Treats

TREATS modified

Thanks in no small part to the swollen river of cash that gushes into this blog monthly, I have the mother of all tax remittances to make, come two weeks Wednesday. Some days I wish I were just an NBA star. Or Leonardo DiCaprio. Or Justin Beaver. Then I could merely TurboTax.

For a lot of people, April’s when you wish you’d been on the ball in February, making a honking big RRSP contribution and thereby avoiding a tax bill. As you know, up to $23,800 a year can go into one of these (or 18% of your earned income), with that amount deductible from taxable income. Better still, every dollar you ever missed contributing can be squirreled, then used to offset taxes in a fat year. You end up paying less tax – from a third to a half of what you set aside.

But RRSPs are out of favour. Makes sense. All the money put in there eventually becomes taxable. Unlike the cheap rates you get with capital gains or dividends, here the money’s taxed as heavily as income. Lots of people have decided the odds of taxes being higher in the future offset current benefits.

But what if you could take money out of an RRSP twenty years from now and be tax-neutral – in other words, not lose a third of it to the voracious burghers in Ottawa? Could be a game-changer.

Well, there are ways. A complicated one: when you hit retirement, borrow a mess of money and put it into an investment portfolio. Then withdraw RRSP to cover the interest-only payments on the line of credit that financed the account. All of the RRSP withdrawal is taxable, of course, but all of your interest is tax-deductible. So, if you orchestrate things right, you get to slowly collapse the retirement plan and transfer the money to the non-registered portfolio.

But here’s an easier one. Use your TFSA to offset the tax you’ll face down the road when you blow up your RRSP. As you know, they both do the same thing – grow money in a taxless environment so it multiples faster. But while an RRSP contribution nets a substantial tax reduction, putting money into the TFSA does not. Conversely, withdrawing funds from the tax-free account is (of course) tax free.

Here’s an example. Let’s say you make $95,000 a year working in the Spell Check Department of this blog. Your average tax rate on your entire income is 25.3%, and you end up taking home $70,500.  If you make a $10,000 RRSP contribution (of the maximum $17,200 allowed), you’ll get a tax break of $2,570 and a refund cheque in that amount.

Over twenty years of doing this (ten grand into the RRSP), and earning an average of 7% within the retirement plan (what a balanced portfolio did over the last decade, which included the ‘08 crash), then in two decades you have $448,600. Taxable.

Given a tax rate of 30% (assuming a few increases along the way), that means you actually have $314,000 to spend on babes and knee replacements, while losing $125,000 to the feds.

Now if you were smart enough to put the annual $2,570 tax refund into your TFSA for twenty years and invest it for the same return, the problem might be largely solved. In two decades that little sucker would bloat to $115,300, and all of it would be available to you without any deductions. In other words, almost enough to entirely offset the tax payable on the RRSP.

As you anarchistic, government-loathing iconoclasts will note, this is a simple and effective way to use a shelter to permanently reduce your taxes and mitigate the tax-deferral on retirement funds. You use money the feds give you to fund an investment vehicle that eliminates the taxes Ottawa let you postpone. You didn’t even have to earn it.

Revenge is so underrated.

147 comments ↓

#1 Steve on 04.13.14 at 2:48 pm

I like the sarcastic dig at those who think this blog obviously nets you millions of dollars each year.

#2 Sunday Jacket on 04.13.14 at 3:14 pm

Garth, did you post early today so now you can enjoy the action on Masters Sunday?

#3 LJ on 04.13.14 at 3:20 pm

Pay it now, or pay it later. Your choice, you still have to pay it.

The problem is that everybody I know stuffs their RRSP’s to get their refund and immediately, then they book a flight to Vegas. They are effectively supporting current consumption with deferred taxation. Not a penny goes towards paying off debts or investing prudently.

We live in a world of financial illiterates and this blog is one of the only lights left.

#4 Human Capital on 04.13.14 at 3:26 pm

Here’s another crazy scheme that occurred to me:

In your RRSP, invest in 30 year strips for maximum interest rate sensitivity; when rates rise, swap the strips into your TFSA and pay a much lower tax bill.

Of course, this requires the intestinal fortitude to watch the PV of your RRSP collapse by half or more.

#5 lebowski on 04.13.14 at 3:43 pm

first!

#6 Linda Mulligan on 04.13.14 at 3:53 pm

How about moving money between the two vehicles? Say your income has dropped due to retiring, losing your job or taking a leave of absence from work for whatever reason. Most people would normally drain their savings accounts including any TFSA they might have. But if you took money out of your RRSP in chunks of $5,000 or less (to pay the minimum tax at withdrawal) & especially if you had contribution room in your TFSA, then take an extra withdrawal or two from your RRSP during your low income period & max out your TFSA contributions. Depending on how much you have in your RRSP & how long you are living on a lower income you could over the course of time move quite a bit of money out of your RRSP & into your TFSA & of course, you’d invest the money in your TFSA to generate lots more income than any ‘high interest’ savings account pays today. If you did resume employment or earning a higher income again, then presumably those RRSP withdrawals could be replaced with RRSP contributions to reduce your tax hit yet again. So you get to pass go & collect your $200, no?

#7 Spellchecker on 04.13.14 at 4:03 pm

Since it was you who mentionned the Spell Check Department, I found three small mistakes for him to fix:

#1: Better still, every dollar you EVERY missed contributing can be squirreled, then used to offset taxes in a fat year.

#2 and #3: As you know, they BOOTH do the same thing – grow money in a taxless environment so it MULTIPLES faster.

Or you could just fire him/her and hire ME instead for a measly 90,000$ and put the 5,000$ you’ll save in your TFSA!

#8 Spell Checker on 04.13.14 at 4:04 pm

“Let’s say you make $95,000 a year working in the Spell Check Department of this blog.”

I’d say in that case you should be replaced by me because I would have caught booth when it should have been both. When do I start?

#9 Porsche on 04.13.14 at 4:10 pm

The S&P is down 4% for the year. The Nasdaq hit 4,000 for the first time in over 2 months and made its lowest close in 4 months, marking the exchange’s worst week since June 2012.

From computer programs to mass currency manipulation, the world is mired in events beyond our prediction. The world is screaming deflation, yet the trillions of Federal Reserve notes released from an unaudited private bank account are flooding the economy in an attempt to create inflation.

This battle between real economics and artificial demand has resulted in a market held up by a very thin thread.

The World’s Third Largest Economy

All eyes are on Ukraine, yet the problems in the world’s third largest economy, Japan, continues to grow.

Japan is a nation with a stagnating economy, a deficit over 9% of GDP, and an expected public debt this year of 242 percent of GDP.

Over the next 20 years, Japan’s work force is expected to fall from 70% to 55%, while those over 65 already represent more than 20% of its population.

Sales of adult diapers already exceed those made for babies.

Japan will have a record budget this year. As a result, it raised taxes last year for consumption and for corporations, alongside record monetary stimulus.

Despite raising taxes, new bond issuance will cover 43 percent of the state’s revenue.

But that’s just the tipping point.

Outstanding government bonds are forecast to total ¥780 trillion at the end of March 2015 – that’s equal to more than 15 years‘ worth of this year’s expected (and increased) fiscal tax revenue.

It’s no surprise that regardless of slightly improved economic pace (as estimated by its Central Bank) and corporate earnings, the Nikkei tumbled to six-month lows on Friday while posting its biggest weekly fall since the March 2011 tsunami and nuclear disaster.

Within the broader Topix index, Japanese bank stocks have just hit a bear market (down over 20% from their highs) at 10-months.

As Japanese stocks continue to fall, so will its economic growth.

Japan’s central bank has promised 2% inflation within the next year and it hasn’t come close to that.

The record amount of stimulus combined with low interest rates clearly hasn’t been able to bring Japan any closer to growth.

#10 shredder007 on 04.13.14 at 4:32 pm

Withdrawing $$ from RRSP
Yes if you only take out $5K, 10% get’s with-held and sent directly to Ottawa
Does not matter how many withdrawls
However that fiscal year, you will be taxed on the total amount withdrawn on top of personal tax rate on other income…can add up.
Misplace a tax slip and don’t declare it…..can jump into 50% range real quick with penalties etc.
so if you are splitting up with the Ex and think you will get all your mail…double check around tax time

#11 World According To Garth on 04.13.14 at 4:49 pm

Rural America is fed up with government tyranny, confiscation and theft

People who watch a lot of CNN are wholly out of touch with the level of pent-up frustration and outrage that exists across much of America right now. People are losing their jobs, losing their health insurance, losing their homes and losing their freedoms. The disastrous policies of U.S. lawmakers have thrust tens of millions of Americans into situations where they literally have nothing left to lose. Believe it or not, a great many people have reached the point where they are willing to die in the protection of principle and what they see as “the heart and soul of America.”

Government tyrants never understand this because they do not understand principles. They operate primarily on power, domination and threats of violence. That’s why the BLM brought snipers, helicopters and 200 armed agents to a tortoise dispute.

#12 shawn on 04.13.14 at 4:59 pm

The so-called tax on RRSP withdrawals is just the repayment of the initial tax refund at an interest rate precisely equal to the return on the RRSP.

No tax on the growth of the contributors share of the RRSP (after deducting refunds). No tax on all those years of growth.

This is true if tax rate at RRSP deposit time equals tax rate on withdrawal. Income Tax rates have declined lots in last 15 years, actually.

