs lost to China etc back here.

Traditional Budget balancing always involves higher taxes and cutting spending on programs, at the same time. Corporations need to pay their share, just like individual taxpayers.

Personally, I’d slap high import duties on Chinese crap etc, and enforce strict product safety rules on everything imported. And adopt strict “mirroring” trade rules, where we treat other nations exactly as they treat us. Globalization has destroyed our economy, it should pay to rebuild it.

#62 Moneta on 01.24.11 at 9:32 am

16 non-plused – I thought the employee stock option was
declared as income or a taxable benefit.
———-
Rules are different if company is Cdn or foreign.

If I recall correctly, foreign is included in year received, Cdn benefit included when exercised or sold.

#63 Moneta on 01.24.11 at 9:43 am

Over there they have proven that you can tax at rates approaching 50% without destroying the economy or bringing on civil unrest. Europeans want their programs and so they are prepared to pay for them.
———-
The problem is that in North America, when you increase the taxes, the money goes to the top 10%.

In Europe, when you increase taxes it goes to everyone!

#64 Moneta on 01.24.11 at 9:50 am

All the good advice in the world will not help these people. The professional class in this country lives paycheque to paycheque.
—-
It used to be that most households lived within their means, from paychaeck to paycheck, unable to borrow. They did not have to use fancy present value tables to plan for their future because they lived in the now.

Suddenly all these households who never had to use fancy math to take care of their finances were given access to credit. Imagine that, they are still living from paycheck to paycheck with no clue as to whether or not they are living within their means.

#65 Moneta on 01.24.11 at 9:54 am

The Irish, despite their domestic spending problems have long since proved that very low corporate tax rates can attract billions of new investment dollars into an economy and have a revitalizing effect. That means jobs and lots of them.
———
I’m not so sure. I think we’re just about to find out if the Irish strategy was a flash in the pan.

#66 Leanne on 01.24.11 at 9:59 am

I’ll be honest – some days I don’t read the articles.

#67 Moneta on 01.24.11 at 10:04 am

Everybody seems to think that it’s the rates, the taxes…

The most important criterai is to determine what we Canadians need and want in terms of goods and services. Then we need to determine what the best allocation of resources and capital is to reach our goal.

If we cut rates or keep them low, will money flow into the right areas? If we cut taxes, will the right businesses get funded? Nope.

How many billions were poured into Nortel and the high tech bubble? We could have fixed our infrastructure when oil was 18$ instead of giving our money to American 18 year olds or paying for American’s fiber optic.

#68 Moneta on 01.24.11 at 10:10 am

The problem is that in North America, when you increase the taxes, the money goes to the top 10%.

In Europe, when you increase taxes it goes to everyone!
———-
My point is that every time we play with the tax rate, the change is structured in such a way that it mostly benefits the top 10%.

#69 Fractional Reserve on 01.24.11 at 10:24 am

#40 Walter Safety
You and Garth are both right. Sensitivity to what will happen in the market is the key ingredient. As Stanley Druckenmiller said about the financial markets, “you can wipe your slate clean at the end of the day”. The point is that if you have investments in liquid markets, you can bail out with a phone call. This is not possible with a tanking real estate market. Garth has pointed out that liquidity is key. Amateurs sit by and watch their investments tank while the pros are loss sensitive and quickly dump and go into cash. One hedge fund manager I respect a great deal has said in his recent quarterly report that equities are in for a rough year. Investors beware.

#70 eddy on 01.24.11 at 10:26 am

The Banker, a poem

http://www.youtube.com/watch?v=peX4dBEF0Vg&feature=player_embedded#!

#71 avenirv on 01.24.11 at 10:29 am

The Analyst on 01.23.11 at 11:37 pm said
…$1,000/mth into TFSA on ETFs…

so you and your wife pay 12000/year into TFSA when the limit is 10000 (for both) ? is this wise ?

#72 mousey on 01.24.11 at 10:35 am

Crazy Vancouver West Side Sales
The story about the wild west open house resulting in the bidding wars and ultimate sale $300,000 over asking was a little bit wierd. Thanks to the blog poster who pointed out that the assessed value was actually around $1,300,000, and that the lot was bigger than most. Still, for a basic lot, even if it is close to Douglas Park, the price seemed insane. Have any of these bidding folks tried to park near there in the summer? Good luck. Why would you buy a bare lot for $1,600,000 when you can get a lot, with a house for $1,500,000 in a decent west side neighbourhood? (For the record, I’m not saying that the $1,500,000 is reasonable.) Do these buyers know anything about other areas in Vancouver? If all they want is a lot on the west side, why not go for some of the other tear downs in Point Grey, Dunbar, Kerrisdale – some of these listings are just sitting there and are under $1,500,000. Why aren’t all these places being snapped up by rabid offshore investors? My hubby says this recent purchase is an example of how big the bubble has grown and that the situation defies rational explanation because buyers are not acting rationally. If west side lots are all worth $1,500,000 why are some just sitting there, even when there is hardly any product on the market?

#73 avenirv on 01.24.11 at 10:35 am

nonplused on 01.23.11 at 11:47 pm said
Sorry, public employ pay and benefits need to be aligned with the “private” sector.

little question: why not the other way around ? is that forbidden ?
please do not raise the unions issue. do not forget, mercedeses, bmw’s, audi’s, ferraries, lamborghinis, bentleys, rolls royces, etc are all manufactured by unionized workers.

#74 fancy_pants on 01.24.11 at 10:40 am

#61 Shane on 01.24.11 at 8:27 am

no. can’t have your cake and eat it too. The $ has to be taxed somewhere – either before it enters (tfsa) or when it comes out (rrsp). One can’t plunk $ into rrsp and then transfer into tfsa avoiding both.

#75 avenirv on 01.24.11 at 10:55 am

Utopia and european taxes.

Utopia, you must understand TWO thing:
any western european country pays pensions to its retired citizens at around 65% of the prevailing salary. in Canada it is somewhere around 35%.
university (undergrad or graduate) education in western europe is practically free at any level. even cambridge and oxford, sorbona or heildelberg.
do you see now the difference ?
so please inform yourself.

#76 avenirv on 01.24.11 at 11:00 am

Got A Watch said Personally, I’d slap high import duties on Chinese crap etc, and enforce strict product safety rules on everything imported.

so you want to tax all electronics (including the laptops) produced by NA companies in China ? do you know that the NA companies moved willingly to China ? is not that the Chinese forced them, they choosed to move. whose fault is then ?

#77 David on 01.24.11 at 11:04 am

Very funny…hope you all had a good laugh. Now please take down my photo, Garth.

#78 Nuke on 01.24.11 at 11:14 am

A married couple with a single earner making $100,000 a year get a 46% tax benefit making an RRSP cont (marginal tax). At 65 each spouse gets about $19,000 in tax credits (basic, age, pension). if they retire on 70% of income or $70,000 and split the income equally then the marginal tax is about 22% or total taxes of about 11% of total income. Of course the TFSA is to be used as a place to invest as well, but its not RRSP or TFSA but sound planning for both. Remember balance like Fixed Income and Equities, Meat and Veggies.

#79 R on 01.24.11 at 11:19 am

Personally, I’d like the bank to trot out one, just one person who actually met the projections for retirement they give you on their nice little brochures. I think RRSPs are a waste of time and money.

ETFs would seem to have a lot of upsides, but Garth, there are a lot of them that seem rather dodgy.

