The security blanket

In a day or two you’ll get the Greater Fool FFPs (Fearless Foolish Predictions) for 2020. Here’s a preview. One of them will be a market melt-up, for at least the first few months of the year. No recession. No shocks. Except Trump, maybe.

How best to take advantage of economic growth, rising asset values with stable inflation and interest rates?

The TFSA, silly. It’s the gift that keeps on giving. Your security blanket – but only if you know the correct strategy. Sadly, 80% of all tax-free moolah in Canada remains in GICs and HISAs meaning most folks will miss this opportunity. Don’t let that include you.

Come Thursday you’ll be able to stuff another six grand into your plan for the year. This brings the accumulated TFSA total contribution room (since it was invented) to $69,500. For a couple that totals $139,000. Add in two adult children, and it becomes even more – potentially over $275,000 for a household. All growing free of tax. And unlike RRSPs, no tax when redeemed.

There are some awesome advantages of the TFSA.

Like, flexibility. Money can come out, then be replaced the next year. No such luck with an RRSP where room is used up and never replaced. For example, this coming week everybody over 18 (or 19 in certain backward provinces) has the ability to put in all missed contribution room from past years + replace all the money withdrawn in 2019 or earlier + this year’s $6,000. So there’s no excuse for having a non-registered investment account, for example, when TFSA room is sitting idle and unfilled. Move it.

The fact TFSA withdrawals are not counted as income and all the growth in the account remains untaxed makes these perfect for retirement planning. Imagine a couple turning their current $139,000 TFSAs into $700,000 in twenty-five years, then drawing out annual cash flow of about $45,000 at the same time they collect average CPP and OAS. That would give an income of almost $80,000, sans tax. For life. No clawback of the government pogey.

Growth is key. TFSAs should always be packed with growthy stuff like ETFs mirroring the S&P, Dow, TSX, Nasdaq or emerging markets. Over the past decades an average return of 7% has been a reasonable expectation for a balanced portfolio, so a 25-year-old contributing $110 a week to a TFSA (and doing no other investing her entire life) could reasonably expect to end up with $1.26 million, a million of which was taxless growth. That would throw off an income of more than $85,000 a year – plus social benefits and the proceeds of whatever crappy corporate mutual fund-based RRSP she was given. How’s that a bad outcome?

If you thought spouses were just handy for a wide range of emotional and domestic services, good news! The TFSA can also help you income-split. Higher-income earners can gift money to their partners to invest in a tax-free account with no attribution back to them (unlike with a non-registered account). The lower-income (or no-income, stay-at-home) spouse can still qualify for spousal tax credits while earning great tax-free returns. Ditto for adult children. Gift them money for their TFSAs. No attribution. But, technically, it becomes their money so you have to be nice.

Speaking of kids, TFSA withdrawals are never taxed and never considered income – unlike what can happen with an RESP, where a portion of the funds attracts tax. So having your offspring open tax-free accounts and keeping them funded for educational costs makes good sense. If they don’t go on to uni, no problem.

Retired and over 71? Then RRSPs must be converted into RRIFs – even if you don’t need the dough. Why not use registered retirement income fund money to fund your annual TFSA contribution, or that of your spouse (or both)? That way you exact a little meaningful revenge with the forced cash flow earning returns Bill Morneau will never see or touch?

Remember this, too: declare your spouse the ‘successor holder’ of your TFSA, not the beneficiary. That way your plan becomes theirs when you croak. Seamless. TFSAs do not enjoy the same exempt status as RRSPs so foreign dividends may attract withholding tax. Plus, don’t overcontribute, or the CRA will send you a nasty letter and demand ransom. Of course, contributions in kind are okay – you don’t need actual cash to fill the plan each year.

So, in summary: if you do nothing else, do this. Open a plan. Fill it. Invest the money, don’t save it. Never spend it. Never miss a year. And don’t be coming to this pathetic blog in 30 years, moaning about poverty. I won’t care.

 

65 comments ↓

#1 Sideshow Rob on 12.29.19 at 2:35 pm

Could it be..1st

#2 Mark on 12.29.19 at 3:07 pm

Welcome you have entered the twilight zone.
Quit deluding your readers that TFSA will exist in its present form, at some point federal G, will change rules and tax and every one knows this.

Take advantage of it in present form for sure but it ain’t lasting…..

M.

Of course it will endure. Tax shelters intended to finance retirement are the last things the feds will attack. – Garth

#3 LP on 12.29.19 at 3:10 pm

Does a client need to set a transfer in motion or will his/her advisor initiate the process?

An advisor will never move your money without an instruction. You should receive a reminder this week. – Garth

#4 Yukon Elvis on 12.29.19 at 3:12 pm

Retired and over 71? Then RRSPs must be converted into RRIFs – even if you don’t need the dough. Why not use registered retirement income fund money to fund your annual TFSA contribution, or that of your spouse (or both)? That way you exact a little meaningful revenge with the forced cash flow earning returns Bill Morneau will never see or touch?
………………………………….