Zero tax rate on my share of the contributions and people think I am losing the favorable tax treatment of prefs and capital gains. I am not. (Zero is actually less than 15% to 20% ya know)

RRSP can however lead to some tax on my share of the contributions if clawbacks, higher tax rate or social benefits enter the picture.

RRSPs rock! so do TFSAs and RESP.

So do lower tax rates on preferred shares, lower tax on capital gains and no tax on unrealized capital gains.

SO many tax breaks for the rich!

#13 World According To Garth on 04.13.14 at 5:04 pm

Garth you did not post the link

http://www.naturalnews.com/044698_American_Revolution_Bundy_Ranch_Battle_of_Bunkerville.html

I hope you folks watch the video these patriots made even though the govt is now busy branding them all as terrorists. This is only the beginning and will really start to escalate after 2015.75

Assuming no shots get fired, the US economy will probably take off as people get confidant again once tyranny is run out of all the higher offices and justice (unlike the Just Us banks of NY) returns.

This topic is dead. Nobody here cares. — Garth

#14 omg on 04.13.14 at 5:11 pm

How much do you pay the poor guy that has to read all the comments before they get published?

The job should be rotated ever couple weeks as I think a person’s view of humanity could be irreparably damaged reading everything in the comments section.

I’ve recently notice an increase in drool. — Garth

#15 Retired WI Boomer on 04.13.14 at 5:19 pm

#11 World According to Garth

I wonder where you get your sources? internet BS or a dive bar in Canuckistan?

Where me be there are people in church praying for their loved ones, others loved ions, the government, and a lot more.

In the town bar (we have merely one) people bitch about sports, their ex, their taxes, the have a few adult beverages then go on their way.

Nowhere do I mass discontent, people starving, people making up a conspiracy against their government, or even the neighbor they don’t much like.

I was not too impressed by the ‘tortoise’ dispute.

Here in my lil world of 506 we fear no black helicopters, only annoying unsolicited phone calls seeking a donation to a dodgy charity.

Go back on your medication before you do something stupid as happened today in Overland Park, Kansas.

#16 Brian Romanchuk on 04.13.14 at 5:22 pm

(Responding to Human Capital at #4)

If you think interest rates are going to rise, 30-year strips are not exactly what you want to buy. What you are doing appears to be a liability hedging exercise.

But you won’t be able to “swap them” into your TFSA. All you can do is sell them in your RRSP, and buy back similar bonds in your TFSA. A transfer would probably generate tax consequences.

#17 zee on 04.13.14 at 5:29 pm

hi Garth

How are hard is it to get a investment loan to match your rrsp so you can do your complicated option.

LOCs are common. — Garth

#18 hohoho on 04.13.14 at 5:55 pm

> … The record amount of stimulus combined with low interest rates clearly hasn’t been able to bring Japan any closer to growth …

the tide of aging population pyramid is irresistible, soon they will have to implement the obvious solution … immigration.

#19 Pollster on 04.13.14 at 5:57 pm

Question of the day: There is a Stock Bubble and then there is Property Bubble – Which one will Burst First ?

#20 PJ on 04.13.14 at 6:02 pm

I respect a government who is competent, honest and responsible.

Let me know if you know one.

PJ

#21 World According To Garth on 04.13.14 at 6:11 pm

#15 Retired WI Boomer on 04.13.14 at 5:19 pm
#11 World According
to Garth

I wonder where you get your sources? internet BS or a dive bar in Canuckistan?
—————————————————————

They won’t be able to make back hoes big enough for the crow you and Garth (nobody cares) are going to eventually be eating. Yup. Generally speaking on 3 to 5% of any population ever gets involved in a revolution. The rest are either compliant, lazy, scared or all of the above. And you guys are proving it here. Enough said.

#22 WhiteKat on 04.13.14 at 6:14 pm

@WorldAccordingToGarth, #11 Your comment is a bit off topic, but so are many of mine. As a Canadian FATCA victim, I am starting to understand the ‘nothing left to lose’ mindset. Strangely, it is almost almost a freeing place to be – where your purpose and meaning from life becomes far removed from the material and you start to care less about your own experience which is just a blip in time, and instead become more concerned, and consequently sad, for the future of humanity.

The good news is that the Canadian pro-rights and freedoms group over at isaacbrocksociety, has announced today that it will commence litigation challenging the FATCA IGA implementation legislation that our government is trying to ram through parliament on the omnibus budget bill!

Go Canadian citizens Go! Expect the fallout to ensure the demise of the Harper government.

#23 WhiteKat on 04.13.14 at 6:16 pm

@Pollster, re: #19

Stocks, once the FATCA effect is in full force.

#24 Human Capital on 04.13.14 at 6:31 pm

#16

The idea *is* to generate the tax consequences by de-registering the strips in-kind after a rate spike has caused their PV to collapse. The tax bill is then much smaller than the refund on the larger initial contribution. The FV of the strips is still the same as it ever was, so if you can hang on long enough (and that’s the big if), you end up actually permanently escaping substantial tax liability, instead of just shifting it around.

There is almost nothing left to add to the discussion of rising rates and the risk to bonds. But, little or nothing has been said about the possible opportunities. This is just an idea I brainstormed about how to take advantage of this generational low point in the interest rate cycle. (I’m not implementing it myself. Not as convinced as Garth that rates *are* ever actually going up.)

#25 Aggregator on 04.13.14 at 7:00 pm

Food Price Shock, 2014 Edition

The U.S. Department of Agriculture had projected a 2.5 percent to 3.5 percent rise in the price of fresh fruits and vegetables this year. That estimate, however, was made before the full extent of the damage from the winter weather and California's drought could be assessed.

By the looks of Canada's Farm Product Price Index, farmers haven't even started hiking prices yet. (Note: the index measures prices farmers receive for commodities they sell.)

Rising gas and food prices have historically been a frequent blow that knocks the wind out of the economy into a recession, and not so much because of the added costs consumers pay, rather rising expectations for higher prices, putting demand for less important items off consumer's shopping list.

The main commodity to watch is corn, and here's why: List 1 List 2

#26 Scully on 04.13.14 at 7:04 pm

Garth, there is a lunar eclipse this week. Seems to be having an entertaining effect on some of the comments on this blog…
#21′ World according to Garth…lazy, compliant and scared – sounds like the cover letter on my résumé. ;-)

#27 Brutus on 04.13.14 at 7:05 pm

While far too many have turned their gaze away, the world changing situation in Ukraine has only gotten much, much worse.

Like lobsters in a pot ignoring the water slowly getting warmer, few have noticed how deadly this all is.

http://www.cbc.ca/news/world/ukraine-crisis-un-security-council-to-hold-emergency-session-on-ukraine-1.2608521

This meeting starts in under 60 minutes. Russia will use lack of western support as justification for military escalation. The government of Ukraine has drawn its line and refuses to back down. The west will be drawn in by the existential crisis of its own credibility.

Stock markets have already been tumbling for a variety of reasons. Get ready for much more within a week.

You will have forgotten about MH370, Flaherty and all those other stories by the end of the week.

Black swan coming. Now. Fast. Everything changes very soon.

#28 Old Man on 04.13.14 at 7:09 pm

FATCA? Ever go to a county fair and get scammed out of that teddy bear for the sweetie because you couldn’t knock down the bowling pins? The fix was in, but they call it a fair, as in honest which is doublespeak for the con. Caesar is taking baby steps to con you with a fix called Bill C-23 which needs to be reformed and what does he call it? THE FAIR ELECTIONS ACT which manipulates the end result in his favour; not yours!

#29 Mike T. on 04.13.14 at 7:12 pm

#21 World According To Garth

I followed the Alex Jones/Gerald Celente crowd for about a week – Gold, Guns, Getaway plan….

I suggest you learn about the Law of Attraction and it’s implications – you are the sole author of your existence.

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

#30 Banjopete on 04.13.14 at 7:14 pm

I’m with Linda Mulligan, why not save enough so that when the option presents itself you stop working. For a young person today it seems as though if you could support yourself on dividend income from your TFSA down the road, couldn’t you then start to draw down your RRSP while you’re effectively in a low tax bracket ahead of age 71 as much as possible? Tax sheltered growth and income from your TFSA and then a low(er) tax hit on your rrsp withdrawal. If only I were 18 years old again…

#31 Infused with Opiates on 04.13.14 at 7:19 pm

DELETED

#32 Daisy Mae on 04.13.14 at 7:23 pm

“Let’s say you make $95,000 a year working in the Spell Check Department of this blog.”

**************
(groan…) You’re a real funny guy! LOL

#33 KommyKim on 04.13.14 at 7:32 pm

RE: #8 Spell Checker on 04.13.14 at 4:04 pm
“Let’s say you make $95,000 a year working in the Spell Check Department of this blog.”
I’d say in that case you should be replaced by me because I would have caught booth when it should have been both. When do I start

Sorry that job is for the grammar checker position. Please resubmit your resume and quote competition number 31415926 to ensure that the correct department receives your application.

#34 Infused with Opiates on 04.13.14 at 7:32 pm

“If you make a $10,000 RRSP contribution (of the
maximum $17,200 allowed), you’ll get a tax break of
$2,570 and a refund cheque in that amount” – Garth

Shouldnt that be $4300 (in Ont) which is the marginal tax rate?