#80 Heinz Skitzvelvett on 01.24.11 at 11:30 am

re: cbc video…wonder whom realtors are targeting as prospective buyers when they list a price at $1,088,000 ;)

#81 Dark Sad Monster Bunny on 01.24.11 at 11:44 am

32 Wes coast – you have made a common error. The referenced study does not cover the world – only english
speaking countries. This is the first year they have
included Hong Kong.

#82 Stevermt on 01.24.11 at 11:52 am

#33 Thetruth
We are at war already unless you mean the big one WW3.
According to Talieb, a true black swan is an event that nobody sees coming, is shocking and everyone afterwards states,” well we should have seen that coming”.
Many people today are expecting a war, maybe between the Koreas or US and Iran, Israel and Iran.
Also QE is going strong now and will continue, so that is nothing new or shocking either.

#83 Fractional Reserve on 01.24.11 at 11:54 am

#78 Avenirv
I want to commend you on your courteous explanation to Utopia on European taxes. This is the way everyone on this blog should conduct themselves. Politely pointing out facts in a respectful manner. The name calling and rude comments have no place on this blog. Well done Avenirv.

#84 BDG-YYC on 01.24.11 at 11:57 am

#76 avenirv on 01.24.11 at 10:35 am

:-) And the money comes from ? :-)

#85 MikeT on 01.24.11 at 12:01 pm

after researching RE property on the French Riviera and seeing what 1M euros (1.35M CAD) can buy – in that weather and that place (Nice, Cannes, Mediterranean sea, French wines and cheeses, sunny, warm, great landscape, wonderful villages with local food, etc.), I will no longer lust a big house in Canada. Something that’ll shelter my family will do.
Next thing – find a job/business that allows you to work from a remote location, and guess where I’m headed? ;)

#86 Throwstone on 01.24.11 at 12:18 pm

I wonder how much these employee’s will be contributing this year?

http://www.thestar.com/news/article/926842–sweet-memories-linger-as-beloved-bakery-closes?bn=1

And just think we have’nt thought about paying down debts (individual or government), couple that with the retirement/pension crises, our housing disaster etc… etc…

#87 Junius on 01.24.11 at 12:24 pm

#88 MikeT,

I was in Cannes last year and did the same thing. Nice is absolutely beautiful and only about 15 minutes by train to Monaco and then on the Italian Riviera. Prices are shockingly low in comparison to Vancouver. It certainly got me thinking.

#88 Scalgary on 01.24.11 at 12:30 pm

Garth,

I am property virgin and I am not going to buy my first home until you say yes.

Me and my wife both are employed. I contributed $13000 to RRSP last year as per the advise of a financial advisor just to withdraw when I buy my house.

Is there any advantage in this?

Thanks in advance.

Only the refund. — Garth

#89 Throwstone on 01.24.11 at 12:31 pm

Up go the interest rates!!

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/why-inflation-is-on-the-radar-screen/article1880488/

#90 BDG-YYC on 01.24.11 at 12:49 pm

#78 avenirv on 01.24.11 at 10:55 am

Right … get educated … hmmm…

Tuition Fees … http://www.guardian.co.uk/news/datablog/2010/oct/12/tuition-fees-universities
Student Protests …
http://www.guardian.co.uk/education/2011/jan/17/police-contact-colleges-over-student-protests

And … so how are things working out for Europe …

http://www.google.ca/search?sourceid=ie7&q=ECB+Crisis&rls=com.microsoft:en-ca:IE-SearchBox&ie=UTF-8&oe=UTF-8&rlz=1I7ACEW_enCA400CA400&redir_esc=&ei=W6g9TbykMob4swO86dmkAw

Where does the money come from …

#91 AM on 01.24.11 at 12:53 pm

#61 Shane on 01.24.11 at 8:27 am
“Garth, I have about 9K in my RSP stock share program at work can i transfer that money out to my TSFA without that money being added to my income? or that money being taxed”

_______________________________

You say “RSP”…Suggest you confirm that your plan is “registered”. My wife’s work plan has both registered (tax deferred) or non-registered where you are buying shares with after tax dollars with a contribution from the employer. The non-registered can be withdrawn or re-allocated to your TFSA without paying taxes. If it is registered, then you will be taxed.

#92 freedom_2008 on 01.24.11 at 12:56 pm

#62 greyhairedoldgoat,

Bank normally does charge a fee (e.g. $25 with TD) on RRSP withdraws, But that 10% is the income tax bank send to government on your behalf, not to bank.

We started withdrawing RRSP as well after we stopped working. It is a very good deal as we pay 20% tax on them now (with lower income and withdraw 15K/yr each) verse 46% tax refund while we were working.

There are general rules wrt contributing/withdrawing RRSP/TFSA, but what is the best for a person/family should be looked case by case, what are good for your neighbour may not be good for you.

#93 Nibs on 01.24.11 at 1:23 pm

New Demographia survey indicates large Canadian cities have price/income ratios of 4.6……right where the US was when their bubble burst.

http://financialinsights.wordpress.com/2011/01/24/demographia-housing-affordability-survey-released/

#94 Fractional Reserve on 01.24.11 at 1:42 pm

Concerns that the Federal Reserve could suffer losses on its massive bond holdings may have driven the central bank to adopt a little-noticed accounting change with huge implications: it makes insolvency much less likely.
http://www.cnbc.com/id/41198789

#95 pjwlk on 01.24.11 at 2:08 pm

It’s been said that when you retire you will require 80% of your income (at that time) to maintain the same lifestyle. If that is true, it would seem that most people who have prepared themselves will in one way or another be close to the same tax bracket they were in before retiring.

So yeah RRSP’s seem a lot less attractive from that point of view. I just wish they would up the yearly TFSA contribution allowance to a more beneficial level.

#96 BigAl (Original) on 01.24.11 at 2:14 pm

#59 Utopia on 01.24.11 at 7:57 am
wrote
“…The Irish, despite their domestic spending problems have long since proved that very low corporate tax rates can attract billions of new investment dollars into an economy and have a revitalizing effect. That means jobs and lots of them.”
=======================================

I had to blink twice when reading this.
You appear not to even remotely be aware of Ireland’s situation, and how it got there.
You are the poster-child for blind, (in your case, conservative) ideology that would drag everyone to ruin.

#97 Live Within Your Means on 01.24.11 at 2:24 pm

#88 MikeT on 01.24.11 at 12:01 pm
after researching RE property on the French Riviera and seeing what 1M euros (1.35M CAD) can buy – in that weather and that place (Nice, Cannes, Mediterranean sea, French wines and cheeses, sunny, warm, great landscape, wonderful villages with local food, etc.), I will no longer lust a big house in Canada. Something that’ll shelter my family will do.
Next thing – find a job/business that allows you to work from a remote location, and guess where I’m headed?

…………..

I’d love to spend 6 mos. in France/6 mos in Cda but realistically that won’t happen. Also be aware that if one chooses to live full time in another country, AFAIK, that you’ll lose your CPP & OAS. I know that some people try to get around this, but it’s tax evasion. and there can be serious consequences.

The following site re property taxes in France is from 2009, so it might have changed. http://www.french-property.com/news/tax_france/rates_in_france_2009/

I’ve traveled fairly extensively in Europe & France (DH is from there). Just spent hours this am checking out flights and Renault Eurodrive, which IMO is the best if you’re travelling for a min. of 21 days. Will make reservations tomorrow.

#98 Utopia on 01.24.11 at 2:27 pm

@#64 Got A Watch wrote….

“Apparently the current sovereign debt crisis in Europe has escaped your notice. Newsflash – almost every country in Europe except Germany is in deep financial trouble. Because they have spent far in excess of tax revenues for decades, mostly on those “programs they are prepared to pay for”.
———————————————————–

Thanks for the news bulletin Got A Watch.