I have been doing this for years. And it worries me because it is too sweet of a deal. Sooner or later I feel that they will start counting the withdrawals as income and punt us into a higher tax bracket or maybe to claw back OAS/CPP/other government benefits. It is just too sweet of a deal and easy pickings for cash strapped governments.

#5 Mark on 12.29.19 at 3:23 pm

Garth,
I hope your right.

#6 Sold Out on 12.29.19 at 3:31 pm

Can I move ETFs from my cash account to fund my TFSA, without triggering a tax event?

Not if they have increased in value. – Garth

#7 Tommy on 12.29.19 at 3:39 pm

So get foreign stuff like the S&P 500 and don’t get it?

#8 unbalanced on 12.29.19 at 3:46 pm

This by far is one of your best posts yet. Keep em coming

#9 P Sydney on 12.29.19 at 3:47 pm

These statement seen to contradict each other unless I’m misunderstanding. Don’t ETFs that track foreign indices have a withholding tax on dividends?

“TFSAs should always be packed with growthy stuff like ETFs mirroring the S&P, Dow, TSX, Nasdaq or emerging markets.”

“Don’t own stuff in your TFSA that produces foreign income, since TFSAs do not enjoy the same exempt status as RRSPs.”

Get the right kind. Problem solved. – Garth

#10 FreeBird on 12.29.19 at 3:55 pm

A younger friend was telling me about a co-worker who was bragging about a new shirt worth $200. This person couldn’t really afford it. So I did the math and showed if they invested $200 monthly for even 10 years (some can’t think past this month) at 6% avg return how much they’d have and at $500/month. They were shocked. I said look at this blog. Later they told me they showed same numbers to the co-worker…to get a rise. Hmmm…thinking the lesson may have been lost. But I heard they avoided post xmas sales and coworker now has new shoes to go with the shirt. Maybe a seed got planted with at least one. Safe new year all.

#11 CrazyCanuck on 12.29.19 at 4:39 pm

#9 P Sydney

As long as you get the ones traded on Canadian exchange (e.g. the TSX), even though they may track the US indexes, they are not considered foreign income.

#12 Cristian on 12.29.19 at 5:01 pm

“Add in two adult children, and it becomes even more – potentially over $275,000 for a household.”

Are adult children still part of the household?
OK, maybe they are nowadays. But should they be?…
Methinks not.

#13 crowdedelevatorfartz on 12.29.19 at 5:11 pm

@#64 Dhama Bum
“Are there still tons of fat lazy people on that cruise ship, gorging on their 9th buffet meal of the day….”

++++++

“Thats a Bingo!”

A friend once opined that Cruise Ships were feeding troughs for some alien invaders waiting until the entire planet is obese and ready to be “harvested”…..

#14 Cristian on 12.29.19 at 5:13 pm

“declare your spouse the ‘successor holder’ of your TFSA”

So how does one do that? In the will? Or is there a specific form to fill?

Your financial institution or advisor should have asked you when the account was opened. It can be changed at any time. – Garth

#15 Interstellar Old Yeller on 12.29.19 at 6:28 pm

I am trying to imagine Dorothy’s face, at the idea of you running this blog another 30 years, Garth. :)

#16 DD on 12.29.19 at 6:43 pm

With TFSAs (like many other assets) don’t count your eggs before they hatch. If voters someday elect the likes of Jagmeet or May, TFSAs could be at best capped (contribution or tax free gains) or even no longer tax free. And as Justin Trudeau has shown with small business retained earnings, spendthrift governments don’t play nice by grandfathering money accrued under the previous rules.

#17 Caledondave on 12.29.19 at 7:04 pm

How much will interest rates rise in 2020? I have some money that needs to be reinvested into boring GICs which are not tax sheltered?

#18 Nonplused on 12.29.19 at 7:11 pm

Hmm, I must maybe consider whether I have the right financial adviser. He took the bonds out of my cash account and moved them to the TFSA due to tax treatment and left the growthy stuff in the cash account. His reasoning seemed solid to me at the time; bonds attract a 100% tax inclusion rate but growthy stuff only gets 50% inclusion, so you put the stuff that is taxed at double the rate in the TFSA.

Of course my financial adviser’s strategy depends on 2 assumptions, neither of which may be true for all people:

First, he is assuming that over the long run the bond portion of the portfolio will perform close enough to the “growthy” stuff that getting a tax break on it will be beneficial. (I.e. safe stuff will return at least half of what “growthy” stuff will over the long run. Not counting stocks that get hit out of the ballpark like Nortel or Bre-X.)

Second, you have to have more money than can fit in the TFSA and RRSP’s. If not, the proper order is stuff the TFSA first, your RRSP’s second, and then your cash account when the money is flowing like rain in the eave-trough.

Although I have to admit I am not sure whether stuffing the TFSA or the RRSP first is the best approach for most people. For sure the idea of tax free gains from a TFSA sounds like a hell of an idea. But when you put money into a TFSA you have to pay the tax now, and these might be the best earning years of your life. An RRSP on the other hand, represents the possibility to not pay taxes now and defer them to a time when you might be earning a lot less, and thus be at a lower tax rate.

