The other one

If you know everything, like most people who comment on this blog, don’t read this. Go watch BNN and listen to some wag in a bowtie lie to you.

Now, for normal folks, it’s time for a simple reminder. The difference between registered and non-registered accounts, and why you need both. Way too many of us believe the only two kinds of investments are RRSPs and TFSAs and, second, that investing outside those things results in a big tax bill. Let’s clear this up.

‘Registered’ accounts are just that. Registered with the government. Recorded. Controlled. Monitored. Contained. Reported. The amount you’re able to contribute is regulated by government decree, as are the kinds of investments which can be held inside. When you remove funds from an RRSP, they’re subject to tax. This is not the case with a TFSA, but contributions don’t save you tax, either. Both have their advantages – spelled out here in nauseating, teeth-splintering detail – but they’re also subject to politically-motivated change. (It’s an open question if Ottawa will eventually declare that the income from six-figure TFSAs will reduce CPP or OAS in retirement, for example.)

Of course, money earned inside a registered account is tax-free. This is the main motivator for most people. Returns on a non-registered account (sometimes called a ‘cash’ account – misleadingly) are taxable, but there’s nothing to pay when you draw income from them, and several ways to cut the bill to Ottawa. There’s no limit to how much you can stash in a non-reg portfolio. Also, a joint-non-registered account with your squeeze offers some solid advantages over a TFSA or RRSP. (To make this happens, you must trust your partner, which is apparently an issue. Many people would rather share fluids than finances.)

When partners have a joint non-reg account that they both fund, income-splitting is possible. Half the returns may be attributed to each partner, so if one’s in a lower tax bracket, you save. Also a joint account is legally the property of both partners. Thus, if one gets run over by a crazed, stoned Uber driver the funds are immediately the property of the other. Not so with a registered account since time’s required for the transfer of the assets. In a crisis, nobody needs that extra level of grief.

(Note as well that a joint non-registered account can slice taxes when considering an estate. If an aging parent opens one with a child, for example, the assets it contains become the property of the offspring when mom passes. No tax. No delay. No probate.)

What about the tax on non-reg investment income?

For most people, it’s a non-event. The bulk of gains will be in the form of dividends or capital gains, and both come with special features that drive lefties nuts. The dividend tax credit ensures less sting than when collecting interest. In fact people in the top bracket would hand over 50% of the interest earned, but just 29% of dividend income. Sweet. And it’s an even better deal with capital gains. (A capital gain is simply another term for ‘profit.’ When you buy something and it rises in value, that’s a capital gain.)

Capital gains not cashed in remain untaxed. If you do harvest the gain, half is tax-free with the rest taxed at your personal rate. So on a $50,000 cap gain the maximum anyone would pay (income over $250,000) would be $12,500, or 25%. For most people that rate is about half – meaning they keep 85% of the profit. How is that not a good deal?

By the way, when you hold things which increase in value or pay dividends in a registered account, these tax breaks may be lost. All withdrawals from an RSP, for example, are fully taxed as income in the year taken. (TFSA withdrawals are not added to income. Yet.)

So in retirement you can live off an RRSP but every withdrawal is subject to withholding tax. If you happen to also have a corporate pension, this could push you into a higher tax bracket. Remember that at age 71 you’ll be forced to start cashing in retirement plans (when they convert to a RRIF) and adding it to taxable income. Plus, the government could legislate the annual distribution (and the tax load) be increased at any time. It’s a risk that having a non-reg retirement fund avoids.

How do you start such an account?

Not at the bank, unless you hook up with an ‘advisor’ associated with the branch who would love to mummify you in mutual funds. Better that you use the bank’s discount brokerage division, or engage a fee-based advisor to put things together. The best assets for most are ETFs – exchange-traded funds – which don’t carry ridiculous fees and reflect the value of a basket of securities (equities, bonds, real estate trusts etc.) which they are based on.

The best structure for a couple? Two RRSPs, two TFSAs, one joint non-reg, a prenup and a pup.

 

106 comments ↓

#1 TurnerNation on 04.05.19 at 4:14 pm

Blog dogs swear by this one weird trick for being Furst.

#2 baloney Sandwitch on 04.05.19 at 4:16 pm

Garth, You forgot the best thing about non-reg a/c’s the use of leverage to magnify gains (and losses). I routinely carry about 10 to 30% leverage. You can deduct the interest.

#3 mike from mtl on 04.05.19 at 4:30 pm

Love my non-reg, had I known two decades ago what I know now, I would have never contributed to RRSP. So much more efficient than RRSP and won’t have ‘the rules’ changed possibly from a greedy future gov.

Figure that RSP is a bad deal for most Canadians from a tax perspective, but gobberment doesn’t really want to give up that tax grab.

#4 wendi1 on 04.05.19 at 4:31 pm

Three RRSPs. The richer partner opens a spousal RRSP for the poorer. Not for retirement (pension income can already be split), but for income splitting before then.

See, I pay attention!

I was reading Carrick about how retirees are sometimes surprised to learn they have to pay tax on the RRIF withdrawals. A non-reg account can help with that, too.

#5 Linda on 04.05.19 at 4:34 pm

I can see how governments might factor in TFSA income when deciding OAS eligibility, but I do not see any reason for CPP eligibility to be impacted. CPP is a government run DB pension. You pay in & what you get when you take CPP is determined by number of years paid in & how much was paid. It may be adjusted up or down depending on your age when you begin to collect. Unlike OAS, CPP is not subject to clawback though if one’s income is large enough collecting it might put one into a higher tax bracket. About the only way I can see the government ‘clawing back’ CPP is by increasing tax rates – unfortunately all too likely a scenario.

CPP is taxed according to overall income. Including TFSA withdrawals in income could make a substantial difference. – Garth

#6 TAX AND SPEND on 04.05.19 at 4:36 pm

Should have 6 accounts 2 joint accounts your name first then spouse other one with spouses name first then yours
You can trace gains individually and keep paper trail. Plus the 2 RRSP’s 2 TFSA’s.

Nope. No difference. – Garth

#7 espressobob on 04.05.19 at 4:42 pm

Be careful owning mutual funds in a non registered account.

The fund manager selling winners instead of losers could leave an investor with capital gains realized in the fund regardless of the overall performance.

You might get a surprise known as a T3 in the mail reflecting this. Won’t that be fun?