And why wait for a refund? have the tax at source lowered to reflect the RRSP contribution and invest the
diff in the TfSA right away.

You have to earn over $140,000 to be in the 46% bracket, with a 31.5% average rate. — Garth

#35 Infused with Opiates on 04.13.14 at 7:33 pm

Deleted? You said it. Not me. Fire the spell checker!!

#36 World According To Garth on 04.13.14 at 7:37 pm

#23 WhiteKat on 04.13.14 at 6:16 pm
@Pollster, re: #19

Stocks, once the FATCA effect is in full force.
———————————————————–

Not off topic at all. That’s my point. Everything is connected. Stocks, Real Estate, Investment…….

The Bundy Ranch thing was about greedy corrupt govt driving cattle out (so GMO cows can take their place) so that the greedy corrupt govt’s friends can build fracking wells and so the Chinese can come in and build solar plants. It had NOTHING to do with tortoises or fines.

And that is how its all connected. Are companies doing well? Sure but at what expense? They are stealing, taking, manipulating everything to squeeze and squeeze that last dollar for themselves and their elite friends. Unfortunately the squeezing is just about over.

And we are ALL connected. That’s why these posts are relevant. You can’t say “have a diversified portfolio” but then “not give a crap” about where that money comes from and HOW it’s made. Unless of course you have no ethics or soul maybe?

#37 Daisy Mae on 04.13.14 at 7:38 pm

#3 LJ: “We live in a world of financial illiterates and this blog is one of the only lights left.”

***********

You’ve got THAT right. We’re so pathetic…

#38 hohoho on 04.13.14 at 7:41 pm

> … after a rate spike has caused their PV to collapse. The tax bill is then much smaller than the refund on the larger initial contribution …

why not just buy them after the pv collapse???
or you can donate to charity … get the tax credit now and there is no future tax bill involved, ever!!

#39 Brian Romanchuk on 04.13.14 at 7:44 pm

#24
Losing money in your RRSP will reduce your tax bill. I can think of a lot of easier ways of losing money.

I agree that it is better to have a higher return within your TFSA than your RRSP for tax reasons. So it would make sense to put the equity weighting in the TFSA, and the fixed income in the RRSP. But you should not aim to lower the return in the RRSP.

In any event, it is unclear that shorting long-dated strips is a “no brainer”. A lot of people thought Japanes rates were unsustainably low for over 15 years, and that didn’t work out too well for them.

#40 Waterloo Resident on 04.13.14 at 7:44 pm

That lady in the picture sure has the attention of all of those dogs!

OH OH, the shit’s really hitting the fan in Ukraine right now, I wonder if the stock market will rally on news of Russia invading Eastern Ukraine?

http://www.cbc.ca/news/world/ukraine-crisis-un-security-council-to-hold-emergency-session-on-ukraine-1.2608521

http://news.nationalpost.com/2014/04/13/ukraines-interim-president-pledges-large-scale-anti-terror-operation-against-pro-russia-forces/

It might; you know, == sell on bad-rumor, buy on bad-fact.

Still, if an all-out shooting war between Russia and Ukraine breaks out this week, all bets on the stock market’s direction are off.

#41 KommyKim on 04.13.14 at 7:44 pm

RE: #12 shawn on 04.13.14 at 4:59 pm
RRSPs rock! so do TFSAs and RESP.
So do lower tax rates on preferred shares, lower tax on capital gains and no tax on unrealized capital gains.

It’s one thing that is not often talked about; tax shelter diversification. Once your TFSA is full, people should ensure they have investments in both RRSPs and non-registered accounts to take advantage of when their tax situation changes due to layoff, retirement, big promotions, bonuses, etc.

#42 Happy Renting on 04.13.14 at 7:48 pm

Cool example, thanks Garth. Only works if, as #3 LJ points out, people have the discipline to invest the tax deferral. It’s much more socially acceptable to blow the “found” money, rather than do something intelligent like negate the future tax payments on your RRSP.

Oh, well, there are lots of hotel rooms to fill in Vegas!

#43 Old Man on 04.13.14 at 7:58 pm

I just finished reading an editorial by the Globe and Mail on the net about Bill C-23; the comments alone are worth the read. Caesar has the Senate reading it all for a fast approval and the Globe has thrown Caesar under the bus. Now why the rush at the expense of a normal democratic process? Caesar is getting nervous that citizens are catching on to his deceptions, and have this feeling that he will call an election for this September. He is running out of time.

#44 espressobob on 04.13.14 at 8:01 pm

#30 Banjopete

Why on earth would anyone support themselves on dividend income in a TFSA? Thats what a non-registered account is for! The dividend tax credit doesn’t apply in a tax free shelter.

A TFSA used properly is an all out ‘growth’ account, free of any taxation! Thats a free lunch!

#45 Happy Renting on 04.13.14 at 8:02 pm

#26 Scully on 04.13.14 at 7:04 pm

Ha! That alone should net you a phone interview.

——-

#30 Banjopete on 04.13.14 at 7:14 pm

Yeah, tax shifting using your RRSP is one of the GT Recommended (TM) uses for your RRSP. Contributions in the fat years, withdrawals in the lean years. This year is going to be lean for me, will likely pull some money out to enjoy the puny tax rate.

#46 Whos the greater fool? on 04.13.14 at 8:08 pm

Why you don’t let government get involved in housin markets:

http://www.theprovince.com/Olympic+Village+condos+flipped+bucks+loss+Vancouver+taxpayers+could+million/9734499/story.html

Perhaps these recent purchasers (aka ‘investors’) will be hammered when the rates rise & the economy sinks, but if you can drop $2 million on a waterfront pad in Vancouver, you’re not likely to be hurting in a down market.

#47 boopsie on 04.13.14 at 8:09 pm

Anyone noticed that the CRA site has been down since Wed?
Wouldn’t you know that I had three completed returns, all checked and ready to go, the day before, on my Intuit.
Just as well.
O well, there is always Canada Post….(MY paper, MY postage) AAAArgh

#48 The Patient on 04.13.14 at 8:12 pm

#9 Porsche

– I agree with your assessment. It’s Wile E. Coyote time in Nippon. Central banking worldwide is in unexplored territory at the moment. I’m not a bullion licker but things are dicier than most want to admit.

#49 Human Capital on 04.13.14 at 8:14 pm

#37 #38

> why not just buy them after the pv collapse???

Because predictions are hard, especially about the future :p

> Losing money in your RRSP will reduce your tax bill. I can think of a lot of easier ways of losing money.

Well, the idea is that you don’t actually lose money over the sufficiently long term. In due course, the strip matures at the same time and at the same dollar value as known to you when you bought it. Its PV just shrinks, temporarily, due to the rate spike, allowing you to de-register it and pay commensurately smaller present tax bill as compared to the deduction you originally took.

Of course you do lose money in opportunity cost terms. It is always better to invest money after yields spike, not before, but that gets into the question of market timing and predicting the future which #37 pointed out. Assuming that you cannot actually predict when or even if rates will spike, this allows you to be in a (relatively high yield) fixed income asset (if that is appropriate for you), and extract a tax advantage from a spike in the event that it happens. You should always prefer not to be in long-dated bonds of any kind when yields spike, but then you might spend the next 20 years in less productive assets while secular stagnation slowly deflates the economy. The Japanese example is instructive, as you point out.

The major difficulty with exploiting this strategy is the amount of time required to recover after you’ve harvested the tax advantage. We all remember what Keynes said about the long run.

#50 Smoking Man on 04.13.14 at 8:26 pm

As we debate tsfa vs rrsp.

Un security Council is in a huddle to try and prevent www3

And people wonder why I drink..

Big day in store for us tomorrow..

#51 Brutus on 04.13.14 at 8:30 pm

It’s getting worse. Neighbours are from Ukraine and tell us they just got a call from relatives in the eastern part where there is a great deal of noise right now from Russian equipment on the move. It’s about 3:30 a.m. there now.

See this BBC report about what is happening where and how NATO has seen a massive buildup of Russian forces in recent days.

http://www.bbc.com/news/world/

The UN security council members have disagreed over whether the meeting should be public or in camera. Stay tuned for news there.

It’s gonna be a different world and soon.

#52 Observer on 04.13.14 at 8:34 pm

#2 Sunday Jacket
Garth, did you post early today so now you can enjoy the action on Masters Sunday?

I thought he night be watching that wonderful Liverpool win over Manchester City. What a spectacle of style, skill and execution. The NHL better pull up their socks, I’m
starting to watch more and more Premier League and less and less hockey…..

#53 DT76 on 04.13.14 at 8:38 pm

Well the thing is…

#54 ozy -GO LIVE YOUR LIFE on 04.13.14 at 8:47 pm

GO LIVE YOUR LIFE, forget about TSFA and RRSP and similar time waster products only gov. can invent in a FRACTIONAL RESERVE system

want $$$? open a bank!

otherwise, on the beach BABY!!!

#55 Chickenlittle on 04.13.14 at 8:57 pm

#29 Mike:

Instead of blowing out the candles on the cake and making a wish every time you want something, why not go out and earn whatever it is you want. Or better yet, maybe what you want isn’t right for you so you need to change your priorities.

Is love to see how this “teaching” would go over in a third world country. This is such a first world bunch of crap it makes me sick.

Hey wait…maybe the law of attraction is how people attracted huge amounts of debt to win that bidding war! It DOES work!

