What do you guys think about the introduction of the Tax-Free Savings Account (TFSA)? It’s different to the RRSP in a few ways. First, you contribute to the account with after tax money. But, the investment income, including capital gains, earned in a TFSA will not be taxed – even when withdrawn.
Finally the supposdley “conservative” government, of which I’ve been a major supporter is doing something “conservative” on the economic front. I think it is a good way for folks to save and invest in an aggressive manner seeing as how it will be CG exempt. It certaintly beats GST tax cuts, growing the size of governemnt by 6-7% per year and billion dollar giveways for the Buzz Hargrove’s of the world and the collapsing pulp & paper industry. The spending reductions were very nice, but I worry they only did them because we are now teetering upon deficit thanks to the reckless spending of Martin and Harper, not due to the fact that we all know the G of C is too big. My 2
We are also paying down the debt to the tune of $10 billion this year. Canada remains the most fiscally responsible country in the G7.
Debt to GDP ratio now under 30%.
I certaintly agree that we have done a decent job paying down debt, especially considering the outlook for other nations. I’d like to see this done more aggressively and/or have more tax cuts. I have no interest in the radical growth of government as has been done the past number of years. The feds easily could have paid down another $5-$10 billion the past few years by keeping expenditure growth at roughly inflation rather than 6-7% Let’s get real here too, the past few years have been extremely bountiful in Canada due to the explosion of the oilsands. Not to say that this will change overnight, but I certaintly don’t think government can really claim to have done a whole helluva lot to stimulate growth here in terms of productivity
I think Flathery has done a terrific job. I sure hope hes around for a while. Halifax this is Canada, Dion was about to blow up this budget and get everyone back to the polls, more tax cuts were not a real option. I’d rather Flathery spent and kept all the city folk happy, than to force an election so we get someone like the liberals in there, which spent way more ridiculously. The Harper government is the best fiscally for a while in my opinion.
CFA_Halifax Wrote: ------------------------------------------------------- > Finally the supposdley “conservative” government, > of which I’ve been a major supporter is doing > something “conservative” on the economic front. > > I think it is a good way for folks to save and > invest in an aggressive manner seeing as how it > will be CG exempt. > > It certaintly beats GST tax cuts, growing the > size of governemnt by 6-7% per year and billion > dollar giveways for the Buzz Hargrove’s of the > world and the collapsing pulp & paper industry. > > The spending reductions were very nice, but I > worry they only did them because we are now > teetering upon deficit thanks to the reckless > spending of Martin and Harper, not due to the fact > that we all know the G of C is too big. > > My 2 uh… Canada has the best fiscal situation among G7 countries. Also, in other countries, budget deficits are a way of life, not surpluses.
ahe I agree, I’m just saying that the past two budgets were not exactly small c conservative. Etienne, sure it is, I’m just saying we shouldn’t start taking it for granted by overspending. All in all, I think it was a generally positive budget. Definetly the best in a long time
I’m liking the Tax-Free Savings Account (TFSA) idea for sure. It will be a good and fun way of making some very high risk investments.
If the Chinesse market crashes I will fill my allocation this year with FXI
There is a big debate whether people would prefer RRSP or TFSA. As per my analysis clients should be immune to this decision. In short they can go either way and it will not make any difference to them. I have prepared an excel sheet for this analysis. And you can see yourself. Drop me a mail at singh dot balwinder at gmail dot com and I can forward this to you.
ballu29 Wrote: ------------------------------------------------------- > There is a big debate whether people would prefer > RRSP or TFSA. As per my analysis clients should be > immune to this decision. In short they can go > either way and it will not make any difference to > them. > I have prepared an excel sheet for this analysis. > And you can see yourself. > Drop me a mail at singh dot balwinder at gmail dot > com and I can forward this to you. I’ve worked out the math too and can see your point, but really the analysis misses alot of the value, which cannot be easily quantified by having this type of investment vehicle. First, the timing at which you can extract the funds is not restricted in the TFSA, whereas it is in the RRSP. Second, you can withdraw from the TFSA for any reason, whereas the RRSP is for retirement income only. Third, the analysis I performed (and I suspect that you performed as well), holds the tax rate today and at the future retirement withdrawls constant. If the future tax rate is higher than your current tax rate (and most of us hope it would be), you end up paying higher taxes in the future and you are therefore not as well off in the future as you would have been if you had invested the funds in the TFSA.
Don’t forget to PV the future cash flows based on your expected future tax rates to ensure the opportunity cost of not investing in an RSP is worth it. People should not be immune to an RSP vs. TFSA debate - the tax break you get from an RSP should skew it towards investing there first, TFSA second. Also, you can withdraw from an rsp anytime (although you don’t get to increase future contributions - once you use some rsp room it is used forever, unlike the TSFA). Don’t ignore the tax breaks of an RSP, the ability to make you mortgage essentially tax deductible and shield the returns once you have enough accumulated TFSA room;
I was actually pretty excited about this new TFSA thing, it’s going to be helpful for me. I’m planning on getting a first house in 5 or so years, so I wasn’t going to put all my savings into an RRSP (as I can only take out 20K for the homebuyers plan), so now I can put I was going to save outside my RRSP anyway for the downpayment, into this new account and have it grow tax free until I need it. Sweet.
The idea that you can be in a better position to save for a downpayment because of this account is laughable. If you are truly putting away the funds for a a home purchase in a few years, you would likely invest in something with a guaranteed return. How much better off are you really going to be with an after-tax return of 4% vs. an after-tax return of 2-3% particularly when your investment is limited to $5K/year. If you live in Toronto, you need roughly $100K for a downpayment - with a max $5K contribution the TFSA account isn’t going to get you very far.
very few people have 100k for a downpayment, even in TO, but the houses get purchased anyways. strikershark is right though… investing first in the RSP and then the TFSA works out to your advantage. for instance, $1000 on an after tax basis in your RSP is 650 (assuming 35% net effective tax rate). This contribution creates a tax credit of 227.50, which you would get back the following year. The sum of the FV for both accounts after 30 years is now 8,829.98, a gain of 2,289 over choosing the TFSA account over the RSP account
My feeling is that I will first max out my RSP contributions, and then go into this with a more aggressive assets due to no CG.
Question: It is tax free when it comes to federal taxes, but what about at the provincial level?