Answer: no mutuals. – Garth

#8 TH on 04.05.19 at 4:44 pm

So what is an ideal split of contributions between RRSP and TFSA, assuming you will not max either?

#9 NotLegalAdvice on 04.05.19 at 4:45 pm

“The best structure for a couple? Two RRSPs, two TFSAs, one joint non-reg, a prenup and a pup.” – GT

Also, for us millennials…. rent instead of owning (unless you can afford to own).

Should we just rent forever and invest our money?

#10 BlogDog123 on 04.05.19 at 4:45 pm

You forgot the joint self directed RESP at the discount brokerage… all your kids in one account! Both parents jt/wros…

Not those sleazy scholarship resps that hold GICs and are loaded full of usary and restrictive fees .. knowledge first financial comes to mind…

There is no joint RESP. It’s a family plan with children as the sole beneficiaries. Yes, far better than the ones slung by the baby vultures. – Garth

#11 Semi Retired Conservative on 04.05.19 at 4:45 pm

You really think they’ll add TFSA withdrawals to income or rather simply cap TFSA contribs at say, 100K ?

The latter is probably simpler.

So likely they’ll do the former.

#12 SunShowers on 04.05.19 at 4:47 pm

Imagine being so flush with cash that you have to worry about contributing to a RRSP, TFSA, AND a non-registered account. Quelle horreur!

This isn’t even a First World Problem.
This is a top 1% of the first world problem.

#13 Newbie on 04.05.19 at 5:03 pm

In an ideal world, do you first max out your TFSA, then RRSP, then start contributing to a non-reg account?

I’ve maxed out TFSA, close to maxing out RRSP. I have to decide if I keep on the path to max out RRSP or start a non-reg account and don’t bother maxing out the RRSP.

Thanks,

#14 Jeff on 04.05.19 at 5:07 pm

Dividends from US stocks are subject to an IRS withholding in your TFSA. (Same with RESP). Best to keep your US investments in the RRSP, which is properly sheltered from to the IRS.

#15 SmarterSquirrel on 04.05.19 at 5:10 pm

Garth,

Your post today echoes a conversation I just had with a friend who was asking how much tax is paid on capital gains in a non-registered account.

I gave the example of someone who originally bought 250 shares of SHOP.TO stock for $100CAD/share in their non-registered account, and in retirement sold for $200CAD/share. I also assumed this person had retired early when they sold and wasn’t yet taking any CPP OAS GIS etc… so the only money they had coming in for the year was from the sale of 250 shares of SHOP.TO at $200 CAD = $50,000 CAD.

Since they had originally invested $25,000, there is no tax on that amount, they are just pulling their original money out. The gain of $25,000 is taxed with only 50% of the gain being taxed. So tax is applied to $12,500. Given they have no other income, the tax (according to taxtips.ca basic tax calculator for someone in ON in 2019 https://www.taxtips.ca/calculators/basic/basic-tax-calculator.htm) is $162.

So essentially they were able to pull $50,000 out of their non-registered account in retirement and only pay $162 in taxes to do so. Leaving them with $49,838 to spend on whatever a retired person spends their money on.

Non-registered accounts are a pretty good thing if used wisely.

#16 Phil on 04.05.19 at 5:11 pm

In an ideal smart world you would cash out all your meaningless digital numbers for real tangible value in the form of gold and silver. If you can’t hold it in your hands then you don’t have it.

#17 Dave on 04.05.19 at 5:16 pm

The Vancouver Canucks are on a multi year losing streak, this will be the fourth year they miss the playoffs!
Just now maybe I can afford to take my wife and kids to an NHL game including buying hot dogs and a soda pop without spending 2 weeks of pay!
We live in a 2 tier society, workers bees like me and people like David Sidhoo who pay for others to write SATs and buy their kids degrees. Can you imagine if his sons were now doctors!!

#18 Yanniel on 04.05.19 at 5:21 pm

“TFSA withdrawals are not added to income. Yet.” Why would anyone use a TFSA if the withdrawals are added to income? Such a thing would render the TFSA useless.

#19 Lee on 04.05.19 at 5:23 pm

I’ve never heard of JT considering adding TFSA withdrawals to income, at any level. He might as well shut the program down if he does that. Then even the dividends earned in the TFSA will be taxed at a higher rate than if earned outside the plan.

#20 Yanniel on 04.05.19 at 5:24 pm

“The best structure for a couple? Two RRSPs, two TFSAs, one joint non-reg, a prenup and a pup.” Why a prenup? Was that sarcasm?

#21 yorkville renter on 04.05.19 at 5:25 pm

“Two RRSPs, two TFSAs, one joint non-reg, a prenup and a pup.”
to paraphrase Meatloaf, 3 out of 5 ain’t bad… no prenup, no pup.

#12- it needn’t be a 1% ‘problem’, if you dont overspend and make saving a priority… RRSP max might be a stretch, but TFSA should be doable for everyone

#22 Sovavia on 04.05.19 at 5:38 pm

No matter the account, Canadian investors have too much maple in their asset allocations.

Wonder if the share of do-it-yourself investors is larger in Canada than in the States, and whether this is related to home bias.

#23 Yukon Elvis on 04.05.19 at 5:42 pm

Blog dogs over the years have said that it was only a matter of time before the govt. started taxing the TFSA. You scorned and ridiculed them. Are u still scorning and ridiculing them now ?

#24 kz on 04.05.19 at 5:43 pm

Great info Garth, thank you
My spouse and I just opened one individual non-reg for her and one for myself. I thought there would be an advantage to having individual non-reg accounts for tax purposes , with my spouse contributing to her own account and keep record of her income going to it separately. I would pay most of our living expenses with my income, would this not be a better way to keep the paper trail cleaner?
Before we start adding cash into the accounts would it have been better to have a joint account opened instead?

#25 Loonie Doctor on 04.05.19 at 5:44 pm

We like and have used the flexibility of a non-reg account outside our corp account. I agree that for most people, a joint account is best for the reasons that you cite.

That said, we decided to have ours attributable to my lower income spouse. We lived on my income and invested her income for a few years. We lose the probate avoidance advantage, but we decided to take that risk when we heard T2 musing about killing income splitting and raiding small corps on the campaign trail. Tax rates were also lower then to extract money from our corp. It should prove useful since we plan to retire well before 65 when we’d be able to RRSP/dividend split easily again. Not a common scenario, but could apply to some high income professionals.

