Tax Free Savings Account -Go open one!!
 

I suggest everyone goes to their financial advisor or institution to open a TFSA.
I pre-registered and opened one on January 2nd with my broker @ Scotia McLeod and Tradefreedom.


Some Details:

How the TFSA Works

* Starting in 2009, Canadians aged 18 and older can save up to $5,000 every year in a TFSA.
* Contributions to a TFSA will not be deductible for income tax purposes but investment income, including capital gains, earned in a TFSA will not be taxed, even when withdrawn.
* Unused TFSA contribution room can be carried forward to future years.
* You can withdraw funds from the TFSA at any time for any purpose.
* The amount withdrawn can be put back in the TFSA at a later date without reducing your contribution room.
* Neither income earned in a TFSA nor withdrawals will affect your eligibility for federal income-tested benefits and credits.
* Contributions to a spouse’s TFSA will be allowed and TFSA assets can be transferred to a spouse upon death.


If you have any questions about them and how they work please do not hesitate to ask me. I will be happy to answer your questions.

I have a RTEF (Reef Tank Expense Fund)

How the RTEF Works

* Starting in 1990, I have spent up to $5,000 every year in a RTEF.
* Contributions to a RTEF will not be deductible for income tax purposes but investment income, including frag sales, earned in a RTEF will not be taxed, unless you are dumb enough to declare them.
* Unused RTEF contribution room can be carried forward to future years.
* You can withdraw funds from the RTEF at any time for any tank expense.
* The amount withdrawn can be put back in the RTEF at a later date if you are carefull to hide it from your spouse.
* Neither income earned in a RTEF nor withdrawals will affect your eligibility to purchase additional livestock.
* Contributions to a spouse’s RTEF (if your lucky to have an understanding spouse) will be allowed and RTEF assets can be transferred to a spouse upon upgading to a larger tank.

Hey I got one of those!

that's awsome, best thing i've read in a long time. lol

My RTEF plan is the reason I'm on the road to Freedom 95.

Hilarious!

oh man, I'm just cracking up thinking about that second post. :lol:

So it's been a few years now since the government implemented this TFSA tool to encourage Canadians to save, and in just a few weeks for this new year, we get the new allowance which is also going up to $5500 (instead of $5000/yr).

So if you have not opened one of these... you have accrued your prior years of contribution room and can put $20,500 of investments into this status and all earnings within this contribution allowance is absolutely not taxable. Huge. This TFSA along with RRSP are two tools that are highly under-utilized by a significant percentage of Canadians... yet they are two very effective tools to protect our assets from The Man.

So curious, for those using TFSA, what are you going to do with your next year's contribution?

Are you braving equities? Do you think fixed income focused instruments are going to crash a little? What about this outlook with the US Economic Fiscal Cliff?

Did you know not a single person has ever gone to jail for not paying their taxes in Canada since income tax was implemented.

sorry off topic but fairly interesting

I'm not sure about that... http://www.cra-arc.gc.ca/nwsrm/rlss/...80123-eng.html

you know the saying... two certainties... death and taxes

How does anybody on this board have money to put into a savings account?!?! What am I doin wrong?! Do I need to buy another reactor?? Run more GFo? Carbon? LED Lights? Help!

Day trading is a lot safer..., buy and hold anything doesn't work anymore. Although lately, some days it feels like squeezing blood out of a stone. Of course, getting distracted on canreef doesn't help, when I should be watching the vix and futures more closely...

But myself, I hope they go over the cliff. I like volatile markets. Kicking the can down the road every 3 months is good, too, whether it is EU or the US.

What interest rate is generally earned with a TFSA

LEDs will help for sure. Another thing that always works or at least it is for me is moving home with the parents for a few months to save for a down payment. Lol! Mileage may vary ;)
Proud to say that in the last 5 months we have saved 23k for a down payment :) we may just build a house instead at this rate.

lol! That is so true. There's so many things to get and Snappy keeps posting these awesome frag pics!

