New Government Savings Program.

[Dan02]

Originally Posted by Bobblehead

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

The Income Tax Act and Regulations prescribe the kinds of property that can be placed as “qualified investments” within RRSPs. While this article is concerned with RRSPs, there are similar eligibility rules for qualified investments in private company shares for Registered Retirement Income Funds (RRIFs) and Registered Education Savings Plans (RESPs). Among these “qualified investments” for RRSPs are shares of private companies that are either: (A) shares in qualifying “small business corporations”; or (B) “eligible small business investments”. The availability of such interests as qualified investments for RRSP purposes creates an alternative for investors with a large cash component in their RRSP who may be looking to supplement the more traditional holdings in their portfolio of registered investments.

The deductibility of RRSP contributions can also make a qualifying investment in a private company more attractive by providing an immediate tax benefit to the shareholder where he or she contributes funds to his or her RRSP to pay for the acquisition of his or her private company shares

seems so i wouldn't know for sure though.

however,

TFSAs will generally be allowed to hold the same qualified investments as Registered Retirement Savings Plans (RRSP), except for investments in non-arm’s length entities (including entities of which the account holder is a “specified shareholder” or has an interest of 10% or greater, together with non-arm’s length persons).

Of course i have no idea what all this means maybe someone can translate. WTF is a non-arms length entity?

[Shazam]

http://www.cra-arc.gc.ca/E/pub/tp/it...tml#P104_10802

As long as your share is worth than $25K and you deal at arms length with the company (not me, then), then your share is RRSP eligible.

We'll see if Flaherty notices this. He's not the brightest bulb in the lamp.

[jamesteterenko]

nm

[MoneyGuy]

Originally Posted by photon

Oh God please yes.

So you'll sign my petition?

[photon]

10 times under the 10 different identities that I hold a primary residence with.

[Mccree]

Originally Posted by Shazam

http://www.cra-arc.gc.ca/E/pub/tp/it...tml#P104_10802

As long as your share is worth than $25K and you deal at arms length with the company (not me, then), then your share is RRSP eligible.

We'll see if Flaherty notices this. He's not the brightest bulb in the lamp.

I think if you own 100% (as in your example above) you make all the decisions, you will NOT meet the non-arms lengths test.

IF you are even a 51% shareholder declare a dividend to yourself there is no way you are dealing at arm's length.

Edit

But you could get yourself and 10 buddies (so that none of you own more than 10%) and your plan will work.

[cal_guy]

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?

Likely no, generally the rule is if it's not taxable then it's not deductable.

[SeeGeeWhy]

This is interesting...

from (http://www.budget.gc.ca/2008/plan/an...g.asp#business)

SIFT Tax: Provincial Component

"Specified Investment Flow-Through" trusts and partnerships (SIFTs)—publicly traded income trusts (including business and energy trusts) and partnerships—are subject to a tax (SIFT Tax) on their distributions of what are termed "non-portfolio earnings". (For SIFTs that existed on October 31, 2006, the SIFT Tax will not apply until 2011, as long as their growth does not exceed certain limits.)

The rate of the SIFT Tax is made up of two components. The first is equal to the federal general corporate tax rate, and will be reduced in step with the reduction of that federal corporate tax rate to 15 per cent by 2012. The second component is an additional tax in lieu of provincial tax: its rate is currently 13 per cent, which approximates the average provincial corporate income tax rate. Revenues from the additional rate are to be distributed to provincial governments.

Budget 2008 proposes that for a SIFT’s 2009 and subsequent taxation years the provincial component of the SIFT Tax (and thus the provincial share of the resulting revenue) be based instead on the general provincial corporate income tax rate in each province in which the SIFT has a permanent establishment. This will ensure that the rate of the SIFT Tax is the same as the federal-provincial tax rate for large public corporations with the same activities.

To determine this rate for a particular SIFT, the taxable distributions of the SIFT will be notionally allocated to provinces according to the general corporate taxable income allocation formula. Specifically, the SIFT’s taxable distributions will be allocated to provinces by taking half of the aggregate of:

• that proportion of the SIFT’s taxable distributions for the year that the SIFT’s wages and salaries in the province are of its total wages and salaries in Canada; and
• that proportion of the SIFT’s taxable distributions for the year that the SIFT’s gross revenues in the province are of its total gross revenues in Canada.

Applying the relevant provincial tax rates to these notionally allocated amounts will generate a dollar amount that, when expressed as a proportion of the SIFT’s total taxable distributions, will provide an average rate of provincial tax. This average rate will in turn be the provincial component of the SIFT Tax rate of the particular SIFT for the taxation year.

Taxable distributions that are not allocated to any province would instead be subject to a 10 per cent rate constituting the provincial component. The provincial tax rate applied to taxable distributions allocated to the Province of Quebec will be deemed to be nil to take into account the SIFT Tax imposed by that province.

---

So basically, there is a slight relief of the tax that was levvied on the income trust sector a few years ago in this budget.

Combine that ruling with the TSFA and you could see a bit of a recouperation happening in the income trust sector (albeit modest).

Do the financial wizards of CP agree?

[Shawnski]

Originally Posted by Bobblehead

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.

I stand by what I said. If you want to invest in RRSPs, do it with your taxable dollars, NOT these dollars that are in a "tax haven". Again, not a financial advisor, but from my understanding (and I am NOT a fan of RRSPs in general, if you are an enterpreneur), even Joe Blow wouldn't want to roll over tax sheltered funds into taxable ones. In certain scenarios? Perhaps. But in general I wouldn't do it myself.