Also interesting is that now with the high tax rates, in many provinces the lower dividend paying US equity ETFs often have less tax drag than the higher dividend Canadian ones – even with the lower eligible dividend rate.

-LD

#26 VanMan on 04.05.19 at 5:47 pm

G,

Late 30’s here, $175K in RRSP. $20K in TFSA. Annual income $140K. Renter in YVR.

Would it make sense to remove a chunk from RRSP (up to my TFSA limit), pay the penalty on RRSP withdrawal and lump the funds into TFSA for the next 20+ years?

#27 Spaccone on 04.05.19 at 5:51 pm

Hopefully they look to what the UK does with their TFSA equivalent. A large amount of room, CAD$35k, but it resets every year.

#28 Doghouse Dweller on 04.05.19 at 5:52 pm

The $6500 I put in my TFSA was already income taxed, when I toiled in my yellow vest to earn it. How the hell could they justify income taxing it
again ?

#29 BlogDog123 on 04.05.19 at 6:07 pm

re: #10 BlogDog123 on 04.05.19 at 4:45 pm “Joint RESP”

Garth, joint account/family account, it’s all in the same ol’ bucket of “family” money. My monthly statement has me and my wife’s name with JT/WROS beside it. Hypothetically, both kids die before college, the money will go to us (minus grants+gains).

Not sure why some families have separate RESP accounts per kid.

#30 AK on 04.05.19 at 6:09 pm

“For most people, it’s a non-event. The bulk of gains will be in the form of dividends or capital gains, and both come with special features that drive lefties nuts. The dividend tax credit ensures less sting than when collecting interest.”
====================================

The dividend tax credit only applies to Canadian holdings. Dividends from foreign companies are treated as interest.

In my case, 80% of my non-registered holdings are outside of Canada. But it’s still worth it when it comes to capital gains.

Of course the dividend tax credit is only for Canadian corps. This is Canada. – Garth

#31 kommykim on 04.05.19 at 6:11 pm

I’m surprised that you didn’t mention that, in some provinces like BC, that the tax rate for eligible dividends can be negative for those earning less than $47K a year!

https://www.taxtips.ca/taxrates/bc.htm

#32 Mr White on 04.05.19 at 6:11 pm

I’m going to say this once so listen up.

You are not smart enough to manage your own investments. Only do things you are actually smart enough to do well.

So, give your money to Garth. His fees are lower than your losses will be as a result of my statement about being stupid. He will, over the long term help to make you richer than you could on your own. That is smart.

Where shall I send your cheque? – Garth

#33 ImGonnaBeSick on 04.05.19 at 6:19 pm

As we’ve found with this bunch of knuckleheads in Ottawa, government policy risk is one of the largest risks to your retirement. Now our inglorious finance minister wants to kill swap based ETFs…

Whatever happened to the suggestion of linking inflation to capital gains tax? I liked that idea!

Hopefully we get a more reasonable government in October. Don’t we have enough services and definitely enough taxes already?

#34 Penny Henny on 04.05.19 at 6:32 pm

Capital gains not cashed in remain untaxed.-GT
////////////

What about Re-invested capital gains with some etf’s

#35 Thebarold on 04.05.19 at 6:34 pm

Just be weary if your non-registered portfolio throws off dividends. At some point the CRA decides you should start paying quarterly tax installments. All my dividends are reinvested but i have to lend the CRA money until i get it back at tax time (they overestimated how much they needed). You’ll need liquid cash to fund those installments.

#36 Fake Person on 04.05.19 at 6:37 pm

DELETED

#37 Capt. Serious on 04.05.19 at 6:39 pm

Is it possible to change a solely held non-reg account into a joint account, or would I need a new one for wife and me? If possible to convert, splitting of gains from a tax perspective only happens on future gains, I’d assume?

#38 Joe Schmoe on 04.05.19 at 6:44 pm

TFSA withdrawls could impact CPP.

But who is to say non-registered investments won’t be taxed more at some point in the future?

I think as long as you are saving, and the money is growing, you are winning. Trying to assume the tax efficiency 20+ years ahead is academic.

The important point is RRSP/TFSA are probably not enough for most people to retire on. Dependent on when you started contributing of course.

#39 Figure it Out on 04.05.19 at 6:51 pm

“In an ideal smart world you would cash out all your meaningless digital numbers for real tangible value in the form of gold and silver.”

That’s exactly what THEY want you to do. Do you think THEY want you competing with them as they amass ownership of all the world’s means of production, and of all the income created by lending money at interest? THEY do not. THEY want you to store your wealth in rocks which pay nothing — gold, silver, diamonds, THEY care not which. THEY spend millions per year buying advertising to convince the sheep to do exactly that.

#40 Blackdog on 04.05.19 at 6:51 pm

“Thus, if one gets run over by a crazed, stoned Uber driver the funds are immediately the property of the other. ”

One is a lot more likely to get run over by a booze-head. Just sayin. But don’t let that stop you from having your nightly scotch or whatever.

You stoners always miss the point? – Garth

#41 Dolce Vita on 04.05.19 at 6:52 pm

Took a look at the March 2019 Labour Force Survey comparing Unadjusted and Seasonally Adjusted numbers, the latter in brackets for Feb. to Mar. 2019:

Employment……………………+2,700 (-7,200)
Full-time employment………+46,500 (-6,400)
Part-time employment……..-43,800 (-900)
Unemployment………………..+22,000 (-4,100)
Unemployment rate………….6.2% up by 0.1% (5.8% no change)

The time of year when ARIMA statistics begin to dampen the Raw, Actual (Unadjusted) numbers.

Weird to me was that +22,000 became unemployed (Unadjusted) vs. Seasonally Adjusted calculating -4,100 fewer unemployed.

Normally and since 2014, March is the month where Full-time employment begins to take off in the +10’s of thousands (except for Feb. to Mar. 2015 at -14,700). This years change near FLAT at +2,700.

Basically nothing to worry about in the raw, actual Unadjusted data for now.

I would ignore Seasonally Adjusted as that is nothing more than “statistically massaged” Unadjusted numbers.

