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 You're saying that the 20K investment, if depreciated and withdrawn at $10K, also means you've lost the room.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.
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