So, sure, people will argue “but how can you be sure taxes won’t go up in the future?” “Maybe now you are saving tax on your RRSP investments but the tax rate could go up!” To this I say “bull crap!” Income taxes cannot be raised from where they are. We are already at maximum taxation. Any attempt to raise taxes from here will simply kill the economy or drive it underground, with people exchanging silver coins for services or resorting to barter. That is why they are trying strange new tactics like doubling the minimum wage and a carbon tax. They know there is no more money to be taxed out there but they are desperate.

When you work for money, in our current system, you do two things. The first is work for what your family needs to get by. The second is to work for the government through taxes, the vast majority of that work being placed on the people who have the most pricing power like doctors and dentists.

But as has been proven time and time again, there comes a time where you just simply don’t have the time to work for the government anymore, and people resort to the underground economy.

Tax rates cannot go up from where they are. We are at peak tax. Every new tax scheme they come up with will result in no new revenues and possibly a loss of revenue as the taxes distort the economy. For example the new “Carbon Tax”. Well, corporate and income taxes will fall by an equal amount. There will be no net gain. There is no new money created by taxes. Try it out some time with your “change jar”. There is no way to make the jar contain more coins just by shuffling them around.

#19 Tccontrarian on 12.29.19 at 7:45 pm

My son turns 18 mid-January 2020. I’m assuming he can open a TFSA only after his birthday, correct?

BTW, the prediction of a ‘melt up’ for a few months I. 2020 is probably the most common prediction among financial commentators over the past few weeks. Recency bias anyone? By Q2 2020, I think we’ll be listening to different tune; in fact, I’m betting on it!
GLTA in 2020 …it’s going to be a bumpy ride!

TCC

#20 Eddie on 12.29.19 at 7:53 pm

Deposits held in a TFSA:

CDIC does not cover investments such as mutual funds (ETFs), stocks or bonds.
GIC and Term deposits are covered.

The customers’ chequing accounts, savings accounts and term deposits such as GICs would not be affected by bail-in.

No retail assets would be affected by a bail-in, which will never happen. – Garth

#21 Nonplused on 12.29.19 at 7:59 pm

#4 Shawn Allen (yesterday)

Another point on the time value of money. If money is not worth more today than it is in the future (discounting), that means there is no reasonable place to invest it and predict a gain. (Mistakes an be made but on the whole we expect growth.) That means economic growth is low or zero. So if we assume a limited supply of money (which I am not sure is true), the money will go where it gets the best returns. The best factories, the best farms, the best rental units, etc. But as the returns on these things fall close to zero, a thinking man or woman would ask “why?” “What has happened to the economy that it is no longer desirable to build factories, farms, and rental units?” Why is it that a dollar spent in the past to build a factory was expected to be worth 2 dollars in some 10 or 15 years in the future, but now it’s expected to be worth no more than it is today? Something weird has happened. The economic system is a discounting system. And what it is signalling right now is pretty alarming. It is signalling that there is no point planting a tree. Think about that for a minute.

#22 Boris Corbyn on 12.29.19 at 8:18 pm

#2 I fear sunny ways or the next one after him will do exactly that

#10 don’t educate them, we need people that buy stupid stuff to generate income for us investors ;-)

#18 I wish we have reached peak tax. Doubt it

#23 kommykim on 12.29.19 at 8:28 pm

RE: So there’s no excuse for having a non-registered investment account, for example, when TFSA room is sitting idle and unfilled.

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

Well, actually there is. In some Provinces like BC and at lower income levels the tax on things like preferred share income is actually negative. ( -9.60% if below $41K and -5.96% below $48K for eligible dividends)

#24 mike from mtl on 12.29.19 at 8:42 pm

Still don’t agree with trying to get clever with different asset allocation for different holding accounts. It makes rebalancing a mess for small time investors and simply complicates your overall risk profile. Just load all of them with the same sort of balance.

Unless you meet and know EXACTLY how to maximise RRSP melt, don’t. Only open a TFSA and non-reg ‘cash’, never sell, only buy if at all possible. RSP withdraws are very tax inefficient and require starting 4+%, increasing every year – which these low rates days is impossible risk-free. 20 years ago this was would have been crazy talk.

Stuffing an RSP with GICs or bonds does not make sense, you still get fully taxed on the way out. Plus all this time the ~2% growth is less than official inflation so you pay the full tax on the (now) devalued dollars anyway.

Tax laws on RSP probably won’t change as they’re already pretty highly taxed anyway.

#25 PetertheSeparatistfromCalgary on 12.29.19 at 8:56 pm

Today marks the 129 anniversary of the Wounded Knee massacre in which 300 men, women and children were murdered by the US Army.

#26 Paul on 12.29.19 at 9:16 pm

Can you transfer rrsp. To E T F’s and start drawing down if you turned 70 last year?

#27 Eddie on 12.29.19 at 9:37 pm

The Government of Canada has announced changes to the CDIC Act.
No retail assets would be affected by a bail-in, which will never happen. – Garth

Why then implementations of bail-in.