#56 Ralph Cramdown on 04.13.14 at 8:57 pm

#44 espressobob — “Why on earth would anyone support themselves on dividend income in a TFSA? Thats what a non-registered account is for! The dividend tax credit doesn’t apply in a tax free shelter.”

I can see it making sense. Non-registered income is all well and good unless you’re trying to avoid the OAS clawback. Personally, I’m thinking about extracting as much as possible from RRSPs during the years between retirement and when CPP/OAS starts, then living on dividends and REIT ROC after, with much of the dynastic fortune invested in low or zero dividend diversified growers. But I have to run the numbers. And in the meantime, the housing market could crash and I could suddenly want to own 8 fourplexes or a bigger multiunit.

Tax is tricky. But one must always think in terms of the whole portfolio and real, after tax returns. There’s no point buying 4% bonds guaranteed not to grow instead of 5% dividend equity growers for one account just because you’d “lose” a dividend tax credit that made much more sense when dividends were 4% and bond coupons were 6%. And if growth is an iffy prospect, no point buying growth stocks just because gains are tax free.

#57 Chickenlittle on 04.13.14 at 8:58 pm

Sorry Mike. I don’t mean YOU personally…I mean anyone who follows the law of attraction.

#58 Turtle on 04.13.14 at 9:01 pm

#40 Waterloo Resident

Still, if an all-out shooting war between Russia and Ukraine breaks out this week, all bets on the stock market’s direction are off.

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

If the war like that starts (I mean between Putin and Obama, not between Putin and Ukraine), it is going to be something you have never seen before. You can call this war “The End”.

If Obama stays on a sideline, then Putin takes half of Ukraine without any shooting.

I have a gut feeling that script of all this has been already written.

#59 Fox on 04.13.14 at 9:24 pm

WhiteKat, if you are a Canadian / US citizen get over it. And the idea that FATCA will impact stock prices is ludicrous. FATCA has been around for more than two years and is now coming into effect. Financial institutions are well ahead of you. Good luck getting a bank account anywhere in the civilized world if you try to hide.

#60 Brutus on 04.13.14 at 9:26 pm

Live feed of security council meeting here:

http://www.bbc.com/news/world-us-canada-27015585

Holy sh!t this looks bad. Russian talking right now saying that we are only a few hours away.

#61 AisA on 04.13.14 at 9:39 pm

I find it hugely spurious that after a military invasion and annexation, Russian passports are not refused along Ukrainian borders by the so called “CIA” funded Nazi coup installed Govmint.

FUBAR!

#62 gladiator on 04.13.14 at 9:39 pm

Obama used rebels to overthrow a legitimate government in Ukraine. Now, Putin is using rebels to grab some land. Big boys play big games, that’s all. Ukraine was Obama’s payback to Putin for his fiasco in Syria. Putin basically saved that country from being bombed into oblivion. Read this:
http://www.zerohedge.com/news/2014-04-13/obama-red-line-and-rat-line

And the Bundy ranch incident should worry all Americans about losing their freedoms and rights. The government there sent snypers, helicopters and 200 armed men against a farmer and a small group of his supporters. This is beyond fvcked up. Well, when a congressman (Harry Reid) wants your land, he will get it. Here:
http://appalachianareanews.com/busted-bundy-ranch-siege-really-about-harry-reid-backed-solar-power-stations/

#63 espressobob on 04.13.14 at 9:47 pm

#56 Ralph Cramdown

Taxation is everything! Yeah its a thorn in most of our sides, investing included. It boils down to an individuals situation for the most part. Thats why we have CGA’s & financial advisors to deal with this. Hopefully a competent ones!

Tax shifting is a part of the process. It’s still a pain. But whats wrong with tax efficient income?

Diversified portfolios offer investors that opportunity.

#64 45north on 04.13.14 at 10:00 pm

Brutus : It’s getting worse. Neighbours are from Ukraine and tell us they just got a call from relatives in the eastern part where there is a great deal of noise right now from Russian equipment on the move. It’s about 3:30 a.m. there now.

that got my attention!

#65 WhiteKat on 04.13.14 at 10:12 pm

@Fox,

Thanks for your sympathies. I guess I deserve not to have a bank account anywhere in the ‘civilized’ world since I had the nerve to be born in the USA. However, I will try and keep my red, white and blue tattoo on my Canadian a$$ secret for awhile longer; it’s the animal instinct in me that drives me to survive.

Would you like to donate to the Canadian Charter Challenge over FATCA? Once we have our donation site up and ready, I will post it here on Garth’s blog if that’s Ok with Garth. It is going to be an expensive fight, so we need all the help we can get. Thanks in advance. :)

#66 AisA on 04.13.14 at 10:24 pm

…or governments could all default at once, and re-institute civilization under an order which only spends what it managed to collect and issues all new notes interest free…… oh wait I just got hit upside the head by a leprechaun riding a unicorn while drinking out of the holy grail…..

Dear Lord, forgive my sins and remove this glacier of jade from upon my shoulders. The best thing about life beyond pretty much everything, is that it is temporary. If life were extended to a millennia on average, the way we exist and are built, the last second of breath after that 999 year, 364 day long life would still be a blip. It doesn’t matter. Do the best you can with what you have and smile as much as possible along the way. It would not hurt to cause as many smiles as possible along the way either, in fact, it may be a better opioid than the one you may be currently taking.

#67 Smoking Man on 04.13.14 at 10:27 pm

#62 gladiator on 04.13.14 at 9:39 pm

And where is Harry Reid from, why that little town of Searchlight Nevada…

They didn’t accept my offer for the Nugget Casino… It’s not worth 3.6 Gross revenue 1.8 but has 45 employees, and if you fire just one, they will steal from you, you got to fire em all..

But no way of replacing them..

#68 PJ on 04.13.14 at 10:44 pm

World according to Garth, this blog is the wrong channel to go through to preach the decline of America. That being said, I agree with you, it’s a cover up, but history has proven many times over that when the majority buy the lies, then they become truth and facts don’t matter. Today is no different.
Even you write that 91 million Americans are unemployed, jobs created stink, 50 million Americans are on food stamps, is the most indebted Country in the history of the world and will never be repaid and so forth, the majority will not buy it, and they want no part of that reality. And you know what? That’s fine.

However,

I find Garth remains extremely insightful when it comes to real estate, and personally that’s what I come to this blog for. The whole RRSP and TFSA and so forth may mean nothing to guys like you and me, but fact remains, it means to some, and win or lose, that needs to be respected.

#69 Derek on 04.13.14 at 10:48 pm

From G&M: http://www.theglobeandmail.com/report-on-business/economy/bank-of-canadas-rate-policies-in-uncharted-waters/article17951247/

So when should Canadians expect a return to more normal interest rates? Maybe never, Bank of Montreal chief economist Douglas Porter says.

“Even when rates do finally begin to rise and move back toward ‘normal,’ we are likely to find that normal is lower than it was prior to the financial crisis,” he argued in a recent research note.

Before the financial crisis, the assumption in Canada was that an overnight rate of 4 per cent or 4.5 per cent was considered neutral – not so low that it spurs inflation, nor too high to stifle economic growth. Mr. Porter said the central bank’s neutral gear could now be a full percentage-point lower, perhaps just 3.5 per cent.

—————
More economist predicting low rates to stay for a very long time.

#70 Old Man on 04.13.14 at 10:56 pm

The final report from December 2012 is out concerning the F-35 project. Its a whitewash prepared by the Defence Department under Caesar; nothing there, so why did this fraud take so long and what did it cost? I could have detailed a real report in a few weeks, as know where the dirt is hidden. Hell, anyone can search the web if you key the right words. Canada has once again been sold out by Caesar’s circus of clowns that want to reform reality; they work in secret.

#71 Chief Keef on 04.13.14 at 11:25 pm

Want a real treat? Flip condos. Huge profits.
http://www.theprovince.com/news/Olympic+Village+condos+flipped+bucks+loss+Vancouver/9734499/story.html

#72 Chief Keef on 04.13.14 at 11:28 pm

City of Vancouver poised to lose 400 to 600 million on Olympic Village condos. Top up the TFSA and stay balanced. Balanced = a good thing

#73 Sideline Sitter on 04.13.14 at 11:54 pm

Cleaned out my TFSA in late December (which was maxed)… Rolled into my RRSPs… just got the FAT tax refund (2013 was a great year), and put it back into the TFSA.

Yes, I know the refund was my own money, but it used to be the Fed’s – now it’s back in its proper hands – mine!

Awesome.

#74 Pope Freakout Snugglebums the 666lb (aka Nosty) on 04.14.14 at 12:00 am

SMan — Flt. 370 Do these come close to what you have found? The NSA / CIA could be involved as well.

#36 World According To Garth on 04.13.14 at 7:37 pm
— and —
#62 gladiator on 04.13.14 at 9:39 pm — “And the Bundy ranch incident should worry all Americans about losing their freedoms and rights.”

Keep in mind this is a state and not a federal issue, but there are always two sides to the story — Side A and Side B.

As far as Russia / Ukraine, it’s strictly the money-junkies (Rothschilds – Rockefellers etc.) who are organizing and funding all sides, as it is highly profitable to them using their zionist-controlled m$m to dump their pork butt garbage over us.

This person has a short and very interesting view of the situation, Bankrupt and Free Water.

