The new Tax Free Savings Account for Canadians (TFSA)

Business Money
1

Chewy mentioned the new TFSA earlier but no one else has talked about. How many of you other Canadians know about it? How many of you are taking advantage of it? And what did you sink your money into?

If you don’t know what it is, it’s a new account that you can open up at most of the Canadian banks, and you can deposit $5000 into it every year. You can invest that $5000 anyway you want. I’ll invest it in long terms stocks. This money can grow and compound forever, completely tax-free. If you’re Canadian, and care at all about your future, open up one of these accounts and start investing now.

I opened my account when I was home for Christmas, but for now the money is just sitting in the account. I can’t converted into stocks yet, and I’m looking for good long terms stocks that are undervalued right now. I’m thinking Banks. And Oil. And Insurance Companies. Pretty much everything right now.

2

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for income tax purposes but investment income, including capital gains, earned in a TFSA will not be taxed, even when withdrawn.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The amount withdrawn can be put back in the TFSA at a later date without reducing your contribution room.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.

Read the bold section. Open up your account now with $100 or however much you want and you unlock the 5k forever. Also remember to buy items like dividend stocks and interest bearing investments with this account if you have lots of investments. Save your capital gain type investments for regular investing as you only pay tax on half of them.

I would also be careful of getting deemed a Canadian citizen if you have to many ties to Canada. With tax revenues on the way down who knows what other sources of revenue the gov’t will be looking at. Expats who are not really expats?

Bruce

3

Forgive me for being a financial idiot, but how do you use the money in the account for investment purposes? Do you buy the stocks through your bank? Can you do this online? How does this relate to RRSPs?

4

It’s a new product so I must admit I have limited knowledge. It is has no effect on your RRSP contribution room. The money contributed to the TFSA is not deductable from income like RRSP’s, but the money is also not taxed when taken out.

I am pretty sure you have to set up your account through a bank. From what I have been reading you can buy a wide variety of investments “You have all kinds of choices to invest your TFSA savings. You can hold cash, like in a regular savings account. You can buy GICs, stocks, bonds and many other investment products.” I bet they try to sell your their products for over half the time you spend setting up the account and getting information about it :smiley:

Just type “tax free savings account” in google and you can get a good amount of information.

Bruce

5

Yes, and yes.
As an example, I chose to open my TFSA account at TD.
TD set me up with an online trading account.
I’m then able to transfer my money online from my regular account into my TFSA.
And then you can buy your stocks online right out of your TFSA.
I’ve got the money in there, but still haven’t decided which stock to go for.

6

Doesn’t this make you legally a resident then and liable for taxes? Or are you people still paying taxes in Canada?

7

Not sure about the first Q, but I’ll still paying taxes in Canada.

8

You’re still paying taxes?

Anyway, I found the answer:

[quote]Non-residents of Canada

If you become a non-resident of Canada, or are considered to be a non-resident for income tax purposes, you will be allowed to keep your TFSA and you will not be taxed on any earnings in the account or on the withdrawals.

No TFSA contribution room will accrue for any year throughout which you are a non-resident. Any withdrawals made during the period that you were a non-resident will be added back to your unused TFSA contribution room in the following year, but will only be available if you resume your residency status in Canada.

You can contribute to a TFSA up to the date that you become a non-resident of Canada.[/quote]

9

[quote=“Mucha Man”]Anyway, I found the answer:

[quote]Non-residents of Canada

If you become a non-resident of Canada, or are considered to be a non-resident for income tax purposes, you will be allowed to keep your TFSA and you will not be taxed on any earnings in the account or on the withdrawals.

No TFSA contribution room will accrue for any year throughout which you are a non-resident. Any withdrawals made during the period that you were a non-resident will be added back to your unused TFSA contribution room in the following year, but will only be available if you resume your residency status in Canada.

You can contribute to a TFSA up to the date that you become a non-resident of Canada.[/quote][/quote]

In other words, those overseas visiting home should not start one. Given the lower tax rates here and tax agreements with Canada, it makes more sense to keep the money here.

Term deposits at Taiwan’s banks are a good idea for those who don’t know anything about stocks. A three month Term Deposit will pay more than a standard bank account’s interest, and TDs of at least a year can pay interest rates competitive with some stocks, plus there are no brokerage fees involved. It will probably be considered taxable income as it is in most countries (interest over $50/year in Canada), so be sure to get receipts.

Unless the bank is at risk of going belly up (e.g. Citi), it’s a low risk with a decent return and the length of deposit can match your ARC end-date. However, Chunghwa Post Office is refusing TDs from businesses because it’s costing them money, so if you want to do it, start now.

etaiwannews.com/etn/news_con … _news&pg=4

[quote]Taiwan post to refuse fixed deposits from business

TAIPEI (Taiwan News) – Starting Monday, post offices will no longer accept fixed deposits from businesses, Chunghwa Post announced on its Web site.

The interest rate on fixed one-month deposits offered by Chunghwa Post stands at 0.29 percent, or 2.9 times higher than the 0.1 percent available at regular banks, attracting more investors but costing the post office, reports said Sunday.[/quote]

0.29 x 12 = 3.88% annually

10

[quote=“Sleepyhead”] Given the lower tax rates here and tax agreements with Canada, it makes more sense to keep the money here.

[/quote]

You’re right to an extent. Canada has around a 20 percent capital gains tax and Taiwan has none. However, as mentioned by Josefus, these accounts are completely tax free and you are allowed 5000$ per year. The strategy on these should be aggressive vs. a more conservative approach with the RRSPS. For example, let’s say you put 5000$ into a high-risk penny stock and the price skyrockets, you wouldn’t pay a dime of tax on the 5000$ that has turned into $100,000 or more.

In my opinion, one should always maximize their RRSPs first because it saves you tax money the following year. Then make sure your TFSA accounts for you and your spouse (if you have one) are maximized. Then follow with RESPs and private investments. If you have a pension scheme with your employer, it’s gravy.