#28 P Sydney on 12.29.19 at 9:48 pm

#11 CrazyCanuck

Thanks CrazyCanuck, I’m here to learn so appreciate the explanation.

#29 kommykim on 12.29.19 at 10:11 pm

RE:#24 mike from mtl on 12.29.19 at 8:42 pm
Stuffing an RSP with GICs or bonds does not make sense, you still get fully taxed on the way out.

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

If you invest the RRSP refund back into the RRSP (Or better yet, contribute via work with gross income) then the RRSP can have the exact same tax treatment as the TFSA (same tax bracket when contributing and withdrawing):
https://www.planeasy.ca/wp-content/uploads/2017/11/TFSA-vs-RRSP-No-Winner-Same-Income-Tax-Rate-v1.0.png

But if your income upon RRSP withdrawal is lower than when you were contributing, then the RRSP is the winner.

But the TFSA is better if you are near the threshold for GIS or OAS clawbacks, so there is no one size fits all solution.

#30 Main Street on 12.29.19 at 10:22 pm

The RRSP is a tax trap. Start selling down your RRSP as soon as possible, according to your tax bracket, a bit at a time, every year, if only to fund your TFSA (family) and avoid being butchered. If you neglect this and end with six to seven figures you’ll be sorry. Pay some tax now instead of a huge amount later. There is withholding at your institution. Starve the beast.

#31 Not So New guy on 12.30.19 at 12:11 am

Regarding the risk of future taxation.

I think that wise philosopher Confuseus said:

It is better to be taxed on profits from a million than not taxed on profits from 10,000

#32 Blessed_Canadian_Millenial on 12.30.19 at 1:50 am

#18 Nonplused on 12.29.19 at 7:11 pm
Hmm, I must maybe consider whether I have the right financial adviser. He took the bonds out of my cash account and moved them to the TFSA due to tax treatment and left the growthy stuff in the cash account. His reasoning seemed solid to me at the time; bonds attract a 100% tax inclusion rate but growthy stuff only gets 50% inclusion, so you put the stuff that is taxed at double the rate in the TFSA.

—————

NonPlused, you have a terrible financial advisor.

I recommend getting a second opinion.

Here’s a bit of advice, as per Garth:
Bonds should only be in RRSP.
Equities should be loaded up in TFSA.
Non-registered should host all of your Canadian dividend paying stocks along with preferred shares.

#33 BlogDog123 on 12.30.19 at 7:52 am

re:
“declare your spouse the ‘successor holder’ of your TFSA”

Your financial institution or advisor should have asked you when the account was opened. It can be changed at any time. – Garth

I found myself at a certain Montreal-founded financial institution explaining “Successor Holder” to [email protected] and my parents. All in attendance seemed absolutely clueless to the benefits I was explaining… Even after carefully walking through the scenarios of SH vs. Beneficiary designation, my folks couldn’t be convinced to fill out the damn SH declaration form.

That’s what we’re up against folks. Entrenched apathy.

#34 Remembrancer on 12.30.19 at 8:07 am

#4 Yukon Elvis on 12.29.19 at 3:12 pm
Sooner or later I feel that they will start counting the withdrawals as income and punt us into a higher tax bracket or maybe to claw back OAS/CPP/other government benefits.
——————————————–
Huh? Are you referring to the no withholding tax on the annual minimum RRIF withdrawal or something else? If RRIF, the withdrawal is still considered income and taxable, minus any deductions, nonrefundable credits etc, right?

#35 Dharma Bum on 12.30.19 at 8:08 am

#25 PeterThe SeparatistFromCalgary

Today marks the 129 anniversary of the Wounded Knee massacre in which 300 men, women and children were murdered by the US Army.
——————————————————————–

That’s strange. I happened to just buy the book “Bury my Heart at Wounded Knee – An indian History of the American West”, by Dee Brown.

Appropriate time to read it now, I guess.

#36 Dharma Bum on 12.30.19 at 8:14 am

The TFSA contribution limit needs to seriously be raised.
It should at least have the same contribution room as the RRSP.
After all, it’s AFTER TAX dollars being contributed.
Stupid, cheap ass government.
Thieving tax mongers.
Happy almost new year.

#37 crowdedelevatorfartz on 12.30.19 at 9:42 am

@#18 Non-Plused

Get rid of that advisor.
I had the same type.
Lazy. condescending, arrogant.
Considered any questions about MY money as an annoyance to be barely tolerated.
Dumped a considerable portion of my investments into non-liquid “bonds” that eventually became almost worthless when the REITs they were dumped in tanked.
Pennies on the dollar but …he got his high fees.
P….O….S….

#38 Brandon on 12.30.19 at 10:38 am

Thanks for the reminder. Can you do a post covering what’s best in each account type? TFSA, RRSP, non-reg?

My registered accounts are going to be maxed next year so I’ll be going non reg and I want to make sure I move my assets around optimally.