You might be surprised how closely I follow European issues though. My post was responding to a contention that there would not be tax hikes in Canada in the future.

I do not agree with that assessment. In fact I anticipate we will see considerable increases in taxation over the coming decades and much of it will be related to health care costs and pensions and reductions in revenues from other sources.

What Governments actually do with the the money they raise or do not raise is a different subject altogether and separate from the initiation of new programs to increase revenues to feed into program needs.

As far as corporate taxation is concerned I will admit that I fully favour reductions on that front. As you mentioned, corporate flight to low wage environments is the primary reason we are seeing jobs leave this continent. You are right about that. And as we are not in any position to reduce labour rates nor would any of us choose to accept incomes of a few dollars daily in order to compete then our options to stem the flow of jobs is limited.

There are two key areas that can be addressed by government on this front. First, reducing the level of taxation on corporations. Second; by streamlining and eliminating duplicate and onerous regulations. I would hazard to say that more can be accomplished by cutting red tape and reducing the costs to companies of processing and compliance than by tax relief alone.

Doing both would be beneficial and would provide an incentive to companies that do need to locate in Western markets in order to have full access. There is no reason at all that Canada cannot take a lead in this effort. I see regulatory reform as one of the single biggest opportunities that government has at it’s disposal to improving the business climate and attracting new investment.

I do understand your objection to corporations getting a break. As you pointed out, they should be paying their fair share.

The problem we face under globalization though is that we are having to compete directly on many fronts with low-wage and low-regulatory environments. Capital is driven away from countries that appear hostile to business and naturally taxes are a cost of business that will make a company non-competitiive versus its rivals if not addressed.

Governments need to decide where and how they will continue to raise the revenues they need to function and I believe this has been decided for well over a decade now. Consumption taxes and personal taxes are preferred to taxation on business.

Keep your companies happy and the economy will thrive and grow regardless of it being a high wage jurisdiction. In other words, the revenues are all available anyway provided you have a strong pro-business environment and I think that the Harper Government has got this right.

To sum up, Garth was absolutely correct that we will see higher personal taxation in the future. He does not even need a crystal ball to see it. Just a few charts and graphs, an understanding of the demographic shift, an aging population and knowledge that our country is in competition with low wage countries that now offer an educated population equal to or exceeding our own and an environment with no onerous regulations.

Just that simple.

#99 Northern Dirt on 01.24.11 at 2:31 pm

#78 avenirv

any western european country pays pensions to its retired citizens at around 65% of the prevailing salary. in Canada it is somewhere around 35%.
university (undergrad or graduate) education in western europe is practically free at any level.

……………………………………………………………………………

So then Europe is not a place id ever want to live.. ok gotcha..

#100 jackb on 01.24.11 at 2:35 pm

What about using your RRSP to buy a home? Since most of this money is deferred tax, and at the end you be hit hard at the highest tax bracket, you might as well pull out the $25,000 or $50,000 (including the spouse) to help with a downpayment? And for those who have their spouses at home, claim these withdrawals as income so you don’t have to pay it back! This a good strategy if you were able to receive some gains within your RRSP. Better to pay down your mortgage and have money on your TFSA than put all of your money into an RRSP.

#101 BigAl (Original) on 01.24.11 at 2:38 pm

#88 MikeT on 01.24.11 at 12:01 pmafter researching RE property on the French Riviera and seeing what 1M euros (1.35M CAD) can buy – in that weather and that place (Nice, Cannes, Mediterranean sea, French wines and cheeses, sunny, warm, great landscape, wonderful villages with local food, etc.), I will no longer lust a big house in Canada. Something that’ll shelter my family will do.
Next thing – find a job/business that allows you to work from a remote location, and guess where I’m headed?
======================================

Oh my God! You are 100% right about this. Check out this one I found in the French Riviera or Monaco area. 16 bedroom mansion for 1.5 Million Euro, with yearly taxes at only $3000 Euro??? This can’t be right, can it? Are we in Canada really that crazy?

http://www.azurproperties.com/rw/moredetails/pid=769/Fayence-to-Aups/Bagnols-en-Forêt-Villa-Home-real-estate.html

Compare that to this dump in rainy dreary Vancouver for $1.8 Mil Cdn and property tax at about $8K/year:

http://www.realtor.ca/propertyDetails.aspx?propertyId=9965895&PidKey=376924802

#102 BigAl (Original) on 01.24.11 at 2:41 pm

Oh, and add this to the description of the mansion in France for 1.5 Mil Euro:

“25 min to the beach, 2 main buildings + staff house. Very large pool including horse boxes on grounds of 7000 M² ( 75.0000 sf) ”

Compared to that dump in Vancouver for 1.8 Mil Cdn.

#103 Hoof - Hearted on 01.24.11 at 2:44 pm

#82 R

Personally, I’d like the bank to trot out one, just one person who actually met the projections for retirement they give you on their nice little brochures. I think RRSPs are a waste of time and money.

========

Yeah what happened to all those FREEDOM 55 ads ?.

Anecdotally, in a conversation with another party, they stated a family member selling FREEDOM 55 to others was actually the one who would end up retiring at 55.

#104 The Analyst on 01.24.11 at 2:46 pm

#74 avenirv

Starting Mar 1st we’re adding 12K per year into TFSA as we have not contibuted to date. It will take 6-7yrs to max out the contribution space at 12k/yr and by that time the 5K TFSA each will probably be increased to 6K each.

#105 jess on 01.24.11 at 2:52 pm

89 Throwstone :
“It was the worst of times and the best of times ”

Your story link seems closer and more real to touch than the recent out-of-touch real estate cbc story. I think Jsan said it best. Afterall, remember the speculation with Chinese ants?

Back in October
80% of the people wanted most incumbents out regardless of their political stripe!
REgarding this 60 minute broadcast back in October :
http://www.youtube.com/watch?v=CjpUeq8aCZo

Newton, Iowa: Anger in the Heartland – 60 Minutes – CBS News31 Oct 2010 … 60 Minutes on CBS News: Newton, Iowa: Anger in the Heartland – On the Eve of Midterm Elections, Scott Pelley Reports on a Town Hit Hard By

Maytag Corporation was a $4.7 billion home and commercial appliance company, headquartered in Newton, Iowa from 1893 to 2006, and now part of the Whirlpool Corporation.

