By now you should have brimmed your tax-free account with that sexed-up contribution amount. On Tuesday evening, shortly after the federal budget was dropped, this pathetically prescient blog told you to go forth and multiple when the sun rose. Now that you are allowed to plunk down ten grand for 2015, we said, you should do so. Like, immediately.
Lots of people didn’t because they were afraid. The media piled on. So did opposition MPs, some of whom were vexed about the increase itself. The banks wussed out. It took more than three days for reality to dawn on people that it was all perfectly legal.
For the record, when a federal finance minister stands to deliver a budget, which is immediately followed by the tabling of a Ways and Means motion, the sucker’s done. It has the force of law. The reasoning is simple – if governments gave advance notice of specific tax changes then people would scurry around and find ways to thwart them. Se because every citizen must be treated equally (except if you’re in the Senate. Or are Justin Beiber) when the finance minister says something, it is effective that moment.
My advice, of course (as always) was correct. So on Friday the government took the unusual step of actually spelling it out in crayon. “The Canada Revenue Agency (CRA) is allowing individuals to immediately benefit from the proposed increase to the Tax-Free Savings Account (TFSA) annual contribution limit announced in Economic Action Plan 2015,” it said. “Canadians can immediately start contributing to their TFSA up to the proposed $10,000 annual contribution limit. This proposed measure is subject to parliamentary approval. Consistent with its standard practice, the CRA is administering this measure on the basis of the Budget announcement. Financial institutions may immediately allow existing and new account holders to contribute up to the proposed maximum.”
So there ya go. Dig in.
Now, here’s an oft-asked question: if the TFSA is beefed up like this, should I cash in an RRSP to contribute to it? The answer is a clear maybe. If you’re in school, on mat leave, have your ass fired or are taking a sabbatical, then deregistering an RRSP and moving the money to a tax-free account can make great sense. You’ll be in a low tax bracket and so might pay little or nothing on the RRSP funds received. You can then move them into the TFSA, invest in cool stuff like equity ETFs, enjoy taxless growth, and have full access to the money when you wrinkle.
Just remember to take the money out of the RRSP in small amounts of $5,000 or less to keep the withholding tax at 10%. Except in Quebec, where you pay more (of course).
Another common question: my spouse stays home and looks after the kids and has no real income. Can I contribute money to his/her TFSA?
No, you can’t. But you can gift money to your significant other, and then he or she can make that contribution. The money you give will earn returns inside the TFSA, and none of those will be attributed back to you. So, obviously, this is a great way to shift income and increase the tax-free earning power of your partnership. With the new limit, a couple can sock away $82,000, and that will now increase by $20,000 a year.
Yes, this is starting to be serious money. If you max out today, put in the twenty grand for ten years and earn an investment return of 7%, a decade from now you’ll have $437,635, of which $155,635 is tax-free growth. Now imagine if you were 20 years from retirement and did the same. You’d have $1.14 million – which could generate about $79,000 a year in tax-free income without diminishing the principal, and none of that would be reportable. So, conceivably, millionaire couples could be collecting their full CPP and OAS benefits, have the taxable income of a golden retriever, and live a happy life. All because of the TFSA.
By the way, if you’re an old fart and have to convert your existing RRSP into an income-spewing RRIF (the minimum withdrawal amounts just fell), you can still contribute fully to a TFSA. So while the RRIF money needs to be included in your taxable income, you can just invest it inside the TFSA and continue to grow it – with the returns never to be taxed again. Unlike RRSP contributions, which end at 71 (unless you marry a young babe and do a spousal), the TFSA contributions are eternal.
Another question I hear: can I open TFSAs for my kids and load them up?
Same answer. No. But you can gift them the money and nothing will be attributed back to you for tax purposes. Kids with social insurance numbers who are full-time Canadian residents get to open a TFSA at age 18, unless they live in places where maturity is delayed, like BC. But even though they have to wait a year, annual contribution room of $10,000 starts accumulating in the year in which they turn 18.
Obviously having five TFSAs in a family with three over-18 kidults means you can take $50,000 a year in taxable investment assets and move them over into tax-free accounts. At that rate it won’t take long to shelter hundreds of thousands, which is exactly why anti-TFSA critics are beside themselves. This is the ultimate dodge, allowing families to turn fully-taxed investment portfolios into deep pools of money that can grow rapidly, attract no tax ever, provide non-reportable income and allow all government pogey.
You may have come here to read about real estate. But don’t dare blow this.
266 comments ↓
How much longer do we have to keep hearing about the TFSA on this blog, enough already, we get it.
You want all-MLS, all the time? — Garth
first
What’s the best way to contribute to these things for the person doing regular contributions (e.g. 1000/month). It’s not work making a trade for an ETF at that price ($10 trade is 1% just for transaction cost). But the mutual fund market is seriously muddy.
Early today, Garth. How is it that people are so risk averse holding off on contributing an additional $4,500 to their TFSAs in fear off (limited to no) repercussions. But feel completely comfortable with being overextended in debt, mortgaged up the ying yang in a bloated real estate market?? Are people completely irrational?
…and if you gift money to kids, better be a good parent, the money is theirs to keep.
A few years back, this kool blog saved us from buyin a house and enslaving ourselves to the graveyard. Instead, we opted to keep living in a condo, go to vacations, enjoy occasional lay off stress free and still beef up RRSP, RESP and TFSA. Thanks Garth.
Sometimes, like today, I love you Garth :)
I remember seeing in a magazine that a young couple has the highest value TFSA account, I think it was around $500K.
They bought a small cap share which popped.
DELETED
what does it mean to “gift” money to a spouse for a TFSA? Does it mean that you can take some cash out of your non-registered portfolio, throw it into a joint savings account, and then she can take this cash and throw it into her TFSA?
What’s the best way to contribute to these things for the person doing regular contributions (e.g. 1000/month). It’s not work making a trade for an ETF at that price ($10 trade is 1% just for transaction cost). But the mutual fund market is seriously muddy.
—
Easy, go with a brokerage that gives you commission-free ETF purchases. I use Questrade myself– if you use my referral key 845913674388761 you will get a deposit bonus of $25-$250 depending on how much you deposit. I will get $25, in the interests of full disclosure.
Every paycheque I purchase ETFs to maintain my portfolio weighting. No commission paid until I decide to make a sell order years down the road.
Thanks Garth.
I got’er done yesterday.
…and I for one like when you ditch the real estate bull BS – only so much numb-skullery a person can take!!
I direct my young (read: HH) kin to this web site all the time to try to save them from themselves.
Regards
TN.
#3 PM, use a brokerage with commission-free ETF purchases and pay nothing to buy them.
Questrade offers this on all ETFs listed on US and Canadian exchanges. Scotia iTrade and Virtual Brokers have lists of eligible ETFs but naturally they’re mostly crap. At the risk of sounding like a paid shill, get a Questrade account and build your portfolio for free (nearly).
Are percent fee-based wealth managers running the government?
If you max out today, put in the twenty grand for ten years and earn an investment return of 7%, a decade from now you’ll have $437,635, of which $155,635 is tax-free growth. Now imagine if you were 20 years from retirement and did the same. You’d have $1.14 million – which could generate about $79,000 a year in tax-free income without diminishing the principal, and none of that would be reportable. So, conceivably, millionaire couples could be collecting their full CPP and OAS benefits, have the taxable income of a golden retriever, and live a happy life. All because of the TFSA.
************************************
I what world is that a good thing or fair.
Fee- and MER-based wealth managers will love it.
If these people get tax breaks (and they will) who will make it up.
Why do we need the government to give us incentives to invest. Are we too weak to do it on our own.
What’s next? government incentives to eat our spinach?
We complain about the size of government but then cheer more government interference like the bloated TFSA.
#3, I agree with #7. Get a Questrade account. I have one and all ETF trades are free. Opened a TFSA account with the months ago and have had no problems so far. I like free (trades and tax!!)
Thanks for the continuing advice Garth. I continue to learn lots from your blog. It’s my new addiction. Transferred the extra $4500 into my TFSA the day you told us to. Will do some research this weekend to see if I want to put it into a small-cap US ETF or just buy more into the ones I have.
These TFSAs are an amazing gift! It amazes me people are whining about it, crying that this deprives governments of tax revenue. Why not get upset about the inherent inefficiency of government instead, that causes them to continue to raise taxes? When companies have tough times, they cut costs, as they can’t snap their fingers and raise revenues by x%. Why can’t governments try to be efficient by reducing waste?
For the blog dogs in YYC: has anybody noticed rental rates coming down yet? Looking at rentfaster.ca, I still see the rates are high for inner-city condos. Would love to get a nice 2 bedroom condo for $1k/month plus utilities, and have a landlord kindly subsidize me. I’m thinking there’s still some more “ripple effect” remaining from the drop of oil prices. Even if we hover at $60 WTI for the rest of 2015, that’s still a 33% drop from the summer of 2014.
Have a good weekend dogs.
So, let’s say I trust everyone in my family, I could just top up their TFSA account by giving them the money as a gift? This is too good to be truth. CRA gotta be smarter than this?!
Garth says: “Just remember to take the money out of the RRSP in small amounts of $5,000 or less to keep the withholding tax at 10%.”
At the same time beware of withdrawal fees as it could be well over $100 per transaction for any major institution.
Garth:
As a token of my appreciation for your tireless and pathetic efforts, I just went on to the Fort McMurray SPCA (Society for the Prevention of Cruelty to Attorneys – Ooops, Animals) website and made a donation.
It was modest. It was not extravagant. After all, it was my extravagance and profligacy that got me into the deplorable financial situation I am in.
Dogs have shared our fires for thousands of years. Upon retirement, I will be sharing my meals with them.
The donation was made with my credit card. Natch.
Thanks.
RE:#3 PM on 04.24.15 at 6:17 pm
What’s the best way to contribute to these things for the person doing regular contributions (e.g. 1000/month).
I have my investments at TD Waterhouse. I made a hybid portfolio. 90% of it is in various ETFs and 10% in eSeries mutuals (Low MER of 0.33-0.50%) duplicating the same diversity as the ETFs. I dump the monthly ETF dividends and any small contributions into the mutuals and incurr no trading fees. I also do quarterly rebalancing with the mutuals. At the end of the year I sell some of the mutuals and buy more ETFs to keep the balance between all of them in check. It’s a little more complicated, but saves on trading fees and bid/ask spread costs.
Rick Ackerman looks at shorting home builders. I copied his notes and a chart and I added more real estate sector stocks, ETFs and related index thumbnails.
http://www.chpc.biz/history-readings/homebuilders-schmeissed
In the bottom left of the chart, I have put a blue dashed oval around XRE.TO which consists of securities of Canadian real estate investment trusts (REITs) listed on the Toronto Stock Exchange. Apparently Canadians like their real estate dividends; the XRE.TO is still well above its 50 day moving average.
But as Jin Won Choi noted on March 23, 2015:
In 2012, the average Canadian had a net worth of roughly $243,800. Of that, roughly $155,000 was attributed to real estate, which in most cases represents a person owning his or her own home. The average Canadian is therefore already heavily invested in real estate, so it doesn’t make sense to increase the real estate component of the investment portfolio further by adding REITs.
The other reason is that a REIT’s long term returns are tied to the price of properties. If they overpay for a property, they will collect less rent in proportion to the purchase price, and they will also have a hard time selling the property at a profit in the future. Both of these factors will serve to decrease the future dividend yield of a REIT that overpays for properties.
Currently, many reputable publications such as the Economist and the OECD consistently rank the Canadian housing market as one of the most overvalued in the world.
The Organisation for Economic Cooperation and Development (OECD) has said Canada’s market is overvalued by as much as 30 per cent when measured by the price-to-income ratio and by 60 per cent based on the price-to-rent ratio.
If they are correct, it doesn’t bode well for the long term returns of Canadian REITs.
GREAT ways to stash family money. Three questions:
1. Who is left to pay the TAXES that will be needed to support the system?
2. What if your idiot kid uses their TFSA to fund a real estate purchase?
3. Any possibility of a reversal in thinking to kill this?
Thanks Garth for telling us about this TFSA stuff, I really appreciate it.
Have a nice day.
And a wonderful weekend too.
:-)
“Why do we need the government to give us incentives to invest. Are we too weak to do it on our own.”
Haven’t you heard? Without government intervention we would be falling off a cliff by now …
Garth. Thanks for the additional information about the TFSA in your post today.
#21 retired boomer:
Income taxes are not the government’s only source of revenue.
If the government doesn’t tax capital gains from real estate (unlike the US), and real estate values are not used to gauge the need for CPP And OAS, I don’t see why TFSAs can’t act exactly the same way.
RE:#22 Retired Boomer – WI on 04.24.15 at 7:14 pm
2. What if your idiot kid uses their TFSA to fund a real estate purchase?
Well, then the idiot parent just lost 100% of the money while trying to shelter it from apx 22% max capital gains tax.
A crushing disaster looms now for Jim Prentice. Will it spill over onto Harper’s lock on Alberta voters federally?
We are politically dumb here, but not so dumb not to recognize when we are being manipulated, a la Prentice.
After the debate this week Forum Research reports a “dramatic shift” from the last wave of polling April 10.
“NDP take dramatic lead in Alberta”
“Majority government seen in wake of debate”
“Slim NDP majority seen”
“If these results are projected up to an 87 seat Legislature, the NDP would take a 2 seat majority of 46, and the Wildrose Party would take 32. The PCs would take just 6 seats, and the Liberals 3”
Interestingly, the NDP dominates not only Edmonton, but also the youngest voters AND the wealthiest (groups that probably include the ‘smartest’ who know what a catastrophe climate change is threatening us with)
The hicks in the sticks will vote Wildrose, as expected.
http://poll.forumresearch.com/post/275/majority-government-seen-in-wake-of-debate
No party has the power to stop the impending real estate train wreck here.
But the NDP will likely be supportive of climate change imperatives, which will doom this inbred, single-focus economy for a long time to come.
Sad, but necessary.
In the meantime, don’t be surprised with 50-75% drops in housing valuations here.
Starting very soon.
Garth has advised against reverse mortgages for seniors. Here’s another take on it if you’re still not convinced.
http://www.foxbusiness.com/personal-finance/2015/04/17/what-boomers-need-to-know-about-reverse-mortgages/?intcmp=marketfeatures
Listen to your mom (except on real estate). Listen to Garth. Don’t listen to these 6 people.
http://www.maliceforall.com/2015/04/you-should-ignore-investment-advice-from-these-6-people/
“….When asked about the hypothetical long-term revenue shortfalls that some have attributed to the Tax-Free Savings Account, Oliver said it was a problem for “Stephen Harper’s granddaughter to worry about….”
– Conservative Finance Minister Joe Oliver
_________________________
For the current Harper government, it must be really embarrassing to have a Freudian moment and voice out loud the truth behind your own hypocrisy.
I’m guessing it was the same atmosphere on the Titanic when, due to a shortage (projected revenue shortfalls) they were handing out life jackets (TFSA increases) only to the privileged while the steerage class below were told they now had to wait a little longer for their own assistance (CPP, OAS).
You still have to pay a withholding tax on dividends from U.S. stocks even when they are in a TFSA.
What about an S&P 500 ETF? Would I have to pay a withholding tax on the dividends?
Retired Boomer – WI on 04.24.15 at 7:14 pm
GREAT ways to stash family money. Three questions:
1. Who is left to pay the TAXES that will be needed to support the system?
2. What if your idiot kid uses their TFSA to fund a real estate purchase?
3. Any possibility of a reversal in thinking to kill this?
1. I don’t think this is a worry. Taxes get paid because they’re withheld from paycheques. People never get their hands on that money to begin with. TFSAs do not often get stuffed to the max because you must have the discipline to save and invest some of your take-home pay. Spending tends to expand to consume all accessible cash.
2. Be careful before gifting your idiot kid cash.
3. The gov may take away at some point (e.g. lifetime limit, make OAS means tested) but I’m not actually too worried about this. Most people do not use the TFSA to its full advantage, so it may take quite a while (or never) for this to cost the government meaningful tax revenues.
Thanks, Garth, for persistently encouraging people to optimize this opportunity.
#28 ALBERTASTROPHE on 04.24.15 at 7:25 pm
A crushing disaster looms now for Jim Prentice. Will it spill over onto Harper’s lock on Alberta voters federally?
We are politically dumb here, but not so dumb not to recognize when we are being manipulated, a la Prentice.
After the debate this week Forum Research reports a “dramatic shift” from the last wave of polling April 10.