#39 Westcdn on 12.30.19 at 10:43 am

Owning gold coins/bullion is akin to hiding $100 dollar bills in your mattress. Some people find it easier to sleep that way. https://www.foxbusiness.com/money/steven-mnuchin-100-dollar-bills-disappearing

In my world, the price of gold is a measure of investment fear among the old rich white guys. It is also easily manipulated so I take it with a grain of salt. Bonds are the biggest asset class by far – even bigger than real estate. The gold market is just a pimple in comparison but it does serve as insurance when risk is perceived.

Imo, 2020 will see major market volatility but I will stay the course until June. Canadian inflation looks ready for the 3% mark but there will be no interest rate increase. The bond market and government finances are just too fragile. I think the Canadian economy will be tepid at best. I bet my disposable income takes a hit.

I have reduced my REIT exposure and increased preferred shares in its stead. My option trading results – meh. The short expiration period makes it nearly impossible for a big win unless you broker my trades. Time is not your friend with these things and usually that is bad for me.

#40 Loonie Doctor on 12.30.19 at 11:06 am

#11 CrazyCanuck on 12.29.19 at 4:39 pm
#9 P Sydney

As long as you get the ones traded on Canadian exchange (e.g. the TSX), even though they may track the US indexes, they are not considered foreign income.

—————————————————————-

There is still foreign witholding tax. Most of these Canadian-listed ETF funds just hold the US sister fund. So, it is buried in the fund (and shows as the dividend paid out being less). You may even get two layers of FWT by holding one of these than holds the US fund that holds non-NA stocks.

The way to minimize the tax drag in a TFSA that is holding foreign equity is by using a Canadian-listed ETF that holds non-NA stocks directly (like XEF for example) or one that pays a low dividend (like QQQ which is <1%). Of course, you could put some REITs and canadian equity in the TFSA and direct more foreign to the RRSP if those are the two account types you are using.
-LD

#41 Yukon Elvis on 12.30.19 at 11:06 am

#34 Remembrancer on 12.30.19 at 8:07 am
#4 Yukon Elvis on 12.29.19 at 3:12 pm
Sooner or later I feel that they will start counting the withdrawals as income and punt us into a higher tax bracket or maybe to claw back OAS/CPP/other government benefits.
——————————————–
Huh? Are you referring to the no withholding tax on the annual minimum RRIF withdrawal or something else? If RRIF, the withdrawal is still considered income and taxable, minus any deductions, nonrefundable credits etc, right?
……………………………..

RRIF withdrawals are taxable of course. TFSA withdrawals are not taxable. My concern is that they could be made taxable or considered to be income for purposes of clawing back other benefits such as cpp/oas/gis. TFSA is a sweet deal FOR NOW. But that could change with the stroke of a pen in the future.

Won’t happen. TFSA contributions are made with after-tax dollars. They cannot be taxed again as income. – Garth

#42 Expat Canadian on 12.30.19 at 11:14 am

For example, this coming week everybody over 18 (or 19 in certain backward provinces) has the ability to put in all missed contribution room from past years + replace all the money withdrawn in 2019 or earlier + this year’s $6,000.

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

As an expat Canadian living abroad but expecting to move back to Canada in 5 years, would I be able to take advantage (once I become a Canadian tax resident again) of the TFSA contribution room I lost while being an expat and not a Canadian tax resident?

Thanks for all the posts and your efforts/time Garth – finding your blog has re-shaped the path of my wife and I.

All the best and Happy New Year
Expat Canadian

Sorry – you have to live here to get it. Citizenship does not matter. – Garth

#43 Yuus bin Haad on 12.30.19 at 12:03 pm

Except Trump, maybe. Or something else

#44 Stan Brooks on 12.30.19 at 12:24 pm

‘Renoviction’ rates soar due to big-city housing crunch.

https://ca.yahoo.com/finance/news/renoviction-rates-soar-due-big-090000145.html

‘Desirable’ basement ‘dwellings’. Rents doubling and tripling in some ‘hoods’.

There is a price that renters and savers will have to pay for the housing credit super madness. It is always the responsible who pay the bill for other people’s craziness. It will go that way until there is no responsible people left and we are close to that point.

The increasingly impoverished sheeple finds it harder and harder to make ends meet. But hey, there is no inflation except in asset prices – stocks, housing; services, food – meat, veggies, fruits; tuition, electricity etc.

Everything else is ‘deflating’ apparently. Sure.

Cheers,

#45 Captain Uppa on 12.30.19 at 12:31 pm

I follow the method espoused by Mr. Turner, however I feel more balance in life would be better.

… As in I don’t understand why people are so obsessed with retirement. Yes, you don’t want to be broke, but bypassing most of your younger (and likely healthier) years to be rich in your 60s and 70s is asinine to me.