Personally, I've had good success with the pay-yourself-first philosophy. That is, come up with a personal comfort level (with 20% being quite aggressive) and each paycheck, take that right off the top and put it away, don't look at it. Most people pay bills first, then look at what's left to spend, and save the rest if anything is left. Pay yourself first is the reverse. Take your piece of the pie first, sock it away. In no time you've got a big chunk.

Each person's financial situation is different. For me, I once was a poor marine biologist making peanuts, $20K car loan, but no kids/mortgage/credit card debt. I used this philosophy and came up with enough money to take 2.5 years off work and pay for my own MBA.


Unfortunately, I have a full time job and can't really put the time into it. Good for you to be able to do that though. Canreef sure is distracting!

I'm still the mutual funds kind of investor as I have a long time until retirement. I think with the recent crashes in 06-09 and recent under performance in US economy, with all the EU talk... there are good index funds out there that are still undervalued compared to their pre-crash ramp up baseline (say... lower than 2004-05 prices). Japan just got a new president, and if a Japanese index fund held the right major holdings... could also be a good buy. I'm thinking some equities based mutual funds in Europe, US, and Japan. Emerging markets are good too, but have risen in value a whole lot and I wonder if it's hype or fair price...

You are right, volatility provides opportunities. I need to get better at jumping on these.

There's a few instances were individual stocks can be good buys for a lazy investor. Hindsight is 20/20 but thinking back, when Johnson and Johnson had their series of product recalls in 2010, or Toyota with their recalls in 2009-2010, or RIM when it first crashed hard.... RIM's recovered a little, and doubtful it'll get back to former glory, but back at the very bottom of it's tumble was a good buy because RIM's still going to be a niche company. Right now, I think HP could be undervalued with their recent bad news of under performance and write-offs... as well as many oil companies... the oil demand will go at least to Asia Pac via rail, pipeline or not. Their values have lowered, but let's not forget they are still consistent fortune 10 companies with huge earnings.

(the opinions described herein are provided as opinions only, without guarantees, without thorough qualified research, and without compensation to the author)

TFSA is only a status, which you get your bank to register with the government for you. It can be used for anything as simple as a savings account, or something as complex as a stock trading account. I use it for mutual funds. Interest rate depends on what financial instrument you choose for the TFSA status. It can be a mixture of them, but total contribution is capped. $5K allowance for each of 2009, 2010, 2011, 2012, and $5.5K for 2013. Unused contribution room carries forward.

So for example if you have some investments right now in non-registered status, it would make sense to withdraw them and put them under TFSA status as you will never pay tax on any earnings... ever. So for example you put $20K in stocks under TFSA status and in 30 years it's worth $40K, you pay zero tax.

I said you wouldn't go to jail. They can fine you all they want but can't enforce it. Not many people know that

from CRA release: http://www.cra-arc.gc.ca/nwsrm/rlss/...80123-eng.html
"Courts imposed fines totalling $13.4 million and sentenced 26 offenders to more than 37 years in prison. Sentences for those who were ordered to serve jail time for tax-related offences ranged from 1 month to 3 years."

this is interesting, CRA posts all convictions, individual cases with all details

http://www.cra-arc.gc.ca/convictions/index.html

clearly I'm misinformed... Whups

oh well, at the very least, a conviction will mess you up right-some-good!

I'll be half way to Costa Rica ;)

Well, tomorrow, Friday, might be your chance. Could be some good buying opportunities. Just don't catch a falling knife. Might be even lower next week.

because of fiscal cliff or because of the Mayan end of the world? lol!

Looks like fiscal cliff plan B ain't happening.

Yup, looking good for stocks going on sale! (fixed income funds will become over priced)

Looks like the markets aren't reacting to the impending midnight fiscal cliff at all. There's a few articles out this morning, but at the peak of Fri vs low of Mon (so far)... it's only been a drop of 0.97% at the widest gap for the Dow Jones industrial average. Rest of the indices have gone up.