“NDP take dramatic lead in Alberta”
————————————–
Go commies go…
Sold a house; not buying another, and had this TFSA news all in the week. Thanks Papa Turner
re: #2 Sleepy, how can you be Sleepy & come 1st?!
What about TFSA gifts from kidults to adildren? Wifey and my tfsa’s are maxed. We live with our adildren parents. Can I give them gifts to fill theirs in the form of $ and/or shares from our joint margin? If so, what are the tax implications on receiving those back via a gift or inheritance?
Cash gifts to adult children were already okay in pre-TFSA times.
And it’s not too good be true. Look again at the charts that show who’s maxing out their TFSA’s. It’s the good-saver-poor-on-paper Boomers who are doing it. It’s not the under 35 crowd. I imagine that not many Boomers have that kind of cash lying around to give to their adult children – check the stats on how many are afraid they won’t have enough to retire. And the ones who have the cash used it to help Junior buy an overpriced house – 40% of real estate is bought this way. TFSA? What TFSA? Junior doesn’t need a TFSA if real estate always goes up, right?
Re: #7 Max TFSA, yes, we bought TSE: KLS, happy face!
Does gifting money to spouse (for her to fund her TFSA account) make my spouse or me pay tax on the gifted funds?
No. — Garth
I’d not get too excited about the tax base running dry by everyone maxing their TFSA contributions.
I lived in the UK for ten years and the Individual Savings Account (ISA), which is very simialr to the TFSA, had an annual limit in the £11,000 range for years. It’s now £15,240 or about $28,000 per person per year – nearly three times the TFSA limit – and the UK government isn’t broke [yet] as very few people max it out.
It’s a boone to City workers and the monied but and even on average salaries [max of just over £40k a year] my wife and I maxed our ISAs annually by renting in London rather than shovelling money into a damp, draughty mortgage. This allowed us to live the life of riley – pubs, clubs, Eurostar to Paris, six weeks of European holidays per year etc. Many Canadians could do the same here with the TFSA but won’t.
“It took more than three days for reality to dawn on people that it was all perfectly legal.”
******************
Yes, it’s great. Clearly politically motivated. After all, we DO have an election coming up. But if we don’t take advantage of this incentive to save and invest, future generations may be on the street begging….
#28 ALBERTASTROPHE on 04.24.15 at 7:25 pm
NDP majority in Alberta?
Won’t happen.
The pocket ace has not been played but will be on the eve of the May 5 election. The Red Scare/Red Menace will be trotted out with the prospect of Suncor, Syncrude, Shell, Imperial and CNRL shutting down their oil sand mines and opening oil sand mines in Rhode Island, Delaware and Oregon.
Coupled with a sop to daycare expenses, the PCs rule again.
Does this all sound too good to be true? I have already kicked in the extra coin into the TFSA as Garth suggested.
I’m thinking at some point down the road they either cap the TFSA or consider growth for income thresholds against the OAS and probably the CPP (which is ridiculous given we contribute to CPP).
In the meantime, party on!
#32 Vancouver Troy on 04.24.15 at 7:37 pm
Yes. Our Southern Friends do NOT recognize the TFSA as a retirement account and will retain 15% tax off the dividends.
You can only evade the 15% withholding tax by owning direct US Stocks in a RRSP. They recognize it as a retirement account by treaty.
Most US and International Index ETFs in Canada are “wrappers”, meaning they do not hold equities directly; they are used to buy the American equivalent and such, as liable to be taxed.
You know what other great investment is tax-sheltered? Your principal residence.
How I love to game the system..
You all remeber my keysme text thingee.
Have done well with it, unfortunately, bit in an RRSP, Then TSFA don’t help much, different level if you will.
So I get my kid to quit his job, trade, built up his forex account till he tanked to an 8k profit.
I then paid 12k for his IOS boot camp. A write off, he’s back on my keysme payroll..
When done, we turn my keysme, fk the machine text encryption beast into an app..
Cheaters and dirty bastards can communicate without the loved one knowing what’s going on..
Before I die of a combination of liver, skin, lung cancer.
I will die a billionare, more importantly, a published author….
The author is all that matters to me, making loot is no challenge. Any idiot can do it.. Not so sure about the schooled, goes against years of slave programming.
Can you dogs understand this..
I love writing.. Who would have guessed..
#28 ALBERTASTROPHE “A crushing disaster now looms for Jim Prentice.”
That fact that Prentice isn’t romping to victory suggests to me that the Conservatives are in deep trouble nationally.
In the last post Garth wrote “Just imagine what will happen when mortgage rates creep [up]”. I imagine we’ll get a whole lot of what is called political dislocation. Looks like that dislocation is already happening in Alberta.
If, indeed, Prentice isn’t elected Premier, consider the psychological effect on Ottawa, and Bay Street.
The Conservative political establishment seems to have no sense at all of Canadians’ deep anger towards the banks, oil companies, inadequate wages, etc, never mind rate increases which haven’t happened yet.
If we’ve already got a political storm in Alberta – that portends a political earthquake in the rest of the country.
On EARTH DAY I did my part and shopped at WHOLE FOODS in Oakville which is just across the way from the main Oakville GO commuter station.
It is a small strip mall with all your basics; LCBO; SHOPPERS; STARBUCKS and a few other nondescript shops selling women’s garments that are outdated as soon as they are placed on the hangers…I digress back to the strip mall right KITTY CORNER to the WHOLE FOODS was an EDWARD JONES Investment office that had been there for years but is no longer there and the retail space is VACANT.
Of course, Edward Jones is the best shop for trustworthy care of boomer money so it was a major shock to me to see it gone…retail is funny like that but if the landlord gets too demanding it forces people to move. There are three other Edward Jones shops in Oakville but it’s nice to pick up your latte and then get your advice and pick up the bourbon and pizza on the way home.
Gotta major poultry scare at the border after a day trip for my Target fix..apparently the CHICKEN AND EGG BOARD has told the border patrol to be vigilant about not allowing Canadians to bring over the illegal poultry as it is FOWL to cross the border unless the bird is FULLY COOKED. My bird was BBQ’D so I was relieved to be able to feed my hungry car.
At the Senica Aligany chairman’s ball. AK welcome to the losser lounge.. In Salamanca NY.
I think I’m the only dude in a dinner jacket. I need the pockets for my treats..
They are all losers, including me and wifee poo.
The difference, our casino gambling budget is in the sub one percent of our Gross anuall income.
Not these folks…
Sad…
Remeber grasshoppers, risk vs reward…
Excellent call on the TFSA contribution, I mentioned to others and they laughed, then the FP had an article on the subject yesterday and said exactly what you said.
#3 PM on 04.24.15 at 6:17 pm
“What’s the best way to contribute to these things for the person doing regular contributions (e.g. 1000/month). It’s not work making a trade for an ETF at that price ($10 trade is 1% just for transaction cost). But the mutual fund market is seriously muddy.”
—————-
Open an account with a broker that doesn’t charge for ETF purchases. I for one use Questrade: all Canadian and US ETFs don’t cost any commission when purchased (you pay $4.95/trade when selling them for re-balancing purposes). You just need to pay ECN fees which are $0.0035/share.
So let’s say you want to contribute $1,000 this month. Let’s say that this month in order to maintain the proper weightings in your portfolio you need to buy XIU.TO and XSP.TO, for your growth portion and XPF.TO and XCB.TO for the income bit. And let’s say given your target ratios of growth stuff you need them in the following amounts:
– 9 shares of XIU.TO @ $22.69 = $204.21
– 20 shares of XSP.TO @ $24.47 = $489.40
– 10 shares of XPF.TO @ $19.10 = $191.00
– 5 shares of XCB.TO @ $21.92 = $109.60
Total of all purchases $994.21.
Total in fees: 9 x 0.0035 + 20 x 0.0035 + 10 x 0.0035 + 5 x 0.0035 = $0.16
So all your fees amount to $0.16 on $994.21 in investments or 0.01609%
Not too shabby if you ask me. A decent article comparing and contrasting various brokerages you should check out (list a few brokerages that don’t charge ETF fees – make sure to read the fine print on the respective sites; some brokers don’t charge ETF fees only on select ETFs while Questrade has one of the more generous offerings covering a large number of ETFs – reason I use them): http://www.theglobeandmail.com/globe-investor/online-broker-rankings/2014-online-broker-rankings/article21783584/
Of course my previous weightings were a mere example, I have no way of knowing which ETFs you own, want to buy or how you want your portfolio to be balanced; that’s all up to you and your financial advisor.
So apparently Trudeau, if elected, promises to reverse the TFSA increase: http://www.thestar.com/news/canada/2015/04/22/justin-trudeau-promises-to-balance-federal-budget-scrap-tfsa-increase.html
The general theme being a loss of tax revenue. I guess he believes the best thing for Canadians is that we should divert more of our wealth away from ourselves, and into government. Really? Who in their right mind would vote for this? I mean, not that I would vote for him anyway. But it’s like he’s proud to announce it, that he thinks it’s going to win him votes. Maybe it will… Canadians aren’t exactly the brightest bulbs on the tree when it comes to personal finance.
Also, why the outrage about a $10K TFSA limit when the RRSP limit is $25K? Clearly that must “favor the rich” too since I don’t see any welfare cases topping up their RRSPs this year. I honestly don’t understand the fuss about being allowed to put an extra $4500 into a TFSA. Of course most people can’t do it. But they seem to have no problem whatsoever putting an extra $4500 into the kitchen cabinetry. Favor the rich… more like favor those with a functioning brain.
#34 Squirrel meat on 04.24.15 at 7:39 pm
#28 ALBERTASTROPHE on 04.24.15 at 7:25 pm
A crushing disaster looms now for Jim Prentice. Will it spill over onto Harper’s lock on Alberta voters federally?
We are politically dumb here, but not so dumb not to recognize when we are being manipulated, a la Prentice.
After the debate this week Forum Research reports a “dramatic shift” from the last wave of polling April 10.
“NDP take dramatic lead in Alberta”
————————————–
Go commies go…
………..
Yeh, that’s right, Mao and Rachel Notley…one and the same. Pathetic attempt at a scare tactic.
What if someone does not elect to deposit the extra 4500 into the TFSA account and an election is called and the Liberal’s or NDP win and they roll back the TFSA, do people that did not contribute the extra 4500 lose that ability for next year? Thanks in advance.
You mean everyone doesn’t have a TFSA maxed out full of long term growth equities? Sheesh, what’s wrong with you people?
Garth’s view on RE is becoming too main stream, I’m going to find a more obscure view before it’s too popular.
All this money being plopped into TFSA’s – is this why CPD index popped today? Hey Garth, should preferred be shunned if interest rates are expected to rise this summer or fall – or is this already priced in? My limited knowledge of preferreds is that they can decline into rising interest rates?
Wow!! Your TFSA has many more advantages over our ROTh, but the one thing in common is the ability to shelter dollars, AND their growth from all future TAXES!!
I know my wife and I used them as much as we could often maxing out the contribution limit before retirement.
Now, I move the max that I can each year into it from our Taxable retirement accounts -without breaching that next (25%) tax bracket in to the ROTH.
Still a winner, won’t affect any other gov’t pogy here, and the whole thing is all TAX FREE. It’s inheritable as well.
Those that can use the TFSA by all means fund that puppy!!
I’m not Anti-TFSA, but Joe Oliver did nothing to close the OAS and GIS loopholes with TFSA accounts.
The CRA needs to have a line in the tax returns detailing how much money in TFSAs assets was removed each year in order to determine what government assistance you get.
If a retired person has an income of $90,000 a year ($60,000 in income and $30,000 in TFSAs) and is getting full OAS, that’s a problem.
OAS and GIS were designed to be basically welfare for seniors to keep them out of poverty not to make rich seniors even richer.
#7 – I remember seeing in a magazine that a young couple has the highest value TFSA account, I think it was around $500K.
They bought a small cap share which popped.
—————————————————————-
I’ve personally heard and seen of much higher (around $1 million) valued TFSAs. But CRA went after the holders and basically penalized them on the entire value of the account forking over ALL gains.
Garth, can CRA legitimately do this? Can they pick a $ value out of thin air and say “somethings wrong here” and go after the account holder. I take it as a yes though
I’m not anti-TFSA but Joe Oliver needs to close the OAS / GIS loopholes in the tax code.
Currently, a senior who has an income of $90,000 a year ($60,000 in reportable income and $30,000 from TFSAs) would get full OAS.
That’s a problem! CRA needs to put a line on the tax code showing how much was withdrawn from a TFSA per year. Not for taxing purposing, but to determine what government benefits you receive
If the TFSA is going to pass the RRSP as the main vehicle for retirement savings, it needs to be used to determine your OAS / GIS Payments.
Simple as that.
#26 Smartalox on 04.24.15 at 7:23 pm
“… If the government doesn’t tax capital gains from real estate (unlike the US)…”
=================================
I assume you’re talking about a principal residence?
The IRS is actually pretty lenient when it comes to taxation of real estate capital gains of this sort. When you sell your primary residence in the USA, you can make up to $250,000 in profit if you’re a single owner, twice that if you’re married, and not owe any capital gains taxes.
Most of the 99% who are married will not incur a $500,000 profit at the moment!
Yes sir Garth….most Canadians have an extra 20,000 laying around. Tongue firmly in cheek….
Cripes, my wife and I are both employed professionals, mortgage free…and still don’t “happen to have” an extra 20,000 hanging around. And we absolutely do not spend frivolously.
It’s preposterous.
This is yet another wealthy get wealthier situation. It allows the only demographic generally wealthy enough to pull this off (older folks…usually 60 and older) to transfer their wealth in trickle down fashion to their spoiled rotten children.
Frankly…it’s a disgusting display of platitude to the 1% yet again.
If I had the extra 20,000…then by all means I’d applaud it.
Call it sour grapes if you’d like but the reality is it doesn’t help the average Canadian not one little bit.
You say you do not have 20K in existing investments to shelter, as two employed, mortgage-free professionals? Fail. — Garth
#43 Washed Up Lawyer on 04.24.15 at 7:59 pm
NDP majority in Alberta?
_________________________
Probably not, but Albertans may finally get the effective opposition they’ve been lacking for decades to keep a monopoly government’s arrogance in check.
(something Canadians desperately need at the federal level as well).
#60 Jh on 04.24.15 at 8:52 pm
——————–
As far as I recall, in those instances of people having 700K or 1mil + in their TFSAs and that the CRA decided to penalize those individuals it was in cases of using the TFSA for day-trading. The CRA’s argument: TFSAs are meant for saving (and investing) not for use as a means of earning a living and by day-trading those individuals were de facto using the TFSAs as a means of generating income – not merely save/invest which is against the spirit of the law governing the TFSAs.
In short: I doubt that they look at a specific TFSA value – rather the way in which the TFSA is used. If you buy stock of company X and it pops by 2000% in a year; you should be fine. If you’ve made 50+ trades a day for a year’ you’re in trouble because you’re using the TFSA to generate income which is a no-no.
There may be other instances out there but those were the few that I’ve read about involving the CRA going after people.
#59 TS – there is no OAS or GIS “TFSA loophole”. if someone has $1 mil in the TFSA they still get OAS. so what. no difference than having a $1 mil house, selling it and payuing no tax with the PRE. they would also still get OAS. Denying OAS to those with big TFSAs but not big houses would once again encourage people not to save but rather to pump more of their money into real estate. dumb idea. there is no loophole.
A new bubble is born, called TFSA. In 10 year all the money it will shift from housing to TFSA. Canadian stocks it will go kuku because of demand supply factor and cra rule of using TFSA to buy Canadian companies only. You heard this for first time from lala.
TS #61 re: ” I’m not anti-TFSA but Joe Oliver needs to close the OAS / GIS loopholes in the tax code.
Currently, a senior who has an income of $90,000 a year ($60,000 in reportable income and $30,000 from TFSAs) would get full OAS.
That’s a problem! CRA needs to put a line on the tax code showing how much was withdrawn from a TFSA per year. Not for taxing purposing, but to determine what government benefits you receive”
Perhaps, but keep in mind that monies withdrawn from TFSAs consist partly of already taxed contributions, and depending on how well the investments have done (not very for most people who are stuck on GIC’s), much of the monies withdrawn will be from the principle.
You have to be careful when justifying restricting people of OAS/GIC just because they were prudent enough to save their own money that was already taxed.
With regard to TFSA’s, seeing lots of readers comments being posted below MSM on-line news articles.
eg. “…this is not news; Garth Turner predicted the doubling of TFSA contribution limits months ago…”
Nice coup. Did you rent out space in SM’s UCC for that one?