Maytag 1938
…Maytag orchestrated an effort to brand their resistance to wage reductions in the face of massive profits as “un-American” and foisted upon them by Communist leadership. Labeling the CIO union movement itself as “foreign” and its supporters as “outsiders” to the community was essential to this strategy. Thus it reinvented the methodology of the American “countersubversive tradition” from the earlier NMTA-CIA era which suggested that all efforts to transform the social order or reduce employers’ power were the work of foreign ideas and alien forces. ”

“We only have our labor to offer to the Maytag Company at a fair price. Our wives, our homes, our children and the City of Newton depend upon our wages. We have no reserves–we cannot gamble with our wages against stock dividends. We stand firmly for the princip[le] that human rights take priority over property rights.” The union emphasized that they were “returning to work under the compulsion of military force.”

http://www3.niu.edu/~td0raf1/radicalunionism/maytag_1938.htm
=

On January 1, 2009, Maytag (under the ownership of the Whirlpool Corp.) changed the vested lifetime benefits of the Maytag retirees. There is a lawsuit pending in the Southern District Court of Iowa where Whirlpool has asked for permission to change the UAW bargained benefits. At this point in time, the benefits in question have already been changed without the judges consent.
At issue is whether whirlpool can change the lifetime benefits of the maytag retirees.
http://www.tradingmarkets.com/news/stock-alert/myg_whr_whirlpool-maytag-retirees-case-to-be-heard-monday-1347579.html

#106 Hoof - Hearted on 01.24.11 at 2:54 pm

Ireland

…how soon we forget history simply repeating itself…

http://en.wikipedia.org/wiki/DeLorean_Motor_Company

DeLorean also sought lucrative incentives from various government and economic organizations to pay for constructing the company’s automobile manufacturing facilities. To gain these, he looked to build his first factory in a country or area where unemployment was particularly high. One candidate was the Republic of Ireland, although the country’s then Minister for Industry and Commerce, Desmond O’Malley, decided not to support the project. A deal in Puerto Rico was about to be agreed when DeLorean took up a last-minute offer from the Northern Ireland’s Industrial Development Board. The British government was very keen to create jobs in Northern Ireland to reduce sectarian violence by reducing unemployment. As part of this offer, DeLorean was apparently under the impression that the British government would provide his company with Export Credit financing. This would provide a loan of 80% of the wholesale cost of the vehicles (US$20,000) upon completion and delivery for shipping.

=========

Classic business model is to find some hard up Gov’t, lobby, and presto…problems solved in the short term.

#107 jess on 01.24.11 at 2:57 pm

Building a Recruitment Vertical – Dot jobs

The sites – all ending in .jobs – are being operated by the nonprofit DirectEmployers Association, which recently won the approval of ICANN, the Internet Corporation for Assigned Names and Numbers to run the 40,000 new sites – which have simple names like http://losangeles.jobs/ and http://usa.jobs/nurse/. The overall project is being called Dot Jobs for short.

The outster
Detractors :newspapers, Monster.com, CareerBuilder.com and other for-profit job-listings sites that only a decade or so
The International Association of Employment Web Sites, says the new sites will be an “economic recovery killer”

Is now outted by:

Attractors : Google, IBM, American Express and Lockheed Martin. .

“Corporate recruiters say the average cost of filling a job on Monster and CareerBuilder is about $400, a pricey proposition for companies that are still hesitant to commit the time and money required to recruit and train new employees in a still-shaky economy. As a result, many jobs go unposted. On smaller, cheaper job sites many listings are for jobs that have already been filled.”…. They want greater efficiencies from the Internet and are taking matters into their own hands to invest in the outcome,” Warren said. “With the recent advances in cloud computing, the scalability of the .JOBS Universe is off the charts. The potential for cost savings is natural, real and sustainable as well as available free of charge to every employer worldwide regardless of industry or size. The promise of Dot Jobs is that employers will be able to afford to list all of their openings and job-seekers will know that the listings are valid.

http://www.consumeraffairs.com/news04/2011/01/new-jobs-sites-may-make-it-easier-to-find-a-job.html

#108 Lonely Limey on 01.24.11 at 3:01 pm

@ Avenirv #78

Are you for real?

Please give examples of the practically free tuition in Europe. You mentioned Oxford and Cambridge, did you not see the riots in London where the “students” almost destroyed the place because fees were to be raised from 3k to 9K per annum?

Take off those rose tinted specs.

#109 Counting My Pennies on 01.24.11 at 3:10 pm

For those reading who are low income Canadians (like myself), this is worth reading re: RRSP contributions:

http://www.straightgoods.com/Analyze/010219.shtml

#110 Hoof - Hearted on 01.24.11 at 3:12 pm

#28 Jsan

Re that house in Vancouver that went approx. 50% over list.

Two conflicting premises:

(i) I “ROTFLMAO” when I drive past certain gas stations that lower their prices by a penny or two certain times of day. The Pavlovian response of high end vehicles(Lexus, Mercedes, BMW’s) to sit in a 10 car plus line-up and maybe save a few bucks is quite amusing. When we had real gas wars, I saw 40 car line ups lasting at least 1/2 hour to save maybe 3-4 cents a litre.

The house sale was successful by , as has been suggested, by trolling with a lowball price as bait, then the emotion of losing a super deal kicks in, no -one wants to lose face, and up goes the bidding.

OR.
(ii)….this entire thing may have been staged, with all sorts of “out clauses” where the purchaser can bail,…the main objective was to give a false sense of hope/security to the masses that RE is fine.

Finally, does anyone know if this house was located on the South East corner ? I think I’ve been there before.

If it is the same house, it was once owned by an eccentric elderly lady who was a real hoarder, and whose spouse had attempted a reno that stopped decades ago.

#111 45north on 01.24.11 at 3:14 pm

Utopia: I would hazard to say that more can be accomplished by cutting red tape and reducing the costs to companies of processing and compliance than by tax relief alone.

well here’s your chance:
http://www.reduceredtape.gc.ca/index-eng.asp

quite frankly it looks like any other government office, people with vested interests in keeping their jobs, climbling the ladder

also it specifically says that it does not have the power to actually undo burdensome red tape, I guess it just makes recommendations

#112 Pat on 01.24.11 at 3:20 pm

#98 pjwlk wrote:

“… it would seem that most people who have prepared themselves will in one way or another be close to the same tax bracket they were in before retiring.”

What matters is _taxable_ income.

If, for example, half of your retirement income comes from TFSA, then you’ll likely fall in a lower tax bracket. A combination of TSFA and RRSP may be the best option.

My advice – run your options and assumptions through a spreadsheet to see what is the best plan for you. Don’t follow blindly the advice of other (especially opinionated!) people.

#113 avenirv on 01.24.11 at 3:22 pm

“We are now contributing $2,500/mth into RRSP and $1,000/mth into TFSA on ETFs. ”

sorry i thought you were contributing….but i see it is for the future….

#114 avenirv on 01.24.11 at 3:27 pm

BDG-YYC ,
from mercedeses, bmw’s, ferraries, lamborghinis, audis, etc.
so we must be smart and manufacture what has demand and high value addedd.

#115 prollywrong on 01.24.11 at 3:30 pm

i’m debating RRSP’s. married couple, single income earner at $100,000 sitting on another $100,000 grand in cash to put somewhere.

if we max out our rrsp contributions for four years with the available cash our tax savings are around 8400 per year. this we could put into out tfsa, which is currently empty.

the concern is that the single income earner’s good pension would negate the tax benefits when we begin withdrawing upon retirement. the pro, obviously, is more cash to invest in a tax-free vehicle immediately.

i’m on the fence because:
a) i’m not certain i want all that cash locked in, and
b) it’s tough to make future projections for a retirement that is still thirty years out.

any suggestions?

#116 jess on 01.24.11 at 3:39 pm

franchise scams
…who have cheated Canadians through fraudulent franchise system for many years.

…trails of victims going back years and Mr. Harper thinks a bill to stop shop lifters…gimme a break

Reza Solhi (a.k.a Anthony) and his Associates
http://video.google.com/videoplay?docid=-3245332252610367719#
http://www.anthonysfranchiseinformation.com/viewpetitions.html

#117 Bill Grable on 01.24.11 at 3:54 pm

Anecdotal – but the future of Vancouver?

Here on Maui – you would not believe the carnage in RE. Decided to see for ourselves. Went to a nice upper middle class area. Maui West – and checked out a listing that our agent had given us here. Cul-de-sac = wonderful…but as we drove up, every second home (really) had a for sale sign out.

The driveways of people from the mainland, or ‘away’, some littered by palm fronds and obviously not occupied, one right after another.

