New Government Savings Program.

[Mccree]

Originally Posted by fotze

This is where you can do your high risk investing. Slap $5000 into a Wi-lan at the beginning at watch it grow to $400k tax free.

Are losses tax deductable in this account? Or did I misread and this is just for guaranteed investments?

IF the income is NOT taxable you will NOT be able to write off losses

Originally Posted by fotze

Can you borrow money to put into this account, write off that the borrowing cost and collect the gains tax free?

No, the interest will not be deductable

http://www.kpmg.ca/en/services/tax/tnf/tnfc0809.html

[jamesteterenko]

I really like the TSFA. One thing that I don't think anyone has mentioned is that upon death, a TSFA account can be transfered to the TSFA of the surviving spouse. That is a minor thing, but nice.

Another little item in the budget that I really like is the updated timelines of an RESP. The contribution time goes from 21 years to 31 years, and the termination timeframe goes from 25 years to 35 years. I have always thought that those timelines were ridiculously short if you: have multiple children, have all children in one plan, and open the account when you oldest child is born. Given the old rules, it is quite possible that you would be forced to wind down an account before your youngest child even starts post-secondary education. (I believe that there were ways around this, such as starting accounts when your children were older and/or opening new accounts. But these were just unnecessary workarounds that splits up your money and creates more headaches and fees.) I don't have kids yet, but hopefully will someday.

EDIT: BTW, I think the TSFA is great, but don't feel the need to post much about it since others have already done so. It is a fantastic way to encourage savings and should benefit most Canadians.

[Bend it like Bourgeois]

What a great tool for young people.

If you can save (on average) 5k /yr from 18-35, when most are in their light earning years and paying little tax anyway, then you roll that savings into RRSPs when you hit prime earning years and the tax deduction is most valuable. All the while the savings grow tax free.

Do I have that right?

[Slava]

^ you are correct!

[MoneyGuy]

Originally Posted by fredr123

I'm eagerly anticipating MoneyGuy and slava's takes on this and other announcements today.

This new plan has been talked about in the industry for several years. I love it, for myself and certain well-heeled clients. I honestly think this will have limited benefit as most people spend all of their cash on necessities like booze, cigarettes, expensive vacations, dinners out, entertainment and such and have little left for proper financial planning. Most people's financial situation is a pretty sorry thing.

I'll open one of these accounts for myself and my wife the first opportunity I get. I'll be advising clients to do the same. I think it's a great idea.

Otherwise, there wasn't much in this budget of substance. But a lot has been done over the few years, with changes to RESPs, increased RRSP limits, tax changes, changes to tax brackets, etc.

One thing I would like to see is changes to capital gains taxes. I want the gov't to allow people to defer taxes when a capital asset is sold and the another is repurchased. That would have huge benefit.

[Slava]

I agree with you regarding the capital gains Moneyguy. But seriously that would/will be an administrative nightmare! This Tax Free Account is really just a cheaper way for them to allow for some further tax savings and offer something up in that vein.

[photon]

Originally Posted by MoneyGuy

One thing I would like to see is changes to capital gains taxes. I want the gov't to allow people to defer taxes when a capital asset is sold and the another is repurchased. That would have huge benefit.

Oh God please yes.

[the_only_turek_fan]

So if I were to put in 5000.00 you can take out your gains tax free. I get that part.

But can you take the original 5000.00 out as well? And if you do can you put in $10,000 the next year? (5K from year 1 and 5K from year 2)

[Slava]

^ Yes you can take out your original money and not lose the contribution room. It all carries forward as well...so five years from 2009 you could put in $25k.

[photon]

Hey it's for the government's own good! Rather than getting their ounce of flesh from me every time I move a property, they could get POUNDS when I'm selling them off.

[Shawnski]

Originally Posted by Bend it like Bourgeois

What a great tool for young people.

If you can save (on average) 5k /yr from 18-35, when most are in their light earning years and paying little tax anyway, then you roll that savings into RRSPs when you hit prime earning years and the tax deduction is most valuable. All the while the savings grow tax free.

Do I have that right?

I think you have that right, but I would not suggest doing so. (I am NOT a financial advisor!!!)

My suggestion is that when you are in higher income years, you will have the "extra" funds to put into an RRSP if you like anyway. For those dollars you have already "paid" tax on, why bring them back into taxable income when the RRSP is withdrawn?

My father, before his passing, was thinking that all his RRSPs which were converted into an RIF were now tax free after his passing. Nope. Big time taxable as upon death and liquidation of RIFs, sales of estates (capital gains) and other benefits, the government takes a HUGE portion at the highest tax rate. Having dollars in the type of account suggested in this budget shelters those dollars from being taxable at any time and therefore are NOT taxable to the estate (thus not to the beneficiaries).

I might be wrong, but I see no benefit to building up post tax dollars in a shelter like this and then rolling them into an RRSP where ultimately they will be taxed.

My 1/10th of a cent... after taxes.

[Bobblehead]

Originally Posted by photon

Hey it's for the government's own good! Rather than getting their ounce of flesh from me every time I move a property, they could get POUNDS when I'm selling them off.

Then you are going to open up a whole "inheritance tax" kettle of fish.

[photon]

Hey, hiding my money from the government forever has to start somewhere.

[Bobblehead]

Originally Posted by Shawnski

I might be wrong, but I see no benefit to building up post tax dollars in a shelter like this and then rolling them into an RRSP where ultimately they will be taxed.

My 1/10th of a cent... after taxes.

I think the idea is in these higher earning years you can then pull the money out of this fund into the RRSP and get a much larger RRSP deduction in these years. So instead of getting the RRSP deduction in the years when you are in the bottom/middle tax bracket, you get the deduction when you are in the middle/high tax bracket.

It is going to take a bit to figure out the "best" strategies - slava, Moneyguy - get crunching those numbers.

[Shazam]

There is a huge, gigantic, massive tax loophole that anybody who has incorporated their business can use to their advantage.

Knowing Flaherty, he's going to miss it. Let's hope he does.

[photon]

And that loophole is?

You can't say that without sharing!!

[Shazam]

I have a corporation. I own all 10 shares of my company. I place my company's shares into the TFSA. I then disburse money from my company to myself via dividends. That money is tax free from my end. My company will need to pay taxes because dividends are taxed, but that rate is far lower than what I pay in income tax.

I also give myself $10K in employment income, because the first $10K of employment income is income tax-free (you pay CPP still, I think. I pay no EI because I would never lay myself off from my own company).

[Dan02]

Originally Posted by Shazam

I have a corporation. I own all 10 shares of my company. I place my company's shares into the TFSA. I then disburse money from my company to myself via dividends. That money is tax free from my end. My company will need to pay taxes because dividends are taxed, but that rate is far lower than what I pay in income tax.

I also give myself $10K in employment income, because the first $10K of employment income is income tax-free (you pay CPP still, I think. I pay no EI because I would never lay myself off from my own company).

I was just pondering the exact same thing right not 10 minutes ago, they must have some sort of restrictions right?

[photon]

Hmm... can you hold shares of a private corporation inside this? Probably something we don't know yet.

Can you hold a private company inside an RRSP?

[Bobblehead]

Originally Posted by Dan02

I was just pondering the exact same thing right not 10 minutes ago, they must have some sort of restrictions right?

Could you invest in your own company through an RRSP? They will probably use the same criteria here.