This is disappointing. I was hoping to take a contrarian tactic here...

They are playing the pass the hot potato game right now. The Dem controlled Senate is waiting until the last minute to give the Repub House a deal they know won't pass. Then they can blame the Repubs for going over the cliff.

Any deal passed today will be meaningless. The big negotiation will happen in the new year with the debt ceiling coming up in a couple months. Then they will be forced to do something big, one way or the other.

Good call.

If anyone is investing in a TFSA, don't do it as the interest rate is quite low. You can also buy a tax free gic which pays 1.6% for a 15 month term, for instance. Yes, the money is locked in for 15 months but the interest is 3x that earned leaving it in the account and is all tax-free.

TFSA is simply the status registered with the government. What you're describing is applying the TFSA status to GIC.

For example, my TFSA is a mutual funds account. I can choose to buy any mutual funds (offered by the financial institution where account is held) in this account so long as I do not exceed my contribution room. Additionally, you can have multiple TFSAs... for example, everyone has a cumulative contribution room of $25.5K ($5K/yr since 2009 and $5.5K for 2013), so you could have, say, $5K in a TFSA GIC, $5K in a TFSA mutual funds account with bank X, $5K in a TFSA mutual funds account with bank Y, $5K in a TFSA cash savings account, $5.5K in a stock trading account with another brokerage. You can withdraw at anytime and you will get your contribution room back (following year).

I should add... everyone who is a deemed Canadian resident for the entirety of each of those years will get their respective TFSA allowances.

I left Canada as a deemed non-resident, was working in the US as a biologist under NAFTA, and came back to Canada in 2008, and was a student... so I did not file a 2008 tax return. It seems (actually no surprise) that parts of our government do not talk to each other, so Canadian Customs and Border Patrol forms that declared my return at the border (with all my worldly belongings on file) never told Canada Revenue Agency... so I had to provide my landing documents, my bills, my bank statements, my driver's license and health card photocopies to CRA to show that I was indeed a resident in 2009, so that I have my TFSA allowance for 2009.

TFSA's are great for stock trading. All your profits are tax free, and makes it a lot easier to do your taxes in April if you are a frequent trader. And all capital gains expand your account, so you have more and more room to make some decent trades.

I always wondered about that. Because I don't have time to research for day trading (given that I spend so much time on CanReef), I buy mutual funds and don't really churn the portfolio a whole lot.

So with a TFSA stock trading account... does it work like...

put $5K annual limit into the account, whatever stocks you sell aren't considered withdraws as long as you keep it within the investment cash account... and whatever else stocks you purchase using funds internal to the account aren't considered as further (over) contributions... even though your total holdings have grown from capital gains...

is this how it works with TFSA trading accounts?

Yes. Let's say that now you have 25.5K available in your new TFSA. You open up a trading account, and buy a stock for 20K. You were really lucky, and it doubles. Now you have 45.5K tax free room in you TFSA.

Of course, it can go the other way, too. If your 20K stock buy turned into a 10K sell, your TFSA room just dropped down to 15.5K.

But like I said for frequent trading, it is great (just like an RRSP account) where you don't have to declare all your cap gains (or losses), like you do in your regular taxable trading account. I use my taxable accounts more for longer term investments, and dividend stocks. Makes things a lot easier at tax time when you don't have so many transactions to enter in your computer (and all those avg cost calcs along the way).

And unlike RRSP's you don't get taxed when you take money out of a TFSA. So they are great for taking money out occasionally when you need it, and you don't get taxed for it. Then you just put it back, when you have more savings again.

Bear with me here, I'm a bit slow.

Scenario 1. TFSA contribution room is $25.5K, and I put $20K into stocks under TFSA status. Got lucky and stocks now worth $45.5K.

1) My understanding is that I still have $5.5K of contribution allowed since I did not make use of it all to begin with. Correct?