As we drove up the street in our over priced rental heap, we were just awestruck at these places – forelorn, sitting in the blazing sun. Empty.

The desperation at West Maui Realtors office was palpable. The agent just about started kissing us when we mentioned we might be thinking of buying here (*in about 10 years, at this rate) – he was so overjoyed.

These homes are on the market because someone from the mainland has been gunned, and they have to dump these places, or it is because the chronic lack of tourists and jobs are killing Maui. Short Sales, REO and foresclosures litter the entire Island.

Yes there are people here – but they seem to turn over every few days. Talked to a guy from Illinois at the BBQ last night and he said he couldn’t afford to come here, but put it all on plastic because he was sick of freezing his patoot off in Chicago. He is here for 4 days. That was his first “vacation” in two years, and he said “I know I can’t afford to come here, but I wanted to see it one last time”. “Our home is being foreclosed, and my wife, a teacher for 34 years was laid off last month – we’re done”. He looked like he was going to fall over. I mumbled some lame platitude,about better days ahead.

I was shaken, and really felt for this nice guy – as I grabbed our burgers and headed back to our RENTED condo, on the Beach.

I just have a gut feeling that we have a TON of people in Vancouver and other parts of Marijuana Province, that are in deep water, and with the recent headlines about cratering waterfront home prices in the Interior and Gulf Islands – there is much pain ahead.

This gives me no satisfaction – but as I sit here watching (at 9:24 am) my Illinois neighbor, on his last day, with a 1.75 gallon bottle of Rum on his table, mixing into the morning coffee – I bet that there are many stressed and scared people extant.

Watch out British Columbia.

Advice – READ this Blog – pay attention to what Mr. Turner keeps trying to drub into our wee pea brains and also take it from this blog dawgie….reef the mainsail, dump debt – set up that TFSA, forget RRSP’s and SELL all the RE you have NOW – or God forbid, you could be sitting here like my neighbor…watching his life slip away, drowning his morning in Rum.

*Booze is cheaper than Milk here. Crazy.

This has really affected me, and I am sorry to post a downer like this – but Maui used to be filled with laughing and happy people – now, while there are still people coming here – the angst and fear is palpable.

#118 Hoof - Hearted on 01.24.11 at 3:56 pm

The Hunt Brothers Corner Silver Market
Will the Internet Take Revenge on JPM?

http://www.energyandcapital.com/articles/the-hunt-brothers-corner-silver-market/1365

Forty years ago, the New York Metals Market and the Federal Reserve weren’t yet in the pockets of those it sought to regulate.

They changed the rules by placing sharp restrictions on the speculative purchases of silver contracts on margin, and silver prices began to slide. Then on Thursday, March 27, 1980, silver crashed — falling 50% in one day from $21.62 to $10.80.

In 2000’s: Regulators in bed with J.P. Morgan?

The street is humming with rumors that J.P. Morgan is in cahoots with the Treasury to short the silver market in an attempt to keep the U.S. dollar up.

According to the San Francisco Chronicle:

It is widely known that J.P. Morgan (NYSE: JPM) holds a giant short position in silver. Furthermore, some observers are accusing the bank of acting as an agent for the Federal Reserve in the market — every tick higher in the price of silver undermines confidence in the U.S. Dollar. A lower silver price helps keep the relative appeal of the U.S. dollar and other fiat currencies high.

#119 Hell in a Hand Basket on 01.24.11 at 4:14 pm

@ Utopia, The Truth, Big Lebowski, Nostrodamus Le Mad Vlad

Zeitgeist: Moving Forward is scheduled to be released on-line for free tomorrow. I watched it on Jan 15th at the Rio in Vancouver. I highly recommend it.

#120 Sam on 01.24.11 at 4:17 pm

Very good points about RRSPs being a bad idea for a lot of people, especially those early in their career that will probably move up to a higher tax bracket in a few years. There is a good calculator to compare RRSPs and TFSAs and to see which is better for you here

#121 Paolo on 01.24.11 at 4:52 pm

If you end up paying large tax when you withdraw from your RRSP at age 65 plus or roll over into a RRIF at 71, what is big deal? I mean a friend of mine once said he had no problem paying high taxes since it meant he was earning a hefty salary.

I agree, we all want to minimize our tax hit but what is our answer. Now that RRSPs and mutual funds are no longer desirable it’s TFSA and ETFs.

I’m 42 and been contributing to RRSPs since my early 20s. Always max out my contributions. Take the refund and make a following contribution. Now after doing this for 20 years, have I been foolish? The way things are going I’ll be working another 30 years easily.

One thing I do know. I rent my place but in a few short years I’ll enjoy a pick of resonably priced homes to choose from in the GTA. Like a ‘fire sale’, USA style.

#122 Abitibidoug on 01.24.11 at 5:03 pm

All I can say really is thanks Garth for the tip of how TFSA’s are better that RRSP’s, or will be when tax rates inevitably go up in years to come. My income varies a lot from year to year (not a big deal, I manage it fairly well) so I may redeem some RRSP’s during leaner years based on this advice.

#123 Soper Eats Babies on 01.24.11 at 5:22 pm

Welcome to Scotiabank.

We’re richer than you think.

#124 OnlyTheBankersLaugh on 01.24.11 at 6:17 pm

120 Bill Grable on 01.24.11 at 3:54 pm

I see nothing inexpensive about Maui. Luckily, I am taking my family of 6 on airline points but have to pay accomodation and any 2 bedroom is $3000/wk in Kaanapali. About to book accomodation for Mar 6-18th so if you have any great deals, please kick them over. The numbers I’m seeing don’t seem sound that bad for real estate rental property. I do believe that the other places to actually have a vacation property there off the beach are hurting as they are probably all owned by those hurt by equity losses in their actual homes. I can see it coming here in Canada but I’ve said that since 2005 before government manipulation started playing the US style loan games. Canadian government is going to the polls and this is the last kick at the can – they have done a good job at creating a sense of prudence while also creating urgency in the young ones. Should be good for pumping the election…

#125 Mister Obvious on 01.24.11 at 6:32 pm

#126 Soper Eats Babies

Funny!! I needed that.

#126 jess on 01.24.11 at 6:34 pm

120 Bill Grable

I remember when the last crash when the locals in lived in tents on the beach since they could no longer afford their own cities.
Wasn’t there a story about a rich asian with many empty mansions (and accused of being a slum owner by the others in this gated mansion community) so to counter his bad image he held a some sort of contest for the homeless (prize free rent in the empty mansion?)

#127 Gov't worker on 01.24.11 at 6:36 pm

nonplused “There is a fair amount of low hanging fruit in all the useless duplicate agencies and stuff like the gun registry, but to really get where we need to go public employees need to see their pay and benefits aligned with the public sector. And no, they don’t need to lay anyone off. Simple salary and benefit reductions will do the trick. But the unions won’t go for that, they will insist on layoffs, which is what they will get.”

As an IT person specifically a Network Admin, I dont see my pay above any IT individuals. 80k and yes our benefits are good. What we need to do is minimize contractors we can pay up to 1500 per day for a contractor. The stress of being in a job where 10000 connections rely on me and 2 other Senior staff I think warrants the 240k/ yr to get essential services to Canadians across the country. Maybe you are talking other positions, but I get tired of the BS stereoype that comes with being a gov’t worker. BTW being English only doesnt help me going up the Gov’t Corporate ladder either. Being raised out west some 40 years ago who would have thought….