#42 wallflower on 04.05.19 at 6:53 pm

#13 Newbie on 04.05.19 at 5:03 pm

Plans will be different for everyone based on circumstances. Here is some info/experience from the other side of the fence. Everyone I know who retired 10-ish years ago, did not have TFSA and maxed RRSP. Now, they wish they had done more non-reg and envy the TFSAers. Where they are most damaged is in the RRIF percentage minimums, forcing taxes and OAS clawbacks. Vicious circle kind of thing.
I am just now stepping over the line – pulling from non-reg-RRSP/TFSA. Stopped at age 50 all RRSP contributions, deciding to let it roll til draw-down time. Did the TFSA thing (had to pull some out) and did the non-reg thing. I wish I had stopped the RRSP stuff earlier OR for those 45 through 50 age years contributed far less and guided the funds into non-reg. I have the majority of my funds in RRSP and would like a better balance. I am advising my spawn and nephieces to consider more like 1/3-1/3-1/3 until they at least understand financial planning and investing better.

#43 ImGonnaBeSick on 04.05.19 at 6:55 pm

12 SunShowers on 04.05.19 at 4:47 pm

Seriously… what is the point of this comment? Why do you even come here if you don’t have money to invest? Shouldn’t you be looking for a better job or working on the next great Canadian whatever?

I don’t care that you’re poor anonymous commenter… It’s not a badge of honour. For those of us that aren’t, Garth’s insights are appreciated, and I’m not ashamed for having made a lot of smart choices in my life. I also appreciate the other investors in the comments section. Those that have the money to invest in the different vehicles and can give their experiences with each type.

On that note, I’m glad to see you’re back Loonie Doctor.. I like your blog as well.

And as far as you SunShowers, get a life.

#44 Lisa on 04.05.19 at 6:57 pm

OK Garth. I know you are more into pups than kids, but please do a post on RESP and RDSP (the latter only for disabled, obviously, but a lot of us have disabled kids).

#45 reg ... non on 04.05.19 at 7:02 pm

some help please

i am retired living off dividends income

in my joint non – reg account i can earn Canadian based dividends tax free . cool

but of course its best to diversify right ??

are the international / US dividends in canadian bought ETF’s taxable in a bad way or should i just swallow it and count my lucky stars ??

thanks

#46 BillyBob on 04.05.19 at 7:08 pm

#27 Spaccone on 04.05.19 at 5:51 pm
Hopefully they look to what the UK does with their TFSA equivalent. A large amount of room, CAD$35k, but it resets every year.

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

Yep. I just maxed my ISA out at the £20,000 limit for the 2018-19 deadline of Apr 5. May not stick around the UK indefinitely but couldn’t say no to so much tax-free headroom.

#47 Dolce Vita on 04.05.19 at 7:10 pm

For the CURIOUS about the Seasonally Adjusted vs. Unadjusted (raw, actual) Labour Force Survey jobs data, go here and learn to Add/Remove data and click Apply on your own:

https://www150.statcan.gc.ca/t1/tbl1/en/cv.action?pid=1410028701

——————————————–

PS:

Garth, your favorite bow tie wags made this their headline about the Mar. 2019 Labour Force Survey jobs data*:

“Canada’s job run stalls in March with first drop in seven months”

It’s a bitch for the Numbers Challenged that haven’t a clue about stats yet, like to alarm the heck out of the “Average” everyday hard working and trusting Canadian.

Click Bait and ad revenue more powerful than the truth.

*CBC did it too: “Canada lost 7,200 jobs in March, ending 6-month streak of gains”.

#48 Dolce Vita on 04.05.19 at 7:33 pm

Off topic Garth and I should not be laughing but poor Justin, he cannot win for losing nowadays.

Statistically significant sample size with a biased question and the results definitely show Canadians would rather see their PM into the slammer than a sleaze bag bribing Quebec based company that hires hookers for despots:

https://i.imgur.com/niDS8oz.jpg

ALSO, Justin needs to sprout a few.

If this happened to Jean Chretien you know into which protester orifice that bullhorn would have ended up:

https://twitter.com/globalnews/status/1114275582337007616

Justin, ever the former Drama Teacher, twinkle toe waves and smiles his way out of it.

Well, at least he didn’t thank guy for his donation…

Twitter is a such better authoritative news source than the Cdn. MSM (more entertaining too).

#49 Stone on 04.05.19 at 7:36 pm

#12 SunShowers on 04.05.19 at 4:47 pm
Imagine being so flush with cash that you have to worry about contributing to a RRSP, TFSA, AND a non-registered account. Quelle horreur!

This isn’t even a First World Problem.
This is a top 1% of the first world problem.

———

Good problem to have. Have you learned nothing yet from all your time here.

Continue to consume and feed my dividends, fool. At least that way, you make yourself useful.

#50 tccontrarian on 04.05.19 at 7:42 pm

“Returns on a non-registered account (sometimes called a ‘cash’ account – misleadingly) are taxable, but there’s nothing to pay when you draw income from them, and several ways to cut the bill to Ottawa. There’s no limit to how much you can stash in a non-reg portfolio.” GT
///////////////

Of course, and I’m sure you left this out for brevity, there’s also the non-reg. Margin Account, against which you can ‘borrow’ from broker to buy equities (or sell short). Naturally, leverage is a double-sided sword – it can amplify your gains on the way up, but likewise amplify losses on the way down. Have tasted both, and have to say that it’s best not ventured in if one doesn’t know how to handle ‘risk’.
Between my wife and I, we have 90% of our financial assets in non-registered and of those, I have about 3/4 within margin accounts.

Another advantage offered by non-registed accounts is the ability to carry forward capital losses, indefinitely! Last year I paid “zero” in cap. gains tax even though I had a lot. Why? Well I had a few ‘bad’ years and had accumulated considerable losses – waiting there patiently to offset the gains, which I knew one day would come.

TCC

#51 50 YEARS OF MAPLE LEAF INCOMPETENCE! on 04.05.19 at 7:52 pm

Some very thoughtful comments earlier today about why Toronto and the GTA are such holes.

#96 dharma bum

You’ve illuminated the mediocrity of Toronto with your succinct prose much better than I could.

Well done!

#103 Point of no Return

Well said also. Toronto is the worst of Canada, but it also exemplifies some problems that affect the whole country.

Still lots more hope in smaller Canadian centers though, people just need the guts to leave the sinkhole of the GTA.

Waiting forever for the Make Believes to win a Cup is not an antidote to the fifth-rate reality of living in Toronto.