I love the increase in TFSA room. I think the government and CRA need to figure out a way to claw back OAS from people with sufficient means though. The OAS is designed to keep old folks from dying in the street. It’s not supposed to serve as a supplement for latte purchases.
#67 lala on 04.24.15 at 9:14 pm
“Canadian stocks it will go kuku because of demand supply factor and cra rule of using TFSA to buy Canadian companies only. ”
————
No such rule exists. You can buy Canadian, US, and international companies’ stock as well as ETFs, covering all major indexes, geographies, sectors, bonds, options… etc.
Cloning sheep is so 90’s.
What most don’t know is that they’ve been secretly cloning the Minister of Gazebos. How else can you explain Joe O……
http://www.torontosun.com/2015/04/24/in-praise-of-tfsas
“You have to be careful when justifying restricting people of OAS/GIC just because they were prudent enough to save their own money that was already taxed”
No you don’t.
If somebody has a million dollars in the bank in TFSAs and are under 65 should they be able to collect traditional welfare?
That’s what OAS and GIS what designed to be. Welfare for Seniors. It just has less stigma attached to than traditional welfare.
I’m sitting hear thinking what is the real purpose of a TFSA and this yrs increase? Who can put away 10k pr year in a household unit? And everyone is looking to make 7 % yr over yr. Tax free yet risky. The two polar opposites….
Washed Up Lawyer #43
I enjoyed the certitude implied in your comment – it reminded me of how I might have thought a week or two ago, thinking that Alberta’s regressive politics would revert to the mediocre mean once again, somehow, some way….
But did you read the piece I linked to? The poll data is eye-opening.
Even BEFORE the debate, the NDP was soaring ahead. After, it is only stronger. You really think Prentice can now move from a projected 6 measly seats to over 44?
How? In 10 days?
Did you watch the debate this week? I did. Rachel Notley totally crushed Prentice with her focussed and calm approach. She looked like a Premier. He acted like an entitled thug without a sense of direction, talking down to her and the electorate (His comment about “math”. And remember that bullshit about how we “have to look in the mirror” to see the source of our problems? That rubbed most Albertans the wrong way, and his performance just accentuated that)
Commentators like Danielle Smith (who said she watched the debate in a room of glum-looking conservative men) and Charles Adler agreed Notley had won and Prentice had appeared like a doofus.
Washed Up Lawyer, you have said, I think, that you are from Fort Mac, right?
What you did not seem to get, from the polling data, is that this time, you don’t matter anymore. Fort Mac, Okotoks, Lethbridge, all the rural and semi-urban parts of the province will not be calling the shots this time, it appears.
It is very unusual, I agree, and 44 years of same old same old is hard to shake off.
Notley is running on all cylinders, and looked calm and in control, not at all scary.
I would have thought we’d have some sort of coalition a week ago, with PCs in a key role.
Not any more. Odds are good this trend will continue – it is too late.
Tell you what – if you are right and the PCs win again and are in control, I will donate $10 to my local SPCA. If you are wrong, you do the same.
Deal?
#59 TS – there is no OAS or GIS “TFSA loophole”. if someone has $1 mil in the TFSA they still get OAS. so what. no difference than having a $1 mil house, selling it and payuing no tax with the PRE. they would also still get OAS. Denying OAS to those with big TFSAs but not big houses would once again encourage people not to save but rather to pump more of their money into real estate. dumb idea. there is no loophole
————————————-
You’re right. People with million dollar houses shouldn’t be getting OAS or GIS either. Now you’re thinking with your head.
The Government doesn’t have enough money to send $500 a month to everybody simply because you hit the age of 65.
This isn’t Greece
#67 lala on 04.24.15 at 9:14 pm
A new bubble is born, called TFSA. In 10 year all the money it will shift from housing to TFSA. Canadian stocks it will go kuku because of demand supply factor and cra rule of using TFSA to buy Canadian companies only. You heard this for first time from lala.
…..
Good call Lala.. I’m quite certain now that they made this sort of attractive.. The TFSA.
If the NEOCONS ever blow the election, the commie tree huggers will come for your loot.
Watch the polls carefully in every Fed election.
If they’re winning, cash out, put under mattress, or even better leave the country, launder it by frequenting casino visits, make it disappear… It’s all gone CRA
Ok that’s just the writer in me..
[…] Source: http://www.greaterfool.ca/2015/04/24/serious-money-2/ […]
#70 Capt. Obvious on 04.24.15 at 9:20 pm
“I think the government and CRA need to figure out a way to claw back OAS from people with sufficient means though. The OAS is designed to keep old folks from dying in the street. It’s not supposed to serve as a supplement for latte purchases.”
—————–
While I see your point of it “not being fair” for someone that has amassed 1 or 2 mil in their TFSA and get 70-140K tax free per year perhaps to still get OAS and GIS, as MC pointed out in comment #66 earlier today already: what about people, who in their 70s sell their principal residence for 1 or 2 mil tax free? Should we start taxing gains on principal residences for people that are retired and have no other significant sources of income other than the OAS or GIS?
True the TFSA will provide you with cash every year instead of just getting the lump sum payment, but the TFSA doesn’t provide shelter… so there are pros and cons to both investments. Some people chose to go the TFSA route others bought Vancouver houses in the 60s when they cost 20-30K and sell them now for 2mil.
I fail to see how one instance is fairer than the other for people to be getting the OAS and GIS – other than having a balanced, diversified portfolio inside a TFSA requires more financial literacy and as a result may apply more to individuals that either have financial advisors or the proper knowledge (which are more likely to be from the 1% crowd) than any random person that was lucky enough to purchase property in some neighborhood decades ago which has seen significant price appreciation. End result is still the same: both individuals have lots of money, if you cut the benefits to one, you should do so for the other as well.
Just my 2 cents…
#63 glen on 04.24.15 at 9:00 pm
———————————————-
If you are mortgage-free, yet have no money, you either have a whack of consumer debt, or lots of young kids in daycare. That, or you need to redefine “professionals”.
#73,TS
If that’s the case it shouldn’t be just TFSA assets it should be all assets then.Senior citizen housing should be included in this also,just to be fair.
Looks like raunchy ronnies is missing out on the US recovery. I’m guessing health wise this is a good thing. I know it’s poison for us mtn bikers on the wet coast :-)
https://fortune.com/2015/04/22/mcdonalds-restaurants-closing/
I dont think average Canadian can even buy TFSA. He hardly can afford to buy RRSP where at least can get some return. With the high mortgage monthly payments, high property taxes, high auto insurance, expensive groceries, Gas, utilities who has money left??? unless you are making 200K or more.
The California drought has once more got people thinking about water as an investment opportunity. It still isn’t easy, but the attached article from Investment News reviews the state of play.
The article reminded me once again how much Canadians take abundant water for granted without realizing its crucial economic role. China’s long term growth is hampered by a lack of water. For example, fracking technology has created large potential petroleum reserves but China may lack the water to fully exploit them.
“In China, for example, fresh water is so sparse it is estimated that if each of its 1.4 billion people took just three showers a week, the country would deplete its supply of fresh water in one year.
And fully half of the 1.3 billion people in India don’t have access to drinking water on a daily basis, while 70% of the patients in Indian hospitals are there for water-borne illnesses. ”
http://www.investmentnews.com/article/20150419/REG/150419934/options-to-invest-in-innovative-technologies-that-address-water?
Not sure about all this tfsa controversy. Money has already been taxed. And if it grows and is invested or spent, also good.
The bigger the growth the better. A bigger pie for all.
I don’t think it ever gets changed.
Media was looking for a story but there isn’t one there. And savings isn’t sexy so they will move on.
Mike Duffy?
#64 MSM-Free Zone on 04.24.15 at 9:04 pm
#43 Washed Up Lawyer on 04.24.15 at 7:59 pm
NDP majority in Alberta?
And:
#75 ALBERTASTROPHE on 04.24.15 at 9:31 pm
_________________________
My political predictions are as pathetic as my hockey predictions. (Flames in 6. My earlier prediction of Canucks in 4 was a typo and booze induced).
This election will be healthy for democracy in Alberta. Rachel is a star like her Dad was. The lone NDP MLA in the Alberta legislature for more than a decade until he died in the plane crash. Principled, honest and with a heart.
Yes, four decades of PC majorities was bad (the resource wealth is gone) but equally harmful was the overwhelming majorities that they had. An effective opposition would be helpful. We had one, but they quit.
ALBERTASTROPHE, I will take that bet. But if I lose, I will donate $20 to the SPCA.
My daughter is shopping for a beagle but with the win at the Westminster Kennel competition, Beagles have seen a bump in prices. Just like houses in Estevan and Kitimat.
#83 WhatSaving on 04.24.15 at 10:02 pm
“I dont think average Canadian can even buy TFSA. He hardly can afford to buy RRSP where at least can get some return. With the high mortgage monthly payments, high property taxes, high auto insurance, expensive groceries, Gas, utilities who has money left??? unless you are making 200K or more.”
——————–
Maybe the average Canadian should get rid of that mortgage and rent instead for a fraction of the cost. Plus then they could add the “high property taxes” on top of the savings from the lower housing costs of rent vs. owning to their savings.
There… see fixed it for you.
That’s kind of the whole point of Garth’s blog: the average Canadian is in some serious need of re-evaluating their priorities and learning that life is more than just buying real estate – there are other ways (safer and more efficient at that) in investing in your future. And that’s what a balanced and diversified portfolio is.
Correct, TFSA can create pressure to buy North American stocks (US and Canadian) and make the current rich owners richer by maintaining higher stock prices. (No capital gains tax for stocks traded on TSX and US exchanges.)
If everyone invests in TFSA the way and with the expected return Garth suggests it could drive strong disconnect between economy and stocks valuations.
Could it become another ponzi scheme? Of course it might, feeling rich (while being poor) is the way to control masses.
You are richer than you think (while being poorer than you think). But it feels good (and sophisticated)
but of course the entry point to join a ponzi scheme is at the beginning, so Garth could be correct again.
“The Canada Revenue Agency (CRA) is allowing individuals to immediately benefit […]”
Ummm…uh…*cough*in*cough*congruity*cough* Sorry, got a coughing fit while typing, forgot what I was about to comment.
I saw my future tonight and I didn’t like it. I’m changing it. I was going to start eating salad. And quit smoking.
This dude, dead look alike of Fread Flinstone. I come out of the little boys room, he drops right in front of me, not moving. 300 lbs, 40 to 50…years of age.
I’m the last thing he sees is his terrified eyes, then he goes to the other side, just like that… Not moving, these Americans try to help him. Cpr, mouth to mouth.. His life less eyes will not break contact with mine.
Thank God I started smoking again when I hit 300 lbs.
180 with a two pack now.
Shit. I’m never quiting smoking, I figure coughing alot beats a dead fat drop…
I always bet good..
It pains me to say, but the only poster that still tickles my fancy is Smoking Man.
Enough of TFSA crap already.
Shit. I’m never quiting smoking, I figure coughing alot beats a dead fat drop…
I’ll take a dead fat drop any day.
Having seen elders pass; wasting away from cancer; for months…
Dead fat drop. There are far worse ways to go.
#93 Leo Trollstoy on 04.24.15 at 11:05 pm
Shit. I’m never quiting smoking, I figure coughing alot beats a dead fat drop…
I’ll take a dead fat drop any day.
Having seen elders pass; wasting away from cancer; for months…
Dead fat drop. There are far worse ways to go
……
Morphine Man, they dident have it that bad.. I can only wish….
#91 Smoking Man on 04.24.15 at 10:54 pm
I have a relative that is a cardiac surgeon. Whenever he sees a jogger, he says “You only have a finite number of heartbeats in your life. Use them up anyway you like.”
The thing about the TFSA, The non-savers (most who have a mortgage of more than 10,000 per year) are finally, 6 years after they started, are kinda taking notice of it. It’s about investing for your future. There has been plenty of time to prepare for this, and we have heard that the amounts could go up. So the people who have not prepared want to drag everyone else down. Attack the people who save their money. Not the Billionaires or Millionaires but the people who save a few thousand per year or have saved a few thousand per year before there were tfsas and now they can invest more in them. The people who are not buying peaking real estate.
I am a proponent of bringing the OAS back to 65 and rolling back the income splitting. But the TFSA should not be clawed back by the Liberals. Any swing voters for Liberals would probably feel pretty alienated now and isn’t that what they need to win? Also, Trudeau won’t align with the NDP to form government if they could.
They’d rather be opposition..this is Canadian Politics.
I will take the $10K per year TFSA – thank you very much.
Will this create a problem for next generations? Let’s leave that to Mr. Harper’s granddaughter to fix he he ;)
A sign that this blog caters to the elite 1%: 99% of Canadians lack one primary ingredient for contributing more (or at all) to TFSA: cash!
#83 – easy, ditch the mortgage. I live in the middle of Toronto. Rent, utilities, all living expenses add up to about 28% of my after-tax (take-home) income. Plenty of money left to fill the TFSA every year, some leftovers in my RRSP, and enough to have fun while I’m young.
The situation you describe happens with poor life decisions. Don’t spend $800k on a falling-apart drafty house when you make $60k/year.
RE: #87 Alex G. on 04.24.15 at 10:21 pm
#83 WhatSaving on 04.24.15 at 10:02 pm
“I dont think average Canadian can even buy TFSA. He hardly can afford to buy RRSP where at least can get some return. With the high mortgage monthly payments, high property taxes, high auto insurance, expensive groceries, Gas, utilities who has money left??? unless you are making 200K or more.”
——————–
Maybe the average Canadian should get rid of that mortgage and rent instead for a fraction of the cost.
My wife and I make less than 85K combined and that’s the most we’ve ever made. My TFSA is full. Hers will be full soon. My Victoria BC house is mortgage free. I’m in my late 40’s.
The problem with people is that they blow their money on useless crap. They do this their entire lives and then wonder why they don’t have two nickles to rub together. Idiots!
F uped society, in Canaduhhh my wife is my best friend, where I came from ( somewhere in Mediterranean) my wife is just wife. I’m exchanging valuable time for money, how sick is that. SM you are the only sane alien on here.
Call it sour grapes if you’d like but the reality is it doesn’t help the average Canadian not one little bit.
You say you do not have 20K in existing investments to shelter, as two employed, mortgage-free professionals? Fail. — Garth
+++++++++++++++++++++++++++++++++
I’d have to agree on that one. Cut down on the 5 dollar lattes.
“Correct, TFSA can create pressure to buy North American stocks (US and Canadian) and make the current rich owners richer by maintaining higher stock prices. (No capital gains tax for stocks traded on TSX and US exchanges.)”
In practice, very few people invest in stocks in their TFSA. Garth constantly reminds us that most TFSA money is held in GICs or “in the orange guy’s shorts”, rather than being invested in equities or, at the very least, balanced portfolios.
So it could be said that the TFSA is helping to keep the housing and debt bubble inflated more than anything (after all, every dollar that is lent by the banks on mortgages has to be borrowed, mostly from “depositors”). Perhaps to the detriment of the stock market. Given that the TSX index has a dividend yield in excess of 30-year GoC bonds and trades at 15X earnings, it appears that it is the TSX that is quite undervalued. Especially when we see houses trading at 35X earnings.
Of course, eventually the housing bubble will give way to another bubble, perhaps a stock bubble. But that has happened in the past (ie: 1990s), and it didn’t take the TFSA to accomplish such.
BTW, long-term buy and hold stock investors can achieve annualized effective tax rates of around 10% over 30 years for people in the 40% tax bracket. Canadian equities are already so tax efficient that the TFSA really isn’t all that interesting. But it does help the GIC/fixed income/”orange guys shorts” crowd immensely who face tax at full marginal rates on their income with no possibility of long-term deferral.
#63 glen on 04.24.15 at 9:00 pm
Yes sir Garth….most Canadians have an extra 20,000 laying around. Tongue firmly in cheek….
Cripes, my wife and I are both employed professionals, mortgage free…and still don’t “happen to have” an extra 20,000 hanging around. And we absolutely do not spend frivolously.
——————————————————————-
When I was making 60k/Y alone, I had 10k to put aside each year.
And I’m a renter. Something is fishy in your story.
#53 MC on 04.24.15 at 8:40 pm
So apparently Trudeau, if elected, promises to reverse the TFSA increase:
————-
Just like in the 1993 election Chretien promised to replace the GST and renegotiate NAFTA…..never happened did it……..
……….all political leaders are duplicitous and will say what they think is needed to get elected.
#67 lala on 04.24.15 at 9:14 pm
A new bubble is born, called TFSA. In 10 year all the money it will shift from housing to TFSA. Canadian stocks it will go kuku because of demand supply factor and cra rule of using TFSA to buy Canadian companies only. You heard this for first time from lala.