So be 65 and poor. See how that feels. – Garth

#46 Stan Brooks on 12.30.19 at 12:42 pm

The 2 ‘realities’:

– The rosy upbeat picture of ‘growth’ and ‘wealth’, ‘world class cities’ painted by the likes of MF, the bankers and the hungry realtors

and

– the real life experienced by the majority:

https://ca.finance.yahoo.com/news/rising-cost-of-living-top-of-mind-for-canadians-in-2020-cibc-165804148.html

#47 Stan Brooks on 12.30.19 at 12:58 pm

So be 65 and poor. See how that feels. – Garth

Poor? I thought that the socks boy and the french villa (screw the small businesses) guy work for the better of all Canadians, they already cut the taxes by $ 75 this year, what else do we want? Enjoy the milk and honey that flow from the corrupt media articles and pretend that all is fine.

I heard of a guy who imagining that it is warm, while staying bare naked in the snow got a heat stroke… After all it is all (the success, failure) in our mind, can we die of overeating while with empty stomach in the cold? Time will tell folks, time will tell.

BTW just a generation or two ago nobody cared that much or planned about retirement, now when we all are supposedly ‘richer’ this is suddenly of a concern? It seems that will become more and more of a mission impossible for almost everyone except for very few selected (max 5 % who can retire ‘comfortably).

But again as we redefine ‘comfortably’, that could turn out to be 85 %. That $ 75 in tax ‘return’ is supposed to help the middle class save for retirement according to the french villa guy.

The minister of middle class ‘prosperity’ thinks it will help with the skying lessons or even ‘other activities’.

Cheers,

#48 JacqueShellacque on 12.30.19 at 12:59 pm

I follow this advice, but can’t help but think fat TFSA accounts in the coming decades will be tempting targets for broke governments in the form of a wealth tax.

#49 Steven Rowlandson on 12.30.19 at 1:45 pm

Predictions for 2020

1. Real estate will not be cheaper or brought to justice.
2. Government deficits will continue and government debts will not be paid downin whole or in part.
3. Gold and silver prices will continue to be manipulated by short sellers.
4. Workers will not be getting meaningful wage increases and the trend towards less than full hours will continue.
5. Society will not find its moral compass except for the few.
6. National carbon taxes will not be repealed. They might be raised.
7. Crop planting will be incomplete and late in the spring of 2020 and the growing season will be shortened resulting in diminished crop yields.
8. Global food reserves will be diminished.
9. Winter or winter like conditions will seem to be longer than usual.
10. The government, media, banks and schools will not renounce political correctness and all that goes with it.

#50 jess on 12.30.19 at 1:55 pm

#21 Nonplused on 12.29.19 at 7:59 pm

Can a country have too much finance?

https://www.taxjustice.net/wp-content/uploads/2019/08/Treasury-submission-re-regional-imbalances-AUG-2019-1.pdf

..”As one analysis put it, “The vigour of finance derives precisely from its ability to capture resources from the rest of the economy.2”
The too much finance literature uncovers an inverted U-shaped relationship between credit to the private sector and GDP growth (Arcand et al, 2015, Cecchetti and Kharroubi, 2012, 2015). This literature puts the threshold turning point where credit starts to impact negatively on growth at around 90-100 per cent GDP. In the UK, average credit to the private sector during 1995-2015, was 160 per cent of GDP.”

Too Much Finance’ literature and the newer Finance Curse analysis overlap with a broader and older academic literature on “financialisation”, which is generally taken to refer to two things:
One way to reduce the unnecessary and productivity-draining complexity of these corporate towers, would be to curb (or entirely abolish) tax relief on all interest payments, and /or to reduce the allowable interest rates that can be charged on intragroup lending. As Section 2.1 suggests, these measures could have positive impacts in regional terms.
first, the financial sector expanding faster than the underlying economy, and second, application of financial techniques, practices and debt into non-financial parts of the economy, with the primary goal of maximising shareholder value for owners. This trend frequently involves a shift from wealth-creating activities towards more predatory wealth-extracting activities such as rent-extracting monopolisation, too-big-to-fail banking, the use of tax havens to escape from laws and taxes, or the widespread purchase of well-functioning businesses (by a private equity firm, say) for the purpose of financially engineering them for greater profit at the expense of the acquired firm’s many stakeholders. In all these activities, a wealth-extracting shell sits around a useful wealth-creating core, generating distortions and ‘misallocation costs’ that harm overall prosperity but also have major regional implications. ”

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

what is the purpose of this complex corporate tower sitting atop a police training centre in Scotland?
===============
For example: Or

one affiliate lends to another, charging the highest allowable annual interest rate (for example, the now-bankrupt Caffé Nero saw an intragroup loan in 1997 carrying interest rates that varied between 19 and 25 percent annually.) These interest payments are treated as costs, receiving 100 percent tax deductibility in the UK, while the affiliate receiving those payments is typically set up in a tax haven, where it may pay little or no tax. Overall, the group tax bill – and public revenues– fall11. Note that no productivity improvement results: merely a transfer of wealth from taxpayers to shareholders and fund managers
======================
-extractive infrastructure
See investigations into recent corporate bankruptcies
financial superstructures–british Steel, Carillion, Maplins, Toys R Us, HMV,

Here’s how Caffe Nero made £2bn in sales but didn’t pay a …
https://leftfootforward.org › 2018/03 › heres-how-caffe-nero-made-2bn-in…
Mar 12, 2018 – Over the weekend a newspaper reported that Caffe Nero has not paid … that affects the distribution of assets/cash in the event of bankruptcy.