#52 Bedhead on 04.05.19 at 7:54 pm

Garth, still worth putting $$ in non-reg if you have tons of RSP space and middle tax bracket?

#53 sigh on 04.05.19 at 7:54 pm

“if one gets run over by a crazed, stoned Uber driver ”

Can we let these sorts of stereotypes die? Stoned people are not alcoholics and not killing anyone, by and large.

“How do you start such an account?”

I’d imagine by first getting $50,000? Or really, any spare money. I guess i could dump in my $200 a month i save, but i need that for emergencies. And just to have it all wiped away when market contractions are the new norm? I can’t play those rich people games.

Isn’t it far better for the taxes to go up on these “money for no actual work gambling schemes” and use that money to equalize society in the form of things like free tuition or payouts of cash to the middle and poor classes?

I guess i am asking a successful gambler for his opinion on gambling, and i already know the answer.

#54 Paul on 04.05.19 at 7:58 pm

Hey Garth, Have they regulated that term “fee only” as some say “fee based” which not the same as fee only.

Fee-only advisors sell advice. Fee-based ones actually do it. – Garth

#55 AACI Home-Dog on 04.05.19 at 8:05 pm

“Not at the bank, unless you hook up with an ‘advisor’ associated with the branch who would love to mummify you in mutual funds”

hahaha…great one, Garth !

#56 Old Dog on 04.05.19 at 8:05 pm

If you have a joint account with a parent, be careful. If they have any other accounts in their name only, you will pay the one and a half percent probate fee on all the accounts, including your joint one. Make sure all investment assets are in joint names. We got caught this way. Also make sure the beneficiary of any accounts is you, not the estate.

#57 reynolds531 on 04.05.19 at 8:07 pm

Taxing Tara withdrawals won’t actually work in a practical sense. Flash forward to 2038. A broke NDP government decides to do so. Unfortunately the vast majority of accounts haven’t tracked cost bases or dividend income for years. How do you tax a number you can’t calculate? Do you just tax all growth?
If you’re going to change the rules, the easier political and practical target is non registered accounts. You have better numbers. And far more support from the unwashed masses to attack rich people who get that terrible dividend credit, and capital gains rate.

#58 Tony on 04.05.19 at 8:08 pm

Re: #12 SunShowers on 04.05.19 at 4:47 pm

The big problem is when they tell you “your” money is insured. A million for each brokerage firm. No limits for Manitoba credit unions and not nearly enough banks to even make the CDIC worthwhile. Something is wrong with Canada that’s why people park money in offshore tax havens.

#59 reynolds531 on 04.05.19 at 8:08 pm

Tfsas not Tara. Damn technology

#60 Loonie Doctor on 04.05.19 at 8:10 pm

#43 ImGonnaBeSick

Thanks! I took March off to travel and hang out with my family. I have also been busy working on an online portfolio rebalancer to go with the Robocorp ETF portfolio building tools that I made previously. The coding just about made my brain explode, but almost there. I put out the first post of a series about rebalancing on my site earlier today.
-LD

#61 Dolce Vita on 04.05.19 at 8:11 pm

On topic Garth, today’s Blog a very good summary of RRSPs, TFSAs etc. ins and outs.

Along with your usual BNN ad hominem came this GEM of Dear Abby advice:

“The best structure for a couple? Two RRSPs, two TFSAs, one joint non-reg, a prenup and a pup.”

THAT was good.

Buonanotte e Ciao d'[*]Italia.

*Come visit Il Bel Paese this year and learn to eat and drink, actually, lots of eat and drink…their GDP needs it, bad (just stay away from our beaches where we hide out from you tourists).

———————————————

TRAVEL TIP:

For the TripAdvisor Conoscenti that will visit Venezia, you do know that a short ferry ride to Punta Sabbioni SX from Venezia (take the #17 Vaporetto) brings you to the West side of Jesolo beach resort where from there, you have near 50 km of Blue Flag beaches all the way up to Lignano Sabbiadoro (in between are Bibione and Caorle)?

Google Image Search the names. Ya, mouth drop.

Few if any tourists know this. Tired of the crush of humanity in Piazza San Marco, well, anywhere in Venezia…try the beach instead. There is also a small beach on the East side of Lido di Venezia (the #17 takes you there too, closer to Venezia and where they hold the Venice Film Festival every year).

We’re more than just pizza and pasta.

#62 CEW9 on 04.05.19 at 8:21 pm

#8 TH on 04.05.19 at 4:44 pm

So what is an ideal split of contributions between RRSP and TFSA, assuming you will not max either?

This depends on your personal income. If you are in the highest tax bracket, an RRSP can defer a lot of that tax burden until retirement when you will be in a lower bracket.

But if you are in a low bracket you might be better pushing into a TFSA.

The main thing recommended here is to hold growth stuff in TFSA (since you will never pay taxes on it again) and safe stuff in RRSP. So if you follow that rule you might have 40% safe in RRSP and 60% equity in TFSA.

#63 Sam on 04.05.19 at 8:26 pm

People on BNN lie Garth ? Why ?

Is the financial industry that pathetic ? Members eating their own ? How sad ?

It’s no wonder we have so many diy investors

BNN is full of salesguys. Watch Seal Team. – Garth

#64 mike from mtl on 04.05.19 at 8:38 pm

#26 VanMan on 04.05.19 at 5:47 pm
….
Would it make sense to remove a chunk from RRSP (up to my TFSA limit), pay the penalty on RRSP withdrawal and lump the funds into TFSA for the next 20+ years?
/////////////////////////////////////////////////////////////

At your bracket (40 something) would it make sense to eat that loss now, can you make that back to be ‘worth it’?

RSP is a tax grab unless you know what you’re doing.

Personally I’d just leave it and deal with it later. Withdraw it when it meets some of the exception cases, you don’t have to withdraw at ‘retirement’, defer it.

#65 Ace Goodheart on 04.05.19 at 8:46 pm

Best bet for your non registered account is pick up a direct investing account at one of the big five.

You can get discount direct investing accounts, at outfits like Questrade for example, but unless you are quite good at computers, you will find these accounts difficult to use (and the platforms change constantly, making things even more frustrating).

In other news, I continue to follow with interest the performance of Corus Entertainment (CJR.B).

These folks are tax deduction wizards.