#128 Mikey the Realtor on 01.24.11 at 6:41 pm

“If taxes are going to go higher and higher over the next 10-20 years, then why should we put money in an RSP now just so that it will be taxed under those higher rates when we convert to a RIFF? ”

I have been saying this for years to people around me, a 30y/o investing today into RRSP’s has no idea what taxes he will pay once he start to withdraw the money in 30-35 years. This is old news. On top of it all, making $40k a year and investing into an RRSP is another dead ender.

#129 Mister Obvious on 01.24.11 at 7:08 pm

I have a decent RRSP (and a LIRA) which I will not need to touch until the age of 71 (11 years away) at which time I MUST begin taking funds and incurring tax.

I am now retired and can easily live off non-registerd funds until that time. My taxable income is quite low thanks to dividends making up the majority of my income with some capital gains which are only 50% exposed to tax.

It has occrred to me that I would be wise to begin taking $5K per year from my RRSP and put it into my TFSA. I really don’t care if it is taxable. It will not make a significant increase at this point in time.

If I keep that up until the age of 71 I will have maximum contributions to my TFSA for each of the years 2009 to 2022. That’s 5K * 13 = 65K removed from tax exposure forever. If that can be grown even at an average of 5% per year I might get that up to $100K.

So, that’s what I’m doing. However, I remain unconvinced that F (or his successor) will not somehow put a stop to that kind of thing before too many years pass.

#130 Painted Toenails on 01.24.11 at 7:09 pm

#120 – Bill Grable

Thanks for the post, it hits home for me too. I guess when all is pretty much lost you just have to sit a bit, drink a bit, reflect a bit and then get on with it.

I was in Maui about 15 years ago. It was the very first ‘real holiday’ I had ever taken. I had my young son with me. Just peeking over my laptop screen I can see a framed picture of my son laughing and playing in the Maui surf. It’s my favourite picture of him. I can still smell the scented air.

Maui was a dream. I’m stunned to hear it has become another casualty of the economy in the States.

I’m listening and watching. None of my friends who listed late last year have sold their homes. Every one of them plan to list again in a few weeks.

Sobering.

#131 MC on 01.24.11 at 7:49 pm

Hi Garth- can you lay out in details your 60-40 investment strategy.

#132 ballingsford on 01.24.11 at 8:01 pm

I never did like RRSP’s as they are just a tax deferral until later years when you with you didn’t have to pay the tax when you withdraw or convert them.

TFSA’s are they way to go if you have a pension. You can suck the money out of them without paying a penny and it won’t affect your Old Age/Canada Pension payments. I forget which one is reduced once you hit the $68,000 income/year something mark.

#133 dradak1 on 01.24.11 at 8:06 pm

” …
Hello Garth: My Gen-X husband and I are having a “lively discussion” about whether to put any more money in RSPs. Maybe other blog dogs are wondering about this same question.

If taxes are going to go higher and higher over the next 10-20 years, then why should we put money in an RSP now just so that it will be taxed under those higher rates when we convert to a RIFF? Wouldn’t we be better off paying today’s taxes and investing outside the RSP?

…”

Exactly the same story on my side.

BTW – every pyramid schema (as RRSP->was and TFSA->becoming) is about “who jump on wagon first”. Inventing new “pyramids” is harder and harder and that is the end of the system that relay on that phenomena.

#134 wbhyoung on 01.24.11 at 8:11 pm

In case it matters to anyone, there seems to be some confusion on the board re: employee stock options (#16 non plused, #41 dark sad monster bunny, #65 moneta)

Stock option benefits are, and always have been, employment income and NOT capital gains. However, if certain conditions are met, employees will qualify for a deduction of 50% of the benefit. Most stock option plans today are designed to meet these conditions. While this results in the same effective tax rate as capital gains, the character of the income which results in several important differences. For example, capital losses can NOT be used to offset stock option benefits (only capital gains), a stock option benefit is subject to CPP premiums and creates RRSP room (capital gains do not).

The general rule is that the employment benefit is triggered at the time the options are exercised. However, for certain Canadian private corporations, the benefit can be deferred to when the actual shares from exercise of the options are sold. There also used to be a similar deferral for public company options, but this was removed in the last budget. The other thing nixed in the last budget was the 50% deduction when options are “cashed out” by the employer and the employer takes a deduction for the payment.

I also agree with nonplused that raising GST seems to me the most likely and logical route to raising tax revenues. I thought that cutting the GST was a terrible move becuase it cost billions in tax revenue but the average person really doesn’t save that much, it mostly benefitted the wealthy. Most GST burden is on big ticket items…vehicles, new houses, electronics, appliances, etc… i.e. things bought by the wealthier class anyways and these are the people who can and should shoulder more tax burden in the form of a consumption tax.

#135 doctore on 01.24.11 at 8:19 pm

Look at this panel on retirement from cbc last week. You know there is trouble when you have Nimrod economist CAW crooney Jim Stanford on board. Listen to when he says, what do you tell people that lost 50% in the stock market it is a casino bit!

http://www.cbc.ca/money/taxseason/story/2011/01/20/f-retirement-national-panel.html

#136 dradak1 on 01.24.11 at 8:20 pm

#10 The Analyst on 01.23.11 at 11:37 pm

Hi Analyst – tell me please where such thing can be achieved – my 8 years old like to retire and I will gladly be her housekeeper. :-)

#137 Nostradamus Le Mad Vlad on 01.24.11 at 8:33 pm


#122 Hell in a Hand Basket — Thanks for the heads up. Presently, I’m fence sitting, observing and absorbing what I need, rather than incessantly posting the same old drivel.

A few posts of Garth’s back (can’t recall which one), a link portrayed pix of the new US, with a lot of the mid-west being replaced by water (sea or fresh, I don’t know).

The New Madrid fault line is twenty times larger than the SAF; Body Bags are being sought out and stockpiling is happening.

2:13 clip 5K individuals were executed after Katrina. However, this WH and Pentagon will need human collateral and the m$m to distort the news from all these diversions to offset the US Default.

BTW, the explosion that killed at least 31 in Moscow airport this a.m. From wrh.com (no link) . . .

“interesting timing . . . President Medvedev was just in Palestine, without setting a foot into Israhell, and recognizing East Jerusalem as the capital of Palestine.

“Seems like those Mossad bastards just gave their “thanks” to Russia…

“Viva Palestina Libre!”
*
For those mathematically inclined, into numerology or just plain bored, this came over e-mail Sat. morning:

“This year we experience 1/1/11, 1/11/11, 11/1/11 and 11/11/11.

“But even stranger, take the last two digits of the year you were born and add the age you’ll be this year and they add up to 111.”

Beyond me.

Ciao!

#138 Hoof - Hearted on 01.24.11 at 8:38 pm

Hawaii ?

All you need is a tanning bed and watch latest version of Hawaii 5-0 in 3 – D

Save your cash !!!!

#139 45north on 01.24.11 at 8:42 pm

Bill Grable: talking about a man he met in Hawaii: “Our home is being foreclosed, and my wife, a teacher for 34 years was laid off last month – we’re done”

thanks for the post

Painted Toenails: None of my friends who listed late last year have sold their homes.

city?

#140 Utopia on 01.24.11 at 8:55 pm

#68 Moneta in response to Utopia #59 who wrote…

The Irish, despite their domestic spending problems have long since proved that very low corporate tax rates can attract billions of new investment dollars into an economy and have a revitalizing effect. That means jobs and lots of them—Utopia
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“I’m not so sure. I think we’re just about to find out if the Irish strategy was a flash in the pan”—Moneta

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Moneta, we need to separate the ideas of Irelands current circumstances that relate to easy credit and excess spending from policy initiatives that were actually productive and beneficial for the country. Ireland is not in a pickle for having granted corporations low taxes. Those policies that related to taxation in the 12.5% range were what was essentially behind the Irish growth story for more than two decades. What the country actually did with their good Irish luck is another story altogether. That story is still being told.