#75 Life's a supermartingale on 04.14.14 at 12:19 am

Garth, your discussion is a touch misleading.

The TFSA is not a good vehicle for saving to pay taxes on RRSP withdrawals. You should use the RRSP itself to pay the taxes – that way you are perfectly hedged to the future tax obligation. Here’s how:

Suppose that a $20,000 contribution to my RRSP entitles me to a $5,000 refund. This is what I do: I borrow $5,000 dollars, put $15,000 of after tax money along with the borrowed $5,000 into my RRSP. I file my tax return and get my $5,000 refund which I use to pay off my debt. With only $15,000 of after tax income, I fund $20,000 into my RRSP. Using the TFSA with the refund is not a perfect hedge for the RRSP tax obligation because the money goes in at a different time (after receiving the refund) and potentially to different assets. (An even better way to do it is to ask your employer to take off less income tax so that your RRSP contribution never triggers a refund in the first place).

The compounding growth on the deferred tax makes up for the RRSP’s treatment as income on withdrawal. The RRSP beats the nonregistered account even if your average tax rate doesn’t drop in retirement. In fact, the RRSP is still favourable even if your average tax rates are somewhat higher in retirement. Using the (very short term) RRSP loan, or getting your employer to take off less income tax, makes it clear that all the money in the RRSP is not yours. It’s relatively straightforward to calculate the curve in the initial/future tax rate plane that separates the optimality between the non-registered account and the RRSP. If you do that calculation you might be quite surprised to learn just how good RRSPs are for most people – although the TFSA is most definitely welcome!

#76 Larry1 on 04.14.14 at 12:43 am

If you’re on the RRSP fast track use a T1213. Contribute before year end and get less source deductions. A refund means your paying too much taxes.

#77 O.T. on 04.14.14 at 12:46 am

My RRSP plan has been to max out contributions (I also max out the TFSA) and plan to withdraw smaller amounts, say 30k to 40k during “years off” before official retirement (i.e. before my pension and government benefits kick in). This would mean much lower taxes paid even if tax rates rise as you don’t pay that much tax on 30-40k, compared to on income of 100k now. Does that make sense or am I deluding myself?

#78 Waterloo Resident on 04.14.14 at 1:30 am

The U.S. Military doesn’t want to get directly involved in the Ukrainian conflict so they’ve hired 720 ultra-trained Commandos from the ‘BLACKSTONE’ group.

These are highly trained mercenaries, similar to the Navy Seals in ability. They have been sent to help the Ukrainian army ‘TAKE OUT’ the Russian troops on the ground in those 3 Eastern cities pretending to be Ukrainian citizens and stirring up all of that unrest.

When the body bags start filling up with those Russian soldiers, I’m pretty sure Putin is not going to just stand still and watch.

All of this is going to start this week, probably Tuesday.
If that happens, then you probably should have taken my advice to get your cash out of the stock market last week.

#79 Buy? Curious? on 04.14.14 at 2:08 am

Garth, two things. 1. Willfulling avoiding tax is morally wrong. Just because it’s legal doesn’t mean it’s right. It’s so unCanadian and 2. It’s Justin BIEBER not beaver. At what age to old people turn crotchity?

https://www.youtube.com/watch?v=jKdBAKgzkZo

Shame, Mr T. For shame!

Rob Ford 2014! More nipples!

#80 The Big Game on 04.14.14 at 2:40 am

#62 gladiator on 04.13.14 at 9:39 pm

Obama used rebels to overthrow a legitimate government in Ukraine. Now, Putin is using rebels to grab some land. Big boys play big games, that’s all.

——
Bob Costas here,
Today’s football minefield is historic Khazaria….first touchdown, Crimea….nice one!

#81 Tony on 04.14.14 at 4:09 am

Re: #51 Brutus on 04.13.14 at 8:30 pm

Hopefully Russia and the Ukraine will learn from America and the war in Afghanistan there’s no surer way to sewer an entire country than to fight a needless war. The days of future wars are over as these countries are flat broke and can’t afford it.

#82 Flash on 04.14.14 at 6:45 am

Garth,
The one thing that no one even mentions about RRSPs is that the government gives us a refund based on our contributions, but is paid back based on the (hopefully) much larger balance of the RRSP when we cash in the RRSP. Therefore in total dollar amount, the Government has a huge pay off. We get the benefit of the tax free growth but so do they! In my younger years, I only thought the contributions would be taxed one day.

#83 maxx on 04.14.14 at 7:12 am

I was explaining this excellent use of RSP-generated tax refund for TFSA investment to a 24-year old this week. I told her that her youth was a goldmine. She got it. Her face lit up and she could see that even though her salary is not amazingly high, she could still build wealth.

Great post Garth….does so much good.

#84 Paul on 04.14.14 at 7:28 am

Garth, your calculations generally tend to use a tidy 7% return on investment over a 10 year period. Readers should be careful in using this benchmark, there are several rolling 10 year periods that have not produced even close to a 7% return, even one that is negative. If you’re anywhere near retirement I suggest you use an alternate metric.

The last ten contained the worst market crash in living memory, the collapse of interest rates and a painfully halting recovery. Seems like a conservative metric to me. — Garth

#85 George S on 04.14.14 at 7:51 am

The refund on a $10,000 RRSP contribution if your income is $95,000 per year is about $4600 in Saskatchewan (more or less in other places, likely less). The 23% ($2300) refund is on the Federal Tax portion of your income tax. So what that means is that if you make a $10,000 RRSP contribution you can take the refund and almost make the maximum TFSA contribution for the year as well.

#86 Smoking Man on 04.14.14 at 8:43 am

#74 Pope Freakout Snugglebums the 666lb (aka Nosty) on 04.14.14 at 12:00 am

SMan — Flt. 370 Do these come close to what you have found? The NSA / CIA could be involved as well.
………

Going to hold off posting my essay on MH370 till that black SUV following me around stops, or someone else publicly posts it…

Don’t mind being 2nd or 3rd on this beauty of a scoop.

#87 shawn on 04.14.14 at 9:02 am

RRSP TAX Math

Some of you have looked at the math and understand it well. Flash at 82. O.T. at 77 and Supermartingale at 75.

The main point about a tax refund generated by an RRSP contribution is that it is not found money. It should be set aside as it will be repaid later, with “interest”.

Use if the make next year’s contribution or use it to pay off an RRSP loan. That reflects it’s nature as the government’s contribution (more like loan) to “your” RRSP.

Or use it to permanently fund an TFSA.

Just don’t treat it as found money for spending.

Remember, when it comes to your RRSP (and probably some other things)

“It’s Smaller than you Think”

#88 May peters on 04.14.14 at 9:09 am

Hi Garth,

If I understand taxation correctly, the tax refund on RRSP contribution would be based on marginal tax rate & not average tax rate as you have indicated in the example.

#89 LP on 04.14.14 at 9:42 am

#7 Spellchecker on 04.13.14 at 4:03 pm
#8 Spell Checker on 04.13.14 at 4:04 pm
***********************************
Ah, but EVERY and BOOTH aren’t spelling errors since both words are spelled correctly. They are, in this context – likely due to that stupid autocorrect feature – syntax errors. So how about I counter your bid for $90,000 with mine as grammar checker for only $75,000 and I’ll throw in the spell checking for free.

#90 LP on 04.14.14 at 9:44 am

Damn, I left out the question mark! So Garth would also require the services of a punctuation steward too, but surely for much less per annum.

#91 Property Accountant on 04.14.14 at 10:05 am

Garth,

Thanks for sharing your RRSP-TFSA maneuver. Here is another one I use to maximize my retirement portfolio:

1. Max the contribution to your TFSA in January and invest the funds into interest / dividend / ROC funds like REITS, trusts or high-yield ETF’s
2. Keep on withdrawing cash proceeds only (without touching investments) from TFSA & contributing to your RRSP, where they get invested in growth oriented stocks
3. Assuming your TFSA is 40K and you get 6% annually in income proceeds you should be putting in $2400 in RRSP in January.
4. You reduced TFSA room by $2400 so you can contribute next year in January not $5500, but $7900 (!!!) and enjoy higher income proceeds
5. You get (assuming 20% tax bracket you are in) $480 from the CRA in tax refund, which you re-invest in TFSA.
6. Every Year YOU GET BIGGER RRSP contribution and bigger TFSA room to invest monies again.

Let me know what you think about this.

Biggest advantage of this maneuver is reduction of your TFSA through withdrawals, that do not touch your principal holdings. I’m sharing it because I follow this blog daily and feel I shall add up some accounting gimmicks from time to time, for others to know.

#92 TheCatFoodLady on 04.14.14 at 10:09 am

No, no, no – you spelling/grammar/punctuation Nazis, (Good morning Mr. Godwin!), have got it all wrong.

We here on the blog are clearly using the discovery learning process in our written communications. It is equally clear, much floundering is being done by those attempting to engage in this complicated method of written communication.

I hereby offer my services as a Discovery Method Facilitator. I’m eminently qualified. I’ve never attended university, merely a community college but if I can talk the talk, for $50K a year, I’ll happily walk the walk.. No benefits required either but I won’t say no if someone tosses me the odd bar of chocolate.

#93 T.O. Bubble Boy on 04.14.14 at 11:05 am

$900k House of the Day for Monday:

3 Finalists:
1) A $925k dollhouse picture! (representing what you could build on the lot in Woodbridge)
2) A $926k lot at Bathurst/Sheppard
3) A $950k house (read: lot) near Bathurst/Finch

WINNER
#1: The lot in Woodbridge… takes some balls to put a dollhouse picture on the listing!