——————————————————————
If it happens we will be buying cheap real estate.
But you know it won’t happen.
Maybe a comparison post on Roth IRA’s to our superior TFSA to brag about how much better we have it than Americans?
#67 lala on 04.24.15 at 9:14 pm
A new bubble is born, called TFSA. In 10 year all the money it will shift from housing to TFSA.
#88 Sheane Wallace on 04.24.15 at 10:40 pm
Correct, TFSA can create pressure to buy North American stocks (US and Canadian) and make the current rich owners richer by maintaining higher stock prices.
————
I think you are saying that the people using their TFSAs to buy stocks on the TSX will distort Canadian stock prices to the high side?
Not sure if it will make much difference to equity markets.
1) people with money will be investing in equities with or without the TFSAs, TFSAs may increase it some but not hugely.
2) most Canadians consider a TFSA cash savings account the pinnacle of investment options, so likely no more than 20-30% of TFSA money will go to equities
3) for most people their savings money will be going either to TFSAs or RRSPs so either way the money would be going into investment
4) and if you are smart you’ll only sink 10-15%
of your equity potion of the TFSA in Canadian stocks – the rest should go US/international – its a big world out there.
#61 TS:
I’m not anti-TFSA but Joe Oliver needs to close the OAS / GIS loopholes in the tax code.
Currently, a senior who has an income of $90,000 a year ($60,000 in reportable income and $30,000 from TFSAs) would get full OAS.
That’s a problem! CRA needs to put a line on the tax code showing how much was withdrawn from a TFSA per year. Not for taxing purposing, but to determine what government benefits you receive
If the TFSA is going to pass the RRSP as the main vehicle for retirement savings, it needs to be used to determine your OAS / GIS Payments.
Simple as that.
———————————————————-
I think the key point you’re missing is that TFSA contributions, unlike RRSP contributions, are made with AFTER-tax dollars. As such, it would be unfair for the government to turn around and essentially “penalize” you a 2nd time by way of OAS or CPP means-testing.
Simple as that.
#73 and #87 Alex G.:
You have me doing my HALLELUJAH dance over here!!
Keep on preaching!!!
http://oilprice.com/
Today we talked about TSFA at work. Many over debt house owners were pissed off that government would allow this to happen.
When one of the people from the accounting group made a spreadsheet of projected saving and interest buildup at 7% . They were disgusted, mainly because they were they didn’t have any cash to put into this.
Many complained its was only for the rich.
I shut my mouth, thinking, if you sold you house and used the profits, you’ll have over 100,000 in 5 years because you’ll be able to place 20,000 + 11000 to start with this year and move forward from hereon
How Insane Is Canada’s Housing Bubble? 42% of “Second-Time” Buyers Need (a lot of) Money from Mom & Dad to Buy a Home
http://investmentwatchblog.com/how-insane-is-canadas-housing-bubble-42-of-second-time-buyers-need-a-lot-of-money-from-mom-dad-to-buy-a-home/
as you move assets 5K at a time, how much time should you allow between moving dates? 5K per year or 5K in chunks periodically throughout the year until the RSP is drained and converted?
When I die, does my wife inherit my TFSA? Is all the amount withdrawn and given to her? If we both die, does it all go to our child? Thanks for the post.
#107 Tom from Mississauga on 04.25.15 at 12:44 am
————————————————————–
Can we also brag about Toronto/Vancouver vs. New York/Seattle? And how our climate is so much better? Or cost of living? Even our climate change record is better….not.
#79 Alex G. on 04.24.15 at 9:35 pm
——————————————————-
Let’s look at the flip side, if you die young, you get a 1-year lump sum OAS, you (and your estate) do not collect any of the CPP that you contributed to your whole life, and you also don’t get your work pension (if public sector employed).
So living longer and collecting these benefits regardless of TFSA ‘income’ is just icing on the cake for those that remain alive.
Well Garth, after reading your blog for a few years and expecting a crash that does not come, I am no longer a virgin. Just bought a house in the Montreal suburbs. I needed the space (3 kids) and I bought within my means, no bidding wars in the area. Feels great, still have some cash, I applied your rule of 90. I am done with neighbours yelling that my kids are too noisy. Renting was fine for a time but it was time to own.
Nobody predicted a ‘crash’ in Montreal where the average house costs 25% what it does in Toronto. — Garth
ABNORMAL ALBERTA, a riotous musical comedy opened on Broadway yesterday – to mixed reviews.
What’s not ABNORMAL about a 40yr long one party rule in a democratic jurisdiction?
What’s not ABNORMAL about toxic tar sands?
What’s not ABNORMAL about blue-eyed junk bond sheikhs?
And what’s NORMAL about Harper’s hair? (Or interest rates, or house prices.)
When BACKWARD nations catch up to modernity they do so all at once, skipping all the developmental stages inbetween – thus Trotsky, I believe. Granted that Alberta (and Harper) aren’t Russia and the Tsar. But it could be, could it not, that an ABNORMAL and BACKWARD Canadian province (and a fat-lipped Teletubby PM from Alberta with really stupid hair) get – of course unexpectedly – normalized.
I posted about the sustainability of 7 % return when real economy sucks (zero or negative growth) but it seems the post was lost in translation.
#108 omg the original
I agree with most of your toughts,
But TFSA gives additional incentive to save and soon when inflation picks up and the helpless men at the helm of BOC can’t raise rates there will be rush into stocks and out of cash, so there will be additional pressure on stocks to rise.
thoughts, damn it
“You say you do not have 20K in existing investments to shelter, as two employed, mortgage-free professionals? Fail. — Garth”
No kidding, that is sad beyond words.
Garth said,
You say you do not have 20K in existing investments to shelter, as two employed, mortgage-free professionals? Fail. — Garth
Not sure how to interpret this Garth. We do have RRSP’s in excess of the allowable amount I could throw at a TSFA (82,000?).
We also contribute a fair chunk of our salaries towards pensions (mine a defined benefit pension and hers a shared risk model). So we are talking between the two of us over 600/month of salary deferred for that pension.
After paying for our girls ballet (over 5K/year), taxes (property and income), a car (500/month), groceries (10,000$/year), clothes for the family, insurance (home, auto,life), Gas, RESP’s (3000$ per year), car repairs and maintenance (2000$/year), house maintenance and repairs (2000$/year) and the occasional family vacation(5000/yr)……we are left with enough to plow into our RRSP’s (300$/month) and a bit into a TFSA.
Are you suggesting we collapse our RRSP’s into the TSFA?
If not, then I am fully perplexed as to how you think a young family trying to pay bills and bring up children just “happen to have” and extra 20,000$ laying around.
Sure…by all means I could cut out any form of joy and entertainment for my girls (vacations, the occasional movie, ballet lessons, clothes etc)…but then I figure I’ve cut out a large portion of my life to enjoy raising a family…..just so that I can be wealthy when I’m old and wrinkly.
I am almost certain Garth that if you sat down with me, you would see that I am diligent person financially (I’ve had a budget book with all expenses accounted for since 1997). I am near certain I would open your eyes a bit as the realities of a middle class family raising a family these days.
I’m not sure who you have as clients financially, but based on your perception that 20,000K is a breeze for middle class families to “find”…then I think you need to do a little more investigative work into that perception.
And I have a great deal of respect for you Garth (been reading your blog since 2000). It’s why I bought the smallest house on our street 15 years ago and avoided the temptation to “upgrade”. I thank you for that.
But I honestly think you need a bit of perspective on the ease by which 20,000K comes along for most Canadians (as in over 90% of).
With respect sir,
G
(a) Fill the TFSA first, not the RRSP, especially if you are contributing to a corporate pensions. (b) Yes, you need to reassess your live-for-today spending habits. Ten grand annually for ballet and vacation? Big mistake for you to have all net worth in a house, with no TFSAs, or a non-registered account. You will learn this. — Garth
Andrew Woburn #84 Re: water shortage
You are absolutely right – we take water completely for granted, and it will be a huge issue going forward, maybe an investment, maybe a source of global war, too.
You mentioned China too:
“In China, for example, fresh water is so sparse it is estimated that if each of its 1.4 billion people took just three showers a week, the country would deplete its supply of fresh water in one year”
So, you are saying that the Chinese currently wash themselves almost as infrequently as Smoking Man?
Eeeew…..Shanghai and Seneca both just got crossed off my bucket list.
Thanks for the info.
Just passed $10k earnings with ETFs since Dec. Thanks Garth. My retirement looks brighter.
Does anyone have insight as to what’s going on with ZPR? Seems strange for a pref. share index to be trading at the volumes it has been. Any info would be appreciated!
>#115 Luc
Yes, you can name your wife as successor beneficiary “as is” = no need to cash out TFSA.
She can if she wants to.
You can also name anyone (i.e. you children) as beneficiaries.
If not spouse, TFSA needed to be cashed upon transfer.
No probate, no capital gains tax.
Not everyone has $10K to put into a TFSA, but everyone can make little changes to save up more. So many people at work buy lunch everyday, go get that coffee and muffin snack, and so on. How hard is it to really make extra dinner the night before so that there’s a delicious lunch for the next day? At roughly $10 a day for 5 days a week the total is already over $2K of after-tax income.
I was able to sock away $20K in high school alone just working retail year round while in my studies, and continued into University to fund investing accounts.
Life lesson from my parents, “Would you rather have an easy time now and a tough life ahead of yourself, or would you rather have a tough time now and an easy life later?”
Too many choose the former.
@#123 glen.
Your financial summary makes a bit more sense now that you’ve explained it.
No one is saying that you have to live like a hermit or deprive your kids forever.
Saving/investing now while your young will allow it to grow over the years.
Putting ALL your money into company pensions isnt without risk. Defined pensions arent the failsafe they used to be (just ask a Detroit Policeman). I think we are going to see a massive ‘clawback” in defined pensions and benefits as the Boomers retire enmass.
It isnt easy but you sound like you have the discipline to find ways to save or reinvest your hard earned sheckles.
Good luck.
Hey gang, Than Merrill is in town and hosting an event on: “Building Wealth in Real Estate”
http://www.thansonevent.ca/
Attending the promo session might provide some good entertainment value, but that’s all.
Garth says,
a) Fill the TFSA first, not the RRSP, especially if you are contributing to a corporate pensions. (b) Yes, you need to reassess your live-for-today spending habits. Ten grand annually for ballet and vacation? Big mistake for you to have all net worth in a house, with no TFSAs, or a non-registered account. You will learn this. — Garth
Appreciate the response Garth.
a) I would not say all our net worth is in our home. It`s a 15 year old split entry worth approx.: 270,000. We have almost half of that value in RRSP`s and our pensions are also valued currently in the 6 figure range. And we do have over 20,000$ in TFSA. (accomplished gradually…and no where near maxing out the available 10K per now 20K per).
b) ANY recreation Garth for kids will run you in the 5K range. Whether it`s ballet, hockey…or whatever….it`s reality. Ask any family on here and they will agree.
c) Sure, I`ll concede that 5K annually for vacations could be carved out of the budget. But geesh, it`s a question I struggle with. Without a doubt some of the fondest memories we have is our tip to Disney a couple of years ago and our annual summer vacation to a cottage in the south shore of Nova Scotia. I have a hard time swallowing the advice to eliminate these precious fleeting moments with our girls so that I can be wealthier when I`m older….if I am fortunate enough to be alive past 70 for goodness sakes.
d) Thanks for the advice RE: TFSA vs RRSP. This is interesting because I recently had this discussion with my financial planner (admittedly the guy is bank employed which you don`t seem fond of :)) Anyway, he ran the numbers on that and figured until I reached 200K in RRSP`s it is better to continue to pile on the RRSP and reap the tax benefit rather than go with TFSA….but eventually this would be the way to go.
Interesting divide there and it gives me pause for thought. I appreciate that. BTW….I always mention your blog in discussions with my financial planner. And I believe he follows quite a bit of your advice with reference to a balanced portfolio.
And finally:
e) I maintain that finding 20K annually for the average Canadian family is not really all that easy. There are many factors that have to be weighed. I honestly think you would be a great resource for building wealth for a great number of people Garth….but I remain skeptical that you have a firm grasp of what it costs to raise a family….save for their education….keep them busy with sports and recreation so that they learn the value of time and structure….spend quality family time together via vacations to escape the daily rat race of work, school etc etc.
No matter how you want to simplify things Garth, it`s not as easy as `just cut out all those things so that you find the cash`. There is so much more that goes into considering the “now versus then“.
Investment is twofold…invest in today AND tomorrow has to be part of the calculus when financial planning for a middle class family.
Nonetheless Garth, I appreciate you responding to me. It provides me with another perspective and I will sit down with my wife tonight to discuss our family budget. You provide a valuable service with this blog and I always plug it to friends and family when ever I can.
Cheers,
G
Re #121 Glen
Sure…by all means I could cut out any form of joy and entertainment for my girls (vacations, the occasional movie, ballet lessons, clothes etc)…but then I figure I’ve cut out a large portion of my life to enjoy raising a family…..just so that I can be wealthy when I’m old and wrinkly.
———–
Be disciplined, pay yourself and secure the future first. It’s not a sacrifice, it’s smart.
I have 2 school age girls which means ballet, music, swim lessons, 2 mos of summer camps, vacations, clothes, tickets, constant payments to app stores… looming education costs.
I set-up deductions and pre-authorized payments from my bi-weekly salary for the DCPP (company matched – free $), RESPs (CESG – free $), TFSA, group RRSP. I opened a Questrade account. Learned about ETFs. The take home shrank, I had to budget carefully and track everything, it was lean for a moment in time (more family board game nights but the kids seemed to think the old fashioned attention was great), but there was so much waste, everywhere, it was a good exercise.
But soon enough the non-reg investments started to pay me in cap gains, the REITs in distributions, the preferreds in dividends and others in interest, from which I take a portion to pay for the enriched life experiences. Made sure to max all the tax breaks in selecting activities (childcare, arts and sports credit).
It took me over a year of progressive work, step-by-step, to turn the model on its head. You’re not giving up quality of life, you’re planning to ensure you have it all, at every point in time (you may wish to take your grandkids to see the ballet or send them to Disneyworld). You may also sleep better, have less stress and be a better parent.
Why They Invest in GICs Only
A young relative asked me for help in how to invest her RRSP.
We called the credit union that has the RRSP and asked about the possible investment choices. I figured it would include mutual funds but not stocks or ETFs. Actually, it included only GICs. Even going to mutual funds required a transfer to (I believe it was Credential) a somewhat related entity.
So, the path of least resistance for customers at this credit union is 100% GICs or other bank deposit products.
If you don’t think moving it to an another institution looms as a hurdle (even though it is actually easy) then you don’t understand why banks (and credit unions) are so profitable. It’s because they have sticky customers due to the real or perceived hassle of switching.
Hopefully, my relative will move the money but through inertia and lack of knowledge the percent of customers that move each year is tiny.
#123 Glen
You are a poster boy for the “pay yourself first” philosophy of investing. Rather than meticulously documenting where all the money went in a ledger, set up a program to automatically withdraw $1,700 a month from your bank account into an investment account, and figure out how to live on the rest without going into debt. Most young families are paying a mortgage or rent every month. You are not, and still the money disappears?
P.S. The lamentation of expenses is a good first effort, but study from the masters if you want to improve:
http://www.torontolife.com/informer/features/2012/02/15/almost-rich/?page=all
It doesn’t look like you’re spending enough on wine.
Forgot to mention in my above posting: Braces!
Both my girls are in need of braces (thanks to my genetic contribution). Guess what that costs?
$6200 per child….with only about 1500$ covered by insurance. So ya….that approximately 10,000$ after tax cash to put those suckers on.
So again…the realities of raising a family. There is an AWFUL lot that goes into that Garth.
It’s all about choices. You make them. — Garth
Garth, you are a careless and insensitive jerk!
Last night over 1000 Starbucks outlets across this country had to shut down due to an electronic glitch at the cash registers. Hundreds offered NO FREE DRINKS AT ALL!!!!!
Like thousands of other millennials, all of the intern slaves here have been critically under-caffeinated and de-hipsterized for almost 24 hours.
Your “caring” response:
Did you let us go home early?
Did you give us the weekend off for therapeutic re-caffeination treatment?
Did you break out the emergency stash of Keurigs?
Did you notify Emergency Management Ontario?
Did you demonstrate any degree of managerial sensitivity or competence?
I think we all know the answers to these questions.
Enjoy your Coffee Time double-double, idiot. That won’t do for us, we have standards.