99 BigAl (Original) responding to Utopia #59 wrote….

“I had to blink twice when reading this. You appear not to even remotely be aware of Ireland’s situation, and how it got there. You are the poster-child for blind, (in your case, conservative) ideology that would drag everyone to ruin”.
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Hunh???? Keep blinking BigAl (Original) it might just wake you up. There seems to be a comprehension problem at work here. If you do even a little digging you will discover the historical facts surrounding Irish growth and learn why that economy was called the Celtic Tiger.

That small country in fact went from being one of the poorest in Europe per capita to one of the richest and they did so in absolute record time. The low tax environment and progressive policies employed in attracting investment into their country are widely credited with what many called an Irish Miracle. It represented a renaissance period of exceptional growth and that country was indeed the envy of Europe.

There was a great deal of resentment as well from some of the other members of the EU who felt that Irish tax rates were amounting to subsidies that they could not compete with. Nonetheless, the tax policy stands to this date and stands as a testament to that country in respect to creating a nurturing business environment. We could learn something from that example.

#141 Paul on 01.24.11 at 8:57 pm

#76 avenirv on 01.24.11 at 10:35 am
nonplused on 01.23.11 at 11:47 pm said
Sorry, public employ pay and benefits need to be aligned with the “private” sector.

little question: why not the other way around ? is that forbidden ?
please do not raise the unions issue. do not forget, mercedeses, bmw’s, audi’s, ferraries, lamborghinis, bentleys, rolls royces, etc are all manufactured by unionized workers.

That makes way to much sense for most people. Sad, so sad.

#142 big_cheese on 01.24.11 at 9:12 pm

RRSP ‘s are not for the poor, its for the rich to defer their taxes for the future.

If your in a high income bracket now and plan on being in a lower backet, in your retirement years, or in the future, then RRSP’s are good.

But if you a low income earner now, there probably reason for you to get them. If low income brackets go up in the future or you start making more money in the future pushing you into a different bracket, then your end up paying more.

There are other financial vehicle which will benefit you more. As discussed by Garth…..

Note if you go to a broker or some sort of advisor, note that he/she is in the business of making money for himself and not you. Just like most of the real estate agents. So do some research and learn for yourself and don’t get con by con artists

#143 dradak1 on 01.24.11 at 9:24 pm

#91 Scalgary on 01.24.11 at 12:30 pm

” Garth,

I am property virgin and I am not going to buy my first home until you say yes.

Me and my wife both are employed. I contributed $13000 to RRSP last year as per the advise of a financial advisor just to withdraw when I buy my house.

Is there any advantage in this?

Thanks in advance.

Only the refund. — Garth”

BUT – if you are feeling 25K for first time buyer plan – your 13K is not waste otherwise isn’t good. Sooner or later one of the measure (when cheep/free money ex-oust) will be increase that limit to 30K or so – but in the past that was last nail in coffin. Personally – who manage to save 13K per year – should be fine. I don’t know what is brain-er see what’s going south for a years.

What language is that? — Garth

#144 Devore on 01.24.11 at 9:27 pm

#144 Paul

That makes way to much sense for most people. Sad, so sad.

Whenever you propose some benefit or service be increased you also have to explain where the money will come from and who will pay for it. Keep in mind, the good old method of borrowing from the future will be increasingly less tenable.

#145 Utopia on 01.24.11 at 9:28 pm

#78 avenirv responding to Utopia wrote.

“Utopia, you must understand TWO things:

Any western european country pays pensions to its retired citizens at around 65% of the prevailing salary. In Canada it is somewhere around 35%. University (undergrad or graduate) education in western europe is practically free at any level. Even cambridge and oxford, sorbona or heildelberg. Do you see now the difference ?

so please inform yourself”.
————————————————————

Indeed I am informed. Thanks for the response. If you reread my post though you will see that I have not proposed higher taxes nor promoted the European model.

As well, I am aware of the differences in benefits and entitlements received by European nationals versus those we in Canada get. Education and pensions are notable differences.

In my commnets though I simply stated the obvious. The conclusion that I would have preferred you might come to is that Canada is still a relatively low tax jurisdiction compared to other Western nations.

There is therefore plenty of room for taxes to rise before we come close to mirroring tax rates of other major nations we compete with. This is not an endorsement of increasing taxation, only an acknowledgement that we could drift towards a similar situation in the future.

In any event, I appreciated your comments. You were not the only one who drew a conclusion from my words that was quite different than what I had intended. This tells me that I need to be more explicit in expressing myself and leaving less up to the imagination.

I will have to make more of an effort next time.

#146 Montrealer on 01.24.11 at 9:29 pm

as wes-Coast (#32) mentionned, the 2011 international housing affordability survey is out.
http://www.demographia.com/dhi.pdf

very, very interesting.

And for us Motnrealers, we can finally shut people that say Montreal is affordable compared to Toronto… as Montreal (5.2x) is LESS affordable than Toronto (5.1x), and less afforable than anywhere else in Canada except in BC!

5.2 times gross median income… and we have more income taxes) than every single province in Canada.. and amongst the highest sales tax.

Thanks demographia for the data!

#147 dradak1 on 01.24.11 at 9:34 pm

#112 Counting My Pennies on 01.24.11 at 3:10 pm

I prefer to hear people as Mr. Page instead.
BTW – who shut him up?

GARTH – can we get the GUY?

#148 Utopia on 01.24.11 at 9:48 pm

#125 Abitibidoug wrote….

“All I can say really is thanks Garth for the tips on how TFSA’s are better that RRSP’s”
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I feel exactly the same way. I had actually been avoiding TFSA’s altogether and just assuming they were only a government sponsored means to prop up bank reserves in the form of low interest savings accounts. If not for this site I probably would have still been in the dark about them. In fact though TFSA’s represent a terrific opportunity to shelter some income growth.

And who can argue with that.

#149 Another Albertan on 01.24.11 at 9:52 pm

Painted Toenails:

Hawaii has been clobbered for 2 years now. I have friends who winter on Kona. Their condo complex is, shall we say, rather “well-located and well-appointed”. These people are multi-multi-millionaires.

They have joked, tongue-in-cheek, about the number of units in the area that have been foreclosed upon in the last 24 months. The real estate market, especially for discretionary housing, is destroyed and won’t return for YEARS.

“We now know which of our ‘neighbours’ are/were just ‘mere’ millionaires. Interestingly, it turns out that it’s basically the people who bought in the last 7 years, used hyper-leverage, and yapped a lot.”

They go on to talk about how a lot of former owners lost principal residences back on the continental US, had businesses fail in spectacular manners, and whose lives generally went to $h!t after the markets dislocated in 2008. The age range of the former owners was about 55 to 65. That should give an indication of the level of precarity that was sometimes in play throughout the US boom years.

Everyone else’s mileage may vary.

#150 Timing is Everything on 01.24.11 at 9:55 pm

“…RRSPs are a form of gambling….” – Garth

All investing is a ‘form of gambling’. Just like TFSA’s.
The rules can be changed at anytime, never mind what you actually ‘invest’ inside it. The Beast gest hungry from time to time. Yummy, I’m hungry for some ‘tax avoidance’.
There are many ways to avoid tax.