#51 Shawn Allen on 12.30.19 at 2:00 pm

Bank Bail Ins?

#20 Eddie on 12.29.19 at 7:53 pm
Deposits held in a TFSA:

CDIC does not cover investments such as mutual funds (ETFs), stocks or bonds.
GIC and Term deposits are covered.

The customers’ chequing accounts, savings accounts and term deposits such as GICs would not be affected by bail-in.

No retail assets would be affected by a bail-in, which will never happen. – Garth

Why then implementations of bail-in.

**************************
Eddie, banks are very highly leveraged (which does add to risk) but they are very sophisticated at risk management. They rarely lose money.

But if they ever do lose money and need to have more common equity then the bail-in provisions require that certain preferred shares and certain subordinated debt will be converted into common shares.

Most or all rate reset preferred shares are now “non-viability contingent capital” and are specifically the securities that would be bailed in by converting to commons shares in certain extreme situations.

With the big banks , retail deposits and probably even large institutional depositors have nothing to worry about. The whole purpose of bank regulations is to protect depositors and therefore create a situation where people and corporations are highly confident in the banks.

Bank share holders can certainly lose money on bank investments. Depositors, especially retail depositors in the banks have little or nothing to worry about. Under the Deposit insurance limit there is literally no risk. Above that with the big banks the risk is effectively still about zero. I am not sure that applies to the smallest banks and credit unions. There you would want to stay below the deposit guarantee limit.

It’s not the bail-in regulation that adds to risk. That is designed specifically to protect depositors and put more risk on certain preferred share and debt investors.

Any risk in banking comes from loan losses not bail in legislation. The bail-in rules are designed to protect you.

And as Garth says bail-in (almost certainly) will never happen.

#52 Everything is better in USA! USA! on 12.30.19 at 2:00 pm

With the prices of housing, food, clothing, in short everything, 80k is nowhere enough in Canada. Anyone below 80k in Canada should be considered below the poverty line. I pity the fools… USA! USA! USA!

#53 Yukon Elvis on 12.30.19 at 2:05 pm

Won’t happen. TFSA contributions are made with after-tax dollars. They cannot be taxed again as income. – Garth
……………………….

Corporations pay me dividends with THEIR after tax dollars. I took a risk and purchased dividend paying shares with MY after tax dollars. Yet the government taxes me on those dividends. Because they can.

Non sequitur. That’s new income to you. You did not earn it previously. – Garth

#54 Shawn Allen on 12.30.19 at 2:08 pm

Nonplused and why the low returns

at 21:

What has happened to the economy that it is no longer desirable to build factories, farms, and rental units?” Why is it that a dollar spent in the past to build a factory was expected to be worth 2 dollars in some 10 or 15 years in the future, but now it’s expected to be worth no more than it is today?

********************************
Great questions. I have thought about that as well.

It is mostly the debt side, loaning to those projects where the returns are now so low.

Possible reasons: Low inflation and lower risks in general. Lower risk of inflation and default lowers the required return.

Another reason: There used to be a shortage of productive farms and factories. Each new one could lead to high profits. High profits meant you could afford to pay a higher rate on debt.

Today, in North America, the infrastructure is largely “built out” ” There is just not the need or profit for each new farm or factory especially with low population growth.

On housing, banking practices and things like CMHC have made home lending very low risk. Therefore low interest.

Those are a few reasons to think of. Good questions.

Note also though that the expected return on equity (as opposed to debt) still allows that double in a reasonable time frame, no?

#55 Main Street on 12.30.19 at 2:30 pm

Youse better hope Globalist Job Killer Climate Hypocrite Carney doesn’t weasel his way back into Canada.

https://business.financialpost.com/news/fp-street/boes-carney-says-finance-must-act-faster-on-climate-change

Carney’s climate agenda is spelled “wealth distribution” and a death knell to Canadian jobs.

#56 Yukon Elvis on 12.30.19 at 2:33 pm

#53 Yukon Elvis on 12.30.19 at 2:05 pm
Won’t happen. TFSA contributions are made with after-tax dollars. They cannot be taxed again as income. – Garth
……………………….

Corporations pay me dividends with THEIR after tax dollars. I took a risk and purchased dividend paying shares with MY after tax dollars. Yet the government taxes me on those dividends. Because they can.

Non sequitur. That’s new income to you. You did not earn it previously. – Garth
………………….

Tres sequitur. I took the risk,i deserve the reward. Govt had no part in it and took no risk. You sound like just the kind of guy who would tax my tfsa.

I can write it in crayon if you wish… after-tax contributions will not be taxed as income in a tax sheltered vehicle. – Garth

#57 Stan Brooks on 12.30.19 at 2:35 pm

https://ca.finance.yahoo.com/news/bank-canada-formally-begins-hunt-182452484.html

(Bloomberg) — The Bank of Canada has officially started its recruitment effort for a successor to Stephen Poloz, who is stepping down as governor at the end of his seven-year term in June.