They managed to reduce their net earnings per share from 19 cents per share down to three cents per share, while increasing their revenues. The stock price plunged accordingly. They secured themselves what amounted to almost a billion dollar tax write down, which they can use against current or future profits (I believe for seven years?). And they continue to increase their revenues, while writing down assets to obtain tax losses.

They are sitting on a pile of cash. And operating tax free currently (a billion dollar tax deduction is a big deal).

I keep purchasing their shares (have a number of thousands of them at the moment, they go for about six bucks a pop and are clearly worth slightly more than ten, so it is a no brainer to keep buying this stuff).

These guys make money. And act like they’re losing it. So you get this combination of good will write downs and massive profits, which translate into fat juicy tax losses, filling up the bank accounts.

Bets on how long TSLA can keep operating without raising cash? They lost money in the first quarter, which means they are probably running on fumes right now (or sucking on low batteries I guess – they are electric).

I love their weird cars, but you just can’t spend billions of dollars on an automated car body assembly factory that doesn’t work, then move operations out into the parking lot in a tent and start assembling the cars by hand.

Their CEO also needs to stop punking US Judges. These people are notoriously passive aggressive and if you sass them, sooner or later you are going to get flame broiled. He is going to get hammered, and he doesn’t seem to see it.

Don’t punk Judges. They don’t like sass. End of story.

#66 AACI Home-Dog on 04.05.19 at 8:48 pm

#32 Mr. White

Bang on. I have dealt with the same advisor for 30 years now.
Best decision ever.
No Mutual funds. I do remember Bonds were real sexy 25 years ago when interest rates were high (as in 12% mortgage rates)
May go open a joint account at local pot shop…
cheers…

#67 Neil on 04.05.19 at 9:13 pm

Hi Garth,

You mean 29% for the highest eligible dividend tax rate, no?

https://www.ey.com/Publication/vwLUAssets/Tax-Rates-Ontario-2019/$FILE/Tax-Rates-Ontario-2019.pdf

#68 Blackdog on 04.05.19 at 9:53 pm

@#40, I knew you were gonna say that…lol!

#69 Ponzius Pilatus on 04.05.19 at 10:01 pm

#59 reynolds531 on 04.05.19 at 8:08 pm
Tfsas not Tara. Damn technology
———-
Just an innocent Freudian Slip.
Don’t worry.
Garth is discreet and won’t forward this to your wife.

#70 SoggyShorts on 04.05.19 at 10:03 pm

Garth, do you recommend the use of total return ETFs?
If you are going to own a US ETF in a non-reg does it make sense to use to total return version and have pure cap gains instead of dividends to control taxation?

#71 Figure it Out on 04.05.19 at 10:22 pm

“Bets on how long TSLA can keep operating without raising cash?”

No idea. Negative working capital (getting paid for your cars before you pay your parts suppliers) is great until you have a sequential quarter with negative growth. They did raise $500mm in China for their factory there. 1 year term, advanceable in USD or Yuan, and — get this — if they “misappropriate” funds, then a penalty rate kicks in, of (1 year LIBOR + 100bps) * 1.5, if I recall (it’s in a recent filing). Which is certainly cheaper than they could borrow anywhere else. Don’t know if the Chinese banks & local government are playing an angle, or really dumb.

#72 VicPaul on 04.05.19 at 10:23 pm

#9 notlegaladvice

Should we just rent forever and invest our money?

I can’t speak to what you should do…but you’ll certainly pay less tax and interest over your lifetime…
and, as G-man has often articulated over the past many years – balanced and diversified, properly structured for tax-efficient growth and, when time comes, distribution of family wealth.

#73 PastThePeak on 04.05.19 at 10:48 pm

Regarding US equities, right now they are either in the RRSP or TFSA. While there is a US withholding tax on dividends, it is only 15% of the distribution. Any capital gains are treated the same as CAD equity cap gains – not taxed in TFSA.

So a 15% withholding tax on the say 4% dividend, while you get that US market and USD held in your TFSA isn’t a bad tradeoff.

My non-reg. at the moment is all CAD equities (and where all of my preferred shares are kept).

#74 15% to 20% but Weaver Wanted 30% on 04.05.19 at 10:53 pm

So, Garth, long time but let me ask you again who exactly was responsible for the original 15% BC foreign buyers tax, the main trigger for pouring fuel on the housing market that was just starting its downturn? I know who it is and it’s now safe to reveal what before was considered inside info. Will you answer or try to cover it?..

#75 Mohammad on 04.05.19 at 11:00 pm

Some would argue that the hbp is a bad idea but some of us are withdrawing it to purchase houses. All that money is from gains and tax avoidance in the past decade. Kind of works out to be honest for some.

#76 Vampire studies on 04.05.19 at 11:05 pm

26 V-man. The 40% tax rate kicks in at about $95k in
BC. What this means is if you can retire comfortably on
that amount, then RRSP still makes sense. Have an advisor run some scenarios with different contribution rates for each account, then drawdowns from them along with pension income. if you can save a reasonable amount (15-20% gross), I bet you’re retiring early.

#77 NEVER GIVE UP on 04.05.19 at 11:13 pm

#61 Dolce Vita on 04.05.19 at 8:11 pm

Thanks for the tips. They will be coming in very useful!

#78 Smoking Man on 04.05.19 at 11:20 pm

Why I think Garth sucks

No links to Shlong Zumanga. Dear God I may make 50 cents on 10 dollar purchase. exposing the truth is my mission..

I hate Garth.

#79 Rargary on 04.05.19 at 11:42 pm

I would be a Garther eaten alive by Senor Garth himself and his blog dogs if I wrote in asking for advice… to the point, I invested my first dollar, or $1,500, today in my TFSA. 66% (not Garth recommend 60%) cdn etfs and 33% (not 40%) U.S. etfs today. So exciting… wish I had listened earlier. Catch up time now.

#80 Smoking Man on 04.05.19 at 11:46 pm

Yes I’m a useless basterd. But don’t suffer for the fear judgment.

Its called freedom. You apathetic suck ups.

If you are losser and worry about what people think of you.

Vote Liberal.

#81 Okie Dokie on 04.06.19 at 12:26 am

Here’s a reasonable goal for the average Joe or Joan. Set up an investment acct at a discount broker….like TD Waterhouse for ex….now split half of everything between you and your partner, always even. You can earn $42500 before paying any tax…between two that’s a $83000 income no tax and no claw back because individually you’re beneath the threshold. Marriage has its benefits.if you kick over the two million mark keep filling your kids TFSA accounts to the max.