You are a Grande Venti douchebag boss :(
Emma Zaun
Shop Steward
CUPE – Greater Fool Division
(Canadian Union of Peelers and Exhibitionists)
Anyone else thinking Habs Flames final this year?
Met twice with one win each.
I certainly vote for the TFSA stuff over MLS stats; but hey, I have no prospect of buying a house for a long time so I am bias.
Always appreciate the advice. Wondering if there is any general rule for % of salary that should go towards monthly rent?
As Dave Ramsey would say, ‘Normal is broke and in debt’.
So I guess that you are right, compared to the other Canadian provinces, Alberta was ABNORMAL. And proudly so.
And the girls are 400% hotter.
#115 Luc
The answer depends on your province, so check with yours.
I will be on parental for 37 weeks this year.
So if I take Garth’s advice and withdrawal $4,999.00 from my RRSP and contribute it to my TFSA, I will still have to pay the 10% withholding tax plus any additional tax at year end.
If I was to buy a house in the distant future would it not be better to keep the 4,999.00 in the RRSP and withdraw the money under the home buyers plan and not have to pay any tax?
I would like to take the total 10,000 out of the RRSP while on parental leave, but if I take out more than 5,000 the withholding tax is higher. 10 to 30%.
Anyone have suggestions?
Thank you
Pay the tax. You got a refund when you put the money in. Now you owe it. That’s how an RRSP works. — Garth
Cripes, my wife and I are both employed professionals, mortgage free…and still don’t “happen to have” an extra 20,000 hanging around. And we absolutely do not spend frivolously.
Do you guys both work at Tim Hortons and have 5 kids?
#65 Alex G. on 04.24.15 at 9:05 pm
———————-
These people with TFSAs greater than $1 million were buying seed stock (@ 5 cents) and watching their investment multiply. They were anything but day traders.
I work in the industry and started off working for a very very wealthy man who gave me advice that i won’t forget he said “I’ve never met a rich day trader”. Day trading just doesn’t work. Part of what garth preaches here is just that: you should stick to rebalancing your portfolio on a scheduled basis and not tru to time the market.
#135 Glen — “Forgot to mention in my above posting: Braces!”
Quit blaming your kids!
If you’ve both got pensions and RRSPs which will total enough for you to live on, and you’re happy with that, then what’s the problem? Keep doing what you’re doing. If you’re not happy with that, spend less or earn more.
Obvs, you’re not the target voter for the bigger TFSA limit. You’re the target voter for the doubled Federal Children’s Fitness Amount Tax Credit, the expanded Universal Child Care Benefit, etcetera.
I’m a parent, and the only reason we’ve got a spare $20,000 laying around is that we didn’t spend it. We probably missed out on some of the happiest moments of our lives.
The are two types of dollars: Pre-tax dollars (RRSP) and post-tax dollars (TFSA).
I’m amazed people don’t get such a simple concept. I am banging my head almost everyday against the water-cooler in my workplace kitchen when talking with folks.
Post-tax dollars also include RESP, Non-reg a/c, the money to pay to buy burger & gasoline
For those approaching retirement, there is limited time left to load up the TFSA from income. Of course during retirement one can continue to shift RRSP funds to one’s TFSA. It also seems reasonable to use one’s TFSA space during retirement years as a tax free holding area for “gifts” from well-off progeny who have already maxed out their own TFSA space.
glen sounds like a teacher.
I can do anything I want and it is right.
you said you were professionals, act like it.
since I’m gonna get flamed anyway, while I’m at it;
if you wanted to find $20K extra per year, you could.
You choose not to find it.
If you wanna spend your money the way you do, go ahead. But don’t cry that you are short on TFSA money, when you are living life large.
If I wanna invest mine, let me. I get by on a meagre existence, but I wanna have the soft diapers in the old folks home, not those cheap scratchy ones.
It must suck to be weighed down by a mortgage, just when the TFSA limits nearly doubled.
My condolences on your becoming a proud mortgage owner.
#126 MandriA on 04.25.15 at 9:23 am
I commented on this in an earlier post. Both ZPR and CPD are seriously oversold, hence the small bounce. Either way, buy either or both according to your pre-determined allocations.
You buy them for yield, however, not cap gains.
Note to TS (back around the #50 -> #60 ish)
Proceeds from selling a house is not income.
Withdrawals from your chequing account is not income.
Withdrawals from you TFSavingAccount is not income.
Income is considered when determining qualifications of OAS & GIS.
Simple.
Note to Garth:
I tried to top up the TFSA on Thursday but FA says, “Gotta wait ’til the Budget passes.”
So, I sent him a few of your comments (duly linked of course) and Voila! Friday morning he has a mass announcement to clients that the back office, Integral Wealth, is accepting TFSA top-ups!
Hallelujah and thanks again.
Cheers, Russ
#138
In past, Garth provided the info below to help ascertain whether it’s preferable to rent vs buy. For what it’s worth, our family rents and our P/R ratio is 37.5.
==============================
The simple formula is (List Price/Rent*12) – in other words, divide the market value of the real estate by the annualized rent. See what ya get.
Here is one way to measure the result (as suggested by US real estate site Trulia):
– P/R ratio is lower than 15 = Listen to your mother-in-law. Buy the place.
– P/R ratio is between 16 and 20 = Nah, better off renting
– P/R ratio exceeds 21 = Your landlord is a munificent god.
http://www.greaterfool.ca/2013/08/13/renting/
I stand by my prediction.
*************
#197 Mom’s bank on 04.24.15 at 4:12 pm
Oh and by the way.. this Spring market is the peak for 604 and 416 RE.
———————————
and we should believe this when even the great GT made the same call in 2011 (5 years ago) and since then 604 houses are 30-40% higher
“As the snow melted it was obvious this Spring market would be a bust – even in desperately delusional places like Vancouver, or the GTA mega-market.”
And the Spring of 2012 was poor. Best do some research before you embarrass yourself further. — Garth
*************
Garth is right. Fed stopped QE2 and subsequently RE markets in 604 and 416 took a breather
Fed started QE3 in September 2012 and the RE market took off again
http://www.bloomberg.com/news/articles/2012-09-13/fed-plans-to-buy-40-billion-in-mortgage-securities-each-month
Fed has ended last year. Oil collapsed. 604 and 416 RE markets are riding on the fumes of a BoC rate cut and some speculation about PBoC QE (propping up their failing RE developers and local banks).
Fed will NOT bring QE4 and rates will increase.
The End.
#123 Glen
I hear what Glen is saying. We are in pretty much the same position. If we maxed out everything available to us, we would not have enough left to live on. Cash flow is important and a family of 4 needs at least $3,000 a month to cover *basic* expenses – never mind the orthodontics or daycare or savings plans. How many of us just live with the basics? Nobody I know.
We make decent wages, avoid debt, pay ourselves first and run a tight budget (no trips to disney either) but will still struggle to find the extra $ to take advantage of the extra TFSA room this year.
I will go duck and cover now. Cheers!
Slick and others,
Well I can assure you that I am always willing to listen to other perspectives. I recognize that people tend to adopt their own personal bias….and reject anything to the contrary. I believe that is referred to as cognitive dissonance. I am willing to admit that I could make different choices. And I listen to all counter opinions. To wit…because of this discussion, tonight I will chat with my wife and we will work towards taking better advantage of the TFSA. It seems clear to me that I may be making some wrong choices based on the feedback.
Sure, we all make choices in life and when it comes to finding an extra 20,000K after some RRSP investment and such…all I am saying is that it’s not easy.
Others here have admitted that they can do it so long as they live frugally. I get that. I’m fine with that.
I think on average, families with similar circumstances to mine struggle to find that balance between enjoying what you have today….and securing yourself for the future.
Some sacrifice their future entirely to make sure they enjoy themselves while they are blessed enough with their health today…others sacrifice what they have today to ensure they wear the “soft diapers” in retirement. It’s all about choices.
For someone in the middle class (no we do not earn the 190,00K as in the link above…and no we don’t work at Tim Hortons and have 5 kids)….striking a balance between today and tomorrow makes finding 20K a challenge.
I am not “blaming my kids”. I am however expressing the financial realities of raising kids. I would not trade it for the world.
I am not complaining either. My point was not to say I am right and Garth is wrong. What I AM saying however is that for those trying to strike a balance in the middle class….finding an extra 20K is not the breeze that Garth makes it out to be.
It’s just not reality based advice in my opinion.
#95 Washed Up Lawyer on 04.24.15 at 11:28 pm
———————————————————–
Your surgeon relative isn’t quite the mathematician then.
Imagine a resting heart beat of 75. You jog for 30 minutes, raising that rate to 150 (thus “using up” 2250 extra beats that you otherwise wouldn’t use). Ok, so your surgeon relative is correct about this. But what about the other side of the equation?
A stronger heart from jogging will now beat less the rest of the day. If jogging regularly drops your heart rate from 75 to 70, you are now saving 5 beats per minute. So your heart beats 7050 times less per DAY, just by saving 5 beats per minute due to jogging and having a stronger heart.
The overall math:
2250 – 7050 = 4800 less total beats per day.
I am also in a single income family. Can i gift money to my wife in the same way you mention for a tfsa but for a margin account, and have the proceeds taxable on her hands?
I have a question – after reading Millionaire Teacher, reading this blog, etc etc – how do I know if my fund (Scotia Canadian Dividend Fund) is a low-cost index fund rather than an actively managed fund?
They dont let you book a loss if you transfer something thats down
in kind. Can you sell it, book the loss, and transfer in the cash?
Thats ok right?
#63 glen on 04.24.15 at 9:00 pm
I know food inflation sucks (I saw local root vegetables in the triple digits!!!), but no way should your grocery bill be the same as my rent, unless there are costly food allergies that you’re buying for. Cut that grocery bill in half and boom, that’s $5,000 for the TFSA.
I am bored up here in Fort McMurray today. Time to stir the pot.
In 1968 Gordie Howe made $45,000. The Bank of Canada Inflation Calculator says that is $305,000 in 2015.
Today the entry level NHL contract is a mandated $750,000 (I believe).
Those damn unions!!!!
Here is one way to measure the result (as suggested by US real estate site Trulia):
– P/R ratio is lower than 15 = Listen to your mother-in-law. Buy the place.
– P/R ratio is between 16 and 20 = Nah, better off renting
– P/R ratio exceeds 21 = Your landlord is a munificent god.
Sounds pretty accurate. In previous posts of mine, I’ve used “P/E” instead of “P/R”, but a P/R of 15 roughly corresponds to a P/E of 8-10, and so on and so forth. P/E is just P/R, but with depreciation, opex, and income tax subtracted from such.
I believe those are my words. Trulia should know better. — Garth
#158 TheGreatGonzo on 04.25.15 at 2:19 pm
I am also in a single income family. Can i gift money to my wife in the same way you mention for a tfsa but for a margin account, and have the proceeds taxable on her hands?
===========================
No.
You can, however, make a loan to your wife at CRA’s prescribed interest rate allowing her to invest the funds and be taxed accordingly. You’ll need to have paperwork drawn up (ie: promissory note; interest only), she will have to pay you interest annually, and the interest she pays needs to be declared as income by you and can be deducted by her.
This scenario only works for select individual circumstances and requires thorough paper trail, so do your due diligence before you proceed.
My Way or the Highway
From Glen at 156:
I recognize that people tend to adopt their own personal bias….and reject anything to the contrary.
****************************************
So true, not only do most people reject anything outside of their own personal views, they are downright hostile to other approaches and other views.
Many see the world in terms of good and evil and they are always good.
Not only hostile but so many people have zero sympathy for anyone less well off, while at the same time figuring that anyone better off does not deserve what they have.
In a world of abundance I see a lot of bitterness and little sympathy for others. Especially so in anonymous blog posts. True colors shine it seems.
4 AM sunrise says:
I know food inflation sucks (I saw local root vegetables in the triple digits!!!), but no way should your grocery bill be the same as my rent, unless there are costly food allergies that you’re buying for. Cut that grocery bill in half and boom, that’s $5,000 for the TFSA.
I can’t see how you figure this. We eat “in” practically every night (I cook as healthy, preservative free as I can). We do buy fresh fruit and vegetables and such. Nothing extravagant though.
I would be surprised if a family of 4 can get away with less than 900$/month.
Could be wrong though.
Our gasbag housing market gets more attention from south of the border. Many folks down there must be scratching their heads at us. How on earth can we make the same mistake that just blew up their economy? Oh ya. We are different. It’s true. We are different. We are at least 25 IQ points dimmer. Blog dogs excluded of course.
http://wolfstreet.com/2015/04/24/housing-bubble-gone-wild-42-of-second-time-buyers-in-canada-rely-on-mom-dads-checkbook-to-buy-a-home/
The BIG question is if yearly returns on in a TFSA will be counted as income only for the purposes of Old Age Security and Guaranteed Income Supplement (GIS).
Then a couple expecting little income in retirement would be best served by investing in real estate and then could continue collecting upwards of $2500/month tax free from OAS/GIS/and provincial senior programs.
The other option is for people who have bases in 2 countries. For example, may people have pensions and own income producing properties/farms overseas. CRA has no way of knowing. The accounts there collect this money and the accounts here collect the OAS/GIS and basement suite income.
This is very common knowledge.
Of course TFSA income will not be included for means-testing government pogey because it is from the proceeds of after-tax money. Return of capital on your non-registered account, which can provide great income, is also not included. — Garth
At the same time I posted my question about actively managed funds, I emailed my guy at the bank. He responded within minutes and told me it was actively managed (MER 1.72%) – the bank does have index funds, but depending on rebalancing style can be a bit more involved for the client. I said I’m ready for them!
I am not surprised by the attitude I am hearing regarding the TFSA and the OAS income. Seems it is ok to gain the tax free profit from selling a paid off house, but to get the OAS when I am a house poor renter who has to rely only on my work pension, cpp, oas, rrsp, and tfsa, people want me to be punished. And all for being a hard working financially responsible citizen all my life.
Punishing the hard working people who started from nothing as a teenager, like myself, and never got a handout from anyone, well, it is called Communism/Socialism. Now, don’t get me wrong, I am all for helping the less fortunate, and I do, both through taxes and charity donations, but the envy and jealousy of people is evil.
21:
Two points:
1. Yes if you own property in Canada where most of your net worth is you probably do not want to own REITs. But, for someone who does not own Canadian RE a REIT is a nice hedge. If low rates continue along with stable prices in real estate REITs will do very well. REITs can be part of a diversified portfolio where owning your home for most people requires they to go all in.
2. REITs are not buying the same RE at the same valuation consumers are. Commercial and residential rental buildings REITs buy have cap rates double that or more of residential real estate. For example rental apartments sell for about 50% of what a similar condo sells for (per unit). There is also an economy of scale in managing and maintaining the properties. If interest rates go up and residential RE goes down it will not be good for REITs, however, they will do much better than residential properties.
#170 Freedom First.
A whole lot of truth and wisdom in your post sir!
Freedom First
———————-
Punishing the hard working people who started from nothing as a teenager, like myself, and never got a handout from anyone, well, it is called Communism/Socialism
——————————————————–
I’m shocked that anybody who calls themselves a conservative is lining up to suck the hind teat of Government in retirement whether they need it or not.
There’s lots of seniors in this country making well over $100,00 a year in retirement and paying very little tax with income splitting, TFSAs and the dividend tax credit.
I have no problem with that. But to say you’re entitled to Government pogey on top of that simply because you’re 65 and you vote more than young people? Give me a break!
5% of seniors live in poverty yet 15% of Canadian children do. The system is broken.
Political Parties are pandering to get the boomer vote by any means necessary at the expense of the younger generations in this country.
Of course TFSA income will not be included for means-testing government pogey because it is from the proceeds of after-tax money. Return of capital on your non-registered account, which can provide great income, is also not included. — Garth
——————————————–
Just Wait Garth,
If you think that a Government down the line is going to let people collect the GIS Supplement with a 1 million dollar TFSA, you’re not as smart as I think you are.
It’s going to be a very very very easy target
Actually it is an impossible target, since TFSA income is universally exempt from tax. All gains are made on afer-tax contributions, and are not recorded, tracked or registered. Taxation of removed capital is not feasible. And you are not as bright as I had imagined. — Garth
If I contribute directly to my wife’s TFSA what exactly is going to be attributed back to me for tax purposes and what exactly would happen anyway? The money already is after tax money and all gains are tax free forver right ? I fail to see why I can’t just write the cheque myself like I have already been doing the last several years.