#94 Moller on 04.14.14 at 11:11 am

How does making a $10K RRSP contribution every year for twenty years, and earning an average of 7% annually equate to $448,600?

Can someone break down the numbers for me?

Thanks.

$200,000 in contributions, $238,000 in growth. — Garth

#95 Corban on 04.14.14 at 11:12 am

House prices unchanged in March; first time in 15 years

Read more: http://www.ctvnews.ca/business/house-prices-unchanged-in-march-first-time-in-15-years-1.1774906#ixzz2ysEmCxFs

#96 LP on 04.14.14 at 11:23 am

#92 TheCatFoodLady on 04.14.14 at 10:09 am

“Discovery Method Facilitator” – now that’s a term I haven’t heard. You remind me of a time when I worked in the charity field. To make up for the horrid pay scales title inflation was the order of the day. The lower on the totem pole one’s job, the more grandiose the job description title. My own wage was so low had I stayed there long enough, I might have ended up “president”.

I guess your college level knowledge of written English trumps mine since I only graduated high school and that without any math courses. At the end of grade 10, when I had failed grade 9 math (twice) and grade 10 just the once, the department head agreed to give me a bare pass in exchange for never darkening the door of the department again. Believe me when I say I skedaddled for all I was worth down to the languages department where I hid out for the duration.

So from now on I’ll aspire to being a Discovery Method Facilitator as long as it doesn’t require anything more than grade 8 arithmetic. Oh, and given my obvious lack of scholastic qualifications, I’ll take your job for $40,000.

#97 TnT on 04.14.14 at 11:30 am

Peaked….

http://www.ctvnews.ca/business/house-prices-unchanged-in-march-first-time-in-15-years-1.1774906

#98 Big Brother on 04.14.14 at 11:52 am

#86 Smoking Man on 04.14.14 at 8:43 am
#74 Pope Freakout Snugglebums the 666lb (aka Nosty) on 04.14.14 at 12:00 am
SMan — Flt. 370 Do these come close to what you have found? The NSA / CIA could be involved as well.
…………………………………………………………………
Going to hold off posting my essay on MH370 till that black SUV following me around stops, or someone else publicly posts it…
Don’t mind being 2nd or 3rd on this beauty of a scoop.

……………………………………………………………………….

Dont worry MKULTRA drives a black SUV and yes is us following you. We see you everywhere, Longbranch, on your train, in the building at tax slave farm, Seneca, mostley Seneca when you are intoxicated. That is when we re-program you! You never even knew did you!
By the way we re-programmed you little dog too!
It also likes to drink.

#99 Bailing in BC on 04.14.14 at 11:58 am

#93 TO Bubble Boy

#1 is certainly a winner. It’s the perfect 1 bedroom, triple garage mcmansion for the boomers who have everything – except children or friends.

#100 Ralph Cramdown on 04.14.14 at 12:02 pm

#93 T.O. Bubble Boy — “WINNER #1: The lot in Woodbridge… takes some balls to put a dollhouse picture on the listing!”

Please, please, anyone who lives or works near 4599 Langstaff Rd. (Between Pine Valley and Islington) in Vaughan, do a drive-by and photograph or note any builder signs and especially any construction finance signs on the property. I want to know who’d advance a builder loan on plans for a 5000′ ONE BEDROOM home.

#101 shawn on 04.14.14 at 12:10 pm

A Bird in the Hand…

Some RRSP versus TFSA facts

A dollar in a TFSA is worth a dollar and a half in an RRSP
(assumes 33% marginal tax impact on withdrawal)

Or, stated more depressingly, a dollar in an RRSP is worth only two thirds of a dollar in a TSFA.

That’s bad news for RRSP holders.

But remember a $1.00 contributed in an TSFA would have got you a dollar and a half in an RRSP. (Assumes same 33% marginal tax rate, contribute $1.50 and the government sends you 50 cents refund, net cost $1.00)

So… the two are even as long as marginal tax rates are stale AND you treat your refund as being money that funded your RRSP and that results in a third of your RRSP being always ear-marked for future income taxes.

Garth’s RRSP-refund-to-fund-the-TSFA strategy is a recognition that RRSP refund money is not found money but can be used to precisely eliminate the future income tax as long as it grows at the smae rate as the RRSP and as long as marginal tax rates / tax impacts remain unchanged.

(See also supermartingale at 75)

#102 shawn on 04.14.14 at 12:12 pm

That would be as long as tax rates are stable… (not stale) where is that spell checker you talked about?

#103 Dogman01 on 04.14.14 at 12:15 pm

Subject: The Canadian Wage Suppression Program.

Youth unemployment high?

http://www.cbc.ca/news/canada/british-columbia/mcdonald-s-foreign-worker-practices-face-growing-investigation-1.2607365

“If you could separate causes from results, you would know that Paine, Marx, Jefferson, Lenin were results, not causes”

George Carlin and Smoking Man are right; our owners sure do not want a free market for wages.

#104 kilby on 04.14.14 at 12:25 pm

Are the new OSFI recommendations for qualifying for mortgages and mortgage insurance going to have an effect n the market or will the banks find more ways to circumvent them?

#105 Son of Ponzi on 04.14.14 at 12:27 pm

#52
I thought he night be watching that wonderful Liverpool win over Manchester City. What a spectacle of style, skill and execution. The NHL better pull up their socks, I’m
starting to watch more and more Premier League and less and less hockey…..
———–
Same here.

#106 Son of Ponzi on 04.14.14 at 12:34 pm

Out of 30 teams, only 1 Canadian team made the playoffs.
No longer our national sport.
Start playing PingPong.

#107 Toronto_CA on 04.14.14 at 1:21 pm

OSFI released its new guidelines for Genworth and the CMHC today. And for the first time since the late 90s there was no increase in house prices between February and March. Garth is going to have a tough choice choosing topics tonight!

#108 World According To Garth on 04.14.14 at 1:23 pm

On schedule…

http://armstrongeconomics.com/2014/04/14/american-civil-unrest-is-starting-on-schedule/

#109 airhead princess on 04.14.14 at 1:24 pm

I’m a realist…..I mean look at Jim F….who died one year short of his CPP…..a month after retirement…..his story is all too common. The actuaries are smart guys…..they know most of us will never live to see our life savings grow to the moon as advertised. Why else do annuities go no farther than 25 years? You give the insurance company a million and they give you 500K in monthly installments…..knowing that you’ll probably croak before you get your last cheque.

Life is for the living friends. Don’t be duped by compound interest tables and promises…… ‘F’ had the best of intentions……he’s taken them to his grave. The chances of living a long healthy life are near nil….grab what you can now…..and don’t fixate on tax savings thirty years from now…..most likely you’ll be pushing up daisies…..praying with the flock…..enjoying your 72 virgins…..or boozing in Valhalla……but you’ll still be dead.

#110 Sid on 04.14.14 at 1:24 pm

Is this the beginning of a slow unveil of time of reckoning…

http://www.cbc.ca/news/canada/hamilton/news/hamilton-housing-prices-slump-teranet-national-bank-index-1.2609616

#111 Aggregator on 04.14.14 at 1:41 pm

#103 Dogman01

And the punch line: “Honestly, some days I wonder, is this still Canada? Everyone is supposed to have equal rights.”

Not according to McDonald's, Tim Hortons, Subway and the rest of Canadian corporations now exercising the TFW program to suppress Canadian wages. They want poverty, and they'll get it because Canadians like getting bent over and their rights thrown out the window.

The exploitation of foreign workers and every other immigration program will continue because it's #1 on the GG Commander-in-chief's agenda (Her Majesty). And what the GG wants, he gets.

Throne speech 2013

"Our Government will complete reforms to the Temporary Foreign Worker Program to ensure that Canadians always have the first chance at available jobs."

#112 Hawk on 04.14.14 at 2:08 pm

Just a general question for anyone whose done this before;

Is it better (tax wise) to buy property for rental through a small business corporation or better to buy it in one’s personal name?

Thanks for any tips :-)

#113 TheCatFoodLady on 04.14.14 at 2:16 pm

I’ve got to stop watching ‘Income Property’. I can’t help cringing when I hear: “the only way this couple can afford a home is to build in an income suite”. I get it – these people desperately want to own a home somewhere in TO but clearly my risk tolerance is far less than the people featured on the show. I’ve been a landlord & worked for several. I know how easy it is to end up with a bad tenant – one who is chronically late with payments, misses payments or trashes your place on the way out.

The program is big on income potential, (personally I think the returns suck), but blithely skims over the downside. And for rentals – especially the basement rentals, I think the suites are overbuilt. But that’s me – if they are renting them out for what they say they’ll ask on the show, then there is a demand & I’m flat out wrong.

The virgin landlords – I’d love to know how much knowledge of the rental & screening process they have before deciding this is a Good Idea. I’d also love to see a few follow up shows. I’d love to hear about the success stories & why the landlords/owners think they made the right decisions.

I’d also be curious to hear from those where it didn’t work out so well – more importantly, their ideas about WHY. The information would be useful for those contemplating becoming landlords.

#114 Kenny on 04.14.14 at 2:19 pm

Not sure why you’d use the RRSP before maxing out the TFSA if you know you’ll owe more tax in retirement.