#82 Old Dog New Tricks on 04.06.19 at 12:26 am

The RESP is definitely a powerful tool to ensure the success of future generations. You automatically get a 20 percent return on your contribution. Where else can you get that kind of return guaranteed? Let you money grow tax free and then your little ones can withdraw and pay taxes at there nominal rate not yours. All while you used the child tax benefit to fund the entire thing. Now that’s a good deal.

#83 TheWacher on 04.06.19 at 1:16 am

#65

Cjr.b.to

Great stock and great company. In last 3 years went from $25 to $4.00 and change per share. And they cut the dividend as well. But yea they sitting on pile of money, your money.

#84 VancouverCanary on 04.06.19 at 2:05 am

60 Minutes analyzes the Sydney Australia house of cards collapse. Prices are down 20%, 10% of all home owners owe more to the banks than their property is worth. Could Vancouver go down the same path?!?

Title: Expert warns Australia could turn into slums in 20 years (15 mins video)
https://www.youtube.com/watch?v=vRSdiq3sOTc

#85 The Real Mark on 04.06.19 at 3:05 am

“#9 NotLegalAdvice on 04.05.19 at 4:45 pm

Should we just rent forever and invest our money?”

Sure, if you don’t have any hobbies or life desires that require your own piece of real estate. But for many/most, being a renter gets pretty old as one enters middle age. Moving, being able to customize everything, etc. becomes a royal PITA if you’re in the middle of so many other responsibilities in life.

Having said that, there are lots of people who simply don’t have the skillset to maintain housing that they own. So there is value in being able to call up a landlord. And RE purchased at the right price historically has provided a reasonable return, if not an entirely imputed return. From current price levels, I doubt there will be any real after-tax returns net of imputed rent on any existing RE that currently exists in most of Canada, but RE prices are so out of whack relative to many other asset classes in Canada at the moment that even the modest investment of a 25% downpayment, within a decade, like as in the 1990s, was enough to purchase a house outright fully in cash.

There’s also some very useful social benefit exemptions which apply to imputed rental income, ie: like TFSA withdrawals, you’re not taxed on imputed rent. In an overall portfolio, RE can be a useful, balancing and volatility-reducing asset class at a modest allocation.

#86 Dolce Vita on 04.06.19 at 4:03 am

You had a Blog write-up a few days ago about YVR’s RE malaise but it seems much worse from Saretsky’s Report out today.

Peruse the Chart on Page 3:

https://stevesaretsky.com/wp-content/uploads/2019/04/Saretsky-Report-March-2019.pdf

Condo’s doing no better on Page 5. Overall worse than 1986*, Page 11.

——————————————–

Write what you will, Oh Unsinkable Garth, but underlying all this there is something afoot in the Canadian economy that transcends RE Cycles.

I believe Slow Growth in GDP will be a blessing if the above stats continue on. We’ll find out soon enough from the other bellwether in RE: Trauma, ON.

If the onset the same as YVR (Trauma lags YVR RE by 3 mo. or so), indeed there is something afoot bearing ill tidings for the economy.

——————————————–

*He has a Chart page entitled “Party Like It’s 1986”. That was a pretty good year for music. Little does Junior know since he was probably born that year (‘rockin it in the crib?).

#87 maxx on 04.06.19 at 8:31 am

@ #12

Isn’t that what we should all strive for?

#88 expat on 04.06.19 at 8:32 am

It’s only profit if you make and take it.
Too many folks hold forever.

The foundation of investing

#89 Pfft on 04.06.19 at 9:12 am

@#80 Smoking Man on 04.05.19 at 11:46 pm
Yes I’m a useless basterd. But don’t suffer for the fear judgment.

Its called freedom. You apathetic suck ups.

If you are losser and worry about what people think of you.

Vote Liberal.
____________________

lol, sure buddy.
you wouldnt be on here constantly defending yourself if that were the case.

#90 Kothar on 04.06.19 at 9:15 am

#12 shows mentality that only 1% of people can do all 3. This is simply false. Off course if the Gov keeps hand in your pocket as they are doing at all levels…then all 3 will become very difficult unless you are 1% and even then!

#91 walltiger on 04.06.19 at 9:22 am

Hi Garth,

can a non-reg joint account be opened with anyone or must be with the squeeze.

thanks.

#92 Figure it Out on 04.06.19 at 9:44 am

Shoutout to whoever nominated me to @BagholderQuotes. It put a smile on my face to start the weekend.

#93 Dominoes Lining Up on 04.06.19 at 10:48 am

Speaking of registered accounts, it’s really stunning how so many families are not contributing to RESPs, and missing out on the 20% federal CESG grant as well as other provincial grants that go unclaimed. Some of the extra BC provincial grants will time out this year, cementing those losses.

https://blog.vancity.com/bc-families-missing-resp-grants/

I know a lot of families struggling with paying off high mortgages due to inflated house costs, who can barely pay for food, let alone thinking about university ten years away for their kids. Some are clearly planning that they can get a home equity line of credit to pay for that, they tell me.

It appears from looking at a number of reports that under 60% of families have even opened up RESPS, and poorer families have much lower rates of participation, under 40%.

Hard to beat a guaranteed 20% return on your money, yet so many Canadians are just not able to make it happen, but 70% are home “owners”.

That’s a big canary in the coal mine.

#94 StillLearning on 04.06.19 at 10:57 am

When using a joint non-reg account, does the income splitting have to be proportional? For example if 70% of the account came from me, and 30% from the wife, would we would only be able to split the income in the same manner – 70:30?

#95 NoName on 04.06.19 at 11:45 am

#93 Dominoes Lining Up on 04.06.19 at 10:48 am
Speaking of registered accounts, it’s really stunning how so many families are not contributing to RESPs, and missing out on the 20% federal CESG grant as well as other provincial grants that go unclaimed. Some of the extra BC provincial grants will time out this year, cementing those losses.

https://blog.vancity.com/bc-families-missing-resp-grants/

I know a lot of families struggling with paying off high mortgages due to inflated house costs, who can barely pay for food, let alone thinking about university ten years away for their kids. Some are clearly planning that they can get a home equity line of credit to pay for that, they tell me.

It appears from looking at a number of reports that under 60% of families have even opened up RESPS, and poorer families have much lower rates of participation, under 40%.