Like RRSPs, TFSAs are registered to one taxpayer, regardless of whether that person has a spouse or not. No one but that person may contribute to, or withdraw from, that account. — Garth
@21
“If they are correct, it doesn’t bode well for the long term returns of Canadian REITs.”
I am missing something here. Are you suggesting that office properties, commercial retail properties, rental properties, and industrial properties are all overvalued in Canada?
And then there we Canadian reits that invest in the U.S. or imternationally.
#135 Glen: “So again…the realities of raising a family. There is an AWFUL lot that goes into that Garth.”
It’s all about choices. You make them. — Garth
***********************
Yes, it’s all about choices. No one will judge….
@73
#73 TS on 04.24.15 at 9:27 pm
“You have to be careful when justifying restricting people of OAS/GIC just because they were prudent enough to save their own money that was already taxed”
No you don’t.
If somebody has a million dollars in the bank in TFSAs and are under 65 should they be able to collect traditional welfare?
That’s what OAS and GIS what designed to be. Welfare for Seniors. It just has less stigma attached to than traditional welfare.
&&&&&&&
Just to be clear , are you advocating that a senior with a million dollar house in Toronto or Vancouver also have their OAS clawed back?
#157: “A stronger heart from jogging will now beat less the rest of the day. If jogging regularly drops your heart rate from 75 to 70, you are now saving 5 beats per minute….”
********************
And eventually you will discover you’ve destroyed your joints with the steady pounding…there are hip/knee replacements in your future. LOL
To Freedom First #170
I agree with you and would say that replace the OAS with a larger C.P.P. pension so that everyone contributes through their hard work and merits.
Just giving OAS to someone just because they are 65 or 67 or whatever age makes no real sense.
If someone is less fortunate with a disability or other circumstance, social assistance and other social programs are there for just that.
#166 Glen: “I would be surprised if a family of 4 can get away with less than 900$/month. Could be wrong though.”
********************
Wow, $900 per month for a family of four — $30 a day? Box lunches and home-cooked meals are the norm? Once again, it’s all about choices….
Next best thing to an orgasum, scalping my Paul Anka tickets moments ago at Seneca NF. Sold em for a buck each.
I’m just a lonely boy, that’s not music…
What’s even more depressing, 60 year old + chics in there daughters clothing making gogo eyes with me.
God take me now please..
#159 learning on 04.25.15 at 2:31 pm
I have a question – after reading Millionaire Teacher, reading this blog, etc etc – how do I know if my fund (Scotia Canadian Dividend Fund) is a low-cost index fund rather than an actively managed fund?
—————————
http://www.scotiabank.com/funds/profiles/FP6627_74_ENG.pdf
Top 10 Holdings
Toronto-Dominion Bank
Brookfield Asset Mgmt. -Cl A
Enbridge Inc.
Royal Bank of Canada
Bank of Nova Scotia
TransCanada Corporation
Comcast Corp. <–
Verizon Communications Inc. <–
Canadian Imperial Bank of Commerce
Suncor Energy Inc.
God’s revenge, trading me in a 55 year old abused body, while leaving me with the mind of a 17 year old.
He’s cruel prick.. I’m looking around at the nearly dead, trying to figure out how they’re going to make it to the escalator to see Paul.. slightly older than me. Their still, obviously thinking about stuff.
Eyes aren’t moving, one dude chewing on a coffee stir stick with his only remaining two teeth.
Is that going to be me.. Thelma, Louis, please lock me in the trunk on the next drive out into the desert..
#174 not 1st
Ahem. As I have stated before, I love women. I just don’t want to live with them. That being said, throughout my life the celibate married men have been very very jealous of me. Good looking, fit, childless, and Freedom First guys like me are in demand. And always will be. I choose. And women not only know it, they like it that way.
Good article here…..
housing bubble is a huge party. Everyone gets drunk and has a good time. The economy booms because housing, particularly construction, is a very local business. It creates local jobs. People spend this money. Businesses get this money. Governments exact their pound of flesh. But there is a drawback to a housing bubble, beyond the fact that it will eventually crash with terrible consequences: New entrants into the market are getting locked out by soaring prices.
Canada’s housing bubble has been a sight to behold. Home prices only dipped 8% when the US housing market crashed. Then it re-soared. Now, across the country, home prices are 26% higher than they were at the already crazy peak in 2008. In Toronto, they’re 42% higher! Prices in the major urban centers where young people like to live have become a challenge for first-time buyers.
http://wolfstreet.com/2015/04/14/canada-housing-bubble-gains-but-most-cities-stumble/
@98
A sign that this blog caters to the elite 1%: 99% of Canadians lack one primary ingredient for contributing more (or at all) to TFSA: cash!
The bottom 99 percent of the one percent are not the elite. They are the middle classes.
How do you know blog dawgs are not part of the elite?
Most think voting matters.
#173 TS on 04.25.15 at 6:04 pm
There’s lots of seniors in this country making well over $100,00 a year in retirement and paying very little tax with income splitting, TFSAs and the dividend tax credit.
I have no problem with that. But to say you’re entitled to Government pogey on top of that simply because you’re 65 and you vote more than young people? Give me a break!
5% of seniors live in poverty yet 15% of Canadian children do. The system is broken.
================================
600,000 seniors in Canada live in poverty, including more than 1 in 4 single seniors according to new Statistics Canada report.
http://www.carp.ca/2014/12/11/600000-seniors-canada-live-poverty/
So can someone explain to me the physical differnce between me just paying funds from our joint account into my wife’s TFSA, and me ‘gifting’ funds from our joint account into her TFSA? I.e I can gift funds to my wife, but not pay directly into her TFSA. What’s the technical difference when the funds come from a joint account?
If she withdraws from the joint account (and pays any cap gains tax), then deposits them in her TFSA, no issue. Is that so hard? — Garth
Been chirping John McCain on Twitter. Feeling sort of guilty.
That dude is fkd… Can’t be too mad at him.. He spent many years in the hole of a Viet Cong prison..
Why can’t I post sobar is my next question.. Perhaps reality is a bit to much for a mind that travels at light speed between galaxies.
Got to slow it down, hello Jack..
I blew off my mistress Mrs Wine.. I’ll try anything once Jack.
Hold off the suicidal thoughts… A beauty, 30 ish making gogo eyes with me. Ah… still have game..
God damn she’s gorgeous, shit her hubby showed up out of nowhere , just killed the moment..
Don’t matter, me and her just had a sweet mental moment together.
Shit her sister just showed up. Spectacular..
I get to live another day you dogs.
Garth. No more posts after this one.. JD and the dark side at my door, I’m turning off the phone.
#Seriously… #AreWeTalkingF***Y**Money?… #AllRightThenLoyalBlogK9’s… #HereAreYourThematicMustSees… #StrictlyFrivolous… #ButNeverSuperfluous… #Naturally.
#F***Y**MoneyCouldLookLikeThis:
https://youtu.be/eZtNaHEtLvI
#ButIfYouWereEnitrelyFocusedOnTheMoney… #You’dHaveSurelyMissedThePoint,Or… #”WhatDothItProfitAMan”…
https://youtu.be/aRV-2_Un-kk
[NoteToGT: Elle est de la belle province de la plus élégante ville… Naturellement.]
#162
Isn’t the nhl one big collusionary mess.
I bet there are a lot of businesses that woukd love salary caps and restricted free agency. Like perhaps big oil. I would like a cap on my legal fees!
I think with a European soccer model players make more and we get a better team in Toronto. I say relegate them.
Mulcair could be the leader here. We could have more Canadian teams and he could rail against fat cat owners.
RE:#159 learning on 04.25.15 at 2:31 pm
how do I know if my fund (Scotia Canadian Dividend Fund) is a low-cost index fund rather than an actively managed fund?
With a MER of 1.72% it is NOT a low cost fund.
Hmmm. The so called “Scotia Canadian Dividend Fund” is also poorly named since only 64% of it is Canadian stocks. It is not an index fund, but an actively managed one: “By investing in the fund, investors are also investing in the experience and expertise of the fund’s
portfolio advisor.”
And people wonder why Vancouver salaries are so disconnected from house prices:
http://thetyee.ca/News/2015/03/12/Facebook-Hired-Foreign-Workers/
Sure smells like pretty much outright fraud in the temporary foreign worker program. Leading to wage suppression in Vancouver and elsewhere.
#166
I think you are right on the $900 a month. And you are likely low.
A decent box of granola bars is $5 and gone in a day.
Decent bread and milk will be $30 a week.
Throw in some decent yogurt and you are likely at $80 for your week already.
And you’ll drop $80 a week to eat out once. (Taxes and tip at Swiss chalet)
That’s $160 a week and we’ve had one meal, a few snacks and some milk.
“I am missing something here. Are you suggesting that office properties, commercial retail properties, rental properties, and industrial properties are all overvalued in Canada? “
Of course they are. Which is why big business has been selling their RE portfolios as fast as they can to the REITs, and renting. When RE prices inevitably collapse, look for business to start re-building their owned RE portfolios.
RE is only interesting, whether residential or commercial, when its P/E ratio is 10 or less, or the Price/Rent ratio is less than 15. After all, RE, at best, grows at the rate of inflation over the long term.
The implication in all of this is that REIT owners and residential RE owners are suckers.
You continue to have an unfounded and incorrect view of REITs. For a guy who knows everything, you are fairly impenetrable. — Garth
Daisy Mae said:
Wow, $900 per month for a family of four — $30 a day? Box lunches and home-cooked meals are the norm? Once again, it’s all about choices….
Rather cryptic response I must say. I’m not sure if you are agreeing that 900/month is reasonable or not?
If you consider breakfast/lunch and dinner that works out to 10$ per meal divided by 4…which is about 2.50 per meal per person.
I fail to see how that is unreasonable.
In fact, I monitor the grocery bill rather closely and I am simply flabbergasted that some folks on here find 900/month extravagant.
It’s either one of two things: 1) the folks suggesting it’s extravagant have never raised a family or 2) they eat out a tonne and so their grocery bill is half mine…while there “eating out bill” is quadruple and they are incapable of doing the math on that.
Nope. I’m all for seeing two sides of a coin but 900/month when I scour my grocery bill does not seem unreasonable. I’m not buying caviar and lobster every week…
Bottom line here is that I have serious doubts that Garth has many clients who earn a middle class wage with a family…who rightfully so contribute to RRSP’s and RESP’s…and STILL have an extra 20,000K just lying around.
I respect Mr. Turner a great deal and I’m pretty confident his investment and real estate advice is second to none for the wealthier bracket.
Not so much for the average Canadian though.
The fact that Garth thinks 5000$ per year for two girls to be enrolled in Ballet is over the top…tells me he hasn’t got a pulse on what recreation costs these days. Friends of mine with boys in hockey pay more that I do even…
The blog is loaded with sage advice and I follow a great deal of it. But this added 10K for TFSA is designed for one thing and one thing only…the vote of the elderly who are the only demographic likely to benefit.
My clients’ average age is 42. — Garth
Out with family and friends last night. A friend’s son is buying a $400K house with zero down… mortgaging the whole whack.
Of course TFSA income will not be included for means-testing government pogey because it is from the proceeds of after-tax money. Return of capital on your non-registered account, which can provide great income, is also not included. — Garth
——————————————–
Just Wait Garth,
If you think that a Government down the line is going to let people collect the GIS Supplement with a 1 million dollar TFSA, you’re not as smart as I think you are.
It’s going to be a very very very easy target
Actually it is an impossible target, since TFSA income is universally exempt from tax. All gains are made on afer-tax contributions, and are not recorded, tracked or registered. Taxation of removed capital is not feasible. And you are not as bright as I had imagined. — Garth
——————————–
Rhys Kesselman, Canada Research Chair in Public Finance at Simon Fraser University and Finn Poschmann of the C.D. Howe Institute both think it will be targeted:
Rhys Kesselman, Canada Research Chair in Public Finance at Simon Fraser University “I think just in terms of what taxpayers, voters think the GIS is for — they won’t be too happy to see people with hundreds of thousands, or even a million or two million in a TFSA conceivably drawing the GIS,” adds Kesselman.
http://www.cbc.ca/news/politics/tfsas-will-lead-to-welfare-for-the-wealthy-government-warned-1.2843835
Correction: they don’t think that. They hope it. It’s what left-wingers do. Who knew? — Garth
#189 Victor V — “600,000 seniors in Canada live in poverty, including more than 1 in 4 single seniors according to new Statistics Canada report.”
The Statscan survey never uses the word ‘poverty.’ It reports on households with income below 1/2 of median household income.
Picture a senior couple with a paid off $2mm house and $500,000 in savings, invested in GICs at 1% to make $5,000 per year plus OAS and GIS. “Livin’ in poverty,” according to CARP, which urges government to send more money those poor seniors’ way.
Aren’t seniors even expected to deplete their savings any more?
#Pendant ce temps … de l’Orient Express …
https://youtu.be/f5r5PXBiwR0
#200 Glen — “The fact that Garth thinks 5000$ per year for two girls to be enrolled in Ballet is over the top…tells me he hasn’t got a pulse on what recreation costs these days.”
Dude, it’s becoming pretty obvious that ballet school is important to you and your girls, more important than saving the $5,000 per year, or spending it on something else. Like the man said, it’s about choices. We’re OK with yours. But you don’t get to spend money on X and then complain that you don’t have the money to do Y because you spent it all on X.
I’ve argued here that the TFSA benefits are going to be skewed to rich people more than most people realize, and the program seems designed to starve future governments of revenue in a way that will be politically difficult to reverse. This has been somewhat mitigated by the removal of indexing.
But I haven’t complained about the choices I’ll have to make.
#60 Jh
#67 lala
#77 Smoking Man
http://tinyurl.com/og5bgeo
———————————————-
#183 Smoking Man – when you’re in the right ‘state of mind’ 2 nite, have a listen…Headphones mandatory.
‘Think of a boy with the stars in his eyes,
Longing to reach them but frightened to try.
Sadly you’d say someday, someday…’
http://tinyurl.com/otrr4s3
Music isn’t meant to be understood. It’s meant to be listened to.
Politicians on families’ spending priorities, from the archives:
http://www.cbc.ca/news/canada/liberal-apologizes-for-saying-harper-day-care-bucks-may-buy-beer-popcorn-1.534811
#200 Glen on 04.25.15 at 9:02 pm
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Glen, glen glen.
You had kids. That was your mistake.
Your other mistake was thinking you could fund Pensions, RESPs, RRSP AND MAX out TFSA with KIDS.
Dude, it’s not possible, get over it.
And yes, I have kids, two professional incomes, CANNOT fund RESPs, CANNOT fund RRSPs and CANNOT fund TFSAs. This will change when our daycare bills go away.
You have kids — that is your investment for the future.
Garth’s advice is for people that can easily find the money.
ps., we spend $1400/mo on food.
Families comes first. With that said, knowledge is powerful and the seed is planted. Now you know what you can do for your future.
This is what I was taught: Put a certain amount (one that you can cope) into savings, as soon as you get that pay cheque, play with that amount, even if it is only $10.00 and work up, if possible. That little amount can lead to other avenues.
A family has this constant whirlwind around them, but hopefully in time, it subdues to a soft whisper. They play an important role in the community.
#197 Mark: big business has been selling their RE portfolios as fast as they can to the REITs, and renting.
———————————————-
I read that both Sobeys and Loblaws have recently sold their RE to REITs and are now renting from them, if that is what you mean.
Unless these 2 companies desperately needed money, which would be surprising, they probably figured out that their RE was overvalued.
Though it doesn’t mean that all canadian REITs are overvalued.
Glen “I would be surprised if a family of 4 can get away with less than 900$/month.”
I went through my bank statements yesterday to see what I spend in groceries monthly. My 2 boys still @ home with me while just finishing school and just starting out. I’m forking out over $1000/mth on food, we eat mostly whole foods non-processed crap. My mortgage and taxes are $750/mth. Food prices are just crazy. And I try and run around between 3 stores trying to buy what’s on special for the week.
I try to remain frugal, but it’s getting harder and harder over the past few years.
#200 Glen — “…tells me he hasn’t got a pulse on what recreation costs these days.”
This is the narcissism. The belief that at some other point in time, ballet lessons were inexpensive for the middle class. The belief that you are in a uniquely difficult socioeconomic spot, as if richer people aren’t spending all they earn on what a decent private school costs these days, and poorer people on what school supplies and teens’ clothing costs these days.
Keeping up with the Joneses costs exactly the same these days as it ever has: EVERYTHING YOU’VE GOT. It doesn’t matter where you live, or how much you earn. Somewhere in your community, somebody’s raising three kids on half your household income, and the kids will turn out just fine. Only they won’t be trained for the Windsor Ballet.