For people planning to have a lower tax rate instead do a gross-up. Borrow $3386 on Feb 28th, drop $13386 into the RRSP, file taxes, get back $3386.

#115 Nemesis on 04.14.14 at 2:39 pm

#McMansionsABriefHistory #ThePoliticalEconomyOfSprawl #TalladegaNights

“What I didn’t understand at the time was that these new ostentatious developments were a product not of some epidemic of vulgarity but of the larger economic changes in the world.” – ThomasFrank

[Salon] – Let them eat McMansions!

…”Living in one of these cavernous chateaux, a friend of mine says, is like a pea bouncing around in a packing crate. But what one begins to suspect, after looking at enough of them, is that these garish houses aren’t designed for living in at all, really; they are designed to sell, and to re-sell, and to sell yet again. Sometimes, according to a passage in the 2000 book “Suburban Nation,” the purpose of all this tacky architecture is to create a strong impression on a potential buyer in the first few minutes of a realtor-guided visit. These are assets, not homes. They are built to flip: human settlements organized around the premise of the Greater Fool Theory.”…

http://www.salon.com/2014/04/13/let_them_eat_mcmansions_the_1_percent_income_inequality_and_new_fashioned_american_exess/

[NoteToJustAnObservation: That was a good question. The long answer would be more entertaining… but today we’ll go with the short answer; which is: It’s more like a chemically induced non-pathological transient dissociative disorder… which manifests as a kind of literary rebellion – i.e. rejection of formalism &/or Strict&Particular HouseStyles/Rules. Admittedly, I’ll grant you that much the same effect can frequently be achieved by the simple expedient of simultaneously gifting a typewriter and a six-pack of Budweiser to a Chimp.]

#116 Aggregator on 04.14.14 at 2:59 pm

#107 Toronto_CA

Don't be fooled by the barkless OSFI, because what this is really about is who's going to be blamed for fraudulent loan documentation once TSHTF. OSFI knows "fraud" and "gaming" is on, and that many buyers who shouldn't qualify are being given loans at the top of the market, of which many, if not all, are being securitized by major lenders and sold to global investors with Canada's AAA stamped on it.

Remember this? CMHC Statement in Response to Recent Articles on Mortgage Insurance and emili

"The lender is responsible for ensuring their lending decision is based on accurate and complete information. The lender is also contractually responsible for ensuring valid data is submitted into emili prior to funding for each mortgage insurance application."

So CMHC assumes lenders are compliant with B20 guidelines, and now OSFI is telling CMHC to be compliant with guidelines. In other words, nobody knows what the F is going on and who's approving all these deadbeat buyers engaged in bidding wars.

#117 Investment Virgin on 04.14.14 at 3:05 pm

What’s the status on the financial market? Can we expect a correction soon?

April 18th at 10:14 EDT. — Garth

#118 rosie "moving forward" in the knowledge that, "this won't end well" on 04.14.14 at 3:14 pm

#108 World…

Does this mean that…

http://oilersnation.com/uploads/old/2009/04/its_go_time.jpg

#119 TheCatFoodLady on 04.14.14 at 3:21 pm

The Lang & O’Leary Exchange tonight at 1900; I caught a quick promo & they’ll be discussing the lack of financial education provided our youth. Not sure how long a segment or what the focus will be but I’ll be watching it.

#120 april on 04.14.14 at 3:22 pm

#113- I heard these shows are all staged and the buyers are actors…wouldn’t surprise me a bit.

#121 Old Man on 04.14.14 at 3:30 pm

#111 Aggregator – all these minor distractions lead to Caesar who is Flipper in disguise, and when he speaks his front benchers clap like a bunch of trained seals. Lets keep our eye on the Charters of Rights and Freedoms, as most citizens know naught why it came about in the first place; it might surprise you.

#122 Vancouver RE agent on 04.14.14 at 3:32 pm

Not sure where Garth took that balanced portfolio with 7% / year. May be in lala land, not on this planet. Over the last 10 – 20 years practically everybody who invested in the stock market lost miserably. DOW is still at the same level now as it was 10 years ago in nominal terms. You simply cant get ahead in today’s HFT and insider info/front running by institutions. Retain investor ALWAYS get squished long term. RRSP is the worst investment ever since it will soon be confiscated by the broke Canadian government. Stay away from RRSP folks or you will be wiped out.

Financial markets have outperformed residential real estate in every city in Canada over the last decade. — Garth

#123 World Accordng To Garth on 04.14.14 at 3:43 pm

This is pretty easily fixed. Who is forcing you to eat at McGMO and drink spiderpiss from Timmies? We don’t.

Or be a stooooooopid sheep.

#124 World Accordng To Garth on 04.14.14 at 3:43 pm

Oooops

#111 Aggregator on 04.14.14 at 1:41 pm
#103 Dogman01

And the punch line: “Honestly, some days I wonder, is this still Canada? Everyone is supposed to have equal rights.”

Not according to McDonald’s, Tim Hortons, Subway and the rest of Canadian corporations now exercising the TFW program to suppress Canadian wages. They want poverty, and they’ll get it because Canadians like getting bent over and their rights thrown out the window.

#125 Future Expatriate on 04.14.14 at 3:45 pm

#11 Far from being a “tortoise dispute”, the Bundy (long a synonym for “genius” on Fox) Ranch dispute will end up being a very simple roundup of armed rightwing nutcase dupes of fascists, a rancher and family who’ve encroached on land they didn’t own for decades, and if the US Gov is smart, insurrection and treason trials and convictions for everyone involved in instigating insurrection and “revolution”, from Fox News to Limbaugh to the Koch Brothers, solving America’s long dark nightmare virtually overnight.

Once again, rightwingnuts think they’re the vast majority and can actually win against the US Gov and military.

Not by a long shot. Shellshock awaits. And hopefully, the FEMA camps Bush built. Isn’t the irony delicious?

Watch what happens next.

#126 World Accordng To Garth on 04.14.14 at 3:50 pm

DELETED

#127 frank le skank on 04.14.14 at 3:54 pm

#106 Son of Ponzi on 04.14.14 at 12:34 pm
Out of 30 teams, only 1 Canadian team made the playoffs.
No longer our national sport.
Start playing PingPong.
====================================

The logic is that Canada produces the most and best hockey players in the world. Those players (like good paying Canadian jobs) don’t stay in Canada and don’t have any influence on the quality of Canadian teams.

#128 World According To Garth on 04.14.14 at 4:33 pm

#126 World Accordng To Garth on 04.14.14 at 3:50 pm
DELETED
———————————

Okay……Garth is cherry picking again as I have read much much worse.

Make your own latte or buy from mom/pop cafes that use trade friendly coffee. Then you are not supporting TFW.

How’s that?

#129 shawn on 04.14.14 at 4:52 pm

Financial Education for Youth?

Cat Food Lady just above mentions:

Lang and O’Leary will be discussing the lack of financial education provided our youth.

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

So who would teach the young. Boomers? Teachers? LoL.

Their is little agreement on what constitutes good financial management anyhow.

In most circles the following passes muster:

Save Your Money. (In my orange shorts at 1%).

Get a Mortgage and pay it off someday.

Stocks are risky, don’t touch ’em

Invest in an RRSP, it will give you a refund to use on a vacation.

#130 shawn on 04.14.14 at 5:02 pm

Don’t Let Facts Stand in your way

Vancouver Real Estate Agent at 122 said: DOW is still at the same level now as it was 10 years ago in nominal terms.

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

have not hard that one in a while, mostly because it’s not true.

DOW today, 16,173, Dow April 14 ten years ago 10,378

That is up 56% in nominal terms, you may have meant to say in real terms. Well there has not been 56% inflation.

The Dow index excludes dividends. Add at leas 2% per year on the DOW and and you get 22% compounted

Now 1.22 times 1.56 is 1.90. Investors in the DOW are up about 90% in the past ten years in nominal dollars. An inconvenient Truth, no?

As for 20 years, you don’t want to know the total returns becasue they are pretty spectacular. Bumpy ride but spectacular returns.

Adled opinions of the future are forgivable, blatent untruths about the past, less so.

#131 Porsche on 04.14.14 at 5:10 pm

#106 Son of Ponzi on 04.14.14 at 12:34 pm
Out of 30 teams, only 1 Canadian team made the playoffs.
No longer our national sport.
Start playing PingPong.
…………………………………………………………………….

The team with the most Canadian players make the playoffs.

Look at Ovechkin… had 51 goals and was minus 35, the phucker never saw his end of the ice and the Capitals miss the playoffs.

EndofStory

#132 Brian Romanchuk on 04.14.14 at 5:28 pm

#49
The problem is that you do not want to take money out if your RRSP during peak earning years. You will be at a higher tax rate, and you have lost the contribution room. If you are in the same tax bracket in retirement as when you are working, congratulations, but that may mean you have saved too much (or worked too long).

What you are describing makes sense, but it is a form of interest rate immunisation. There’s no need to take money out of the RRSP, you just sell the bonds in the RRSP and buy back a similar exposure in the TFSA when rates are at more “attractive” levels. The bonds in the TFSA will compound at a higher interest rate.

However, it is very unclear whether rates will return to what people view as “attractive” levels any time soon.

#133 Trojan House on 04.14.14 at 5:57 pm

#125 Future Expatriate

Said like a true left wing, Marxist, round them all up and shoot them Stalinist nut.