A job description posted by executive search firm Boyden says the central bank is seeking someone who can “build upon the current organizational culture” and further burnish its “reputation for integrity, innovation and clear, open communication” as it enters the new year an outlier among its advanced-economy peers on interest rates

Opening a new bottle of Jack, in anticipation of the shit show.

Cheers,

#58 Shawn Allen on 12.30.19 at 2:44 pm

Tax on earnings from after-tax dollars?

#53 Yukon Elvis on 12.30.19 at 2:05 pm
Won’t happen. TFSA contributions are made with after-tax dollars. They cannot be taxed again as income. – Garth
……………………….

Corporations pay me dividends with THEIR after tax dollars. I took a risk and purchased dividend paying shares with MY after tax dollars. Yet the government taxes me on those dividends. Because they can.

Non sequitur. That’s new income to you. You did not earn it previously. – Garth

*************************
Agreed, being taxed on the EARNINGS from after tax dollar investments is the norm. Freedom from tax on the earnings in a TFSA is a very rare exception to the rule.

Withdrawals of original principal from taxable accounts and also RESP are not taxed as there are no earnings to tax.

We tax basically ALL earnings. TFSA is a rare exception. Be thankful.

There is no entitlement to freedom of tax from earnings on after tax dollars. If there were then basically no investment income would be taxed. Wet dreams of the rich!

RRSP tax is complicated. I have explained it too many times. Be thankful. Never listen to people who claim it is (in general) a tax trap. They may believe this in part to justify their own folly in not using RRSPs.

#59 M. on 12.30.19 at 2:50 pm

Garth, you mention gifting money to the spouse today, and I remember you mentioning spousal loans some time back. If you ever run out of pot topics for the blog (hardly, I know) maybe you could run a Spousal Financing for Dummies? Like when I can just gift the money, when I need to make a loan – how to make those CRA proof . Step by step for us neither bright noe blessed with enough financial clout. (I recall, for gift write cheque to spouse, have them cash it, have them invest said cash). But how to handle spousal loan so that CRA does not come sniffing around? I have no clue.

PS thanks for the blog, without it I would have $100 in my 1% earning “TFSA” with TD to this day, instead being steps from filling it full, and it making over 11% with a robo.

#60 Shawn Allen on 12.30.19 at 2:50 pm

Enough Whining About Tax

Like it or not there is a cost and a very huge benefit to government. And those with earnings need to pay their fair share.

“Render to Caesar the things that are Caesar’s”

We live in the most comfortable and easy times in history. Be thankful.

#61 NoName on 12.30.19 at 2:57 pm

#57 Stan Brooks on 12.30.19 at 2:35 pm

Opening a new bottle of Jack, in anticipation of the shit show.

Cheers,

get this beamsville made great stuff.

https://www.lcbo.com/webapp/wcs/stores/servlet/en/lcbo/dillons-rye-whisky-single-cask-478651#.XgpWTkdKi00

as for jack press play
https://www.youtube.com/watch?v=tU4gRb8fdGY

#62 Sail away on 12.30.19 at 3:10 pm

#58 Shawn Allen on 12.30.19 at 2:44 pm

——————————————–

….being taxed on the EARNINGS from after tax dollar investments is the norm. Freedom from tax on the earnings in a TFSA is a very rare exception to the rule.

——————————————–

Not so rare. The US instituted the Roth IRA 22 years ago in 1997.

Canada copied it with the TFSA in 2004, but didn’t take the time to include the TFSA in the tax treaty with the US.

Therefore, the TFSA is considered a foreign trust by the IRS and penalizes dual citizens. For this item, I would agree with the USA! USA! nutcase.

#63 crazyfox on 12.30.19 at 5:09 pm

#56 Yukon Elvis on 12.30.19 at 2:33 pm

I can’t say why exactly, but every time I read Yukon Elvis I am reminded of this dude like every time and for many moons now:

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

It’s got to be the side burns. Or, maybe I have an appreciation for power chords and gain like this guy:

https://www.youtube.com/watch?v=RLEUSn8y9TI

Weird. Like, every time, very strange.

I suppose I should say something relevant to TSFA’s at least in passing. They rock. they are like, church ;) Meant for gains though, can’t carry losses to wit, be smart.

#64 Main Street on 12.30.19 at 8:23 pm

Wow, the ‘successor holder’ tip is invaluable. What a gem!! As I have a wife 15 years my junior the designation will allow her to assume my TFSA at death and continue to contribute throughout her economic life without tax liability. Didn’t know this, now I do. You are forgiven !!!!

#65 Steven Rowlandson on 01.01.20 at 8:00 am

#53 As a shareholder one is an owner of a company therefore the taxed and distributed profits belong to the owner and they have been already taxed. Therefore dividends should not be taxed again as personal income. This is based on the law of double jeopardy. You should not be punished twice for the same crime.
Any other way and you have a disincentive to own dividend paying stocks.