[Mr. Ski]

Originally Posted by Shawnski

I stand by what I said. If you want to invest in RRSPs, do it with your taxable dollars, NOT these dollars that are in a "tax haven". Again, not a financial advisor, but from my understanding (and I am NOT a fan of RRSPs in general, if you are an enterpreneur), even Joe Blow wouldn't want to roll over tax sheltered funds into taxable ones. In certain scenarios? Perhaps. But in general I wouldn't do it myself.

I think we mostly agree, and you have my old FNCE 351/353 brain is coming out of the dark to play here...

I say it comes down to this: Does (A) An RSP with tax deferral now, & future income tax on capital gains later, outweigh (B) A Tax Exempt Savings Account (TESA) without tax deferral, but with tax exempt gains.

I would say it could be either based on the fact there are two independent variables in play:

Variable 1: How much tax deferral savings is there to be realized (through the difference between your current and future rates of income tax)?

Variable 2: How much of an investment gain are we talking?

Given matching investments: If you turn your $5,000 today into $5,000,000 over your investment horizon then using the TESA wins every time. If you turn your same $5,000 into only $5,001 over the same timeframe, your money was no doubt better off in an RSP, all else equal.

Somewhere in between those two extremes sits the economic indifference point where the NPV of your TESA-held future tax exempt gains would be exactly equal to the NPV of the RSP tax deferral route.

Ultimately, the best plan would be to maximize your contributions to both while keeping the high risk, high return part in the TESA, and the safer, more modest part of your 'well diversified portfolio' in your RSP. Win-win.

Brain going back in the dark again...

[Flames89]

Originally Posted by Shawnski

I stand by what I said. If you want to invest in RRSPs, do it with your taxable dollars, NOT these dollars that are in a "tax haven". Again, not a financial advisor, but from my understanding (and I am NOT a fan of RRSPs in general, if you are an enterpreneur), even Joe Blow wouldn't want to roll over tax sheltered funds into taxable ones. In certain scenarios? Perhaps. But in general I wouldn't do it myself.

This makes perfect sense. Every dollar you put into your RRSP is a tax deduction. The money that grows in your TFSA is tax exempt - why move it to your RRSP, which will get taxed once you take it out.

Put whatever money into an RRSP that you can, to reduce your taxes. More value for your working dollar. Then any dollars that have been taxed, grow them in your TFSA because any growth is free growth.

[MacDougalbry]

If you end up being in the same tax bracket at the time you withdraw the money, then there is no difference between the two plans. If you end up being in a higher tax bracket, then you would have been better off with the new savings plan. I would say the new plan is ideal for young people who haven't reached their peak earning years yet who are trying to save money for a home or something like that, whereas the RRSP still wins for regular retirement savings.

RRSP TFSA
13600 10000 -- Reinvest tax credit 36%
15640 11500 -- 15% return each year
17986 13225
20684 15209
23786 17490
27354 20114 -- End of year 5, before tax
20114 20114 -- After tax penalty on withdrawing, 36%

[MoneyGuy]

Originally Posted by MacDougalbry

If you end up being in the same tax bracket at the time you withdraw the money, then there is no difference between the two plans. If you end up being in a higher tax bracket, then you would have been better off with the new savings plan. I would say the new plan is ideal for young people who haven't reached their peak earning years yet who are trying to save money for a home or something like that, whereas the RRSP still wins for regular retirement savings.

RRSP TFSA
13600 10000 -- Reinvest tax credit 36%
15640 11500 -- 15% return each year
17986 13225
20684 15209
23786 17490
27354 20114 -- End of year 5, before tax
20114 20114 -- After tax penalty on withdrawing, 36%

Right on.

This is one kick-ass idea. Anyone who doesn't implement it in their financial planning is nuts.

[MacDougalbry]

Originally Posted by MacDougalbry

If you end up being in the same tax bracket at the time you withdraw the money, then there is no difference between the two plans. If you end up being in a higher tax bracket, then you would have been better off with the new savings plan. I would say the new plan is ideal for young people who haven't reached their peak earning years yet who are trying to save money for a home or something like that, whereas the RRSP still wins for regular retirement savings.

RRSP TFSA
13600 10000 -- Reinvest tax credit 36%
15640 11500 -- 15% return each year
17986 13225
20684 15209
23786 17490
27354 20114 -- End of year 5, before tax
17507 20114 -- After tax penalty on withdrawing, 36%

Oops, I think there was an error in my formula (correction above)... In which case the TFSA would win?!

[MacDougalbry]

I was right the first time... problem was with how I had staged it.

TFSA RRSP
5,000 5,000 Contribution
1,800 - Taxes
3,200 5,000 Net
3,200 5,000
3,520 5,500
3,872 6,050
4,259 6,655
4,685 7,321
5,154 8,053
0,000 2,899 Taxes
5,154 5,154 Net

[Bobblehead]

Originally Posted by Flames89

This makes perfect sense. Every dollar you put into your RRSP is a tax deduction. The money that grows in your TFSA is tax exempt - why move it to your RRSP, which will get taxed once you take it out.

Put whatever money into an RRSP that you can, to reduce your taxes. More value for your working dollar. Then any dollars that have been taxed, grow them in your TFSA because any growth is free growth.

Because when you move it into the RRSP you will get the tax deduction at that time. There is no deduction for TSFA. Both are free growth.

Both vehicles offer sheltered growth.
RRSP contributions you don't pay tax on until they come out.
TSFA contributions are done with after tax money, and there isn't any tax on withdrawal.

The early estimates I've seen say that if you are in the middle bracket when you contribute to and RRSP, and will be in the middle what you withdraw, then the choice between RRSP and TSFA is essentially a coin flip.

Every person will be different. Speak to your financial consultant.