#134 Happy Renting on 04.14.14 at 6:30 pm

Looks like we are in a race to the bottom for the job of Greater Fool Blog Spell Checker.

So let’s assume the job was offshored then brought back to Canada once Canadian readers found out and the backlash threatened the millions of monthly revenue earned by the blog. ;) The job now pays minimum wage (Ontario – $10.25/hr), is contract with no benefits, work from home (you provide the equipment), hours variable but certainly not approaching full time. A masters degree in English or higher required.

(I started typing all this as a joke but at the end now find it kind of depressing… Oh well, it’s not an unpaid internship, at least!)

#135 Future Expatriate on 04.14.14 at 6:47 pm

#133 Who said anything about shooting other than the rightwingnuts rounding up at the ranch for their justly deserved fate? Paranoiac.

And on the contrary, Stalin and Marxism failed because ALL revolutions fail; the revolters sooner or later become exactly what they revolted against.

You should learn and appreciate Canadian history a bit better. Successful change only happens within the system. Political revolutionaries are the greatest fools of all.

And I take no credit for those truths either; I got them from a guy called JC around 30 C.E.

#136 Trojan House on 04.14.14 at 7:45 pm

#136 Future Expatriate

Hmmmm, I suppose the American Revolution was a failure then? How about the French Revolution? Yup, failure.

How can a revolution occur within the system? It’s the system people are revolting against. Be it a political system or economic system. Yes, Marxism and Stalin failed, not because all revolutions fail, but because the system they implemented was destined to fail. They replaced oppression with a different form of oppression.

If you are talking about “successful change only happens within the system” meaning elections, well it doesn’t matter who you vote in these days because they are all the same. Elections do nothing to change the system because it is still the same system.

#137 Wiggleroom on 04.14.14 at 8:08 pm

April #120 —

No, they’re not actors. I know someone who appeared on that show, and someone lease who appeared on Love it or List It.

They’re semi-scripted, obviously, especially love it or list it. I.e. they amp up the conflict in a very predictable, formulaic way. But they’re real people, with their own houses on the line.

Those shows are all propaganda, designed to keep the housing market crazy in canada. IMHO.

#138 Future Expatriate on 04.14.14 at 8:46 pm

#137 It’s you righties who’ve declared the American Revolution a failure, and way too soon. As for the French Revolution? You never heard of Napoleon? Silly me expecting a rightie to know anything of history expect the perversion of it via rewrite.

Marxism and socialism were never tried in either Russia or China. What the people got were rightwing fascist military dictatorships. About As Democratic as the “Peoples’ ‘Democratic’ Republic of North Korea”.

Here’s a hint for you: When the leader puts on a uniform, it’s a fascist military dictatorship. Luckily, in America, the voters put that down in 2008, BECAUSE THERE IS ALWAYS A DIFFERENCE.

Voting DOES matter. As the majority will continue to prove as the right continues to dissolve. Why they’re fighting (and failing) so hard to keep Americans from voting.

#139 Trojan House on 04.14.14 at 11:15 pm

#139 Future Expatriate

Not sure if you’re pulling my chain or not?!

Voting does not make a difference – especially in Canada. You either vote for the extreme left (NDP), slightly less than extreme left (Liberals), or just left of centre (Conservatives). So there really is no choice, just less of the same thing. Same can be said for America, only the just left of centre party (Republicans) disguise themselves as right wingers.

By your argument, the American voters didn’t put that down in 2008, they made it worse. Obama has carried on the Bush policies and has even gone several large steps further by implementing his own left wing/fascist agenda. That’s correct – left wing/fascist agenda – social fascism. More wars; more killings (by drone) than any other president ever; bailing out the banks and automakers; accumulating the largest debt ever in the history of the USA; by all accounts the implementation of the worse health care reform (commissioned and written by the insurance industry); the build up of a homeland military force; more executive orders than any other president thereby circumventing the US Constitution; the condoning of spying on everyone in the world by the NSA…the list goes on and on.

Here’s a hint for you: A military uniform or a custom tailored suit – it makes no difference, only the one in the suit will kiss your baby while picking your pocket.

#140 Future Expatriate on 04.15.14 at 9:52 am

#139 Drone killings are a mere handful compared to the mass warcrime deaths of “Shock & Awe” and the rest of your opinion is similarly and equally convoluted. There is a vast difference between one side and the other (EVEN if only a matter of degree, which itself is disingenuous), and the only people denying it are the dupes of lying fascists retaining control of gov by convincing rubes otherwise.

And there is no such thing as socialist fascism; fascism and socialism have always been diametric opposite arch enemies at complete opposite ends of the political spectrum. Your “understanding” of history is appalling.

#141 Trojan House on 04.15.14 at 1:10 pm

#141 Future Expatriate

My “understanding” of history is not appalling. The problem is that people, such as you, ‘interpret’ history to suit their own arguments. The fact that Obama has continued Bush’s wars and has started new ones (Libya, trying to in Syria, surrounding Russia and China with military bases, etc, etc) is conveniently not commented on by you. By saying Bush killed many more in “shock & awe” cements the fact that you are biased toward the left and see facts through those glasses. As mentioned, Obama continued that war long after he took office, killing thousands more people, I might add, and for what purpose? At that point, when he came to power, Iraq was a totally decimated country.

There is not a vast difference between one side and the other and you’re kidding yourself if you think so. I also realize that there is no such term as ‘social fascism.’ But I was hoping you would stop and think about the term for a moment. The nickname “Nazism” comes from National Socialism which was considered a fascist party. Perhaps they were trying to hide something? Sound familiar? Obama, and most western governments, hide behind socialist policies while at the same time are major “friends” to big business, bailing them out with taxpayer money left, right and centre. QE continues to this vary day and yet, the little guy, you and me, have not benefited one bit from it. On the other hand, banks have made vast sums of money on QE by continuing to make speculative investments. We continue to see our wages stagnate and decline. We see food and energy prices rise. There are more people receiving social assistance than anytime before the practice began (a record 47 million people receive food stamps in the US – an exponential increase under Obama by the way). Youth unemployment runs rampant in Europe and in North America, a university education now gets you a job at McDonald’s (not to mention a large student debt). People in Cyprus have had their bank accounts raided. Austerity measures in other countries have pretty much killed any chance of a bright future for the people living there. This all happening while governments of the west are on a quest to track down every last dollar someone has for taxes (FATCA in the US and Britain has said “we will find you.”).

All of this reeks of fascism, but like I said, they say they are socialists. Equality for all! Yeah right, some are more equal than others.

#142 WhiteKat on 04.15.14 at 1:46 pm

@TrojanHorse,

FATCA is not about taxes. FATCA is about control of all world financial institutions, and about confiscation of the assets of other countries.

Most Canadians with a US birthplace would not actually owe taxes. However, most have not been filing US tax returns, and even more have not been filing ‘Foreign Bank Account Reports’. The bonanza for US will be the penalties for not filing ‘foreign bank account reports’ for Canadian accounts held by Canadian residents. Once USA knows how much money is held in Canadian banks by Canadians with a US birthplace, it will assess penalties, and then do more arm twisting to collect on them. The penalties will devastate 100’s of thousands of Canadians the vast majority of whom have NOT been filing FBARS. This will have a huge impact on the Canadian economy (compliance costs, welfare, wealth confiscation, health costs, suicides, etc) but will only be noticed in hind sight.

#143 Trojan House on 04.15.14 at 2:32 pm

#143 WhiteKat

#144 Trojan House on 04.15.14 at 2:36 pm

#143 WhiteKat

I agree with you to a certain extent, however, it sounds like people are being taxed to me. It may be that they are being penalized for not declaring to the IRS income or assets they have in foreign countries, but once they are found out, they will be taxed going forward (after the penalties are handed out).

#145 WhiteKat on 04.15.14 at 4:44 pm

@TrojanHorse,

It sounds like it is about taxes, because this is how the IRS has been spinning it. Everyone hates people who do not pay their taxes, so everyone is pro-FATCA if they think it will catch tax cheats. It might, but it will hurt a lot of innocents too. Meanwhile the truly criminal will find other ways to hide.

The real money to be made through FATCA is in the confiscation of assets in foreign countries. Once that is done, there is no more taxation because the assets are gone. And trust me the penalties for non-reporting of ‘foreign’ bank accounts amounts to confiscation as the penalty system was designed to harshly punish US residents hiding untaxed, or illegally earned money off-shore.

Unfortunately, 1 million honest Canadian taxpayers, who are not hiding their money in their local accounts, will be punished in the exact same way. Lets hope our government keeps its promise that it will NOT COLLECT penalties (or taxes) assessed on Canadians who were Canadian at the time the penalty arose. Flaherty repeated this message more than once during the IGA negotiations. However once the IRS has the bank account balances of Canadians with a US birthplace, there is no way it will be content to stop there.

#146 Future Expatriate on 04.16.14 at 1:31 am

#141 No matter. Conservative fascism is terminal. Demographics assures it.

Proving there IS a God.

#147 Trojan House on 04.16.14 at 12:46 pm

#147 Future Expat

You thinking voting matters? Consider this new study:

http://www.commondreams.org/view/2014/04/14

While apparently some of the stats are imperfect the conclusion is definitive. There is a link to the paper “Testing Theories of American Politics.” Interesting read.