2) My understanding is that, within the account, I can still churn the holdings without counting it against my contribution room. So for example, within the account total value of $45.5K, I can sell $5K of stock X, where the sales goes into cash holdings that stays within the account, and use that cash to buy $5K of stock Y, all without the government fining me for over-contribution. Is this correct?

Scenario 2. TFSA contribution room is $25.5K, and I put $20K into stocks under TFSA status. Got unlucky and stocks now worth $10K.

1) My understanding is that I still only have $5.5K of contribution allowed since I did not make use of it all to begin with. The depreciation of $10K in value does not add any incremental contribution room (ie doesn't mean I can add another $10K due to depreciation, just that if I actually sell and withdraw $10K, then I can re-use that room). Correct?

Basically, you are restricted to the annual limits for contributions from outside the TFSA. But you can grow (or lose) that amount with your investments, without any tax consequences. And whatever you take out you can replace (aside from your annual incremental contributions) tax free.

The only downside is that you don't get a tax deduction for contributions as in an RRSP. But you more than make that up (if you are a good trader) by not having to pay tax when you withdraw it, like you do with your RRSP.

The easiest way to think of them is keep contribution room and interest earned seperate. For the first 4 years each person was allowed $5,000 and this year they increased it to $5,500. So if anyone has not contributed yet they can do a total of $25,500. Interest made does not affect the amount you can contribute. If you withdraw from a TFSA you should wait until the next year to contribute again or you could over contribute for that year, depending of course on the amount you withdraw/deposit.

Ok. Yeah, I get it now. You're saying that the 20K investment, if depreciated and withdrawn at $10K, also means you've lost the room. Growing investments is the opposite, increasing your assets that are subject to no tax well beyond the initial government allowances. That makes sense. and if the person was really good at growing their portfolio, the benefits are huge.

Thanks. This opens up some interesting possibilities.

With limited funds, TFSA vs RRSP is a popular topic. It really depends on each person's financial situation. For example, someone who is retired, tax deferral via RRSP isn't really all that helpful because of the short time horizon. I understand your rationale, get taxed on investment principal, then grow it tax free, as opposed to grow the principal then get taxed on your withdrawals.

For me, RRSP remains important as it defers tax so I can use the monies that would have been lost to taxes and instead put it towards investment principal of a long investment horizon. That's all philosophical and nice, coming straight out of popular press books. But by far, the most beneficial part for me is that contributions are deducted from my taxable income and puts me into a lower income tax bracket. By the time that I withdraw from RRSP, the funds are taxed as income at that time but I'll presumably be in an even lower tax bracket. So not only do I get to pay tax later, I pay less tax than I would pay now.

Fortunately, I am in a position to use both RRSP and TFSA vehicles, though my holdings aren't all that sophisticated. I had an RBC direct investment account but they kept dinging me 25 bucks every quarter because my total holdings there was under $15K, so I shut it down and moved that towards my new TFSA allowance and more non-registered stuff.

Yeah, that seems to be a little quirk in how it works, not sure why. But at least you don't lose the room, and get it back next year.

Here is a little FAQ that helps explain more about the TFSA.
http://www.tdwaterhouse.ca/products-.../FAQ-index.jsp

I prefer to hold stocks....fixed income and mutual funds are a waste of time. Less than 3% of fund managers outperform their benchmarks after 5 years. If you find a good fund hold it for a couple years then change as it will become to big and start to under-perform. Equities long term pay off, it's always better to be an owner than a loaner. My TFSA is sitting at $39,245 as of this morning(without my 5500 contribution this year). I also implement option strategies in my TFSA.

Wow, that's fantastic! I'm about 14% (not annualized) in the plus, but definitely not doubling like you. That's what I get for being a lazy investor, having a day job and relying on mutual funds I guess. But the day job ain't that bad.

So do you day trade then?

Which brokerage do you like best for their fee structure?

I'm thinking I can afford a portion of my portfolio in high risk tolerance.

I don't day trade I trade on momentum and have a couple screens setup for my selections.