You continue to have an unfounded and incorrect view of REITs. For a guy who knows everything, you are fairly impenetrable. — Garth
Not just REITs…
Also for a guy ‘who knows everything’, he’s actually pretty poor. It’s a coping mechanism.
God’s revenge, trading me in a 55 year old abused body, while leaving me with the mind of a 17 year old
The spirit is ageless. Unfortunately the body is not.
#29 Andrew Woburn on 04.24.15 at 7:32 pm
———————————————————-
With all the extra costs of a ‘reverse mortgage’, it’s a wonder people choose this route at all. Up front fees, higher interest rates, and risk of foreclosure.
Instead, why not sell your home, realize the full equity that you actually do have, rent, and use your house sale proceeds to fund your lifestyle. No obligation but to pay rent under that scenario. No foreclosure. No jaded offspring.
#197 Mark on 04.25.15 at 8:49 pm
—————————————————-
RE has shown that it grows at that rate of inflation over the long term in a relatively high rate environment.
However, we now are in a prolonged low rate environment, and may be in a low rate environment over the next decade or two.
Does that change the outlook on your predictions?
#169 learning on 04.25.15 at 4:15 pm
—————————————————-
Here’s what an MER of 1.72% will do to you.
Your investments growing at 6% per year, over 6 years, should be worth about 142%. You’re MER will put your actual value at 128.5%.
You’ve just lost 32% of your investment gains because of that MER.
So, if you’re happy with handing over 1/3 of your investment gains to the bank, then by all means sign up.
That MER, will have you down to about 130%.
Dear young people: Not voting? No one cares.
http://www.theglobeandmail.com/globe-debate/editorials/dear-young-people-cant-be-bothered-to-vote-no-one-cares/article24101272/comments/
#207 Ralph Cramdown on 04.25.15 at 10:06 pm
———————————————————
Although he mis-spoke, if you look to his message, the message was that $100 (taxable) per month doesn’t go a long way toward funding the monthly daycare bill.
He was right.
Flames torch Van Butt……….toast. Sweet joy.
RE: #208 Bottoms_Up on 04.25.15 at 10:11 pm
#200 Glen on 04.25.15 at 9:02 pm
—————————————————
Glen, glen glen.
You had kids. That was your mistake.
Having kids wasn’t his mistake. Thinking that he has to spend a whack of money “entertaining” his kids is his mistake. There are plenty of fun, free/cheap, and stimulating things you can do with your kids.
And I try and run around between 3 stores trying to buy what’s on special for the week.
Many grocers have price match with valid flyer ad. And there’s an app that has all flyers, up to date, all the time. Just show the app and they match the price. No need to run around.
Anybody that makes 10 year predictions isn’t credible nor are they intelligent.
“However, we now are in a prolonged low rate environment, and may be in a low rate environment over the next decade or two.
Does that change the outlook on your predictions?
“
Absolutely not. In fact, low rate environments eventually give way to high rate environments. But over the very long term, the long-term appreciation in RE is approximately that of inflation. Bob Shiller (Yale economist, and the “Shiller” in the famous Case-Shiller RE index) did a bunch of research going back hundreds of years in Amsterdam and elsewhere and that’s all he could verify.
Of course, falling interest rates may cause RE changes to, at least temporarily, exceed inflation. But these changes eventually will be matched by interest rate increases, whereby prices lag inflation.
If RE were a stock, and could only grow its “earnings” over the long term at the rate of inflation, most investors wouldn’t be willing to pay more than 10X earnings (or 15X gross rent). Common stocks (ie: the S&P500 or the TSX index) grow their earnings at a few percent above inflation over the long term (ie: at a rate that resembles GDP), and average P/E multiples of 15-20 are the norm — investors being willing to pay a little bit more for higher growth rates historically.
#161 4 AM Sunrise on 04.25.15 at 3:09 pm
#166 Glen on 04.25.15 at 4:01 pm
#196 Obvious Truth on 04.25.15 at 8:46 pm
As a rule of thumb, when looking at peoples grocery expenses, I use $200 per person per month as a reasonable amount to spend. You can of course get away with spending less but it requires a major change in the way that most people eat. A family with 2 people working full time will not usually have the time and energy to be excessively frugal in the food department.
Obvious Truth, you bought up two of things that I think are worthwhile attempting to save on – granola bars and bread. Granola bars are a massive rip off- they are mostly oats, cost a fortune and have become so small that a child can easily eat three at a time. The reason people buy them is because they are an easy snack. With a small amount of effort they can be made for very little cost. Triple the recipe, cut them up and freeze them, that way they will always be on hand when you need them. Do the same with cakes, bake them in big pans and then cut and freeze in small pieces just right for lunch.
A bread maker is a very good investment. It takes anywhere from 5 to 10 minutes to put together the ingredients for a loaf of bread and they cost pennies. I find that it saves time because you don’t have to go out when you discover that you have run out of bread and saves money because if you don’t go to the store for bread, you don’t come home with the $30 of “other stuff” you decide to pick up “while you are there” This month I have spent $0 on bread and $0 on bread ingredients. I would be very surprised, if averaged out I spend more than $10 per month on bread ingredients. As an added bonus the bread is delicious and makes your home smell wonderful. :-)
“Aren’t seniors even expected to deplete their savings any more?”
It seems that way. The Zero Hedge website is full of people who are convinced that there is a ‘war on savers’. As though low interest rates have damaged ‘savers’. Yet the low-inflation, price stable, almost deflationary environment has basically been a sort of nirvana for ‘savers’ who have enjoyed positive after-tax real returns on cash “savings”, which historically has not been the case. Pension funds have enjoyed rich capital gains on their fixed income portfolios which ordinarily would not have been possible without low interest rates. Insurance companies have seen outsized shareholder returns on account of the low interest rate environment due to excess investment returns in fixed-income-heavy portfolios driven by the low rate environment.
Simple example, 3% GIC, 1% inflation, 33% tax rate, delivers a real return of 1%/annum.
Go back to the “good old days” of 10% interest rates, and 7% inflation. And let’s say taxes go up to 40% because high rates force government out of the debt markets and into funding all programs purely from taxation. The calculated real return in such circumstance is actually -1%. 6% nominal, -1% real. The senior who “spends the coupons” in the former scenario barely loses any purchasing power over time. The senior who spends the 10% coupons in the latter scenario suffers a dramatic loss of purchasing power as time goes on. This is what the greedy CARP-supporting crowd simply doesn’t seem to understand — high interest rates are absolutely awful for seniors and savers. They’re bad for currencies as well, but that’s another topic which I’ve extensively addressed elsewhere.
I also find that many people, who do not track their spending tend to grossly underestimate how much they spend on many of their expenses. If a client were to tell me that they only spend $5k per year on groceries for a family of 4 my first reaction would be that they do not know how much they spend and I would definitely delve further before I would be comfortable with their estimate.
#170 Freedom First on 04.25.15 at 4:30 pm
===================
I agree completely :-) The modern liberal left leaning worldview denounces selfishness as a vice i.e. anyone seeking to promote their own welfare, all the while encouraging the far greater vice of jealousy. That is why we have a society constantly fixated with “taxation and re-distribution” of what belongs to other people.
Kane killed Abel on account of jealousy
Shakespeare denounced jealousy as a green eyed monster that played with its victim before it devoured it.
And God deemed it a vice so great that its prohibition became the last of the Ten Commandments “Thou shalt not envy thy neighbor, nor desire to have his house, his wife, his sheep, his cattle or anything else, that may be his. ——-(lol the house probably being the most envied thing in Canada ha ha).
For those of who’ve posted about your own $1000/month grocery bills: ouch. (I’m not dissing you.)
It dawned on me that it’s hard for this single gal to exceed $30/week (which is the point when my arms are tired and my bags are full and I can’t carry any more) because I do most of my shopping at ethnic greengrocers. Even here in “Canada’s Wealthiest Community” (their words, not mine), they’re competitive. And in Richmond, BC, they are very, very competitive.
But if you’re forced by circumstance to do your shopping at a grocery store, I now see how it sucks to the tune of $1000/month.
Disclaimer: Yes this is a long comment. Read or scroll, but don’t whine.
~ The View From The Bottom:
Some people have argued that the TFSA is a gift to the wealthy, and does little for people at the lower end of the scale. One of the reasons given is that the higher marginal tax rate of the wealthy means a larger saving on tax on earnings.
Let’s say that two people, Thurston Q Moneybags and Linda Low-Rent make the same investment and earn the same $1,000 return, which outside a TFSA would be fully taxable.
Thurston is a chair-moistener at Amalgamated Inc., and earns $135K per year (marginal Canada/Alberta tax rate of 36%). Linda works at the sunglasses kiosk at the mall, and earns $25K per year (marginal Canada/Alberta tax rate of 25%).
The fact that the earnings on the same investment were inside a TFSA mean that Thurston’s tax saving is $360, and Linda’s is $250.
1 – Is Thurston coming out ahead of Linda? No. They are both walking away with the same earnings ($1,000), and both paying the same tax on those earnings ($0).
2 – Will this make more of a difference in Linda’s life? Yes. $250 is a bigger deal to someone earning $25K than $360 is to someone making $135K. Certainly, percentage wise, it is a much greater increase in her yearly income than it is in his.
3 – Does wage disparity suck? Yes. Is the TFSA responsible for wage disparity? No.
The fourth question might be “How can poor people come up with the money to put into a TFSA?” This depends on your definition of poor, but the most important thing is not to confuse the terms ‘poor’ and ‘broke’. Poor people often learn to be very good at managing spending, people who are broke never seem to.
I’ve spent most of my life earning not much more than Linda; a couple of times I’ve broken $30K per year, yet I’ve managed to make the maximum contribution each year. Yes, when it comes to spending money, I’m tighter than Gene Autry’s pants, and live on about $1,200 per month. I don’t have the usual money traps such as kids, a mortgage, or a car loan, but I live in one floor of a house ($800/month), have internet and a phone, smoke, and buy adequate food, clothing, toilet paper, and the occasional Amazon spree.
Now that the limit has been raised, I may not be able to max out my contributions, but I plan to move everything, right down to my laundry quarters, into my TFSA. The TFSA is a good thing for me.
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Commenter TS made some interesting points about means tests for OAS/GIS including TFSA activity, but I have a couple of problems with that.
The first is that too often, means tests devolve into bureaucratic ridiculousness. An example is Alberta’s AISH (Assured Income for the Severely Handicapped) program. One is not eligible for AISH if their assets exceed $100,000, but one principal residence and one car are not included in the assets, so if you have $400,000 and you fall off a flagpole, quick, run out and buy a condo and a Cadillac.
The second problem is that when I finally arrive in Geezer City, I plan to keep every penny that I can in my TFSA. Any time that I have a few hundred lying around, I would put it into my TFSA, withdrawing it as I need it. If I could get my OAS and CPP direct-deposited into a savings account inside a TFSA, I would even do that. This would mean that I’d have a lot of withdrawals, and even though I am relatively low-income, a means test measuring withdrawals would make me appear much better off than I am.
One small reason for this TFSA-heavy strategy is that even in today’s token-interest-rate environment, savings accounts within a TFSA pay more interest than those outside one. If you keep a $2,000 emergency fund in cash, this rate difference (at my bank, about 1%) would mean a free $100 bill every five years. (Yeah, not much, but did I mention low-income enough times? $100 is $100 more than nothing.)
I think that the only way a means test incorporating the TFSA would be fair is if it only measured the earnings within. The CRA gets a year-end summary from financial institutions detailing deposits, withdrawals, and totals of individual’s TFSAs, so working out earnings would be a simple calculation for them, which they could share with OAS/GIS administrator Service Canada.
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Last point on the TFSA: How do the wiser dogs feel about the likelihood of a lifetime contribution limit? At the current annual limit, li’l Johnny turning 18 this year will be able to contribute about half a million by the time he’s eligible for OAS. Is this excessive?
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P.S. Yes, Mr. Turner, I know that this blog is for the top, not the bottom, 1%, but once you allow one of us come in and use the bathroom, you’re doomed to having us all hang around until you hang out the closed sign.
Having said that, thanks again!
TFSA + OAS/GIS + Free Transit Subsidy + Paid off home with basement suite helper = GREAT RETIREMENT FOR COUPLE!!
TFSA of $250K each at 7% = $35,000 per year
OAS/GIS = $30,000 per year
Basement suite = $12,000 per year
Total= $77,000 per year tax free.
I think the suckers are going to be the ones trying for their CPP and company pension plans….and renting.
#118 Proud Owner on 04.25.15 at 7:22 am wrote:
I bought within my means, no bidding wars in the area. Feels great, still have some cash, I applied your rule of 90.
As long as you applied the Rule of 90, you are being sensible about it. It isn’t a great time to buy, no question, but at least the Rule should stop you from losing more than you can afford.
Also, the TFSA has the potential to cause massive outflows out of Real estate if contribution room hits $200K per couple and interest rates rise to about 5%.
Why buy a condo as an investment?
Furthermore, once in a TFSA, highly unlikely one is going to deregister it to reinvest in RE.
Summary: RE will be dead in Canada in all places except Vancouver and Toronto SFD (where the predominant foreign inflows of people and money will continue to exist).
“Out with family and friends last night. A friend’s son is buying a $400K house with zero down… mortgaging the whole whack.”
Might not be a bad idea as any upside is theoretically a infinite return on equity. And the downside is, of course, that he declares bankruptcy. A similar outcome if someone put 20% down (the magic number to avoid CMHC subprime insurance) and housing dropped 50%.
The real losers in the US housing crash were those who actually brought modest down-payments to the table and still ended up in negative equity and bankruptcy. The no-downpayment crowd, well, didn’t lose anything over and above the same consequences of a personal bankruptcy suffered by the ostensibly “more responsible” crowd. Government programs also existed to help ‘modify’ the loans of those in most serious circumstances, but did relatively little for those who still had equity.
BTW, find out what bank or credit union actually gave him such mortgage, and make sure neither you nor any of your friends or family have any money on account with them.
I think the biggest tax policy change for high earners (as all the dawgs here claim to be) has been the lifetime capital gains exemption for CCPCs, from 500 K in 2005 to 813,600 in 2015, – not the TFSA.
Incorporate yourself.
Kommykim says:
“Having kids wasn’t his mistake. Thinking that he has to spend a whack of money “entertaining” his kids is his mistake. There are plenty of fun, free/cheap, and stimulating things you can do with your kids.”
Perhaps. But this line of thinking makes me wonder if you have kids…or raised any in your lifetime?
The fact is that developing their interests and occupying their time on things which require time management, structure and discipline is an important part of development.
By all means I could let them play on Ipods, go to free skates at the local rink, go for walks in the park etc etc…but I just don’t believe children learn independence and social skills that way.
I’m not “entertaining” my kids…I’m engaging them. Big difference.
Well of course it’s all about choices. The bottom line is if a middle class family is trying to strike a balance between today and the future…and extra 20,000K is more a pipe dream than reality.
Of course I could cut our recreation for the kids and a vacation and find 10,000 right there. I’m just not convinced that’s an enjoyable way to live…unless you get pure joy daily out of sitting around imagining yourself wealthy at age 65 and up.
And Garth…average age 42 eh. Okay…middle class income with kids as well? If so…how are they doing with locating the extra 20,000K? I’m asking not in a spiteful way….I’m just genuinely curious.
The majority topped up their TFSAs this week after the budget announcement, most by making a contribution-in-kind from their non-registered accounts. — Garth
#219 Bottoms_Up — “Although he mis-spoke, if you look to his message, the message was that $100 (taxable) per month doesn’t go a long way toward funding the monthly daycare bill.”
That may have been the Liberal talking point, and I completely agree with it, but his message on that day was that parents might not spend it on childcare, or even on the kids. And he didn’t phrase it as an attack on rich recipients (pralines and bordeaux, anyone?) but on the very voters the Liberals needed. Those voters needed to weigh a few decades of Liberal promises and inaction on a national childcare plan against the credible Conservative promise of a crisp $100 bill* every month.
…which does cover half* of the monthly bill for ballet.
Love ’em or hate ’em, the Conservatives have given a master class in buying a math-deficient middle class with cheap trinkets and baubles, while shaving high earners’ tax rates.
* – taxes not included, but the voter’s mind is always focused on the pre-tax amount.
More lies to the Canadian populous, brought to you by your government. Keep on drinking that Kool-Aid. It’s only gotten worse since this article was published.
http://business.financialpost.com/news/economy/statistics-canada-failing-to-tell-whole-story-about-canadas-job-market-clc-says#__federated=1
Arguing with the Truth
Glen t 236: The bottom line is if a middle class family is trying to strike a balance between today and the future…and extra 20,000K is more a pipe dream than reality.