#151 Herb on 01.24.11 at 9:58 pm

#143 Utopia,

isn’t it amazing what support programs and payments from others will do for a poor little country? Their “Irish luck” was mainly being the poorest country in a Europe pushing for unity, hence being entitled to what we would recognize as “equalization” from the rest of the European Union when that still was a smaller, wealthier club flouting the advantages of membership.

Perhaps we should wait until we have other nations lined up to help us out before we try an Irish tax environment and policies.

#152 Utopia on 01.24.11 at 10:07 pm

#120 Bill Grable

Wow! That was quite a post Bill. Gave me the shivers.

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

@#114 45north

“I would hazard to say that more can be accomplished by cutting red tape and reducing the costs to companies of processing and compliance than by tax relief alone” —Utopia

“Well here’s your chance” —45north
http://www.reduceredtape.gc.ca/index-eng.asp
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OK 45North, you are totally freaking my out!!! That is amazing. I will admit I did not know that such a program was in the works or had been announced. Mindblowing really. Great news. You know, the Conservatives won my vote back when they sided with Brad Wall in rejecting the sale of Potash Corp to BHP Billiton but this really seals the deal for me.

Of course I am from the bastion of conservatism out here in Saskatchewan and according to one other poster here today I am, in his own words….”the poster-child for the blind…conservative ideology that would drag everyone to ruin”.

And proud of it too!!

#153 Carpe Diem on 01.24.11 at 10:50 pm

G-Man, thanks for enlightening me on the TFSA vs. RRSP – but I gotta poke a few holes in your theory.

First, with massive boomers retiring – there voices will be heard loud and clear by any ruling political party that changes must be made to those retired and living off their RRSP … think about it – 80 year old eating cat food cause taxes ate a large percentage of her retirement …pleaseeee .. there will surely be changes and it will directly benefit those with RRSP. Maybe rrsp withdrawls will be set up on a sliding scale format – income from other sources will be calculated at normal rates – but rrsp will have less of a burden – our government will have nothing for those retiring in 2035 and there will be blood split in Ottawa if they don’t find a way to keep the masses content –

Someone noted that you still need a income of 80% of what you make now after you retire – based on who’s stats, the banks?? – The whole idea is have your house paid for by retirement (or many years earlier) – your not travelling as much, eating lighter, just enjoying the day, less expenses across the board – simple lifestyle – 35 / 40% should be fine.

TFSA – I wish to believe that it will be around for years to come – but in your own words G-Man, the gov’t gotta come up with some type of revenue to attack this massive deficit – guess where thats coming from – yep, they’ll change the rules on the tfsa – (think of Income Trusts -)

Just my humble opinion – cheers to all the dog blogs!

Keep up the awesome work G-Man

#154 Utopia on 01.24.11 at 11:36 pm

#154 Herb responding to Utopia wrote…

“Perhaps we should wait until we have other nations lined up to help us out before we try an Irish tax environment and policies”.
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Being hostile to business won’t pay for your retirement Herb. Like a few others tonight who have serious comprehension problems it is obvious you did not really read my posts before offering criticism that does not even make sense.

#155 freedom_2008 on 01.24.11 at 11:52 pm

#132 Mister Obvious,

We are doing the same (except we are 10 years younger so have more time to pull more RRSP out). One more thing you need to know, after 65, you can change some RRSP into RRIF and withdraw from there. This way, you have $2000/yr pension income free of tax as well.

#156 Dark Sad Monster Bunny on 01.24.11 at 11:58 pm

137 wbhy – thanks for the info. Good thing I have an accountant. Well, not really, as I dont have any stock options! (self employed)

136 Dradak. RRSPs a pyramid scheme? Makes no sense to me.

#157 AGIC on 01.25.11 at 12:26 am

#140 Nostradamus Le Mad Vlad
BTW, the explosion that killed at least 31 in Moscow airport this a.m.
“interesting timing . . . President Medvedev was just in Palestine… Seems like those Mossad bastards just gave their “thanks” to Russia…”
******************
Mad Vlad, are you kidding? Russia has their own Palestine (Chechinya) in their backyard, to whom they are not in a hurry to give an independence. There is enough desperate people prepared to be greeted by 72 virgins at the Haven’s Gates.

#158 Patz on 01.25.11 at 12:35 am

Hey BigAl, we spent a summer not far from that mansion you linked in a B & B that was very similar looking. We had a great time and if I had the money I’d buy it and do the same–a B & B that is!

#159 Herb on 01.25.11 at 1:08 am

#157 Utopia,

sorry I was being too subtle. Let me outline the picture in crayons –

You implied that the “Irish miracle” was due to low business taxation and business-friendly policies. You did not consider the infusion of cash and programs from the European Union.

Ireland did not lift itself by its own bootstraps. Do find out what European programs and funds were involved before using Ireland as a paradigm.

#160 Dark Sad Monster Bunny on 01.25.11 at 1:32 am

132 Mr Obvious – you will have to take more than $5K from your RRSP to put $5K into your TFSA. Even if you have most of your income from dividends, your income is “grossed up” and you are given a tax credit for your
dividends. As your RRSP withdrawal is income, it will be taxed at your full marginal rate. Nice problem to have though.

#161 S.B. on 01.25.11 at 10:03 am

A follow up to a late post yesterday. Timing of Russian bombing which was instantly “solved” with no evidence or investigation (as they usually are these days). Someone is angling for a certain outcome, one bomb at a time.
It was a warning, I am sure.

“Medvedev reaffirms Soviet recognition of Palestine
Ynetnews – Elior Levy – ‎Jan 18, 2011‎

Russian President Dmitry Medvedev said on Tuesday Moscow had recognized an independent Palestinian state in 1988 and was not changing that position adopted …

http://www.ynetnews.com/articles/0,7340,L-4015504,00.html

#162 Utopia on 01.25.11 at 12:24 pm

#162 Herb wrote ….

“sorry I was being too subtle. Let me outline the picture in crayons –

You implied that the “Irish miracle” was due to low business taxation and business-friendly policies. You did not consider the infusion of cash and programs from the European Union.

Ireland did not lift itself by its own bootstraps. Do find out what European programs and funds were involved before using Ireland as a paradigm”.
———————————————————-

Thank you very much Herb, The crayons helped me see that you still don’t make sense. You see there never was a discussion of transfer payments from the EU in my commentary. It was not necessary to go into that subject. My point related to Ireland creating a business friendly environment through tax relief and other administrative policies.

They did. That is a fact.

It is not relevant to the discussion that there were EU transfer payments because that was not the topic.

Transfer payments did indeed exist and I will grant you that. There is no argument there. But transfer payments were not behind the decisions of business leaders when making investments in Ireland.

Do you actually think they said to themselves “oh look, Ireland is getting transfer payments…let us all set up big expensive factories there”? Of course not. If that were the case don’t you think that Quebec and the Maritimes would also be attracting new investments and business by the thousands? By your logic perhaps.

Here’s the skinny buddy. The guys who crunch the numbers looked at the bottom line and saw there was a country with a highly educated population, where taxation was low, where free land and comparitively low wage rates were available and a country that was able to directly access a major economic union (the EU).

It was dollars and cents on the bottom line that drew companies there. In our own country we managed to attract investments in auto manufacturing out of Japan in the past for many of the same reasons.

http://en.wikipedia.org/wiki/Celtic_Tiger

So unless you are actually trying to refute my assertion that low corporate taxes were beneficial to Irelands rise and success (a very simple to understand idea) I suggest you stick to using crayons for their intended purpose.

You must be NDP buddy.