Hard to beat a guaranteed 20% return on your money, yet so many Canadians are just not able to make it happen, but 70% are home “owners”.

That’s a big canary in the coal mine.

Funny thing you mention that, Just by observing Australia and Argentina during early 1900 we can see what went wrong where. Both countries had roaring economies Argentina was doing exceptionally well but over the time Argentina folded and Australia came out on top. Why, education.


Schooling is measured by the share of the relevant populations that was enrolled in primary, secondary or tertiary schooling. Argentina may have been rich, but it was not that well-educated. In 2000, Argentina was doing about as well as would be expected based on its education levels in 1900. Long-run national success is built on human capital, both because of the link between schooling and technology and because of the link between education and well-functioning democracy.

here it is.

https://economix.blogs.nytimes.com/2009/10/06/what-happened-to-argentina/

why do i know all this stuf? yes, teenage kids you guest it correct.

#96 Remembrancer on 04.06.19 at 12:19 pm

#94 StillLearning on 04.06.19 at 10:57 am
When using a joint non-reg account, does the income splitting have to be proportional? For example if 70% of the account came from me, and 30% from the wife, would we would only be able to split the income in the same manner – 70:30?
—————————————–
Why, are you each initialling every $ that goes in?

#97 Remembrancer on 04.06.19 at 12:24 pm

#93 Dominoes Lining Up on 04.06.19 at 10:48 am

It requires work to sort out a flexible plan that doesn’t having punitive claw backs depending on what happens 10 years from now for one reason, not as much of an excuse these days compared to say 20 years ago though. Unfortunately, the industry overall has a reputation based on early bad players and the ones that practically hand out applications in the labour recovery rooms. Like you said though, extra money from the government(s) always bears consideration…

#98 Remembrancer on 04.06.19 at 12:37 pm

#13 Newbie on 04.05.19 at 5:03 pm
In an ideal world, do you first max out your TFSA, then RRSP, then start contributing to a non-reg account?

I’ve maxed out TFSA, close to maxing out RRSP. I have to decide if I keep on the path to max out RRSP or start a non-reg account and don’t bother maxing out the RRSP.
———————————————–
Depends on what you’re holding and how much you are making. There’s loads of information about the tax advantages of each including if you are taxable on US-based investments.

Remember, especially if you are maxing TFSA yearly, RRSP is primary for tax deferral when you are comparing the two. If you’re in the first bracket ($43,906 in 2019) and expect significant future income increases, then maybe concentrate on the TFSA and save the RRSP accumulation for later in life – save more on income taxes earlier in life and pay less later is the theory…

#99 NoName on 04.06.19 at 1:21 pm

2 yrs old more than 100 pages, lots of pictures maybe 35-40 full txt pages to read, interesting.

https://economicprinciples.org/downloads/ray_dalio__how_the_economic_machine_works__leveragings_and_deleveragings.pdf#page=25

#100 SoggyShorts on 04.06.19 at 1:24 pm

#94 StillLearning on 04.06.19 at 10:57 am
When using a joint non-reg account, does the income splitting have to be proportional? For example if 70% of the account came from me, and 30% from the wife, would we would only be able to split the income in the same manner – 70:30?
********************************
Contribute to your joint non-reg from your joint bank account, the same one you use to pay all bills.
Then you can say who paid for what however you want whenever you want.

#101 Shawn Allen on 04.06.19 at 1:28 pm

Math question

Scenario: You put $10,000 into an RRSP and get back 40% or $4,000 refund and your net cost is $6,000.

Say it just only doubles to $20,000 over a decade or whatever and you take it out over a couple of years at a 35% tax rate. So you get $13,000 and pay $7,000 tax.

Your net $6,000 more than doubled to net $13,000 when the RSP doubled.

Question: What was your tax rate paid as your net $6,000 investment doubled to $12,000 and you got back net $13,000?

#102 Canadian Voter on 04.06.19 at 1:31 pm

Kinda related to the topic, been thinking about how to vote in the upcoming elections and how the outcome might affect taxes and pocketbooks.

Here are my current intentions:

ALBERTA
That one is easy. Time to break up the Trudeau Notley Alliance (TNA). Even the acronym for it is distasteful.

FEDERAL
Have to pick the best qualified candidate who will make sure the wheels do come off the make-belief economy bus in shortest time and who has a realistic chance of getting elected. On that second part, sorry Jagmeet.

So will go for Jussie Trudeau, and will overlook his claims that two women wearing “ROLO” (rule of law only) hats viciously attacked him as he was trying to help a downtrodden Canadian company victimized by the Lybians and their appetite for $30K prostitutes.

I think IHCTD9 will approve. :)

#103 Avocado Toast on 04.06.19 at 1:48 pm

#12 – Contributing to an RRSP, TFSA, and non-reg account should be normal for anyone who didn’t take out a giant mortgage. It’s not the amount that’s important, it’s the habit. If I couldn’t save at least a small amount each week I certainly wouldn’t be on a blog leaving comments, I’d be working 24/7 to find a more lucrative (or second or third) source of income.

#104 Atrate on 04.06.19 at 1:57 pm

Got any advice for us singletons?

#105 Gravy Train on 04.06.19 at 8:52 pm

#101 Shawn Allen on 04.06.19 at 1:28 pm
“Scenario: You put $10,000 into an RRSP and get back 40% or $4,000 refund and your net cost is $6,000.

“Say it just only doubles to $20,000 over a decade or whatever and you take it out over a couple of years at a 35% tax rate. So you get $13,000 and pay $7,000 tax.

“Your net $6,000 more than doubled to net $13,000 when the RSP doubled.

“Question: What was your tax rate paid as your net $6,000 investment doubled to $12,000 and you got back net $13,000?”

Assuming inflation = 0%, the imputed before-tax rate of return = 7.18%.

The present value of your taxes paid:
• in year 10 = $1,750 ($10,000*35%/(1+0.0718)^10), and
• in year 11 = $1,750 ($10,721*35%/(1+0.0718)^11).

You got a tax refund of $4,000 in year 1, and paid taxes in years 10 and 11 with a present value of $3,500 for a net gain of $500 (in today’s dollars).

How’d I do, Shawn? :)

#106 Mishuko on 04.08.19 at 7:22 am

Why not a spousal rsp for that fancy income splitting you have mentioned 2nd to how awesome dogs are?