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It’s hard to imagine an argument with that. Yet…
To suggest that more than a very low percentage of, particularly those with kids, can find $20,000 PER YEAR for TFSA on top of RESP and RSP (And I won’t mention non-registered because that would be last on the list) is laughable on its face.
To suggest one should max out all these savings on a balanced basis without the balance of spending on life today that Glen suggests is also rather strange.
Then again this blog is for the 1%.
Glen, I think you are doing fine.
My advice, forget about this blog. It’s an addictive form of entertainment. If you have read it for a month you have learned 90% of what it has to offer. The rest is Ground Hog Day. Why come here and read people argue in a hostile way with the choices of others?
Garth do your clients need to have a minimum to invest with you?
This site is not intended to augment my day job or be commercial in any way. You can always contact me at [email protected] with questions. — Garth
Garth said:
“The majority topped up their TFSAs this week after the budget announcement, most by making a contribution-in-kind from their non-registered accounts”. — Garth
With respect, that did not directly answer my question though. Are these “TFSA toppers” middle income earners with dependant children?
Most, of course. — Garth
#186 Freedom First: “And women not only know it, they like it that way.”
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You figure women prefer fleeting relationships? I don’t think so…. ;-)
#203 Ralph: “Aren’t seniors even expected to deplete their savings any more?”
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And punish them for a lifetime of preparing for retirement? Their savings is what keeps them above the poverty level.
Thank you Bottoms-Up (#217), kommykin (#194) and Barbeque time (#184) for your helpful responses. I am now in the process of moving out of the poorly named Scotia Dividend Index fund as I DO NOT want to give over 1/3 of my earnings to my guy at the bank (no matter how nice he is). I will sell that sucker and move the money into the balanced suite of ETFs as outlined often by Garth and others.
By the way, Glen, my husband and I are empty-nesters now, a year in, and our grocery bill is about half what it is was a year ago when we were feeding the munchkin and any of her friends that happened to stop in. And she did ballet :-)
#229 4 AM Sunrise on 04.26.15 at 2:13 am
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So in other words, your 90 monthly meals plus snacks plus eating out totals about $120.
I call BS.
Garth,
One impact that I would like you to address is that at retirement, significant TFSA holdings can be turned into an income stream is isn’t taxable, resulting in the possibility of avoiding the OAS clawback. Could you comment on how best to withdraw funds at retirement for someone with TFSAs, RRSPs and non-registered accounts? Is there some sort of order to best withdraw that will optimize the tax consequences? Thanks.
#198 Glen: “Rather cryptic response I must say. I’m not sure if you are agreeing that 900/month is reasonable or not?”
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You’re right. I just checked my costs per month as a frugal single senior. I spend approximately $200-$250 myself, about $6.50 per day. Times family of 4 = $1000. Not easy for any of us.
#144 Jh on 04.25.15 at 12:20 pm
“These people with TFSAs greater than $1 million were buying seed stock (@ 5 cents) and watching their investment multiply. They were anything but day traders.”
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As I said in my original comment, it may be the case that some of the people that had 1mil+ in their TFSAs that the CRA was auditing weren’t day traders, but there have been instances of day traders being targeted by the CRA. Original article from FP: http://business.financialpost.com/personal-finance/tfsa/canadians-with-too-many-wins-in-their-tfsa-being-targetted-by-cra?__lsa=cfb2-0210
and then a comment on it from Moneysense: http://www.moneysense.ca/save/tfsa/cra-tfsa-crackdown-no-cause-for-alarm
I agree with you (and Garth) the money to be made for the average investor is not in day-trading (commissions kill any returns – not to speak of the risk of timing the market etc.) That being said, if you have a decent set up with your broker and your commissions are a cent or two per trade, then you can make lots of money in the market day trading. This however, is for a minute fraction of individuals out there (even among the professionals). It’s rare, but not impossible to make a fortune day trading. Or move on to HFT if you have the software and hardware but that’s a whole other story.
Bottom line: CRA is going after people using their TFSAs for day trading (above articles) but thanks for providing the extra info about people buying seeing shares at $0.05 each – hadn’t heard of those.
#239 Shawn Allen — “To suggest one should max out all these savings on a balanced basis without the balance of spending on life today that Glen suggests is also rather strange.”
But nobody here has suggested that except Glen himself. Garth, myself and others have said that if he’s OK with his choices, then we are too. He’s defended every spending choice he’s made like a dog defending a bone, questioned the bona fides of anyone not known to be a parent, and — in his first post — displayed his soul for all to see:
“This is yet another wealthy get wealthier situation. It allows the only demographic generally wealthy enough to pull this off (older folks…usually 60 and older) to transfer their wealth in trickle down fashion to their spoiled rotten children. […] If I had the extra 20,000…then by all means I’d applaud it.”
You see? His kids need and deserve ballet, vacations by the seashore and trips to Disney, but the children of the rich are spoiled rotten, but he’d be in favour of this tax policy if he could afford to take advantage of it.
In a household with two “professional” incomes, one car and a paid off house.
Most, of course. — Garth
Interesting.
#225 Money Crunch: “As a rule of thumb, when looking at peoples grocery expenses, I use $200 per person per month as a reasonable amount to spend.”
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There ya go…!
Glen
I feel a spreadsheet and jars in your future. Money coach, could it possibly be Gail :) is on the job here.
Thinking 4am sunrise and SM could give relationship challenge ideas.
And ballet is for fun Glen. They learn social skills at the park and helping with community events. Not saying that organized recreation is bad. It is what it is. Generally I find it’s the masses paying for a few to do well.
Example is that 1 or 2 hockey players out of thousands in the gta in each age category will likely become pros. The rest are paying to have fun. And the best will prosper from it.
Fun can be had many ways. Stay away from the Jones’.
Try a a running or cycling club. Those trying to keep up wouldn’t be caught dead there.
I’ll end by saying I can tell you’re a good set of parents trying to do the right thing for your family. But in the end it is about choices.
Time for a ride with great people on a great day. No charge. It’s the everyday that holds the magic. Not magic kingdom.
All about choices. I am with Glen here. He is making the choices that are right for his family, balancing the best they can.
We are in a similar situation and doing our best as well. No ballet in this house but hockey instead.
Lots of good information here, but also have to realize that we are all different with different priorities.
Some people have kids, some have pets, some have both. Any of you pet parent here will know that between pet food and vet care the family budget can take a hit there as well. That is also a choice.
What’s with everyone referring to the “extra” $10K? It was already at $5500. The “extra” is $4500.
If you put money into your house (principal res) for renos and sell it for an additional $4500 that’s also a tax-free gain. I don’t see anyone trying to prevent this.
Once again, a lot of people blind to the fact that this whole theme of bashing the increased TFSA limit is just a way of favoring real estate investing instead of stock market investing. Unless, of course, we simultaneously limit the amount people are allowed to claim as the principle residence exemption from the “investment” in their houses. And how silly that sounds.
But enough about him. Let’s recap my philosophy:
I believe that wealth inequality in many Western countries (but especially the english speaking ones) has grown and will continue to grow. This has been happening since about Reagan/Thatcher, for various reasons:
– Decline of labour/union power
– lower effective tax rates on business and the wealthy
– demographics
– low and declining inflation
I think a lot of people see the 1960s and 1970s, a time of rapidly rising living standards even for those with only high school education, as some sort of normal that we may one day get back to with the right policies. I don’t think those gains will ever be repeated in the West. We’ve gone from an era of increasing workforce participation (as women entered the workforce in greater numbers) to declines (as boomers start to retire).
Asia’s middle class is equal to the population of Europe, and growing. Their kids are all cramming for places in good schools. They won’t need Western expertise or manufactured goods nearly as much as in the past. They’ll be competing with the West for raw materials, and to supply the developing world with expertise and manufactured goods in turn. Being born in the West won’t be nearly as much of an advantage as it was in the 20th century.
This is going to suck for the Western middle class. So I’m trying to get my family out of it, by saving and investing my ass off. Delayed consumption. Hopefully my legacy to my heirs will be a lot of capital and the knowledge of how to keep growing it. I don’t believe that only teaching your kids independence and a work ethic will count for as much as it did when we were in a higher growth environment, and leaving them a lump of capital will count for more.
I could be wrong. But these are the trends I see. And I don’t see much possibility of class warfare or serious political or tax reform. The wealthy are firmly in charge. Except maybe in Alberta. :-)
#200 Glen — “The fact that Garth thinks 5000$ per year for two girls to be enrolled in Ballet is over the top…tells me he hasn’t got a pulse on what recreation costs these days.”
Dude, it’s becoming pretty obvious that ballet school is important to you and your girls, more important than saving the $5,000 per year, or spending it on something else. Like the man said, it’s about choices. We’re OK with yours. But you don’t get to spend money on X and then complain that you don’t have the money to do Y because you spent it all on X.
I’ve argued here that the TFSA benefits are going to be skewed to rich people more than most people realize, and the program seems designed to starve future governments of revenue in a way that will be politically difficult to reverse. This has been somewhat mitigated by the removal of indexing.
But I haven’t complained about the choices I’ll have to make.
*****
Agreed. It’s where you want to put your money. I’ve got two kids and both are engaged in various arts/sports programs. We spend less than $1,000 each year on each child for these.
It’s the choice of my wife and I to find that balance for our children. I’m not saying it’s an easy choice, but I’m confident I’m doing right by my family.
#200 Glen on 04.25.15 at 9:02 pm
The blog is loaded with sage advice and I follow a great deal of it. But this added 10K for TFSA is designed for one thing and one thing only…the vote of the elderly who are the only demographic likely to benefit.
My clients’ average age is 42. — Garth
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Elderly only?
I’m 44 and my wife is 33 – we have a toddler with another one on the way. We are working professionals with the typical family expenses (car, daycare, travel etc) – we participate in our workplace group rrsp’s, have maxed out our child’s resp since birth and also have funds in non-registered accounts invested. We have had our TFSA’s maxed since inception and have no problems topping up this year with the extra $9K and will be adding $20K in 2016.
It can be done easily enough if one budgets and has an eye towards building wealth for one’s future. By the way, we rent and are heavily subsidized by our landlord — were this not the case, our cash flow would be different. It’s all about choices.
Ralph Cramdown,
You said:
“You see? His kids need and deserve ballet, vacations by the seashore and trips to Disney, but the children of the rich are spoiled rotten, but he’d be in favour of this tax policy if he could afford to take advantage of it.”
I can assure you that you have painted and erroneous picture there. We have been to Disney once (kids 11 and 8). The cottage at the “seashore” is actually lakeside rented for 1000$ for the week. We buy all our own food and a few lake toys….beer and wine :). And we go out to dinner once or twice. With gas and all the above it costs around 2500$ We travel to Halifax 5X per year to visit my wife’s parents which is part of the “vacation” budget.
And I think your description of me defending my choices like a “dog defending a bone” is a bit dramatic.
Indeed I have laid out some specifics of what I feel an average family will grapple with. I respect everyone will make different choices along the way. A number of folks on here have made some insightful comments (Garth included) but I find yours to be mean spirited and intended to me that way.
If that makes you feel better sir…have at er’ :)
Budgeting
There is a full spectrum of budgeting
After he lost about 2 billion (in the Time Warner AOL merger fiasco) and was down to his last $600 million ir so, Ted Turner was asked about the loss. He answered that with budgeting, it was possible to get by on the remaining $600 million.
One man’s profilgateity and obscene excess is another man’s frugality.
It’s ALL relative. And yes, it’s all about choices.
There are people that can go broke at any income level. Others that can be savers on almost any income.
Wealth Disparity
This has been happening since about Reagan/Thatcher, for various reasons:
– Decline of labour/union power
– lower effective tax rates on business and the wealthy
– demographics
– low and declining inflation
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Agree lower tax rates on high incomes and on investments are a big part of the reason.
Also goods and services production and especially goods in increasingly done by machines and capital goods with little labour content.
Therefore the share of spending power going to the owners of the machines and capital goods has increased.
Contrary to popular opinion and as stated by Mark, the rewards of saving and investing are huge and generally better than in the past.
Some redistribution of wealth will likely be required.
#258 Glen.
it sounds like you are a candidate to get a HELOC (of a reasonable amount) that you can then withdraw from in order to max out your TFSA. By doing this you will be able to deduct the interest from the HELOC from your taxable income. This in fact works almost as good as a RRSP contribution. Getting the right strategies in place to preserve what income you make is the best way of inching ahead of the pack.
I hear you about raising a family. We are 45,and 51. We have one in university and one soon to be. Unfortunately it doesn’t get much better as they grow because $20 k a year is a low end ball park figure for post secondary education. In the long run I figure it’s an investment to getting them to subsidize themselves in the future. Hopefully.
Garth himself mentioned a few posts back about leveraging your credit in order to reduce some taxes and possibly grow some equity. It is the smart way to maximize the low interest rates we have currently. Just ensure investment is fairly sound and amount is reasonable. If necessary when rates go up or if catastrophe occurs, sell what you need to pay off your HELOC, and keep any equity.
Hope this helps. Good luck and enjoy your kids, don’t regret doing anything as long as it’s within means!
http://business.financialpost.com/personal-finance/tfsa/a-world-with-tfsas-vs-without-guess-which-one-can-help-a-middle-class-couple-save-1-1-million?__lsa=7075-86d2
Will the tax-free savings account’s expansion only help the rich? That seems to be the popular belief, but the middle class may in fact be the biggest beneficiaries of all.
It might not be that noticeable for a few years, but crunch the numbers and there is strong evidence it will make retirement immensely better, especially for those under 50.
We decided to contrast a “with” and a “without” scenario, now that the Harper government has expanded TFSA contribution room significantly to $10,000 per person per year, for an average middle-class couple.
#261 Estrella on 04.26.15 at 3:00 pm
#258 Glen.
it sounds like you are a candidate to get a HELOC (of a reasonable amount) that you can then withdraw from in order to max out your TFSA. By doing this you will be able to deduct the interest from the HELOC from your taxable income.
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This is incorrect. Funds borrowed for registered investment accounts are non-deductible.
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/221/menu-eng.html
In relation to this post, found a couple of links to the CRA website that talks about TFSA contributions and attribution:
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http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/cntrbtn-eng.html
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As the account holder you are the only person who can contribute to your TFSA. You can give your spouse or common-law partner money to contribute to their own TFSA without having that amount, or any earnings from that amount being attributed back to you, but the total contributions you each make to your own TFSAs cannot be more than your individual TFSA contribution room.
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http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/lgbl-eng.html
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The account holder is the only person who can contribute to their TFSA. You can give your spouse or common-law partner money to contribute to their own TFSA without that amount, or any earnings on the amount being attributed back to you. The total of all contributions your spouse or common-law partner makes to their TFSA must not be more than their TFSA contribution room.
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#250 Glen on 04.26.15 at 11:05 am
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If Garth is talking about his clients, he will only take people with significant net worth. So any advice he has about who is ‘topping up’ their TFSAs, realize it is providing a biased view of what the actual average family is doing.
#263 Victor, Glen
re-read Garth’s post titled “Diversity”. I guess investments in TFSA must be more in terms of stocks and equities. (more high risk, therefore not gic’s etc)
http://www.greaterfool.ca/2015/04/06/diversity/
Am I miss interpreting something??
So, put the bonds in the RSP. Put the lowly-taxed stuff in your non-registered account. Have the volatile, higher-potential assets in your TFSA. And remember that interest on money borrowed to invest is deductible.
Bottoms up said:
“If Garth is talking about his clients, he will only take people with significant net worth. So any advice he has about who is ‘topping up’ their TFSAs, realize it is providing a biased view of what the actual average family is doing.”
Well call me a sucker but I’ve been reading Garth’s blog now since 2001…and I have an autographed book of his.
I see Garth as a trustworthy individual and he was clear with me that he has middle class income earners and he also clarified to a few on here that a good planner would tale someone with 150,000$ to invest.
I trust him.
I just have a very hard time figuring where and how these clients are finding the extra cash to invest.
Perhaps that’s on me….
I may have misinterpreted it. But I believe if you have a unregistered investment account you can sell it to put into the TFSA then borrow from the HELOC in order to repurchase your unregistered account that you sold. I missed a step ;). Now all you need is some money in an unregistered account. Probably doesnt apply to someone who can’t contribute to a TFSA in the first place. I’ll be quiet now. Thanks
another great article. thanks Garth!